- HEADLINES: Wheat, soy extend decline; nearby corn, soy spreads continue rally; Spot wheat-corn spread drops to $0.35/bu.
- Wheat and soybeans have extended this week’s collapse based broadly on international cash markets. The Brazilian soybean pipeline is full, with talk of elevators in Parana halting near-term purchases amid full bins. The European wheat market continues its leak lower as exporters there work to clear old crop stocks, while Russian wheat remains priced to sell at $275-280/mt, basis fob, which compares to $300 in late February. Brazilian soy exports have been slow to build since early Feb, but we would remind that basis at Paranagua tends into bottom seasonally by mid/late April and the market there should find balance in the weeks ahead as exports accelerate. Additionally, the Chinese pig market has stabilised following weakness late February’s decline. We maintain that the intensity of speculative selling/liquidation is not aligned with fundamentals. Note that nearby spreads continue to perform, with May-July Chicago corn now at $0.20/bu and May-July soy at $0.22.
- Spot WTI crude is up $0.50/barrel at midday and has crawled back above $70. Spot RBOB gasoline is up $0.50/gallon following a rather steep decline in stocks last week.
- US motor gasoline stocks on March 17 totalled 229.6 million barrels, down 6.4 million from the previous week and down 4% year-on-year. Total gasoline disappearance last week totalled 62.7 million barrels, vs. 60.2 million the previous week and up 4% on the prior year. Retail gas prices are not high enough to discourage driving and a normal travel season is anticipated this spring and summer.
- US ethanol production in the week ending March 17 totalled 293 million gallons, down 5 million from the prior week and 6 million below the pace needed to hit USDA’s target. There is nothing special in weekly/monthly US ethanol data, but stocks have peaked and will be drawn down rapidly over the next 3-4 months. Margins are slightly profitable and a normal seasonal boost in weekly ethanol grind rates occurs in May, June and early July. We are in agreement with USDA’s projected ethanol demand draw at 5,250 million bu.
- This conclusion of this week’s Fed meeting this afternoon will be the most closely scrutinised in months. Rate hikes were guaranteed throughout summer, autumn, and winter, but a trickier balancing act lies ahead. There are various reasons for the failures of Silicon Valley Bank and Credit Suisse, but there is no doubt the falling value of long-term bonds is stressing the US and global banking sectors. The market anticipates a hike in US benchmark rates today of 0.25%, but if the Fed opts to keep rates unchanged a flood of money is likely to enter the raw material space into mid-spring. The S&P 500 is flat at midday.
- The Central US weather pattern looks to stagnate into the first week of April. Heavy rainfall upward of 3-6” is forecast across a band stretching from southern MO to OH this weekend. Additional snow will be scattered across the Central Plains and Midwest March 28-29. Frigid temperatures stay in place across the PNW, N Plains and Upper Midwest throughout the next 10 days. A drier and much warmer climate profile will be required soon thereafter.
- The GFS weather forecast is like the morning run in calling for lingering heavy shower activity across Argentina into the weekend, while meaningful precipitation in Brazil stays confined to Mato Grosso and RGDS in the far South. The outlook remains favourable in that yield loss in Argentina is stabilised, but unlikely to improve, while dryness in Central Brazil facilitates safrinha corn seeding.
- Spot Chicago wheat’s premium to corn has fallen to just $0.35/bu, which is historically cheap. Spring/summer end user coverage is recommended at current levels. There is very little weather premium built into price currently, and the importance of US weather this spring and summer cannot be overestimated.