- HEADLINES: Chicago soybeans/corn sag on charts in low volume trade; China soy crush margins return to best levels in years; Wheat rallies on elevated winterkill fear.
- Old, wise traders adage – “Never Sell a Low Volume Break in a Bull Market”
- Midday Chicago futures are mixed with wheat futures soaring while corn/soybean futures ease lower in limited volume. At midday (and including the overnight trade) just over 56,000 contracts of March soybeans and just over 52,000 contracts of March corn have changed hands. This compares to more than 35,000 contracts of March Chicago wheat which is above the prior two-week average.
- The morning Chicago corn/soy decline appears to be based on technical considerations rather than any new fundamentals. The USDA 2021 corn seeding estimate of 92.0 million acres was below trade expectations while soybeans was slightly larger 90.0 million acres, close to the record.
- The tone of Chicago is apprehensive heading into Friday’s March option expiration and weekly US Export Sales Report. Poor US sales are anticipated due to cheaper price offers from Brazil and Argentina.
- Chicago brokers estimate that funds have sold 3,600 contracts of corn and 4,200 contracts of soybeans, while buying 5,500 contracts of wheat. In soy products, funds have sold 3,600 contracts of soyoil and 4,100 contracts of meal.
- Mato Grosso’s IMEA report that the Mato Grosso soybean harvest should reach 40% complete by this weekend. Farmers are cutting beans in the rain and reporting poor quality amid broken/wet seeds. Yields stay disappointing with few farmers boasting or sending pictures from their combine yield monitors. The poor soybean crop quality is causing issues with drying needed to make sure that the soybeans can store. The drying is causing new costs and delaying movement of the new crop to export ports. Sources report that the Mato Grosso soybean crop is one of the poorest quality crops in a decade. Farmers are pushing the soybean harvest to have a chance of planting winter corn. Winter corn seeded in early March could produce a reduced yield due to seasonal May dryness. The Parana harvest is also uncovering poor quality beans.
- The USDA Outlook Forum painted a longer-term bullish outlook for US corn/soy and ag demand in general with 2021/22 exports forecast at a record high $157 billion. China was forecast to take a record $31.5 billion. US 2021/22 corn exports are estimated at 2,700 million, which we estimate would drop 2021/22 US corn end stocks to a tight 1,400 million bu. USDA forecast the average 2021/22 farmgate price of corn at $4.20 (-$0.10/bu), soybeans at $11.25/bu (up $0.10) with wheat at $5.50/bu (up $0.50). USDA credited the rapidly rising China pig herd for the elevated US crop imports.
- Chinese traders will be returning from the week long Lunar New Year holiday facing their best soy crush import margins in years based on the rising price of domestic soyoil. The heady March crush margin should boost imports from Brazil. Chinese crushers see the break as a buying opportunity.
- The midday GFS weather forecast is consistent with the overnight model with limited rainfall across the southern third of Brazil and the entirety of Argentina. Above, to much above, normal rainfall will cause crop quality issues and harvest slowdowns across N Brazil. The models show no sign of change into March 2. The extended range offers Argentine showers during March 3-5, but confidence that far out is extremely low.
- Brazilian soy quality and disappointing yield data sets the stage for a rally with heat/dryness becoming a yield issue for Argentina/RGDS in S Brazil next week. We look for WASDE 2021/22 corn/soybean balance sheets to offer tight stocks, even with combined record large US corn/soy seedings. The weekly downtick in US ethanol production was expected on weather. Do not sell this break, would be our best advice at this time! Research sees the downside limited to 5-10 cents in corn and 10-15 cents in soybeans. S American crop concerns come to the forefront of the market next week.