- HEADLINES: Soybeans confirm support at $16.50: Chicago corn recovers on end user pricing; world market follows: US wheat futures surge; continued Black Sea conflict collides with weather adversity.
- Chicago soybeans traded in the red throughout Tuesday’s session but finished well above the morning lows, with May finding good support on a test below $16.50. Old crop meal was mostly unchanged or higher, while oil dipped to a 2-week low. The May crush spread gained nearly 12 cents to close near $2.20/bu.
- The March NOPA crush report showed a February soybean crush rate of 165 million bu, which was generally in line with expectations and just below the record crush that was set 2 years ago. Based on the NOPA data, we estimate a total US soybean crush rate of 175 million bu. This brings the cumulative soybean crush rate to 1,119 million bu, up 6 million from last year and a record large cumulative crush pace.
- We hold an annual 2021/22 crush forecast of 2,215 million bu. Cash and futures-based crush margins at $2-3/bu will keep plants running at capacity into year-end.
- The March Grain Stocks and Prospective Plantings reports are 2 weeks away. Soybean futures are expected to hold a broad range into the reports, with long-term support expected below $16 May.
- Chicago corn ended steady to higher with May’s premium to July widening to $0.35/bu. There was no specific catalyst for the move but a ceasefire in Ukraine remains unlikely. US corn remains relatively cheap in the world marketplace, with futures in Brazil and Europe following Chicago higher on Tuesday. US Gulf corn remains the cheapest origin into Asia during the spring months. Massive export demand will be in place until mid-summer.
- Importantly, interior cash basis is participating along with futures in prying all available supply from the producer in what will be record/near record export shipments during Mar-June. Spot bids in Central IL have rallied to $0.25/bu over, vs. $0.12 in late Feb and vs. $0.20 over a year ago in mid-March. Additionally, cash DDG prices across the Western and Central Midwest remain perched at $260-265/mt, which is keeping ethanol production margins near breakeven.
- The shock of old crop Ukrainian supply loss has been digested. It is now demand that propels spot to $7.80-8.25 by late spring.
- US wheat futures ended $0.40-0.60 cents higher, with spot Paris milling wheat rising an equivalent $0.22/bu. Sentiment surrounding a peaceful end to war in Ukraine remains negative and vessel count data suggests a collapse in traffic in the Black Sea. We reiterate that modest tonnages could sneak out of Russia in the months ahead, but to all intents and purposes, Black Sea grain trade has ended for an unknown time period.
- Our fundamental focus is shifting increasingly toward adverse weather in many parts of the Northern Hemisphere. The bulk of the US HRW Belt will see accelerating moisture loss as spring-like temperatures lie in the offing. PHDI (Palmer Hydrological Drought Index), a measure of drought, was negative 2.0 at the end of Feb, and without a change in the next 60 days, wheat yield loss of 10-15% relative to trend becomes probable.
- We also note that Feb 1-Mar 24 precipitation in Ukraine and Romania will total just 20-40% of normal assuming the 10-day forecast verifies. Pattern changes are needed.
- Fair value is pegged at $10.25-12.00 basis spot KC/Chicago into late spring. Upside rises to $13-14 if Russian sanctions stay intact in the second half of 2022. Additional cover is advised on sharp corrections as the market does not enter a lasting bearish trend until massive N Hemisphere acreage expansion is confirmed in late 2022/early 2023.