- Chicago corn, soybean and wheat futures remain weak at midday. US and European wheat futures have crawled off session lows, but it is clearly a risk-off day for global financial and raw material markets. The Dow opened sharply lower and at midday is down 400 points. Crude and gasoline futures have fallen to lows for the recent move, with spot RBOB trading at $1.45, near a 12-month low. The plunge in energy markets has weighed further on both ethanol production margins and the incentive to boost domestic blending.
- Today’s weakness of course centres on the spread of coronavirus in China and East Asia, including Thailand, Singapore and Japan. The Yuan has been in a weaker trend since news of the virus broke. The ongoing spread of the illness will also, on the margin, negatively impact travel and other discretionary spending in Asia. But otherwise, there is little known about how far reaching or impactful coronavirus will be in the days and weeks ahead. For now, risk exposure is being reduced.
- Research suggests that US and world wheat markets will be most supported on breaks as exporter stocks will stay relatively tight into summer. But in addition to broad commodity selling, S American weather forecasts are improving, and US export demand is hardly exciting.
- US export inspections through the week ending Jan 23 included 23 million bu of corn, vs. 16 million the prior week but against an average of 40 million bu required to meet the USDA’s forecast. Soybean inspections totalled 38 million bu, vs. 44 million the prior week. US wheat shipments were just 8 million bu, vs. 19 million the prior week. Work continues to suggest that the USDA’s US corn export forecast is 75-100 million bu too high, even assuming the arrival of Chinese buying this spring.
- Needed moisture is forecast to impact much of Europe and the Black Sea in the next 10 days. Heavy snow is due in Central Europe, Ukraine and the northern latitudes of Russia this week. Rainfall of 0.25-0.50″ will impact Southern Russia. There is still some concern over abnormal warmth in the Black Sea, but no change to bitterly cold temperatures is indicated into mid-February. The coming boost in soil moisture across France and Germany will be welcomed.
- The midday GFS weather forecast is consistent in allowing better rainfall to spread into Northern and Western Argentina beyond the next 24 hours. Light showers will dot much of Argentina at mid-week. A more potent system is advertised Feb 3-6. Cumulative totals of 1-2″ will impact Argentina’s northern crop belt in the next 10 days, while the GFS maintains below normal precipitation in Buenos Aires. Recall the EU model is more expansive with coming Argentine precipitation, and key in the next 1-2 days is how the models come to agreement. We note that the EU model remains the better performer – for now. Normal showers persist in Brazil, with excessive totals 5″ plus isolated to pockets of Goias and Minas Gerais. Soy harvest in Mato Grosso will continue normally.
- We would advise against chasing breaks amid rampant market uncertainty. Yet, the extent of any recovery in corn, soy will be a function of S American production longer term.