- HEADLINES: USDA confirms additional Chinese corn demand; ethanol production hits 12-week high.
- Chicago futures are mixed as corn finds strength on confirmation of Chinese corn buying and rising US ethanol production, while soybeans/wheat sag on limited export interest. Chicago soybeans have bounced despite an accelerating Brazilian harvest. World importers are absorbing 2021 S American soy supplies quickly amid record shipments. But the associated price risk with the coming March 31 Stock/Seeding report is keeping trading volume curtailed. Other than China’s purchase of US corn, other fresh demand news is limited. We look for a mixed Chicago close with old crop corn underpinned on any 2-4 cent break.
- USDA/FAS announced another 1.2 million mt Chinese purchase of US old crop corn. This increases China’s 2-day purchase total to 2.4 million mt with another 2 cargoes said to be found on the weekly export sales report. This package of buying is said to be 2.5 million mt in total or just under 100 million bu. US exporters report that the purchase was for July/ August export and it takes China buying on a known basis to 21 million mt. Cash grain traders argue that an additional 2-2.5 million mt of China corn purchases is held in an unknown destination category. This raises China’s corn imports from the US to 23-24 million mt and 28-30 million from the world. This allows the USDA to increase US 2020/21 corn exports to 2,800-2,900 million bu.
- Cash corn basis across the Plains will only get stronger as summer approaches while basis gains in new crop HRW will be laboured without Apr-May weather issues. Current cash wheat-corn spreads are supportive of July KC below $6.00 but have given the Chicago corn rally a pause. Yet, amid rising animal numbers total grain fed this summer will be enlarged. Whether wheat can be substituted on a scale greater than 100 million bu will be determined by Mother Nature.
- US ethanol production through the week ending March 12 totalled a 12-week high 285 million gallons, vs. 276 million the previous week. Recall production in mid-Feb was just 193 million gallons, and so the market has recovered rather quickly. We calculate that weekly grind of 280 million gallons/week is needed to meet the USDA’s forecast, and production no doubt rises further May onward.
- Importantly, US ethanol stocks fell for a fifth consecutive week to just 896 million gallons, down 13% from the same week in 2020. Tightening ethanol stocks suggest that production must rally to meet the needs of the summer driving season. Export disappearance remains elevated. RBOB’s sizeable premium to ethanol ($0.28/gallon) along with rising RIN prices indicate stronger blend consumption longer term. The biofuel outlook has brightened.
- Chicago has announced that it will list Ukrainian wheat futures and options in mid-April pending regulatory approval. The Ukraine wheat futures offer is likely pushed ahead due to the proposed Russian floating export tax. There are no offers for new crop Russian wheat amid June’s forward tax rate uncertainties.
- The midday GFS weather forecast is wetter in Mato Grosso and Mato Grosso do Sul in Central Brazil into the weekend. Cumulative totals there of 2-4″ will boost soil moisture but sustain soy quality issues. The forecast beyond the weekend is consistent with previous output and maintains a noticeable S American pattern shift. High pressure ridging aloft E Brazil dominates S America’s climate in late March/early April. This new upper air flow will block precipitation from all but RGDS in far Southern Brazil. Heavy rain will linger across NE Argentina. High temperatures in Brazil rise under this ridge, with sizeable soil moisture due across key safrinha producing states in the 6–15-day period. The return of rain is needed no later than mid-April.
- US corn stocks are tightening, and elevated wheat feeding will be required to solve corn’s supply/stocks issue during the summer. Any correction in old crop corn futures will be limited until the March Stocks report. A record large second quarter feed use rate would likely send spot Chicago corn to $6.00. The risk vs the return is tilted to the bulls. And the US wheat market cannot allow supply to be priced as a feed.