- HEADLINES: Chicago grain markets correct; Except for wheat due to coming Plains dryness. Two steps forward, one step back price action.
- Chicago ag markets are mixed at midday with wheat trying to hold onto overnight gains while corn/soybean futures sag in a correction of the recent rally. The volume of Chicago trade is well below recent days as a 3-day weekend looms and traders are adjusting their risk downwards. July corn has fallen into support below $6.30 with July soybeans also testing support below $14.80.
- Adding to the selling is the macroeconomic background with JP Morgan Chase CEO Jamie Dimon hinting that the world banking crisis is not over, and it will cause repercussions for years to come in an annual letter to shareholders.
- However, Dimon also stressed that that this is not the 2008 global financial crisis. The worry over shrinking lending has sparked selling across a host of asset markets. The war against inflation produces a choppy Chicago trade, even with US corn/soybean stocks historically tight with heady ethanol/soy crush margins. We look for a lower Chicago close today with short covering late in the day. Threatening weather for HRW wheat and expanding biofuel demand underpins Chicago wheat and old crop corn on weakness. It is the wrong time of year to sustain a downtrend in Chicago, but the macroeconomic outlook keeps traders from chasing rallies.
- The USDA did not announce any daily gain sales for the first time in over 2 weeks. China has finished its corn purchase program (for now), but questions abound on the quality of the 2023 Argentine corn/soybean crops that were acutely stressed by weeks of drought. Argentine crushers are hoping that Wednesday’s soy dollar announcement comes at a time when farmers will sell old crop supplies, not new crop. Crushers are not pleased with the new crop quality and desire the old crop to blend it off.
- Chicago brokers estimate that funds have bought 1,000 contracts of wheat, while selling 7,600 contracts of corn, 6,400 contracts of soybeans, 5,400 contracts of soyoil, and 4,300 contracts of soymeal. The fund selling was active in the opening minutes of the morning trade.
- US HRW crop estimates will continue to decline amid the forecast of hot/dry weather into mid-April. High temperatures in the 80’s to lower 90’s will further stress HRW wheat and boost abandonment. The combination of wind, drought and heat is exactly the wrong set up for Plains HRW wheat. Producer sources indicate that the N Texas/Oklahoma crop will start to head in 10-14 days. Rains are desperately needed or US all winter wheat yields could fall to levels like last year. And Plains feedlots booked wheat for feed a few weeks back, questions abound whether that feed wheat will be available without a dramatic change in the weather forecast. An ongoing drought will push July KC wheat up to their winter highs at $9.25-9.50. The lack of wheat for Plains feedlots suggests stronger feeding demand of US old crop corn.
- The US Plain’s drought increases the importance of keeping open the Ukraine Grain Export Corridor in mid-May. We have concerns over recent Russian actions in the exodus of multinational firms from Russian grain trading and what it implies for the corridor. Our concern is that Russia will not renew the pact.
- The latest weather forecast is bone dry for the Plains over the next 10 days with strong winds forecast this weekend before temperatures rise to the 80’s to lower 90’s next week which will add HRW wheat stress. The coming warmth allows the Central US corn seeding on a timely basis across Iowa/Illinois and Indiana. However, the active snowmelt in the N Plains and Upper Midwest will produce regional flooding. The 11–15-day forecast offers rain of 0.5-1.50” into the W and C Plains.
- A correction was needed, but today’s decline is an overachiever. Ahead of a new Northern Hemisphere growing season, it is too early to be overly bearish. Cash basis is rising on the decline suggesting that end users would take on new ownership. The May/ July corn spread is back pushing out to a 23.5 cent premium, which is telling you to buy the break. May-July soybeans are trading at a 30 cent premium.