- HEADLINES: China cancelled two cargoes of US SRW wheat; Funds cover shorts on charts; GFS Brazilian weather forecast slightly drier.
- Chicago futures are higher with corn, soybean and wheat futures all engaged in the rally with corn rising above its 20-moving average for the first time since December 12. May corn pushed against the February lows at $4.40 while the 50-day moving average crosses today at $4.51. It will take a push above the 50-day to alter prevailing bearish corn price trends. Soyoil has also pushed above its 20-day moving average. The market is short covering ahead of the March USDA report tomorrow. Traders are aware that USDA historically has used the March report to make their largest adjustments of the crop year to S American crop sizes.
- The USDA announce the cancellation of 130,000 mt of US SRW wheat to China for the 2023/24 crop year. The cancellation had been rumoured but doubted. China shipped out a cargo of US SRW wheat last week with total export commitments now falling to 1.785 million mt with 1.2 million mt of the sale still open. Traders are now alert to the potential for additional cancellations or forward pushes of China wheat purchases to a new crop position. The cancellation of US SRW wheat is something of a wet blanket over today’s market. The May KC/Chicago spread has pushed back out to a 38-cent premium after trading at even money just 2 weeks ago. Chicago March wheat is placing carry back into the market of 8 cents vs May.
- Chicago brokers report that funds have bought 1,800 contracts of Chicago wheat, 7,100 contracts of corn, and 5,600 contracts of soybeans. In the products managed money has bought 3,400 contracts of soymeal and 3,900 contracts of soyoil. A close above $46.12 May soyoil (last week’s high) would be important chart wise. The 50-day moving average in May soyoil futures crosses at $47.06. The last time that May soyoil closed above its 50-day moving average was back on September 15 last year.
- For their respective crop years to date, the US has sold 677 million bu of wheat (up 38 million or 6%), 1,544 million bu of corn (up 338 million or 28%), and 1,449 million bu of soybeans (down 339 million or 19%). The soybean and corn sales pace are on track to reach USDA’s annual forecast depending on the size of 2024 S American crops. A Brazilian soybean crop of less than 145 million mt or corn crop less than 117 million mt would push additional export demand to the US in an old crop position. We do not expect that WASDE will make any big adjustments on US corn/soybean export estimates tomorrow. But if the final 2024 Brazilian soybean crop is 150 million mt or more, a further downward adjustment in the US soybean 2023/24 export forecast to 1,680-1,710 million bu is advised. WASDE in February measured US 2023/24 soybean exports at 1,720 million bu, and we have already cut our export forecast to 1,690 million bu based on pace.
- The midday run of the GFS weather model is slightly drier for Northern and Central Brazil with less rain of 0.25-1.00” over the next 10 days (vs the overnight run). The GFS model has been erratic on its run-to-run S American forecasts for most of the past week. Our bias is towards the drier and consistent EU model solution. Elsewhere, favourable finishing rain helps Argentine crops into mid-March.
- It has been a green morning in Chicago, but the Chinese wheat cancellations are holding values back in Chicago wheat on the fear that an additional 2-4 cargoes could also be cancelled. Most expect that China will go forward with remaining US SRW wheat purchases, but sourcing the US supply became difficult prior to new crop.
- Whether China sources cancelled US wheat from Australia or France in the coming weeks will be closely followed. Otherwise, whether the overnight rally continues depends on Friday’s USDA WASDE report. The bearish side of Chicago has become very crowded, and the risks of weather/short covering rallies is growing as spring planting approaches. Fundamentally, the strongest bull case can be made for vegoils on tightening world supplies. GASC wheat tender news is awaited.