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Weekend summary 17 May 2019

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Fund positions disaggregated data

• Chicago corn, soybean and wheat are adding weather premium for future US supply losses. July corn has rubbed up against Wednesday’s high at $3.80 with futures carving out a key reversal. Wheat and soybeans have followed amid new end user pricing and managed money short covering. Funds have covered an estimated third of their Chicago short corn/soybean/wheat short positions. It will take weeks before managed money has completely covered their bearish Chicago bets. The volume of Chicago remains robust, and surprisingly, Chicago final corn open interest rose on Wednesday. It appears that farmer selling of cash corn is helping to balance some of fund buying. Farmers are using the rally to sell corn while they are continuing to store 2018 soybeans.

• Estimates suggest that US farmers will have seeded 48-52% of the US corn crop through Sunday (May 19), up some 18-22% from last week, but well behind historical averages that are near 90%. Amid the forecast that is extremely wet for next week, we look for US corn seeding to be 62-67% completed on May 27. This leaves 30% of the intended 2019 US corn crop to be seeded after June 1, 28 million acres, when US corn yield drags are projected to reach 15%. US soybean yield potential also falls 15% for beans planted after June 1.

• If you assume a 15% decline in US corn and soybean yields for early June seeding, it would amount to another 700 million bu of lost corn production and potentially as much as 380 million bu of soybeans (assuming 40% of the US soybean crop is seeded on May 27). The supply impact on soybeans is larger than corn amid their latent seeding pace and the coming heavy rains next week. There likely would be some gain in US soybean seeding from corn, but this all depends on the number of acres that US soybean farmers enroll in Prevent Plant (PP). Remember that most US soybean farmers do not have any fertiliser or chemicals down, which makes the PP option very attractive.

• US Weekly Export Sales for the week ending May 9 were; 4.2 million bu of old crop and 15.4 million bu of new crop wheat, 21.8 million bu of corn, and 13.6 million bu of soybeans. China shipped out another 4 cargoes of US soybeans last week as they continue to execute on prior purchases. There is no indication that China is NOT going to ship out their existing US old crop soybean purchases of 7.1 million mt, after last Friday’s breakdown in US/China trade talks.

• NASS will start releasing US corn/soybean crop conditions when more than 50% of the crop has emerged. We doubt that that will occur until the second week of June. And amid all the rain/cool temperatures, corn in the ground looks ragged with populations said to be down from last year. The point is that producers and others are not going to rate the 2019 US corn/soybean crop anywhere close to prior years for which the algos will estimate falls in yield potential.

• The midday GFS weather forecast is just as wet as the overnight run, but the heavy rain is farther south and east into E IA, MO and the northern half of IL. This area could endure 3.50-7.00″ of rain over the next week that would induce widespread ponding/flooding. The N Plains and the remainder of the Midwest would see rains of 1.50-3.00″. A trough/ridge pattern holds across the US with the strength of the SE ridge being slightly weaker than the overnight run. This allows for a frontal boundary to be farther south and adversely impact the Midwest areas that are wet (and well behind on seeding). The wetness dramatically raises the risk to US winter wheat in heading/blooming. This not the forecast that farmers wanted.

• Weather is all important with excessive rainfall and another round of cool temperatures to limit US spring seeding next week. Any crops planted in June have significant yield drags (15% for corn/soybeans) and the market will have to encourage producers NOT to wholesale accept the PP to maintain adequate US 2019/20 corn stocks. Soybean futures could get spicy if more than 50% of the US soybean crop is to be planted in June. This is a supply driven bull.

• Chicago ag futures have largely sustained the overnight rally, though after funds bought/covered an estimated 45,000 contracts of corn, 22,000 contracts of soybeans and 10,000 contracts of Chicago wheat, new buying has slowed somewhat. We also mention that RSI levels have recovered substantially and quickly in spot corn and wheat. Markets won’t break in the near term unless a much drier pattern develops in late May, and this remains unlikely.

• This week’s EIA energy report was supportive ethanol and slightly bearish crude. Through the week ending last Friday, US ethanol production totaled 309 million, up 3 million on the prior week and the highest since mid-January. Despite the boost in production, weekly ethanol stocks fell another 7 million gallons. Since the middle of March US ethanol stocks fallen 90 million gallons, or some 9%. Weekly ethanol stocks/use is lowest since November. Futures-based production margins are modestly in the green despite the surge in corn value.

• US crude stocks continue build. Crude stocks last Friday were up another 5 million barrels on the prior week and sit 9% above early mid-May a year ago.

• No new US exports sales were announced this morning. Algeria secured a sizeable 500,000 mt of optional wheat at $201/mt, including cost and freight. This was very likely French origin and is a pretty aggressive price.

• Chinese economic data in April was weaker than expected. We have no way of knowing whether coming US and Chinese data points will be used as leverage in any continued negotiations, but China’s economic data suggests growth has been struggling. Chinese retail purchases in April were up 7% on the year, which is the lowest year-on-year growth since 2003. Chinese industrial output in April was up 5.4% year-on-year, vs. expectations of 6.0-6.5%. Chinese industrial output has been trending lower since early 2018.

• Australia has confirmed it has provided a license to import wheat from Canada. Aussie cash wheat prices have been declining for some time, along with the world market, but there are strong barriers to grain imports there, and so the recent transaction is getting attention. El Niño is losing steam, but longer-term soil moisture trends in Australia remain worrisome.

• Heat in Central Russia will end as high-pressure ridging exits the region beyond the next few days. A cooler pattern will take its place in the 6-15-day period. May rainfall in key areas of Russia’s winter wheat belt will be very close to average but a far cry from incredible precipitation (and yields) seen in 2016 and 2017.

• Newly released climate forecasts from the International Research Institute maintain above normal precipitation in the Jun-Aug period across the Plains and Western Midwest. NOAA monthly guidance is still very wet in the Plains/W Midwest in June. There is also a risk of heat/dryness in Europe this summer.

• The midday GFS weather forecast is drier in IA in the 8-14-day period but otherwise unchanged. There is still no hint that drier weather develops between now and the end of the month. Three major rain events are expected in the next two weeks. The first system lingers across the E Plains and Midwest Sun-Wed.

• US production ideas are declining fast. A Central US drought is very unlikely this year, but the nearby forecast includes very few days suitable for fieldwork between May 18-31. This is particularly the case in MO, IA, MN, IL and WI. The market has to work to incentivise late planting in the near term, or else the corn balance sheet tightens significantly on lost acreage and yield potential. A further rally Thursday triggers chart-based short covering. US climate comparisons to 1993 are gaining traction.

• The summer row crop markets have finally realised that farmers might not get all of their intended acres planted. Current prices are not encouraging producers to take on the risk, but more importantly, the forecast shows widespread coverage of 2-4″ rainfall across the Cornbelt. Prevent plant insurance will come close to a break-even payment for many farmers, but the market’s job is to encourage them to take on the risks of planting a crop. For many acres, that opportunity may not occur until June, when stiff yield penalties can be expected.

• Chicago soybeans were sharply higher overnight, and the rally continued through the day on fund short covering. Following the recent collapse in prices, China trade is no longer the market focus, rather planting delays and a wet 10-day forecast is getting attention. Low prices and planting delays are not incentivising farmers to go to the field, but encouraging them to take crop insurance options. NOPA will release crush data for April on Wednesday and ahead of the report crush estimates range from 158-164 million bu. This is down from 170 million bu in March, but also a record processing rate for the month of April. The Chicago crush spread averaged just over $1/bu in April and has rallied to $1. 20/bu in May, which continues to support USDA estimates for a strong US crush rate into the end of the summer. Chicago soy markets have rallied from deeply oversold conditions. However, farmers report that if wet conditions persist past final planting dates, they will opt to collect insurance. A much stronger rally (and good conditions) are needed to convince farmers to plant crops.

• Chicago corn futures confirmed that a seasonal low was scored Monday morning. July corn today surged 12 cents and traded easily through its 20-day moving average. The 20-day average has provided major resistance since late March. Additional resistance lies between $3.70-3.73. A close above this will likely trigger accelerated fund short covering. Planting progress is the third slowest on record. Widespread soaking precipitation returns to the heart of the Corn Belt this weekend/next week. Progress into late May will be limited. It is now the goal of the market to attract all possible acres. This year’s revenue insurance price was posted at $4.00. Only meaningfully higher prices provide incentive for producers to take the risk of extremely late seeding. Black Sea weather has become immediately more important. Any additional Northern Hemisphere production loss tightens the major exporter balance sheet further.

• US futures wheat rallied another 5-13 cents. Potential major corn production loss is a driver, but a number of wheat production risks are also occurring. It seems there is another week of rapidly spreading disease risk in the US. Near term heat and dryness will trigger steep soil moisture loss in Ukraine and Southern Russia over the next 10 days. Spring wheat areas of Russia will see too much rain and bitterly cold temperatures into late May. Work suggests major exporter wheat supplies will be adequate in 2019. Close attention needs to be paid to whether Black Sea soil moisture loss extends beyond the next 10 days. And cash HRW across the W Plains is valued at level money with corn. Wheat is fundamentally cheap below $4.50, basis July CME, until milling quality supply is known. Russian cash prices are up slightly today. The whole of the world market is in the process of forming a bottom. Major import tenders will return beginning in June.

• The news could not get any more bearish than on the opening with the US and China moving apart on a trade deal with both rattling their sabres with higher tariffs and new threats of tariffs. The worsening trade news has pushed the DOW to a 600-point decline while related stocks like Apple fell to sharp losses. The fear of a widening/lengthy trade war caused fear throughout the financial industry. Grain and soybean markets fell sharply with panic selling likely to be placing a seasonal low this morning. As we stated above, we doubt that the trade news will get any worse (than the opening) with China retaliating on $60 billion of US goods and the US starting a process to place another 25% tariff on $300 billion of additional tariffs (which will take months).

• We note that the new China tariffs won’t start until June 1 while the US’s 25% tariffs on $200 billion won’t start for a few weeks. The point is that both the US and China have left open a door for new talks and a calming of nerves. This is a glimmer of hope that may allow for new discussions. We had bought into the idea from USTR/Trump talk that a trade deal was close. That thinking was in total error as discussions have completely broken down.

• US weekly inspections for the week ending May 9 were; 39.4 million bu of corn, 18.9 million bu of soybeans, and 31.0 million bu of wheat. For their respective crop years to date, the US has exported 1,442 million bu of corn (up 73 million or 5%), 1,199 million bu of soybeans (down 445 million or 27%), and 837.2 million bu of wheat (up 3 million or .2%). Wheat and corn exports were above trade expectations.

• Prevent Plant (PP) discussions are becoming widespread across the Midwest and N Plains amid poor prices and the cool/wet weather. Although PP cut off dates are several weeks in the future, farmers are penciling that PP makes good economic sense if fertiliser has not been applied. Another consideration is farmers can still choose for PP for their crop mixture. Farmers can switch soybean intentions back to corn and receive a larger payout. This means that US PP is likely to not only impact corn, but also soybean seeding as producers calculate their financial options. We have cut our US corn acres to 91.0 million acres with PP estimated at 1.8 million acres. However, should the forecast verify, we estimate that US corn PP could reach 3.8-5.0 million acres which could reduce total US corn production as much as 670-900 million bu. This is area reduction only. Late seeding will also cut yield on the remaining acres arguing that as much as 800 million to 1.2 billion bu of US corn production could be reduced by a cool/wet weather and the poor price outlook.

• The Russian intervention price for wheat was announced and it works back to $185/mt fob. No tonnages were announced, but the Russian intervention price has acted to bottom the Black Sea market in recent years.

• The latest weather model run is cooler/wetter across the NC Midwest than the overnight run. The midday run reintroduces cooler temperatures into the N Plains and the northern two thirds of the Midwest with a general trough/ridge pattern reforming. The confirmed cool/wet weather offers limited opportunity for spring planting progress. The rains start Friday and continue every 2-3 days for the next 10 days. The pattern shows stability which is likely to keep the Central US wet well into early June. This is not the weather pattern that Midwest/Plains farmers desire.

• A seasonal low was likely forged this morning as the trade news reached extreme bearish limits. The market’s focus is now shifting back to 2019 US weather and supply. US farmers report that they are considering taking the PP option on a record number of US corn and soybean intended acres based on 5 years of record or near record yields that elevated their Actual Production History (APH) yields (amid the fear of low new crop bids based on a lengthy China trade war). It is easy to calculate how the US would lose 800 million to 1.0 billion of 2019 corn production amid reduced acres/yield. Even 2019 soy seedings could decline on PP.

• The USDA May crop report was viewed as bearish amid large US corn, soybean and wheat stocks. WASDE pegged 2019/20 US wheat stocks at 1,141 million bu, US corn stocks at 2,485 million bu and soybean stocks at 970 million bu. All combined, 2019/20 US corn/soybean/wheat stocks amount to 4,596 million bu (up 379 million bu from the current crop year). Although such stocks are not all that much larger, the impact on price via an ongoing trade war with China, has added to the downside price potential in the marketplace.

• World 2019/20 wheat/corn/soybean stocks were pegged at 720 million mt, up 8 million from last year with world wheat stocks up 19 million mt, while corn was down 11 million mt while soybeans held steady. The world stocks reflect a starting point for the 2019/20 crop year assuming trendline yield and normal forward weather.

• The 2019 US all wheat crop was forecast by NASS at 1,897 million bu, up 13 million with US winter wheat crop at 1,270 million bu with a yield of 50.3 bushels/acre. The KS wheat yield was pegged at 49 bushels/acre, up 11 bushels/acre from last year. The OK wheat yield was 35 bushels/acre, up 7 bushels/acre, while the TX yield was 33 bushels/acre, up 1 bushels/acre. The big gains in the SRW crop was KY at 75 bushels/acre, up 9 bushels/acre. Other states were close to 2018.

• US 2019/20 wheat stocks were forecast at 1,141 million bu, up 14 million from the old crop year. WASDE estimated 2019/20 US wheat exports at a meager 900 million bu. US wheat feed/residual was estimated at 90 million bu, up 40 million from last year amid the prospect of feed wheat production amid all of the rain. The average US farmgate price was put at $4.70/bu, down $0.50 from 2018.

• WASDE pegged 2019/20 US corn end stocks at a hefty 2,485 million bu assuming trendline yield of 176.0 bushels/acre. WASDE did not use their yield model based on weather conditions to date. US total corn supplies at 17,160 million bu are record large with a 2019 crop just over 15 billion bu. WASDE pegged US corn feed/residual at 5,450 million bu with exports at 2,275 million bu. Total demand was placed at 14,675 million bu which is up 175 million bu from last year. The average US farmgate price was forecast at $3.30/bu.

• US 2019/20 soybean stocks were forecast at 970 million bu based on planted area of 84.6 million acres and trend yield of 49.5 bushels/acre. Such stocks are down slightly from the current crop year. US 2019/20 soybean total supplies were forecast at a record large 5,165 million bu. WASDE forecast total use of 4,195 million bu with exports of 1,950 million bu and crush of 2,115 million bu. WASDE cut their 2018/19 soybean export estimate to 1,775 million bu amid the tepid US export pace. Key will be how many soybeans China ships out of its 7.4 million mt of purchases on the books. The average cash price is forecast at $8.10/bu which is down $0.45 from last year. US soyoil stocks are forecast to tighten to 1,450 million pounds which will likely underpin soyoil values at current prices (and oil/meal spreads).

• In world production and trade estimates; WASDE pegged the 2019 Russian wheat crop at 77 million mt, Australia wheat at 22.S million mt, and EU wheat at 153.8 million mt. Russia was forecast to export 36.0 million mt of wheat in 2019/20, down 1.0 million mt.

• In corn, WASDE raised their Brazilian corn crop estimate to 100.0 million mt with Argentina at 49.0 million mt. USDA is well above the CONAB corn estimate of 95 million mt released yesterday. China was forecast to import 7 million mt of corn in 2019/20, the largest in years. We would argue that the China corn imports maybe WTO TRQ related, but China was only to import 3.5 million mt of wheat. If China was to follow the WTO agreement, they would take 9.7 million mt of world wheat annually.

• WASDE forecast that China would import 86 million mt of world soybeans in 2018/19 and 87 million mt in 2019/20 million mt. African Swine Fever is keeping any growth of China soybean imports at bay. WASDE is forecasting that Brazil will produce 123 million mt and Argentina at 53.0 million mt of soy next winter. China has booked a huge amount of Brazil beans in the past 48 hours with some saying 50 cargoes.

• The May USDA report offered a starting point for analysts heading into the heart of the growing season. In US corn, we would argue for 2 million acres less seeding and a drop of 5 bushels/acre in yield via excessive rainfall which would trim production some 700-750 million bu, thereby pulling US 2019/20 corn stocks closer to 2,050 million bu.

• In soybeans the world holds an abundance of supply, but $8.00 spot futures digests much of that news. And the world wheat market has an important 6-8 weeks ahead with the heart of the growing season ahead. The market will now totally focus on US/world weather and the dynamics of a US/China trade deal.

To download our weekly update as a PDF file please click on the link below:

Weekend summary 10 May 2019

• Chicago values are lower across the board, with spot soybeans falling below $8.00 for the first time since late 2008. Overnight news regarding China’s change to trade talks, along with there simply being few hours remaining before US tariffs on Chinese goods more than double have weighed on world raw material and equity markets.

• US and Chinese negotiators will attend a dinner together just hours prior to the US’s midnight tariff deadline. We are hopeful that a deal is struck amid elevated tensions, but the odds of a deal have been in retreat since Sunday.

• The Dow at midday was down 200 points. EU financial markets look to close nearly 1% lower. The implementation of US tariffs can be reversed if progress is made tonight, but remains deal or no deal in the short term.

• The primary issues are that tariffs on US ag goods, along with Swine Fever, will likely keep China’s total ag demand growth limited to nonexistent in 2019. It is the impact on the world grain/oilseed balance sheets that is so disheartening longer term.

• Other news is mixed. CONAB this morning raised its Brazilian soybean production forecast to 114.3 million mt, up 0.5 million mt from its April estimates. Total Brazilian corn production was lifted 1.2 million mt 95.3 million. CONAB’s corn harvest forecast was lower than market expectations, and compares to the USDA’s 96 million. However, the direction of the change implies S American corn surpluses are getting larger, not smaller. Favourable rainfall will impact Parana in Southern Brazil, a key safrinha area, in the next five days.

• US export sales through the week ending May 2 included 11.3 million bu of corn, vs. 23 million the prior week; net soybean cancellations worth 5.5 million bu, vs. positive sales of 12 million bu the prior week; and new crop wheat sales of 15 million bu, vs. 11 million the previous week. For their respective crop years to date, the US has sold 1,825 million bu of corn, down 10% from this week a year ago; 1,653 million bu of soybeans, down 18% from a year ago; and 939 million bu of old crop wheat, up 9% from a year ago and a normal 99% of the USDA’s forecast.

• New crop wheat commitments, excluding outstanding old crop sales, sit at 94 million bu, up 36% from last year and the highest in early May since 2015. New crop HRW commitments total 18 million bu, up 50% from this week a year ago. Gulf wheat is looking to compete for new crop world market share, unlike recent years. Gulf HRW for June-July arrival is $10- 15/mt below comparable EU origin.

• The midday central US GFS weather forecast is unchanged and features both the best planting window of the season so far and also the return of soaking rain to the Plains and Western Midwest beyond May 18. 5-7 days of dryness lie ahead for all areas. But following another round of soaking rainfall across the Upper Midwest and Illinois overnight, national planting progress will stay sluggish in the weeks ahead. Daily showers return to the Plains and far W Midwest May 18- 25. Cumulative totals through this period are estimated in a range of 1- 4″. Favoured areas will include KS, MO and IA. WASDE on Friday is likely to keep corn yield above 175 bushels/acre, but there is widespread talk that the USDA should already lower its yield expectation by some 3-4 au/acre.

• New crop balance sheets excluding Chinese demand imply a longer term dull, neutral marketplace.

• Chicago values are mostly lower as traders fret that the US/China are on a path to “no deal”. Reuters reported that China had redlined a good share of a 150-page document that outlined a 5-month effort to achieve a US/China trade pact. The official Chinese redline message was sent to the US Government late Friday. The Chinese back-down on pre-agreed written negotiations did not sit well with the USTR or President Trump which produced that now famous Sunday tweet. The Reuter’s story dropped financial/commodity markets in early morning trade.

• However, President Trump tweeted that VP Premier Liu He was coming to the US to cut a deal. And he claimed that the pullback from China was due to their “HOPE” that a Democrat would be elected in 2020. White House Press Secretary Sanders suggested likewise. Markets started to recover. The point is that the stakes for a US/China trade deal are extremely high with both sides interested in diffusing elevated trade tensions.

• China’s Trade Ministry is threatening that it will raise US tariffs in an immediate retaliation (if the US increases Chinese tariffs to 25% on $200 billion of Chinese goods). It is our doubt that USTR will allow China to “slow walk” negotiations going forward. In our view it is “deal or no deal” and a deepening trade war if China does not want to ink the 150-page deal agreed to in Beijing last week. China needs to come back and sign what was already agreed to.

• A point not to forget; the US won a WTO TRQ case against China that will force them to secure 7.2 million mt of corn and 9.6 million mt of wheat. A no trade deal with the US will likely push China to secure this grain elsewhere. If China does not adhere to its WTO pledge, remuneration will be required for the current and past years dating back to 2002. China entered the WTO in Dec 2001.

• There is strong talk that Argentine corn is being booked into the SE US due to its cheap cost. Argentine corn works into the SE US livestock feeders on paper. The cheap cost of Argentine and Brazilian corn makes US corn expensive and US corn exports look high. We do not hear of large volume imports, but a few boats were booked for late summer and early autumn.

• Chicago brokers estimate that funds have sold 1,000 contracts of wheat, 5,000 contracts of corn, and 900 contracts of soybeans. In soy products, funds have sold 1,200 contracts of soyoil and bought 1,500 contracts of soymeal. Trading activity at noon is ramping down amid the uncertainty. The FAS weekly export sales report is expected to be slightly bearish on Thursday with slowing sales.

• The midday central US weather forecast is little changed from the overnight run with moderate rain to fall across the C and E Midwest over the next few days. Rain totals look to range from 0.4-1.50” with a few locally heavier amounts. The heavy rain falls across the Gulf States with totals of 1-4.50’ with some local amounts reaching 6-8.00”. Along with the flood waters on the Mississippi River, 2-4.00″ of rain will exacerbate the flooding. The good news is that following the rains over the next 48 hours a 6-7-day period of dry/cool weather unfolds that will help dry things out. The next storm system is not evident until May 20 with a potent system moving eastward across the Midwest which looks to produce 0.5-2.50″ of rainfall.

• For the next several days it is all about headlines, on US/China trade, on US and world grain and soy stocks, and Central US weather. US farmers report that it will be the middle of next week before widespread planting resumes with the forecast calling for the window to close on May 20. Long range forecasts can change, but the loss of US corn/soybean acres and yield would become more real after May 20. Headlines will be driving Chicago values into Monday.

• Mixed on reduced volume has been the morning with Chicago volume subsiding at noon. US stock values are sharply lower as the Trump Administration will raise tariffs against China on $200 billion of goods on Friday morning at 12:01am. The tariff increase will go from 10% to 25% as President Trump raises the stakes in upcoming China trade negotiations that starts Thursday.

• Amid the diminished trade uncertainty with China, traders are surprised that Chicago prices are rising. We would reiterate that funds are heavily short already and amid the cool/wet weather, US farmers are not sellers. This means that funds would have to add to their net short, and they are not doing so – at this time.

• Traders understand that with USTR to raise tariffs on Friday on $200 billion to 25%, and likely to include the entire Chinese/US trade (estimated at another $300 billion with like tariffs after 30 days in the Federal Register) if meaningful progress is not scored by in this week’s DC discussions, the time of dancing to a deal is passing. Blunt objects called tariffs and retaliatory tariffs are likely to produce a deal sooner than later. President Trump cannot afford to allow a trade war to fester into the 2020 US election.

• We look for a mixed Chicago close with the trade war rhetoric being ramped up.

• Friday is a big day for the Chicago with the USDA May Crop Report and US/China trade talks. Some traders suggest that the trade talks could continue into the weekend as they did in February. We would call this thinking as pure speculation on whether China brings something to the table that will extend the talks. The point is that funds are holding a record large short position and have a desire to take some risk off the table. That is the reason for Chicago recovery in our view as US farmers are not sellers of old/new crop cash grain at current prices.

• Stats Canada estimated March 31 stocks of grain/oilseeds at: 1.4 million mt of oats (down 33.4% from a year ago), 10.0 million mt of canola (up 10.5% from last year’s 9.1 million mt), and 15.7 million mt of wheat (down 4.3% last year or 16.4 million mt). The wheat and canola stocks were right on trade estimates, while oats were lower. The report was seen supportive to oats and broadly neutral otherwise.

• Argentine fob corn is offered at $0.08 cents over for July vs Brazil at 30 cents over, the US at 57 cents over and Ukraine at 65 cents over. There is an extra cost for loading of Argentine corn up river of 15 cents/bu, but overall, S America remains aggressive on offering corn.

• Argentine fob soybeans are offered at 15 cents under July compared against the US at 46 cents over and Brazil at 65 cents over. The big change is Brazilian soybean basis levels that have soared as the US/China struggle to reach a trade deal. The Brazilian premium to US soybeans forecasts that the odds of a US/China trade deal have declined dramatically from a few days ago.

• The midday Central US Midwest weather forecast is little changed from the overnight run with moderate to heavy rains across the W Midwest and through the E Plains and the Delta. Rain through the E Midwest looks to be more normal with totals of 0.5 – 2.00”. Our expectation is that the rains will be father east into IL and MO that what is being indicated by the GFS forecast. Cool to cold temperatures will hold across Canada, the N Plains and Upper Midwest for the next 10 days. The flow of cold air southward from W Canada. However, the jet stream shifts northward in the 10-15-day period which produces dramatic warming and excessively wet weather. We suspect the wet forecast is correct, but that temperatures will be notched down in coming runs.

• Short covering is lifting Chicago values as large fund managers reduce their risk as US equity values tank and a key USDA report is ahead, the May WASDE. It is a high stakes game of poker in US/China trade negotiations. The US will be increasing tariffs on Friday morning to 25% on $200 billion of Chinese goods. What will China do. We have reduced our expectations of a trade deal from 90% to 70%, but notice that we still lean in favour of a deal. It is now a question of timing.

• Following a sharply lower opening, Chicago prices have modestly recovered on a combination of fund short covering and end user pricing. The uncertainty of how China will react to US President Trump’s threatening Sunday tweets on trade is being debated within the industry. US stock market values have cut their losses in half, commodities have followed.

• The US/China trade deal chances were diminished by President Trump’s Sunday tweet. Will China go forward with trade negotiations and reach a deal with the US or will the Trump Administration move to raise and expand punitive tariffs on China. That is the big question for going forward.

• The Trump Administration has already gone through the process of itemising the Chinese goods that are or will be tariffed, and all the President needs to do is inform the US Congress and population through the Federal Register that new and elevated tariffs will be applied. This can be done in 24-48 hours. Traders will be watching to see if the Trump Administration follows through.

• We fear that amid the good US economy, that the Trump Administration decided on the weekend to seek more from the Chinese than they may be willing to give. The news is disheartening for US farmers amid poor profit margins.

• Chicago brokers report that funds have been general buyers since the 8:30 reopen. Heavily short fund managers saw the drop as an opportunity to bank a modest portion of their profits. Funds have bought a net 2,300 contracts of wheat, 3,100 contracts of corn, and 3,800 contracts of soybeans. Funds were likely sellers in the active overnight trade, but have been covering shorts amid the lack of farmer cash selling this morning.

• US export inspections for the week ending May 2nd are 38. 5 million bu of corn, 22.0 million bu of soybeans, and 17.6 million bu of wheat. All were in line with trade expectations. For their respective crop years to date, the US has shipped out 1,402 million bu of corn (up 95 million or 7%), 1,181 million bu of soybeans (down 437 million or 27%), and 804 million bu of wheat (down 13 million or 0.4%). We look for a drop in US corn and soybean export estimates from WASDE on Friday.

• How many will be in the Chinese Trade Delegation coming to Washington DC, and will Liu He attend. Those are the big questions that are being asked by traders this morning. In tweets, Trump mentioned the many years of the US losing $600-800 billion in world trade deficits and that China was a big contributor at $500 billion. The Trump tweets are raising trade tensions between the world’s two largest economies and worry that a trade deal is being lost. Unknown is whether there is a way forward following the months of negotiations that were reported as showing progress. US farmers are extremely frustrated.

• The midday Central US GFS weather model is farther east with rain and include more of IL than the overnight EU model. The forecast models continue to struggle with the exact placement of rainfall in the next ten days and a zonally flowing and strong jet stream. Heavy rains are slated to drop across the E Plains and through the Delta, but the GFS offers a break from the heavy rains for the E Midwest. Cool to cold temperatures will hold across Canada, the N Plains and Upper Midwest for the next ten days. The flow of cold air southward from W Canada shows no sign of abating. The cold and wet weather will continue to cause regional Central US planting struggles.

• Today is a prelude of longer-term US ag bear market if the US/China are unable to reach a trade deal later this week (or next week if talks are extended).  If China locks out US ag goods from its market through retaliatory tariffs, the future gets ugly. But there is still hope that a deal can be reached, it’s not over until it’s over. We remain hopeful.