- HEADLINES: Wheat/corn post limit gains for second day; China active buyer of US/Brazilian soybeans; Future Ukraine crop sizes unknown.
- Chicago grain/oilseed markets are sharply higher with grain futures bid limit due to the deepening war between Russia/Ukraine, the woe of Black Sea force majeures on prior grain export contracts and resourcing of supply from others.
- Corn, soyoil and wheat have scored new contract highs following historical high closes in Paris wheat, Malaysian palmoil and Chinese corn. The world market has been leading Chicago higher with import demand shifting back to the US, which is an island of supply amid the crop shortfall in S America.
- The Black Sea grain market is effectively closed due to war and lack of SWIFT to Russian sellers/exporters to move bank wire transfers. China is active booking old/new crop US soybeans while other importers are shifting corn purchases to the US. The EU cannot source US corn via a lack of GMO approvals, but some trade of US corn can occur into Spain. World feed importers are seeking Indian feed wheat or US corn as sources of supply. Chicago values remain exceptionally volatile, a pattern that we expect to continue. Chicago breaks will be sharp/short duration as market technical conditions are extremely overbought.
- Chicago brokers estimate managed money has purchased 9,000 contracts of corn, 6,600 contracts of wheat, and 4,900 contracts of soybeans. In soy products, funds have bought 4,200 contracts of soymeal and 3,900 contracts of soyoil. Other than profit taking above the market, any selling is limited. Last week, Central US hedge related selling was active as spot corn futures pushed above $7.00 and soybeans above $17.00. Today, such hedging is void. In the options, Chicago wheat is trading 12-13 cents above limit, KC wheat is trading 15-17 cents with May corn up 2-2.50 cents above the limit. Corn is following wheat.
- The USDA/FAS announced that 264,000 mt of US 2022/23 soybeans was sold to China. Cash connected rumours suggest that China has been active taking US and S American soybeans with 20-24 boats sold from May into December (about 50/50 split between the US/Brazil). China is the big cash soybean short. Declining S American crop estimates likely has their supply attention.
- There is considerable discussion about the size of 2022 Ukraine wheat, corn and sunflower crops, and what degree of war yield cut needs to be applied. EU sources argue that with corn seeding 3-5 weeks off, a lack of fuel, fertiliser and seed calls for a yield/area cut of 10-20%. We would add that the yield risks are extremely elevated, but it is impossible to forecast the outcome of a war that is a week old. The Ukraine winter wheat crop is already seeded, and should Russia take control of Ukraine and claim victory, additional oilseed crops could be planted during the mid to late spring of late April/May.
- The midday GFS weather forecast is further south than what was forecast overnight across Central and Southern Argentina. Dryness persists across Central Brazil with near to above normal temperatures. The monsoon flow is pulling seasonally northeast across Brazil. We fear that drought will become a new issue for Brazil’s winter corn crop. S Brazilian/Argentine high temperatures hold in the 80’s/90’s. The dry weather aids the ongoing Brazilian soybean harvest, and the third Argentine corn crop is being aided by recent rains. However, yield reductions on the first and second harvests are unavoidable and sizeable. Central Brazilian dryness must be watched, but it is premature to make any yield adjustments at this early date.
- Chicago futures have rallied a long way from Friday’s low and the grains are now subject to headline risk heading into the weekend. Peace talks and aggression by Western leaders against Russia could elevate the political pressure for a settlement. The outrage against Putin is overwhelming across the globe. Bouts of Chicago profit taking will create sharp breaks amid values that are near historical highs. Higher Chicago values are likely longer term but remember that in the marketing/trading business “it is not where you are going, but how you get there”. Don’t chase rallies would be our advice tonight.