- Thursday has been another “down” day in Chicago with soybeans and meal setting the pace on fund spread unwinding (long soybean short grain). It was reported that the funds were also liquidating long corn positions as well as long soybean and soybean meal positions.
- Brazil’s CONAB announced a sizeable reduction in the 2016 Brazilian corn crop with the total crop now estimated at just 69.1 million mt, down from 76.2 million in June. This compares to a crop estimate of 77.5 million mt from the USDA in June and 85.0 million mt produced in 2014. USDA pegged 2015/16 Brazilian corn exports at 22.5 million mt, which now appears to be too large by at least 5 million. Brazil’s winter corn crop was pegged by CONAB at 43.1 million mt as dire drought had an adverse impact on yield. Research argues that Brazilian corn exports will slide to no more than 17.5 million mt, which is the lowest since 2010. The export demand will flow to others including the US, Argentina and Ukraine. The USDA could easily justify raising 2016/17 US corn exports by 100-175 million bu.
- The decline in Brazilian 2016 corn production makes the sharp premium rise in fob offers from Brazil more understandable. Brazil cannot afford to export more corn or its domestic users will eventually run into supply shortages. The refilling of the Brazilian cash pipeline amid the smaller harvest will maintain sky high Brazilian corn premiums, and pull a portion of the Argentine corn crop across the border. Longer term, Brazilian farmers will be encouraged to seed additional corn acres vs. soybeans which could limit Brazil’s ability to fill Chinese soybean demand. This is likely to support November ‘17 soybeans under $9.50/bu and offer support to November 2016 soybeans below $10.25. CONAB also trimmed their 2016 soybean crop to 95.3 million mt from 95.6 million mt. The USDA June estimate for Brazil’s soybean crop was 97.0 million mt. The CONAB estimates is some 1.7 million mt lower, which is likely to come from exports. This is one primary reason why Brazil has already left the world soybean export arena.
- The sharp reduction in the 2016 Brazilian corn crop will most likely maintain robust US corn exports well into 2017. In fact, the fear is growing that US export elevations to ship out large tonnages of corn and soybeans will become strained during the harvest period. Yet, funds are still too long and liquidating length amid bearish chart based patterns. Our view is that on price breaks it would be prudent to shift from a bearish to more neutral Chicago view.