- HEADLINES: Corn/wheat pace rally on soy/grain spread unwind; Did China buy Brazilian corn.
- Chicago grain futures are mixed at midday with traders taking profits on long soy vs. grain spreads that worked late last week. S American soy export offers are becoming hard to find with crushers bidding hard for available cash beans. And Russia’s rejection of a Ukraine food corridor leaves the world exceptionally short of cash wheat/corn with July being the month that Black Sea wheat exports seasonally starts to ramp up. Ukraine finds itself awash in grain with no means of marine export. Shipping Ukraine grain into Europe and then re-exporting the supply out through Romania is costly, complicated and will be tested by the arrival of Romania’s own new wheat harvest in a few weeks.
- World wheat fob values did not follow Chicago or Paris wheat futures lower late last week. Argentine and Australian wheat export offers have surged to new highs ($500/mt fob Argentina) with the EU offers sitting at an historical high. US wheat gained competitiveness on the Chicago break, but it is the EU that will fill fresh world wheat demand. Importers will only book Russian wheat on a spot basis of they have a vessel in hand.
- End users have limited forward coverage and are hoping for a seasonal decline to secure their needs. We doubt that seasonal price trends mean little in this world that finds itself increasingly tight on grain/oilseed supplies.
- We look for a firm Chicago grain close with today’s weakness in the complex being temporary. The price risk in the marketplace is to the upside amid dryness across Northern China, Europe, and North Central Brazil. Too cool/too wet weather is pushing more than 50% of Canadian seedings into June. Mother Nature has been anything but kind to grain producers during April/May. And US soy crush/corn ethanol grind margins are near record highs which will cause a bidding war for old crop corn/soybean supplies. The world is on the doorstep of a food crisis should US weather be less than favourable in June.
- US export inspections for the week ending May 19 were 66.9 million bu of corn, 21.1 million bu of soybeans, and 11.4 million bu of wheat. The US has now shipped out 1,607 million bu of corn (down 325 million or 17%), with soybeans at 1,803 million bu (down 271 million or 13%), with wheat exports at 723.3 million bu (down 196 million or 21%). We would point out that Census US corn exports through March are running a massive 266 million bu above FGIS inspections due to the record amount of US corn that is being imported by Canada.
- Rumours abound that China booked Brazilian corn in recent days for September/October shipment. The tonnage involved is estimated at 250-400,000 mt according to commercial sources. The US Gulf is virtually sold out on elevations for September/October and China needed the corn ahead of their own harvest. China/Brazil do not have a publicly signed phytosanitary agreement for corn, but since SinoGrain is said to be the buyer, such an agreement should be in the works with an announcement to be forthcoming.
- China lost Ukraine as a corn supplier in late February due to the Russian invasion and is trying to diversify their corn sources. S American sources also report that Argentina has withdrawn corn export offers this morning due to a tightening of cash supplies due to a drop in harvested yields. Also, rumours persist that Argentina could be preparing for a hike in export taxes to help bring in additional hard currency.
- The midday GFS weather forecast is drier in the Plains, Delta, and SE US. Cool temperatures prevail this week with heat returning to the S Plains next week (and into mid-June). A high-pressure ridge is seasonally building across the Southern US Plains which should push northeast into the W Midwest. Heat looks to be a feature of the Central US weather for the next 45 days.
- Northern Hemisphere wheat exporters will be exceptionally short of supply with a further fall in the EU wheat crop. We see the EU wheat crop at 128 million mt vs. the USDA’s May forecast at 136 million. And Brazilian corn is also in retreat amid a dire drought. And now China’s wheat crop is being hurt by drought. The risk vs. reward is new highs in Chicago corn, soybeans, and wheat into mid-June. Any setbacks are temporary.