- HEADLINES: Chicago corrects as funds pare risk on margin/limit hikes; US corn exports to China strong; Not enough rain for the N Plains/NW Midwest into mid-May.
- Chicago grain/soy futures are mixed at midday with July corn leading the rally while fund managers pare their market risk amid rising margin/daily position limits. Morning selling is due to “Value at Risk” (VAR) calculations as Chicago daily limits rise along with position limits. Both increases have risk managers telling traders to trim their exposure due to coming increasing market volatility and capital requirements. VAR is a key measure for risk managers and the ability of the soybean market to trade in a $2.00/Bu and corn in a $.80/Bu, and wheat in a $.90/Bu daily range speaks to smaller Chicago positions. We wonder if Monday’s VAR selling will reduce or change the prospect of a turnaround Tuesday. Much will depend on daily Central US weather forecasts. We argue that it does not pay to chase rallies until traders become worried by a decline in US yield prospects on adverse weather.
- Chicago brokers estimate that managed money has sold 4,100 contracts of wheat, and 4,600 contracts of soybeans, while buying a net 3,900 contracts of corn. Fund managers have bought 9,200 contracts of corn early, before selling out 5,300 contracts after the morning Chicago opening. In soy products, funds have sold 3,600 contracts of soymeal and a net 1,200 contracts of soyoil.
- We have previously suggested that Chicago is moving into a several week period of “extreme choppiness” due to the coming USDA May 12 WASDE Report and varied Midwest soil moisture and weather conditions. Some Midwest areas are extremely dry while others are well watered. It is just too early to make any bullish or bearish bets on yield when the seed is jonly ust reaching into the ground.
- US weekly export inspections for the week ending April 29 were 84.2 million bu of corn, 5.3 million bu of soybeans, and 18.7 million bu of wheat. For their respective crop years to date, the US has shipped out a record 1,707 million bu of corn (up 771 million or 83%), 2,038 million bu of soybeans (up 796 million or 64%), and 849.8 million bu of wheat, equal to last year. China was the big US corn exporter of 30.3 million bu with Mexico the US’s largest weekly soybean exporter of 2.1 million bu. China has been ramping up its US corn export pace which will cause the USDA to raise their 2020/21 US corn export forecast on May 12.
- Private Brazilian corn crop estimates continue to erode based on warm/dry weather conditions with some 50% of the Parana and MGDS corn crop now in pollination. In 2-3 weeks, rain will not make much of a difference to Brazilian total crop estimates that are likely to slide to 93-96 million mt. The loss of 13-16 million mt of Brazilian corn is massive in a world marketplace that is short of feed. The loss of Brazilian corn will bolster US August forward corn export estimates with the crop loss likely helping boost 2021/22 US corn exports to 2,700-2,900 million bu .
- The midday GFS weather forecast in S America maintains complete dryness across Central Brazil’s safrinha belt. Even the northern third of Mato Grosso is forecast to be dry. Temperatures hold in the 70′s to 80′s with warming early next week as the 90′s return. The forecast is too warm/dry and a further decline in the Brazilian corn crop is expected. The importance of Brazilian weather will be diminished beyond mid-May as corn pushes into the fill stage. But for the next few weeks, a further decline in Brazilian corn production is forecast which dramatically strains world feed stocks and pushes pressure on US corn availability.
- Argentine cash corn markets are showing signs of bottoming on strong demand as world importers scour the world for supply. US corn exports will stay massive as China exports its corn purchases through summer. We do not see much downside potential in July corn below $6.60 or December corn below $5.50. July soybeans have support below $15.00 and November below $13.30. We would use dips (like this morning’s) on VAR risk reduction to make purchases. Weather is concerning for the dry areas of the N Plains or NW Midwest into mid-May. Our weather concern is now starting to rise without soaking NW Midwest/N Plains rain.