- HEADLINES: Chicago endures a correction day; Bull structure unchanged with midday forecast arid for Canadian Prairies, Northern Plains, M Midwest and Brazil.
- Chicago grain/soy futures are sharply lower at midday on fund liquidation ahead of the USDA May Report which will be out on Wednesday at 5pm UK time. Fund managers hold windfall profits on long Chicago positions and banking some of that profit makes perfect sense ahead of the unpredictability of a USDA report.
- However, the May USDA report will only include NASS production estimates of 2021 US winter wheat. US corn, soybean, and other spring grain production estimates are derived from using trend yields and the NASS March Seeding Intention estimates. They will also produce world 2021/22 balance sheets for the first time and estimate China’s corn/soy imports in the 2021/22 crop year.
- The report is one of the most important of the spring, and the recent conservative nature of the USDA regarding China has placed fund managers on the defensive. We look for a lower Chicago close, but spread price action between old and new crop futures argues for a late day bounce. We doubt that traders will want to position short ahead of the May USDA report.
- Chicago traders estimate that funds have sold 9,000 of wheat, 12,000 contracts of corn, and 4,900 contracts of soybeans. In the products, funds are flat in soymeal while selling 3,200 contracts of soyoil.
- The USDA/FAS announced the sale of 1,020 million mt of US corn to China in the 2021/22 crop year. This takes 2-day China corn purchases to 2.38 million mt on a known basis. China also cancelled 280,000 mt of old crop corn which is rumoured to be a large livestock producer in China. Export sources report that the cancelations are not COFCO, suggesting that most of the remainder of the old crop Chinese corn purchases on the books will ship. The cancelations are said to be part of TRQ purchases, not China’s State Trading entities.
- FGIS estimated weekly US export shipments for the week ending May 6 were 67.2 million bu of corn, 8.7 million bu of soybeans, and 20.0 million bu of wheat. For their respective crop years to date, the US has exported 1,778 million bu of corn (up 787 million or 79%), 2,046 million bu of soybeans (up 786 million or 63%) and 870.7 million bu of wheat (up 9 million or 1%). The US must average just under 70 million bu /week on a Census export basis to reach a record 3,000 million bu 2020/21 US export estimate. Last week’s US corn exports were revised upwards to 87 million bu. The US is on track to export 3,000 million bu of 2020/21 corn.
- It is difficult to accurately forecast the USDA report on a new 2021/22 balance sheet, but the Outlook Forum provided a starting point. USDA estimated 2021/22 US corn end stocks at 1,552 million bu and soybeans at 145 million bu with 2021 corn seeded acres of 92 million acres and 90 million acres for soybeans. NASS indicated 2021 US corn seeding at 91.1 million acres with soybeans at 87.6 million acres. NASS soybean seedings were 2.4 million acres (120 million bu less via trend yield) which means that the USDA will have to cut demand to leave stocks at pipeline (120 million bu.)
- The USDA cut 20/21 US corn end stocks in April to 1,352 million bu via an increase in ethanol/export demand which drops the Outlook Forum US 2021/22 corn end stocks total to 1,402 million bu. Making a further adjustment in 2021/22 corn production via smaller seedings drops 2021/22 stocks to 1,250 million bu. We do not see 2021/22 US corn end stocks of 1,250 million bu or US soybean end stocks of 120 million bu as bearish. By far, the new crop soybean stocks estimate is more bullish, but the loss of 5 bushels/acre of corn yield would justify December corn at $7.50-8.00. Therefore, anything but perfect weather holds a potent bullish price impact.
- The midday GFS weather forecast is drier than the overnight run across the Northern US Plains, Canada, and the NW Midwest. This follows existing weather trends and must be watched closely into late May. A dire drought is building across the N Plains and Canada that is highly concerning to yield.
- Today’s drop is a correction. Brazil’s corn crop is falling by the day while China is adding to forward feed coverage. US soybean stocks are measured at pipeline for TWO consecutive crop years. The market risk is to the upside on concerning N American weather trends. A bottom should form in Chicago values either today or by early Tuesday. Cash corn and soybean basis bids are strong and keep rising in the hunt for supply.