- HEADLINES: Early rally fades as China demand for US corn off the PNW cannot be confirmed; GFS weather forecast drier for NC Brazil.
- Chicago grains are higher at midday. Short covering and selective speculative buying rallied Chicago futures ahead of March first notice day on Thursday. We suspect that short covering could lift Chicago valuations into Wednesday with actual delivery intentions then determining if a correction is needed later in the week. A seasonal low has likely been scored with the break below $4.00 March corn and $11.25 in March soybeans on Monday, but new US export demand news and/or confirmation of smaller S American crops is needed to sustain a recovery. Chicago futures became too cheap amid the liquidation of cash related long March corn/soybean positions, but a fundamental trigger is lacking to scare the bears. We look for a higher Chicago grain close (values unlikely to finish near day’s high) which leaves the market vulnerable to a break.
- There have been rumours that China has purchased a modest amount of US corn off the PNW for April/May. We cannot confirm any US sales. As we suggested on Monday, China did release TRQ’s to the corn and livestock industry late last week which is causing purchases of Ukraine corn. US PNW corn could work due to rising vessel costs, but we doubt large US corn tonnage sales. PNW cash corn basis is firm to 5 cents higher at midday.
- Chicago brokers report that managed money has bought 6,200 contracts of wheat, 4,400 contracts of corn, and 3,900 contracts of soybeans. In the products, funds have sold 1,900 contracts of soymeal while buying 3,200 contracts of soyoil. Money managers were said to have bought 5,800 contracts of the July $12.60 soybean calls and 2,500 contacts of the July $12.40 calls overnight which started the bullish ball rolling. The call buying is likely new money coming into Chicago grain markets.
- Brazil’s corn ethanol industry is enjoying rising profits on sliding corn values. IMEA forecasts that ethanol production margin grew by 37% during February on the slide in the price of corn. The rising margin will boost the Brazilian corn grind which could reach a record this year amid tightening supplies of sugar. Domestic total Brazilian corn demand is estimated at 77-79 million mt with 14 million coming from ethanol. This means that any production losses from adverse weather will come right from export demand. USDA forecasts that Brazil will export 52 million mt of corn, down 4 million from last year using a crop harvest of 124 million mt. We see the crop at 119.3 million mt with CONAB forecasting the Brazilian corn crop at 113 million mt, a sizeable 11 million difference.
- The USDA sold 123,000 mt of US soybeans to an unknown destination in the 2023/24 crop year. Rumours have the buyer being Mexico. Rising ocean freight rates is tipping this demand back to the US for late summer.
- The midday GFS weather forecast is slightly drier across North Central Brazil with 10-day rainfall of 0.75-1.25” which is just 40% of normal. Northern Brazil is drying down which must be followed closely for winter corn production. To date, corn is too immature for outright worry, but in another few weeks that could all change. The Southern third of Argentina is also in need of moisture, but it is not critical based on last week’s rain. No lasting extreme temperatures are forecast with highs ranging from the 80’s to the mid 90’s. It is North Central Brazil dryness that is worrisome.
- As previously reported, China has purchased 8-12 cargoes of Ukraine corn, but a US corn sale off the PNW cannot be confirmed. Oil share spreading is noted which is helping soyoil futures hold early day gains. Wheat pushed above Friday’s high, but Russia fob wheat values are flat. The US market needs to see a bottom in Russian wheat to sustain a lasting recovery. Volatile weather is forecast across the Central US. Blizzard warnings are posted for the ND/MN border with gusty winds to stress HRW wheat in the Plains. The record warm winter statistically correlates to Central US summer heat. Be prepared for volatility.