6 May 2022

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  • HEADLINES: Weather and macro market falls produce pressure; December corn coming into value; Low March 31 Canadian canola stocks.
  • Chicago futures are mixed at midday with wheat futures higher, while corn/soybeans sag with the financial markets and improved Central US weather forecast with warm/dry weather to be offered for the C and E Midwest. The problem is the Northern Plains and the NW Midwest where frequent storms will continue to maintain wet soils and slower planting. Producers in this area will more seriously consider the Prevent Plant (PP) option if the weather forecasts are correct. The PP date for this area is May 20. Back in 2020, the Northern Plains signed up nearly 10 million acres under PP, which will not be tolerated by the world marketplace in 2022 due to exceptionally tight supplies. The loss of even 2-3 million acres of corn/soybeans/spring wheat is unacceptable. We look for a mid-range Chicago close with end users using the break to start adding forward coverage ahead of the USDA report next Thursday.
  • Chicago brokers estimate that funds have sold 9,500 contracts of soybeans, and 11,600 contracts of corn, while buying 4,100 contracts in wheat. In the soy products, funds have sold 3,100 contracts of soyoil and 2,200 contracts of soymeal. Funds have been sellers since the opening bell and are taking risk off the table heading into the weekend.
  • Stats Canada estimated their March 31 grain stocks at 10.1 million mt of wheat (down 6.4 million from last year and down 7.3 million from the 5-year average), a record low 3.9 million mt of canola (down 3.9 million from last year and down 5.4 million from the 5-year average), and 0.95 million mt of oats (down 850,000 mt from last year and the 5-year average). The March canola stocks estimate was record low and one wonders how the industry will be able to make it to the next harvest which is not until late August/September due to delayed seedings. Canadian canola, oat and wheat stocks are limited for world importers with US imports of corn to be record large for feeding purposes. The pressure is on for Canada to produce a bin buster crop in 2022 to relieve the acute stocks tightness. Latent seeding dates are already producing yield worry.
  • The US added 428,000 of new jobs during April, a strong pace. The job increase suggests that the US economy is strong and shows no sign of tipping into a recession until late in Q4, at the earliest. The problem is that US stock markets are worried about the pure strength of the US economy and that interest rates will have to rise further than liked. We believe that the US Central Bank will not finish raising rates until mid-2023 and that their bank lending rate may have to reach 3.5-4.0%. Such a rate is negative to US equity prices, but it will also delay/prolong the new investment that is needed in raw material markets. Therefore, commodity markets will continue to gain on equities. Nearby, commodity traders are monitoring the price change in the DOW. Come Sunday evening, we expect that it is weather forecasts and the DOW that will direct Chicago prices early next week.
  • Lower Chicago prices has put the brakes on US crushers or ethanol producers being able to secure old crop grain from the farmer. Most are raising their basis bid to attract sales. We look for US soybean crushers to bid 60-90 cents over July Chicago to get supply.
  • A final storm system is pulling thru the Eastern  US. This will be followed by a lengthy period of warm/dry weather. Midwest farmers should start to seed spring crops in earnest on either late Tuesday or Wednesday, May 11/12. The jet stream shifts north with showers/storms over the N Plains and the NW Midwest with totals of 0.5-2.50” into May 15. Crops here will be late seeded with Prevent Plant acres rising. The Southern US Plains will be dry with heat noted with highs ranging from the 90’s to lower 100’s.
  • Stock market falls and improved planting weather is causing short term pressure on Chicago. We doubt that the decline will be long lived or very deep. December corn is undervalued below $7.20 and November soybeans below $14.50. Wheat values will closely be monitoring a developing EU drought. This is a break to expand ownership into the summer.
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