- HEADLINES: Chicago tanks on fund selling and fear of larger Brazilian soy crop from CONAB Thursday morning; end user support limited as China goes on holiday.
- Chicago futures are sharply lower at midday with corn, soybean and wheat futures busting to the downside on long liquidation and tepid end user pricing. We note that end users chased the market heading into the USDA February report and are not willing to substantially add on today’s break. Moreover, traders are concerned that CONAB will release a larger Brazilian soy crop estimate on Thursday which could drive an question mark into Tuesday’s USDA forecast of 133 million mt. The point is that the industry needs to gauge a Brazilian soy crop of 131 million mt or less to start a new rally phase. It is the size of the 2021 Brazilian soybean crop that plays into coming soy price determination.
- Chicago corn/wheat futures have posted sharp declines in midday trade with wheat falling below last week’s low and testing the 50-day moving average at $6.3075. March Chicago wheat has not breached the 50- day moving average since mid- December. A close below $6.30 March would be seen as bearish. Corn futures are holding last week’s low with the 50-day average under the market at $4.85.
- However, March soymeal futures has fallen below last week’s low with 50 day moving average support noted at $419.90. It is Chicago wheat/soymeal futures that must be followed into the close to gauge if there is additional fund liquidation. Funds were strong sellers from the opening across the Chicago.
- Chicago brokers estimate that funds have sold 8,200 contracts of Chicago wheat, 23-24,000 contracts of corn, and 12-14,000 contracts of soybeans. In soy products, funds have sold 6,500 contracts of soymeal and 5,300 contracts of soyoil. It has been an active morning of fund selling across the Chicago.
- FAS/USDA reported that 132,000 mt of US corn to an unknown destination was cancelled. Commercials report that the April/May US sales were shifted to Argentina amid their cheaper price offers. Upriver Argentine basis levels are under pressure, the Parana River level is at multi decade lows which makes loading panamaxes more costly due to topping off closer to seaport.
- EIA reported that last week’s US ethanol grind held steady at 275.2 million gallons with US ethanol stocks falling 2% on last year to 1.00 billion gallons. US gasoline consumption will seasonally rise in several weeks which will aid US ethanol consumption. Research argues that USDA’s annual US corn ethanol corn grind at 4,950 million bu is 200 million too low. We see the slow return of normal life and additional US gasoline consumption as boosting the US corn ethanol grind to 5,150 million bu. Last year’s consumption pattern will not be followed with demand crawling back closer to 2019 levels.
- FAS/USDA is expected to release another significant US corn export sales total on Thursday of 90-100 million bu while US soybean and wheat sales sag. We maintain that the US could announce another 1-2 million mt of US corn to China before the demand pace slows.
- The midday GFS weather forecast is slightly wetter across the harvest areas of Mato Grosso/Goias while holding onto a below normal rainfall trend for Argentina and S Brazil. The heavy rain across N Brazil will slow the harvest with more than 11 million mt of soybean vessels waiting to load at port. A drier harvest trend is needed. No extreme heat will be felt across Argentina and S Brazil which is aiding the RGDS soybean crop. The falls in Argentine soil moisture is concerning with rains needed in late February.
- The hangover from the USDA report is causing fund managers to sell out a portion of their market length with China to go on holiday on Friday. Chicago will also be closed on Monday for President’s Day. Chinese demand is absent, and a bottom will likely be forged when fund sales slow. The May soybean target is $13.25 and $5.20-5.25 in May corn futures.