- HEADLINES: Chicago recovers at midday; No sign of rain in Brazil; Ethanol production stays flat.
- Chicago grain and soy futures have found renewed buying interest following Tuesday night’s collapse. There is little breaking news available, but the push for near-term cash supply is ongoing. Basis bids have rolled to July but flat prices have risen. It does appear that regional needs for origination vary, but as of Tuesday evening elevators were still willing to offer premiums above posted bids in order to guarantee supply. Current prices exceed fair value but there still remain questions over available US supply.
- We have reported this week that the latest stage of the rally is working to slow current and future export sales. Brazilian soy fob basis remains weak. US Gulf corn is now the world’s most expensive feedgrain supply, with Argentine and Ukraine origin, along with Black Sea feed wheat, much cheaper. This pillar of demand will be eroding as importers finally move away from the US corn market.
- Weekly EIA ethanol data is viewed as mixed. Production through the week ending April 23 totalled 278 million gallons, up just 1 million from the previous week and still 8% below the same week in 2019.
- Gasoline disappearance last week was 8.9 million barrels per day, vs. 9.1 million the previous week, and down 4% from 2019. US energy consumption is having trouble finding and sustaining traction despite the ongoing successful rollout of Covid vaccines. We expect gasoline to be at or near 2019 levels by summer, but it is important that weekly data begin to reflect a boost in demand in the next 30 days.
- Yet, US ethanol stocks continue to decline. Stocks last Friday totalled just 829 million gallons, down 25% year-over-year. It remains that any boost in gasoline using moving forward absolutely requires a similar increase in weekly grind rates. Ethanol prices will rally further on a lack of supply, which bodes positive for corn basis levels.
- EU grain markets look to settle steady to lower. New crop Matif corn futures are down €0.75-1.25 per ton. And Brazil’s interior corn index is trading lower for only the third time in 17 days. This is mostly due to today’s rally in the Real, but the message is that spot prices worldwide are reaching levels that give importers and end users pause. Canadian canola prices, too, are down slightly in spite of bullish seedings data released Tuesday.
- Producers in the US remain very active in seeding. Above-normal rainfall remains most probable across the Midwest into the second half of May but there will be ample windows for seeding. Coming warmth spurs rapid germination.
- The midday GFS weather forecast in S America maintains complete dryness across Central Brazil, with the odds that rainfall in the far south expands into Parana being diminished. Another 10 days of soil moisture draws lie ahead, while already historic drought is in place across all but Mato Grosso and far Northern Brazil. A Brazilian crop of 98 million tons or less is assured if rains fail to return to Parana by the middle of May.
- Be prepared for volatility not seen for some years. The last few trading sessions provide a small glimpse of what can be expected once the Northern Hemisphere growing season begins in earnest. A more two-sided trade is expected following May expiration, with weather forecasts, which are updated every 6 hours, to drive daily direction. Long term, Chicago markets will find support on sharp breaks amid collapsing Brazilian corn yields and the need for ideal Northern Hemisphere weather.