12 April 2023

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HEADLINES: Bull spreads rule on cash strength and forward Chicago wheat roll; Snows again for IA/MN this weekend; China swaps for US soybeans from Argentina.

 

  • Chicago futures are mostly higher with soyoil being dragged to the downside on oil share spread unwinding. Strong cash basis bids are underpinning nearby May corn/soybean futures while wheat values rise on the potential closure of the Black Sea export corridor and the deepening drought across the C and S Plains. The market has been choppy, which is limiting trading volume. We look for a mixed to mostly higher Chicago close with open planting weather and bull spreading pressuring new crop corn/soybean futures. The battle is between tight old crop supplies and bearish new crop planting weather.
  • The US Labor (sic) Dept showed the US Consumer Price Index rising 0.1% in March, with an annualised rate of 5%. Excluding food and energy, the core CPI rose 0.4% in March and 5.6% annualised. The March 0.6% gain in housing costs was the smallest since November. The modest rise in the CPI implies that the US Central Bank could raise its lending rate by 0.25% in early May or wait for the annualised rate of the CPI to decline in coming months. The point is that the US Central Bank is nearing an end of its rate hiking cycle, which is bearish for the US$. The US dollar is in a bearish trend which should accelerate.
  • Spreading in wheat has been massive overnight and during the day session. Funds are moving their short position forward as the Goldman roll is ongoing. Funds have spread at least 14,000 contracts of May/July wheat. The bull spreading in Chicago wheat has spilled over to corn and soybeans amid the strong cash markets. Today’s Chicago price action has been more about spreading than flat price trade.
  • Chicago brokers report that funds have bought 2,400 contracts of Chicago wheat, 2,700 contracts of corn, and 4,200 contracts of soybeans. In soy products, funds have bought 1,000 contracts of soymeal and sold 4,300 contracts of soyoil.
  • The weekly EIA Biofuel report showed that 282 million gallons of ethanol were produced last week, which is down 4% from last year. The US needs to produce 299 million gallons of ethanol per week to achieve the USDA annual usage forecast of corn. US ethanol production margins have surged and are at their best levels since May of 2022. US ethanol production seasonally gains into July. US gasoline demand is holding strong at 8.94 million barrels/day with US gasoline stocks down 5% from last year at 222.2 million barrels. The driving season is ahead with energy prices tending to rise into early June.
  • There are rumours that soybean sellers to China are swapping Argentine soybeans for old crop US soybeans due to quality. A cargo sold yesterday, and another has this morning. Argentine crop quality issues abound with soy crop estimates in decline due to disappointing early yield data. China is importing the soybeans for their reserve and there is a timeline on when these imports must arrive.
  • The GFS weather forecast at midday is colder/wetter for the NC US with 2-12” of snow projected to fall across portions of IA/MN this weekend. Snow amounts lessen into WI with low 30’s to produce a frost southward into S IA and C Il on Sunday/early Monday. Warming and dry weather follows which will produce a rapid snowmelt. A second potent storm is due late next week which produces 0.5-2.00” of rain across IA/MN/N IL/WI. Temperatures stay seasonal through April 25t with limited precipitation for the Central and Southern Plains HRW wheat.
  • It has all been about bull spreading in wheat/corn and soybeans. The Brazilian Real has fallen to 4.94:1 US$, the strongest level for the Real in years. This has shut off Brazilian farm sales as cash soybeans in real terms are down 20 cents/bu vs the recent day Chicago rally. The falling US$ has fund managers looking at commodities once again for new investment.