- HEADLINES: Chicago takes a lashing on pre-report liquidation as cash market basis holds; CONAB to survey Brazilian wheat stocks in April; Funds massive sellers this morning.
- Chicago futures are sharply lower at midday with May corn sliding below $5.35, while May soybeans drop to $13.70 and May Chicago wheat to $6.00. Trade volume is moderate which has helped to exacerbate the downward slide as fund managers take off length heading into the end of the quarter and March NASS Crop Report. Few speculators want to stand in front of the slide while cash markets hold firm. US nor S American farmers appear willing to sell cash grain on the drop.
- May soyoil has declined to another daily limit loss which is caused additional exodus of oil/meal spreads. May soyoil is limit down at $50.46 as technical sell signals are issued following an $0.08 decline from a peak less than 2 weeks ago. The selling in nearby May has spread to the back end of the soyoil price curve with December soyoil falling to $43.20. Buying has been relegated to end users making forward purchases on resting orders. The market is moving to the orders on a lack of speculative interest ahead of the USDA report. The sharp Chicago decline is digesting a bearish USDA report. Unknown is whether the USDA report will confirm or deny the break. Today feels like a exhaustion washout of weak and tired bulls.
- Chicago brokers estimate that fund managers have sold 11,200 contacts of soybeans, 14,900 contracts of corn, and 8,200 contracts of wheat. In the soy products, funds have bought 1,200 soymeal and sold 8,100 contracts of soyoil.
- We have been asked, “What has changed that would produce the sharp Chicago break?” Our response is that nothing fundamentally. In fact, it can be argued that Brazilian winter corn dryness is more acute. The Chicago break is about money and order flow amid a stronger US$. US 2020/21 US corn end stocks are forecast at 1,000 million bu or below with either US corn or soybean balance sheet being shorted by acres in the coming spring planting season. The US farmer cannot seed 95 million acres of corn and 90 million acres of soybeans, there just is not enough arable farmland for everything planted in 2021 to increase.
- Unless the NASS Stocks report offers big bearish surprises for US soybean/corn, just getting past the report will be relief with the cash market then directing Chicago price direction. Today’s slide is not about firming cash markets, but the charts and fund length heading into the end of a quarter and a key USDA report. These are big markets and volatility will be the hallmark of Chicago for many months to come. Be prepared.
- Renewable biodiesel is a new demand driver for US soyoil, cornoil, tallow and restaurant waste oil. State Government incentives of as much as $2/gallon will push a slew of new plants to open in 6-12 months. December soyoil should be well supported between $0.40-0.42/gallon on any bearish report on Wednesday.
- Brazil’s CONAB (Brazil’s USDA) will be conducting their first stocks survey between April 5-23 on domestic food stocks of rice, coffee, and wheat. Brazil like a host of emerging nations is battling food inflation and wants to gauge domestic stores of foodstuffs to make correct future policy decisions.
- The midday GFS weather forecast offers showers for Central Brazil on March 7-8 with a weak frontal pass. The forecast is slightly wetter in this timeframe compared to the overnight run as the high pressure ridge weakens. The showers are slated to drop between April 8-10 which is too far out for confidence. Until then, Central Brazilian rainfall will be limited to a few light showers. The models have been trying to drag a weak front across Mato Grosso while keeping West Central Brazil dry. A generally dry trend holds across Argentina.
- This is a good old spring cleaning ahead of the end of the quarter and a major USDA report with fund selling accelerating as Chicago prices decline. This is no place to make new sales. End users should consider forward purchases as the structure of the bull market has not changed amid record large US corn/soybean demand. If NASS does not uncover larger March US stocks, a quick snapback in price will develop.