- Chicago ag futures are mixed at midday with wheat futures lower while the summer row crops push higher. The March/May corn spread has pushed out to an unusual 2 cent premium while May soybean tests resistance at $9.10. Funds are short of corn/soybeans and long of wheat which appears the driver of Chicago direction as the world equity market trades back-and-forth in extreme terms. Funds continue to exit their net short corn/soybean positions as the US 10 Year note drops to a record lows below 1% and the DOW is up over 600 points.
- We look for a mixed Chicago close with US farmers becoming more aggressive of old crop sales as prices reach their cash targets ahead of spring planting.
- Corn has reached a 62% retracement with the 50-day moving average resting at $3.875 May. March corn open interest is being quickly liquidated with the total likely to fall below 3,500 contracts as of the close. Cash corn basis is mixed depending on area movement, and the firmness in the E Midwest basis is something that the farmer should be rewarding. Once the 2020 crop is in the ground, the outlook for US cash corn and soybean basis darkens. Funds are covering net corn/soy shorts, but no end user or importer is willing to chase a rally. When the fund covering slows, a Chicago top will form.
- Chicago brokers estimates that fund managers have bought 7,000 contracts of corn and 4,300 contracts of soybeans, while selling 3,600 contracts of wheat. In soy products, funds bought 4,100 contracts of soyoil while being flat in meal.
- FAS confirmed that China has booked 110,000 my of US sorghum. The purchase was following the activity from last week. China has been booking US sorghum to make a popular Chinese spirit named Baijiu. China has been willing to pay the import tariffs due to strong profit margins and the lack of sorghum from Australia due to their dire drought. We do not yet see that China is willing to secure other US feedgrains or soybeans.
- We cannot confirm that China is seeking US corn, soybeans, ethanol or DDGs. Rumours of such demand prevail. China has anti-dumping duties on US DDGs and ethanol that must be removed before US trade can commence. US exporters report that China is securing Brazilian soybeans well out into June. There is no evidence that China is willing to start a new crop US soybean purchase program. And Argentine corn is priced under the US Gulf by 20 cents, so if TRQs were to be used, there are now cheaper source of supply available to importers on a fob/cif basis.
- US ethanol production rose to 317 xm gallons vs 310 million gallons last week. US ethanol stocks rose to a record 1,049 million gallons up 3% from last year. US ethanol exports were horrible at 43 million gallons with future’s based production margins plunging to minus $0.20/gallon, the worst in 2 years.
- The Brazilian Real forged a new low vs the US$ at 4.56:1. The ongoing Real weakness is lifting already strong profit margins for Brazilian farmers. We expect the Real to weaken to $4.70-4.80 where a top should form. The Real weakness is encouraging Brazilian farmers to price a growing share of 2021 soy crop amid margins that are plus 25-35% depending on their variable farm costs.
- The midday GFS weather forecast is similar to the overnight run. Daily showers will continue across Northern Brazil while dryness persists across Argentina, Paraguay and Southern Brazil. Rain chances return to Central Argentina next week. The 11-15 day forecast calls for improving rain chances for S Brazil.
- Funds are covering out of last week’s sales which has pushed May corn/soybean futures back to upside chart-based resistance at $3.85 May corn and $9.10 May soybeans. The delivery of March futures has refocused Chicago on tight domestic cash corn supplies and strong basis. This supportive element will fade as March futures expires and/or corn/Chicago wheat is delivered.