- Chicago futures have come under renewed selling as the recent rally stalled and funds returned to selling via bearish chart patterns. Wheat is back near its prior lows with corn/soy futures following. There is talk that China is bidding under the US soybean market for a portion of its 10 million mt of purchases with the demand noted from late summer through harvest. This is underpinning soybeans while the wheat is testing last week’s low. We doubt that bearish price trends will be able carry through amid positive news on US/China trade and threatening cold/wet Central US weather. Amid reduced volume and interest, our bet is that short covering will evolve following the USDA March crop report with traders wanting to be long of corn heading into the March 29 NASS Seeding/Stocks report. The trade will try to be long of grain and short of soybeans as they bet that US farmers seed less grain and more oilseeds. The cold/wet early spring hints at this trend also.
- Chicago brokers report that funds have sold 5,500 contracts of corn, 3,200 contracts of wheat, and 3,400 contracts of soybeans. In soy products, funds have sold 2,900 contracts of soymeal and are flat of soyoil. Volume is low and there are air-pockets in price and it does not take much volume to push the market.
- We are told that 200-300,000 mt of US wheat was sold to Iraq this morning on the break. The demand shows the discount of US values relative to other suppliers for HRW. The Baltic was pretty well cleaned out by the recent Saudi tender while Romania is at the bottom of supply with quality issues. Current US wheat prices are at levels that are attracting world demand.
- US weekly ethanol production was 1,024,000 barrels/day vs 1,028,000 last week. This produced 301 million gallons of ethanol vs 302 million last week, and 311 million last year. US ethanol stocks were up 5% on the year to 1,019 million gallons. We note that US crude oil stocks were 453 million barrels, up 6 million barrels from last year, but well below the average of the last five years. US ethanol production margins are $0.24/gallon, the best since late last summer.
- China at their National Congress announced that it will make forced technology transfers illegal as Beijing tries to woo world investors. The new law will appease President Trump and USTR as steps continue to be taken to reach a trade deal, including the protection of intellectual property. Chicago markets will see an announcement of a Trump/Xi meeting in FL as a big deal as it produces high odds that a deal has been reached. The bulls have not heard much US/China trade news in recent days and are losing patience. The back and forth of Chicago prices reflects US/China trade deal uncertainty.
- The S American weather forecast does not offer much change at midday. The GFS model is somewhat drier with less rain in Parana, Mato Grosso Du Sol, and Buenos Aries, but is otherwise unchanged. The soybean harvest will advance with enough moisture for winter Brazilian corn. The forecast is non-threatening for S American crops.
- The US/ China trade deficit reached $419 billion in 2018, a new record. The deficit places more pressure on China to reach a deal. Chicago is vacillating back-and-forth in a range with the market awaiting fresh US/China deal news. Funds are adding to their net short position which is growing heading into the spring growing season across the N Hemisphere. The low volume break does not engender a strong bearish opinion. We suspect that last week’s corn/wheat low will hold.