- HEADLINES: Market continues trend of post-USDA liquidation; Export sales weak; Domestic margins rising.
- It has been an outright washout in Chicago, with corn limit down in mid-morning trade and old and new crop soybeans down 40-50 cents. US corn’s premium to Argentine origin and ongoing weak spot fob soy basis in Brazil has worked to slow nearby US export demand dramatically. Excessively overbought conditions had to be reconciled eventually. Otherwise, there has been no real catalyst for the break and domestic end user margins are improving. We should be prepared for massive volatility between now and the end of summer. This is and will remain a big market.
- Markets are transitioning from tight old crop supplies and the recent incredible basis push immediately into weather and new crop supply potential, and whether the USDA’s US supply forecasts are proved accurate. There are no glaring weather threats present across the Central and Eastern Midwest, but elevated yield uniformity is required to exceed trend. Exceeding trend yield, in turn, is required to prevent further corn and soy stocks/use contraction. The message is that price determination between now and August is left to Mother Nature. It will be difficult to prove both the bulls and bears yield cases until the middle part of summer. However, concern over intensifying drought across the Dakotas and Upper Great Lakes remains elevated.
- There is also still massive uncertainty surrounding the return of barge traffic along the southern MS River. Some commentators remain optimistic, but this afternoon the navigation committee will meet to discuss logistical priorities. Whether that includes the movement of grain will be closely followed.
- US export sales through the week ending May 6 featured net old crop corn cancellations of 4.5 million bushels as China/unknown cancelled 21 million bushels, and new demand was limited to routine business from Mexico, Korea and Japan. Old crop soy sales were 3 million bushels, vs. 6 million the previous week. New crop US wheat sales were a meagre 10 million bushels.
- Yet, the difference between near-term term and potential new crop demand is sizeable. China this morning secured another 680,000 tons of US origin, and additional purchases are said to be in the works. Adding recent known sales to China and Mexico, US new crop corn export commitments sit at a record high 7.3 million tons. We also note that new crop futures-based ethanol production margins have risen to $1.00 per gallon. New crop soybean crush margins have expanded to $1.35 per bushel. Breaks in the marketplace only work to boost consumption, which further raises the burden on Midwest yields this summer. This is a place to add to end user coverage.
- Model guidance has extended complete dryness in Brazil into May 27, and amid ongoing heat, there is no hope for salvaging safrinha yield potential.
- A complete lack of rainfall during pollination continue to suggest that a sub-95 million mt Brazilian crop is probable. A sub-90 million mt crop is possible, and at this point importers have no choice but to maximise purchases from the US and Ukraine between August and the middle of 2022.
- The midday GFS weather forecast is wetter in portions of the Dakotas and Southern Canada in the 11-15 day period but is otherwise consistent with this morning’s output. Confidence in extended range forecasts is low as model performance in the last 30 days has been poor. We also note that the better performing EU and Canadian ensemble forecasts maintain ongoing arid conditions across the N Plains, Upper Midwest and Canada into May 27. The GFS’s near-term forecast maintains soaking rainfall of 2-5″ across the Southern Plains, Delta and far Southern Midwest. Temperatures reach more normal levels beginning next Tuesday.
- Liquidation following monthly USDA reports has been a market theme since winter amid the USDA’s measured approach to raising US exports and cutting Brazilian corn production. This week is no different, but the arrival of the growing season has heightened price sensitivity. Weather/supply risks are unchanged and still very large.