- HEADLINES: Macro Monday, US stock market swoons and take Chicago grains with them; Recovery anticipated on Tuesday.
- Chicago futures are sharply lower at midday except in wheat. Wheat has traded either side of unchanged. The sharp losses in the macro financial markets have pulled Chicago values lower. It is much like last Monday in that macro’s rule Monday’s price discovery. The DOW at one point was down a little more than 500 points with investors pulling cash off the table. A trading bottom should be forming in the DOW with April CPI due out Wednesday. However, rallies will be laboured as the US inflation rate is holding above 7%. There is a repricing of US/world equity markets that relates back to returns in the US 10-year note exceeding 3.0%. Capital shifts out of equities and into bonds is not bearish commodities, but on days where stocks are down 3-5%, it is difficult for commodity values to swim against the outflow. Sharp Chicago down days set up new ownership opportunities in corn, soyoil and wheat, this is not a place to be making new sales.
- Chicago brokers estimate that funds have sold 9,500 contracts of soybeans, 9,600 contracts of corn, while being flat in wheat. In the soy products, funds have sold 2,100 contracts of soyoil and 3,200 contracts of soymeal.
- China has allowed its currency, the Yuan, to fall 3% against the US$ to 6.74:1. The falling Yuan makes Chinese exports more competitive and provides an incentive to Chinese exporters. The weak Yuan does cause imported goods like soybeans to become more expensive if the dollar was not hedged. However, the Government often raises soy product prices in the back end of the curve to provide some help/compensation to crushers.
- We would note that like last year, China has imported more soybeans than the USDA is forecasting in the first half of the international crop year. If one models out China’s 2021/22 soybean import pace, it works out to 99 million mt vs USDA at 91 million. That is a big difference of 8 million mt when S American is already running short of supply. We suspect that using a normal 5-year seasonal import pace is wrong with China’s Covid lockdowns, but 2021/22 imports of 96-97 million mt seems reasonable.
- World wheat futures should be soaring on tightening supplies of the primary exporters. Black Sea wheat exports (Ukraine/Russia) will be cut due to the war from 60 million mt to a figure more like 32-35 million mt. This assumes that Russia exports 27-29 million mt of wheat and 5-6 million mt from Ukraine. Last, week we highlighted the importance of India not exporting 8.5-12.0 million mt and potentially becoming a net importer of 1-3.0 million mt. The net loss on world wheat trade between the Black Sea/India quickly adds up to 33-38 million mt. And world wheat demand will be focused on the EU (and US) until the Canadian crop is available in October (without India). The point is that not a single tonne of EU wheat production can be lost and a drought is threatening.
- US exports for the week ending May 5 were; 54.8 million bu of corn, 18.5 million bu of soybeans and 8.7 million bu of wheat.
- A 6-8 day period of warm/dry weather should allow for Midwest spring seeding to push strongly ahead this week. Midwest farmers should start to seed spring crops in earnest on either late Tuesday or Wednesday. The jet stream holds to the north with showers/storms over the N Plains and the NW Midwest with totals of 0.5-2.50”. Crops here will be late seeded with Prevent Plant enrolment 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 pressure on Chicago summer row crops. We doubt that the decline will be long lived with lows expected by Wednesday. December corn and November soybeans are undervalued relative to known fundamentals amid record large US export sales. Margins for US ethanol, renewable diesel and soybean crushers are strong. Cash basis bids are rising. We remain bullish with world wheat to be the upside price leader into late May. December corn and November soybeans are nearing seasonal lows.