- HEADLINES: Chicago futures rally as shorts purge positions in May futures ahead of options expiration Friday; Wheat lags on US non-competitive position.
- Chicago futures are mixed at midday with corn, soybean and wheat futures trading either side of unchanged. July corn has taken out the overnight low and the high on expanding volume at midday. The upside reversal pattern in corn is helping to buffer yesterday’s lower close after scoring new contract highs. May soybeans are back to testing their contract highs with the $17.59 March high looming as an upside target.
- The fundamental bull market, wheat, has been the day’s dog as the charts turn down and US wheat is non-competitive in world trade. The drought is ongoing, but Paris wheat futures closed lower which is pressuring Chicago. It is the EU wheat market that traders are focusing on. Wheat needs to be rising if the entire Chicago floor is to push to new contract highs.
- It does not require much volume to push Chicago valuations either higher or lower amid the lack of resting orders. We would note that Chicago trends are up and algo momentum buyers will push the “green” button based on prevailing price trends. Until the market pushes back against the Algo traders, the momentum buyers will keep Chicago values well supported. We look for a mixed Chicago close and that one must be careful about chasing and buying this rally effort.
- Chicago brokers report that funds have sold 3,100 contracts of wheat, while buying 4,500 contracts of corn and 5,100 contracts of soybeans. In the products, managed money has bought 2,100 contracts of soyoil and 1,900 contracts of soymeal.
- US exporters report that China has booked 3-5 cargoes of US soybeans off the PWN with 1 cargo sold from August and the remining 2-4 cargoes sold for September/October. The Gulf has been quiet with only nominal interest. Importers and end users are only booking what they immediately need amid the hope for improving Northern Hemisphere weather, getting seed in the ground, and weakening cash bids. US cash basis bids for corn/soybeans are weakening in the E Midwest. Ethanol producers, soybean crushers and livestock producers have positive margins, but $8.00 cash corn and $17.50 cash soybeans are causing altitude sickness for short bought end users. It is the cash short that will place the seasonal top in Chicago futures.
- US ethanol production slipped to its lowest level since September amid the lack of rail cars and tankers to move supply. The cut in rail availability is having a negative impact on US ethanol weekly production. US ethanol stocks are in retreat on the smaller production. US weekly ethanol production was off 278 million gallons vs 293 million gallons last week and slightly above last year. The US now needs to produce 300 million gallons per week to reach the USDA annual corn grind forecast of 5,375 million bu. We will be adjusting our 5,400 million bu grind lower due to the deepening rail issues and tightness in rail car availability.
- The midday GFS weather forecast is further south and further north with heavy rains (10 day amounts) which will allow for spring seeding to expand in the middle (NE, IA, IL and IN). The Canadian Prairies need the rain as does North Dakota, but it would be better that the rain occur after the crop is planted. The forecast is warmer over the next 2 week with cold Canadian air being lifted northward. Seed will enter the ground, but the pace will not catch up to normal and the dire Plains drought looks to worsen.
- It is all about being short in May corn/soybean futures. Option expiration on Friday and the coming first notice day (April 29) is spurring shorts to exit May futures and replace their sales in a new crop position. This is pushing bull spreads and the front end of corn and soybean futures. Speculative inflows are modest, and we would not chase (buy) corn/soy futures on the midday rally.