- HEADLINES: New crop Chicago futures maintain leadership; Talk of Chinese corn demand; Brazilian drought continues.
- Chicago grain/soy futures are mostly higher at midday with new crop soybeans and corn scoring new contract highs. Funds are adding to net long positions as the Brazilian corn crop shrinks and Central US weather is far from perfect. We need to remember that anything short of near perfect US weather is unacceptable with corn/soybean stocks expected to be historically tight. Tight stocks not only impact US corn and soybeans, but also the world. It is right to say that the world grain cupboard is bare, and it will take multiple years to replenish supplies with China actively starting to seek new crop supply. We expect a higher Chicago close today with the market backing and filling on Friday. Trade next week will depend on upon Brazilian/North American weather.
- Chicago brokers estimate that funds have bought 6,700 contracts of corn and 8,300 contracts of soybeans, while selling 2,300 contracts of wheat. In soy products, funds have bought 4,600 contracts of soymeal and 3,900 contracts of soyoil. It is interesting that there just is not much selling above the market. US elevators report that Midwest/Plains farmers have already sold their largest percentage of a US crop in a decade. The Chicago rally has coaxed farmers into selling which they have done in some volume.
- FAS reported that for the week ending April 29 the US sold -3.5 million bu of old crop wheat and 14.7 million bu of new crop, 5.4 million bu of old crop corn and 4.2 million bu of new crop, and 6.1 million bu of old crop corn and 7.1 million bu of new crop. The sales of soybeans were as expected while corn and wheat were light. For their respective crop years to date, the US has sold 2,671 million bu of corn and 2,252 million bu of soybeans. The US remains on pace to export 3,000 million bu of corn and 2,350 million bu of soybeans in the 2020/21 crop year.
- We believe that China has secured about 2.0-2.5 million mt of US new crop corn in recent days. With COFCO being the buyer, it is uncertain when it will be announced by FAS since COFCO is a registered US grain merchant and the announcement only needs to be made when the corn is shipped overseas.
- Moreover, China is also seeking to start Phase Two negotiations for the period beyond January 15, 2022. The Phase One Agreement that was signed in January of 2020 was a two-year agreement. The willingness of China to start new negotiations reflects their desire to enhance future food security. Moreover, China’s Premier called for China to work on building its food security in the year ahead with farmers being encouraged to boost yield and plantings. We doubt that China’s call to boost production will have much impact.
- We hear that Brazilian farmers are looking to abandon 2021 winter corn fields on poor pollination. Corn is being disked down in the hope of rain and planting a winter wheat crop. The yield outlook stays poor.
- The midday GFS weather forecast is similar to the morning run but still at odds with the better performing EU and Canadian models. The GFS forecast maintains a more northward bias with Midwest precipitation over the next 4-5 days. Cumulative rainfall of 1-3″ will favour the whole of Iowa, Illinois, Indiana, Ohio and Michigan. Recall the EU model places soaking rainfall across the far Southern Midwest, mid-South and Delta, leaving the core of the Great Lakes region dry. Key is whether the afternoon EU run follows the GFS with its northerly precipitation bias. We note that soaking showers are indeed needed across the Great Lakes region amid deeply negative soil moisture anomalies there.
- The trade is at long last better understanding the severity of Brazilian corn production loss, which is a big deal. Nov soybeans also appears to be digesting enlarged corn seedings, rather than soy, which even a mid trend yield confirms another year of pipeline US stock levels. We continue to strongly advises against being short as the growing season begins in earnest in the next 2-3 weeks.