- HEADLINES: A whiff of inflation and dry Brazilian/Plains weather rallies Chicago to reclaim Monday’s losses; New historical high for Brazilian cash corn prices.
- Chicago grain and soy futures are sharply higher at midday with corn futures pacing the advance on tightening domestic cash supplies amid adverse weather for the 2021 Brazilian winter corn crop. Soybeans and wheat are following corn with volume diminished at midday. There has been a recent trend of active volume on the opening and the close with curtailed volume at midsession. The market has a firm tone with old crop/new crop spreads performing which is better reflecting the strength of the cash market A higher close is forecast which reflects the growing unease in the marketplace over the 2021 Brazilian corn crop size and the dryness which is starting to envelope much of North America.
- US consumer prices rose a hefty 2.6% in March (from a year ago) including the market volatile energy and food sectors. The rise in gasoline prices accounted for more than half of the gain amid the more rapidly growing US economy. Compared to February, the CPI rose 0.6%. The March-to-March comparison was the largest since August of 2018 and well above the 1.7% gain in February. The report offered the clearest sign of inflation as stronger prices and supply shortages were being fed to the consumer. Food prices nudged higher, but only by 0.1% for the month and 3.5% for the year. Meat, egg, and fish prices rose 5.5% year on year.
- The whiff of US inflation has some fund managers expanding their exposure to raw material markets, ahead of the full reopening of the US/world economy. Any lasting dryness or extreme heat will accelerate the rally in US food prices amid a lack of an old crop stock’s cushion. The world nor Chicago grain markets will have any tolerance for a weather induced supply dislocation.
- Chicago brokers estimate that funds have bought 6,800 contracts of corn, 5,100 contracts of soybeans and 2,400 contracts of Chicago wheat. In soy products, funds have bought 3,500 contracts of soyoil and 1,100 contracts of soymeal at midday. Funds are on the buy side of the market with some selling expected on the close on the index fund roll.
- Russia is offering new crop wheat at $235-240/mt for August. This is up nearly $30-35/mt from last year and the price would include an estimated tax of $24.50/mt. Starting June 1 the tax fluctuates week to week, which makes its calculation so far in advance all but impossible. So far, above normal rain has fallen across SW Russia, but these rains can only bring back to life the wheat that was not lost to winter cold or the extreme dryness( following seeding). Although wheat crop estimates of 80 million mt or more are being offered by several private analysts, it is just too early to make any real crop assessment with May and June weather being critical to yield.
- Brazilian domestic corn scored new price records above $7.36/bu with IMEA reducing their corn crop estimate by 1.3 million mt to 35 million on the March seeding delay. Another 2 vessels of Argentine corn have been contracted to arrive in Brazil during the first half of June. Argentine corn for June is bid at 60 over Chicago, while the US Gulf holds at 93 over on a massive China export program.
- The midday S American weather forecast follows the overnight GFS output with 0.3-1.25″ of rain for the winter corn areas of Brazil early next week. Limited rainfall is expected to drop through the weekend before a frontal pass sparks the showers. The 11-15 day period shifts back drier with warming temperatures. Highs range from the 80′s to the mid 90′s. The timing of the end of the rainy season will be important with soil moisture levels short to very short. Brazilian winter corn will be pollinating from late April through early June.
- Our market thoughts remain the same with a trading low scored yesterday followed by a rally into the May delivery period. December corn futures have scored new highs at $5.0575 while November soybeans are forming a flag formation on the charts. US farmers will be able to quickly seed the 2021 crop, but cool/dry weather suggests slow germination. New crop US balance sheets require record US corn/soy yields for prices to sustain a decline, which cannot be confirmed until July.