- It has been a mixed/low volume session at the Chicago. Wheat prices have slipped which has pulled corn lower, while soy futures rise on the exodus of long corn vs short soybean spreads. The new crop soybean/corn ratio has come into 2.2:1 which is prompting speculative profit taking with 2019/20 US soybean end stocks expected to decline. Our lean is for a mixed Chicago close with values finishing near their highs as heavily short traders/funds fret about reduced US crop production and next week’s US/China trade talks. We look for next week’s Chicago trade to be much more volatile as weather and planting progress hold a much larger influence on seeding/yield/supply.
- Old time traders lament that the Chicago has become “less anticipatory” in terms of weather/politics. Amid delayed seeding Midwest progress (May 3) and wet 10-day forecasts, Chicago would be much more aggressively adding weather premium (into price to account for supply losses) in previous years. And if US/China could reach a seminal trade event next week that would focus a larger share of China’s ag imports on the US, the stage could be set for a big demand rally with managed money holding a record net short position.
- The market no longer anticipates, but “flat out” reacts when it is sure that crop losses are occurring or that new China demand has arrived. Our point is that next week, the calendar is far enough advanced, and the Trump Administration argues that it is either deal or no deal with China, that Chicago volatility will be heightened. It is an important week with a May WASDE report as well. As such, 2019/20 US corn, wheat and soy balance sheets are in dramatic flux.
- Illinois, Indiana, Ohio, Missouri, Wisconsin, Minnesota and Dakota farmers have scored limited progress in spring seeding this week. We expect that US farmers may have seeded another 6-8% of the US corn crop and 5-7% of the soy crop compared to Sunday. HRS wheat seeding advanced, but cold temperatures are slowing or preventing germination. In years of diminished yield potential, its temps during May that make a difference. Last year a record cold April was followed by a record warm May. That won’t occur in 2019 with combined temperatures into mid-May looking to be one of the top ten coldest on record. Initial US corn crop conditions will be well below last year when released in early June.
- Chicago brokers estimate that funds have sold 3,100 contracts of corn and 2,400 contracts of wheat, while buying 1,900 contracts of soybeans. In soy products, funds have sold 1,800 contracts of soyoil and bought 900 soymeal.
- Frosty temperatures are likely across European crop areas this weekend and through Wednesday. Traders will be watching minimum temperature readings for any crop damage. To date, EU grain crops are advanced in maturity due to lasting spring warmth.
- The midday Central US GFS weather model continues to struggle with the exact placement of rainfall in the next ten days. The midday model has pulled rain northwards from the SE Plains north into the W Midwest late next. Heavy rains are still slated to drop across the E Plains and through the Delta, but the GFS offers a break from the heavy rains for the E Midwest. Cool to cold temperatures will hold across Canada, the N Plains and Upper Midwest for the next ten days. The flow of cold air southward from W Canada shows no sign of ending, in fact the overall North American pattern is static. The weekly EU model called for cool/wet weather to persist across the Central US into early June. Confidence in this forecast is increasing based on pattern stability.
- It is a corrective/tentative Chicago trading session. Market volatility will be increasing next week amid the importance of Central US weather and US/China trade negotiations. The US$ is weakening which is placing a bid under Chicago. US/S American farmers have slowed their cash selling. There is a risk of a frost/freeze for the German/French wheat crop areas this weekend while snows continue across the Canadian Prairies. Our lean is bullish corn and bottoming wheat/soy.
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