- Continued weakness in the stock market amid concerns of a slowing world economy weighed on Chicago soy trade. May soybeans gave back all early week gains and were lower for the week. The Commitment of Traders report showed that funds were net short 36,000 soybean contracts (-39,000), net short 18,000 soybean meal contracts (-59,000), and net long 15,000 soybean oil contracts (-8,000). The buying in soybean meal was the largest one week of buying since the data series began in 2006. We estimate that by Thursday, funds had nearly covered all of their soybean/meal positions, which is why prices fell at the end of the week. Hedgers were large sellers on the soybean rally of nearly 51,000 contracts taking their net short to a 6-week high. US soybean export inspections are expected to dramatically slow in coming weeks. Chinese demand is needed for US old crop soybeans or WASDE is facing a chore of significantly reducing US soybean export forecasts by more than 150 million bu. It is the lack of export demand that will cap Chicago rallies. Our downside price target rests at $8.50
- Chicago corn futures settled 2-7 cents lower led by March. Fundamental input remains bearish. The EU and GFS weather models have trended even wetter across the drier areas of Central Brazil March 15-20, with the whole of the safrinha corn belt to see rainfall of 1-3″. Spot crude fell an incredible $4.70/barrel. Spot ethanol scored a new 14-month low at $1.235/gallon. Longer term, we highlight that the Argentine government will keep its proposed export tax on corn unchanged at 12%, while raising its tax on soy products to 33%. This will shift 2020/21 acres from soy to corn, and so S America’s footprint on the world corn market will continue to expand. And a new record low in the Peso will sustain profitability. Chicago corn valued in Pesos is up six-fold from 2014! A bearish outlook is held on structural issues such as currency, weak biofuel margins and the coming Argentine corn harvest. Bounces will occur amid weather threats. Normal Midwest seeding will push Dec corn to $3.60.
- Chicago wheat’s recent downtrend is ongoing and additional fund length is shed. There is little wheat-specific news available, but world futures followed crude’s plunge. The Russian Ruble hit a new 14-month low. Weakness in the Ruble continues to drag interior Russian wheat prices higher which in turn weighs on fob prices. Fundamentally, wheat is chasing seasonally declining world demand. Managed funds on Tuesday were long a net 15,000 contracts, down 27,000 from the previous week. We estimate that since Tuesday funds have sold only 5,000 contracts. The spec community is nearing a flat position but additional liquidation is expected without a lasting recovery in global financial markets next week. More attention will be paid to developing dryness in Russia beyond April 1, but amid rising global corn supplies a major weather issue is needed to boost July Chicago above $5.30. A bull market would be created by a drought in the Black Sea or the EU this spring or early summer.
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