17 May 2022

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  • HEADLINES: Wheat recovers on global weather threats; Midday GFS weather forecast features first tropical storm of 2022.
  • Chicago futures are mixed at midday, with wheat surging to newer highs while corn and beans struggle amid improved Midwest planting weather and a lack of new export news. FAS’s daily reporting system was absent for a second day, and while China does sit under the market with new demand, sources suggest buyers have been on the side-lines amid this week’s rally.
  • Other breaking news is absent, but weather continues to threaten Northern Hemisphere wheat production. There is just not much precipitation offered to the US Southern and Western Plains into the opening days of June. Nor is there any sign that abnormal heat will abate for any lasting period.
  • And drought in China has been building somewhat quietly, but April 1-May 17 precipitation across two-thirds of China’s winter wheat belt has been recorded in a range of just 20-50% of normal. Little/no relief is offered into May 26. And vegetation health maps now show conditions noticeably worse than normal in this region. USDA projects Chinese wheat imports in 2022/23 to be unchanged at 9.5 million mt, which honours their prior WTO commitment, but like so many regions it is the loss of wheat available for summer feed use that is a concern.
  • July and Sep corn futures in Brazil remain perched above $8.15/bu amid currency weakness, with the Real this morning falling to a two-week low. We have been surprised at the lack of harvest-based weakness in Brazil’s corn market. Argentine fob corn basis has fallen to test recent lows at $0.25 under Chicago futures, but harvest there is likely to reach 35-40% in the first half of June. That is when cash corn in Argentina typically scores its annual bottom.
  • Firm Brazilian corn prices along with surging global rapeseed and wheat markets indicate there are few alternatives to US corn and soy supplies available for importers in the long run. We also note that wheat importers are very poorly covered beyond early summer, and it remains that wheat’s rally to date has been more cantered on supply rather than demand. Pakistan and Bangladesh aim to tender for new crop wheat supplies in late May.
  • As an aside, global dairy markets are also in recovery following weakness in late April/early May amid the need for herd expansion in the US, Europe, and Oceania. The need for enlarged food and energy production will make rationing raw material more difficult and our near-term bullish outlook in large part centres on continued positive end user margins.
  • Paris milling wheat futures ended flat. Spot Paris corn rallied another €2.25/mt to close at €374.50/mt ($10.00/bu). WTI crude has fluctuated between modest gains and losses at midday.
  • The midday GFS weather forecast is much wetter in the eastern half of the US beginning late next week, but confidence in its solution is low. The GFS forecast has already been erratic with daily outlook in recent weeks, and the midday run features a fairly potent tropical storm working into the eastern Gulf May 27-28. Such a storm will disrupt the North American air pattern temporarily, and so much depends on the accuracy of this forecast. Updated EU and Canadian model output will be monitored closely.
  • Otherwise, meaningful rainfall into May 22 will be confined to a narrow swath encompassing MO, southern IL, IN and OH. A cooler temperature pattern is probable in area areas on the weekend.
  • We would advise awaiting corrections before adding to supply coverage, but we strongly doubt an intermediate top will be scored until/unless favourable Midwest summer weather can be confirmed in the next 30-45 days.

16 May 2022

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  • The halting of Indian wheat exports is a political decision but also confirms that the recent lengthy period of extreme heat has trimmed wheat yields significantly. Similar weather has plagued areas of Pakistan and Bangladesh, and a major retooling of WASDE’s South Asian wheat trade flows lies ahead. Recall USDA last week pegged 2022/23 Indian exports at a record large 8.5 million mt. Pakistan is forecast to import just 1.5 million mt, vs. 1.9 last year.
  • Our work would suggest that India will not be a net exporter and Pakistan’s import needs are likely to jump to 3-5 million mt. This reflects an 11-13 million mt swing in supplies in that region relative to the USDA’s current estimates. This is a big deal, and it remains that wheat markets worldwide must work to destroy some measure of global consumption this year while also working to encourage meaningful winter wheat acreage expansion this autumn. Wheat’s supply issue cannot be fixed in just one crop year. As such, it is very difficult to bearish of corn and other feed grains even assuming normal Jun-Aug Midwest weather.
  • HEADLINES: Spot Chicago/KC wheat locked limit up; Frost possible in S Brazil; Planting progress awaited.
  • Chicago ag futures have sustained overnight bullish momentum, with spot KC/Chicago wheat futures locked limit up following India’s banning of wheat exports, and as weather will continue to threaten winter wheat yields across the US Southern Plains and in Western Europe. There will be corrections in wheat, but increasingly our work suggests solving current global wheat supplies issues will be impossible without outright demand destruction. Breaks of 30-40 cents are buying opportunities and we note that importer demand still hasn’t returned in bulk. Market focus has been cantered on supply so far, but it is the collision of supply loss/demand that will trigger a new sustain price plateau in global corn, wheat and oilseed markets.
  • Brazilian corn futures are sharply higher this morning, partially in tandem with the US market but also due to yet more threats to safrinha yield there. Seasonal dryness will be ongoing in Mato Grosso and Goias, while an elevated risk of frost is causing concern in Parana. Minimum low temperatures in Southern Brazil this week will drop into the upper 30s. The safrinha crop in Parana will be subject to frost-based yield loss into the early part of June. Brazilian corn for Sep delivery this morning is quoted at $8.34/bu. Importantly, Brazilian corn is again offered at a premium to the US market in harvest positions, and the Brazilian futures market moving forward will be the best indicator of production, supply and demand.
  • Paris milling wheat at midday is up €20.50/mt ($0.60/bu). European and Canadian rapeseed markets are up sharpy. Unfortunately, there just nowhere for end users/importers to turn to for alternative supply, which makes the rationing chore ahead all the more difficult.
  • US weekly export inspections were below expectations in corn, but at/above expectations in soy and wheat. Corn shipments through the week ending May 12 totalled 41 million bu, vs. 58 million the previous week. Wheat inspections were 13 million bu, vs. 10 million the previous week. Soybean exports were a sizable 29 million bu, vs. 19 million the prior week and a 4-week high.
  • For their respective crop years to the date, the US has shipped 1,539 million bu of corn, down 17% from last year, 1,782 million bu of soybeans, down 14%, and 712 million bu of wheat, down 20%. Official Census US corn exports will continue to outpace FGIS data by a wide margin amid record Canadian demand. Weekly soybean inspections must average only 18 million bu to reach the USDA’s updated US soybean export forecast, which will be easily obtainable given ongoing sales of old crop US beans to China and others. We maintain a final 2021/22 US soybean export projection of 2,200 million bu, 40 million bu above USDA. Overall, China will remain active in extending soy coverage on breaks.
  • The midday GFS weather forecast is drier in the principal Midwest next week but wetter in ND and MN. The GFS forecast is slightly further north with a low-pressure trough aloft southeast Canada. Additional excessive rainfall will be largely isolated to the N Plains and NW Midwest, and the midday GFS forecast is in better alignment with EU and Canadian model output. Key will be planting progress last week and through this Tues/Wed, as efforts will be challenged again beginning Thursday. Our primary concern remains centred on ND/MN, where seeding has just begun.
  • Otherwise, extreme heat and a lack of precipitation this week will allow for additional drought expansion/intensification across the Southern and Western Plains.
  • Debate is ongoing with respect to the monthly pace of Russian wheat exports beginning in mid-summer when the current export quota is lifted. But it is clear wheat markets are more concerned with the abrupt end to India’s wheat export program in the context of falling North American and EU production potential. The fundamental outlook stays bullish, and it is just tough to be bearish of corn/soy, even amid normal weather, as wheat looks to ration supply and searches for N Hemisphere acreage expansion. Corrections provide opportunities for end users.

13 May 2022

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  • HEADLINES: Soybeans rally to finish the week: Chicago corn consolidates; planting progress awaited on Monday: Global wheat markets extend rally; KC/MGE post new contract highs.
  • Prevent Plant dates are a week away across the Dakotas/Minnesota that start on May 20. Too much rain and too cool temperatures have battered the region for weeks. It will take 5-7 days of dry/warm weather before soils firm enough to support large machinery. 2021 was one of the lowest PP years at just 1.6 million acres, while 2019 was the high at nearly 20 million acres. The 2020 year had 10 million acres when similar cool/wet weather prevented seeding across the Dakotas. We fear that record high input prices and revenue, will push N Plains and NW Midwest farmers to strongly consider PP. Another several rains would push N Plains/MN corn seeding into June, far too late for trend yields.
  • May soybean futures rallied ahead of expiration gaining $0.63 on Friday to expire at $17.23, versus $16.21 last year. This lifted the rest of the complex putting July soybeans up $0.32 while November stopped just short of $15.
  • NOPA will be out Monday with April crush data. But based on historic crush margins during the month, a record large April soybean crush is expected. The average trade estimate ahead of the NOPA report calls for an April crush rate of 174.4 million bu, a more than 12 million bu increase over last year and the largest April crush rate on record. The Chicago soybean crush spread averaged more than $2/bu in April, while the cash crush margins across the Midwest averaged more than $1.10 higher at an historic $3.10/bu.
  • A record large April crush rate will have been accompanied by a record large export rate. The point is that $16-17 cash soybean prices are not rationing US soybean supply. Based on the large volume of outstanding soybean sales and still strong crush margins. Tightening supplies will continue into the autumn harvest. We remain bullish on breaks, with new highs expected in the coming the summer. This is no time to be cautious with US soybean exports rising.
  • Chicago corn futures ended slightly lower as the market awaits Monday’s update on seeding progress. It was a rather favourable week for fieldwork outside of the Dakotas and MN. Monday’s progress data will provide a benchmark from which to better understand how much corn will be planted in very late May/early June. The midday GFS is too wet in the E Plains/Midwest in the 8–15-day period, but the EU and Canadian models confirm that widespread rainfall returns to MN, MO, IL, IN and KY beginning May 21-22.
  • Corn enters a new and unprecedented bullish phase if weather negatively impacts US yield potential. Choppy trading will be ongoing in the short run, but downside risk is limited amid firm/soaring international corn and wheat markets. Brazilian corn for July delivery settled at $7.97/bu. The Brazilian market is not yet willing to discount itself as safrinha yields continue to be trimmed by warmth/dryness in N Brazil and the potential for frost on Parana early next week.
  • Breaks only encourage demand, which is the absolute wrong signal to send prior to knowing yield potential. Dec corn is undervalued below $7.20. Upside risk is sizeable. Plains drought will be more attention grabbing in June as traders debate whether the drought spreads eastward in June.
  • Wheat futures ended steady to higher, having shrugged off early weakness, amid no material change in weather patterns in North America or Europe. We expect only 9-12% of spring wheat to be planted by Sunday in ND, vs. 55% on average. HRW conditions will fall to newer lowers amid the return of extreme heat and dryness to the Southern and Western Plains. It is just tough to find bearish input. Breaks will be brief/shallow and confined to periodic profit taking.
  • Most importantly, end users/importers have been reluctant to extend forward coverage, and the recent dramatic rally in global wheat prices has not yet been a function of demand. Yet, the inherent need for supply is up year on year as stocks decline in major importing countries and food security becomes a priority. Riots have erupted in Iran this week amid rising bread costs. The full return of importer demand triggers a new bullish phase for world wheat.
  • Even amid acreage expansion in 2023/24, the US wheat balance sheet will be historically tight. This is becoming a new era of food pricing.
To download our weekly update as a PDF file please click on the link below:

12 May 2022

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  • HEADLINES: KC wheat soars to new highs basis December; China to import 99 million mt of soybeans in 2022/23; Too much rain for Dakotas/MN in midday forecast.
  • Chicago futures are sharply higher in the wake of a bullish USDA May Crop Report that highlighted the yield/supply risks heading into the summer growing season. US farmers are struggling to get seed in the ground and WASDE no longer found it right to forecast a record large US corn yield at 181 bushels/acre. WADSE cut the yield to last year’s record at 177 bushels/acre. This yield reduction along with a statement that WASDE faced increased uncertainty due to the Russian war against Ukraine added to future supply/stocks uncertainty. Chicago futures rallied following the release of the report as there were no glaring bearish statistical inputs to produce a sustained Chicago price decline.
  • Corn Analysis: WASDE estimated the 2022 US corn crop at 14,460 million bu 655 million less than last year due to reduced seeding. NASS estimated US corn seeding at 89.5 million acres back on March 31 with harvested acres of 81.7 million. Due to flooding and excessive wetness across the N Plains and the NW Midwest, we forecast that this seeding estimate could fall another 1-2.5 million acres trimming US corn production back close to 14,100-14,250 million bu. The US corn crop is similar in production to 2020 when the harvest was 14,111 million bu.
  • WASDE estimated 2022/23 US corn demand at 14,565 million bu, down 370 million. WASDE cut US 2022/23 corn exports by 100 million bu to 2,400 million and reduced feed/residual by 275 million to 5,350 million bu. The smaller harvest always causes a cut in the residual. US corn ethanol was left unchanged from the current crop year at 5,375 million bu amid the high price of crude oil and record large US gasoline demand. 2022/23 US corn end stocks were forecast at 1,360 million bu with the average farmgate price being $6.75/bu. We would note that its only takes the loss of 1 million acres of planted/harvested and a drop in yield of 2 bushels/acre to pull 2022/23 US corn end stocks near 1,000 million bu. Each Central US weather forecast becomes more important heading into July. December corn has value below $7.20 with unknown upside price potential should adverse weather strike this summer.
  • Soybeans: US 2022/23 soybean end stocks were forecast at 310 million bu with the average US farmgate price being $14.40/bu. This implies limited downside price potential in November soybean futures below $14.00 until a record large US soybean yield can be assured. WASDE forecast the US soybean crop at a record large 4,640 million bu with a yield of 51.5 bushels/acre. NASS may find an additional 500,000-1.0 million acres in the June final report if Northern Plains and NW Midwest farmers are allowed by Mother Nature to seed in late May/early June.
  • WASDE estimated 2022/23 US soybean demand at a record large 4,580 million bu with exports pegged at 2,200 million and crush at 2,255 million. We see both estimates as low based on export sales to date and the number of new US soy crush plants that will be opening. China was forecast to import 99 million mt and 92 million mt in the current crop year. WASDE raised China old crop imports by 1.0 million.
  • Wheat: NASS estimated the 2022 US all wheat crop at 1,729 million bu with a US HRW wheat crop of 1.174 billion bu broken down to 590 million bu of HRW, 353 million bu of SRW and 230 million bu of SWW wheat. Spring wheat production was based on the March 31 seeding report and trendline yields. We note that this year’s wheat harvest is forecast to be 83 million bu larger than last year. The Kansas wheat crop was forecast at 271 million bu, Oklahoma at 60.0 million and Texas at 41.6 million. We look for further cuts in each of the primary HRW wheat states yield in June. The 2022 US winter wheat crop is 104 million bu less than last year with spring wheat to be 187 million bu larger. We fear a US all US wheat crop closer to 1,625-1,650 million bu by the final count in September.
  • WASDE estimated 2022/23 US wheat end stocks at 619 million bu, down 36 million from last year. 2022/23 US wheat exports were forecast at 775 million bu, a multi decade low and down 30 million from the current crop year. WASDE sees no US wheat export bump from the Russian war against Ukraine. US wheat feed/residual use was cut by 20 million bu from the current crop year to just 80 million. US wheat milling demand held steady at 764 million bu. Total US 2022/23 wheat use was forecast by WASDE at just 1,885 million bu, down 46 million. Russia is forecast to export 39.0 million mt, Ukraine 10.0 million mt and India 8.50 million mt. We are doubtful of such hefty Indian/Russian and Ukraine wheat export volumes.
  • We see the May WASDE report as confirming limited Chicago downside price risk from Monday’s low with a need for weather adversity for Dec corn/November soy to rise to new highs. Wheat prices will follow EU weather into June.
To download our USDA Data Recap as a PDF file please click on the link below:

11 May 2022

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  • HEADLINES: Funds hedge inflationary risks and buy Chicago; Hope is for bearish report Thursday to add to length; Central US forecast wetter.
  • Chicago grains are sharply higher at midday with “risk on” being the early mantra of investment managers. The US Labor Dept reported that the April US inflation rate was up a larger than expected 8.3% with food inflation soaring 9.4%, the largest monthly gain since April of 1981. Hedge fund managers note that Bitcoin has not been an inflation hedge with its value in decline along with US tech stocks. And gold has also not kept up with inflation. The only real inflation hedges that have worked is being long ag, energy or industrial metal futures. The world of “stuff” has outperformed all other inflation hedges and we expect that additional inflows will be pointed at Chicago markets as a result.
  • The US April inflation rate was down just 0.2% from March. But, with US gasoline/diesel prices at fresh record highs, there is no evidence of a softening of US food prices. The US inflation rate will stay stubbornly high into the autumn. This means that the US Central Bank will raise their fed fund lending rate by at least 1.25% and potentially 1.50% collectively at their next 3 meetings. US short term interest rates have only begun to rise and rallies in equity markets will not be sustained until the FED’s tightening cycle ends, or there are signs of a US economic recession. Extracting all of the capital that is in the hands of US consumers will take years, which is why we fear the new natural rate of US inflation is between 3-4.00%.
  • Chicago volume of trade has not been all that large this morning, it is just that there are few resting sell orders. A few bulls will look to take some risk off the table ahead of the USDA report, but most traders want to stay positioned for the new growing season that is ahead. Chicago brokers estimate that funds have bought 3,100 contracts of wheat, 6,600 contracts of corn, and 5,300 contracts of soybeans. In soy products, funds have bought 3,200 contracts of soyoil while being flat in soymeal. It does not take much fresh fund buying to produce a 40 cent rally in wheat or 2.50 cent rally in Chicago soyoil futures.
  • The EIA reported that US weekly ethanol production rose by 6 million gallons to 291 Mil. This is up 1% from last year. The US needs to produce 304 million gallons per week to reach the USDA’s annual corn grind forecast of 5,375 million bu. We expect that the US maintenance period for ethanol has passed and that production will continue to ramp up which will boost US corn consumption. We estimate that a US ethanol plant is making close to $0.83/bu. They will continue to raise their cash basis bid to secure old crop supply.
  • US gasoline consumption was down 1% from last year at 8.7 million barrels/day. US gasoline demand has been holding flat with consumers driving similar miles each week.
  • A 4–6-day period of warm/dry weather allows for Midwest spring seeding to push ahead. E Midwest farmers got at seeding late Tuesday and today, while W Midwest farmers are looking to start today or Thursday. US corn seeding will not surpass 45% through Sunday, which means that any return of rain next week is very unwanted. The Northern Plains will stay exceptionally wet with new storm systems every 3-4 days which does not allow for a planting window. Unfortunately, it appears that rain pushes back into the C/E Midwest late Sunday/Monday with fresh delays. The 10–15-day period places heavy rain back into MO/IL and the remainder of the E Midwest. This is not the wanted warm/open forecast that gets crops seeded on a timely basis. Our weather concern stays high with the Plains drought to worsen.
  • Large funds, end users/specs are hoping for a bearish USDA report tomorrow to provide a dip to make purchases. Importers and end users are poorly covered beyond the next 30-45 days. US crush margins are near $3/bu in soybeans with ethanol grind margins above $0.80/Bu. The market has not produced any meaningful demand destruction. We stay bullish on North American weather and smaller world wheat production. Buy breaks is our continuing advice.

10 May 2022

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  • HEADLINES: Chicago Dec corn takes back leadership as seeding progress unlikely to exceed 42% through Sunday; Iran to become a potent wheat importer.
  • Chicago grains are mostly higher at midday. Fund managers want to position long on Chicago breaks for the coming summer growing season, but they note that equity and crude oil futures continue too trade wildly. This has cut daily Chicago volume and prevents a fund from chasing a grain rally too hard.
  • US crude oil values are down on China’s economic slowing due to Covid lockdowns and tightening world refinery capacity. Demand for US unleaded and diesel is record large heading into a new summer driving season. US diesel stocks are record low for early May, which is why the US national average diesel price reached a record $5.75/gallon this morning.
  • It is the record cash diesel price along with strong cash demand for biodiesel/renewable diesel that is rallying vegoil prices. There is no room to take out bioenergy from the US energy mix or energy prices would explode upwards. Supplies are that tight and demand looks to grow with warming temperatures.  The volatility in energy and equity prices is likely to produce a mid-range higher Chicago close going home.
  • Chicago brokers report fund managers buying 2,500 contracts of soybeans, 2,600 contracts of corn, and 2,300 contracts of wheat. In the soy products, funds have sold 4,100 contracts of soymeal and bought 4,300 contracts of soyoil.
  • We hear that China is back asking for US Gulf old/new crop soybean offers and US new crop corn offers from the PNW. China has been placing orders under the market to secure US new crop corn. December’s $0.60/bu discount to July has world feed user interest in September forward purchases. December corn under $7.00/bu is too cheap relative to soaring world wheat values and the lack of Black Sea feed wheat supply/offers. The world will feed an additional 14-16 million mt of corn due to soaring prices and a lack of feed wheat availability. The demand profile for world corn improves almost daily.
  • 2022/23 world wheat demand estimates seem to rise daily to levels that are becoming unfillable in a world that lacks Ukraine wheat exports in bulk. Today it is being reported that Iran will need to import 7 million mt of wheat to fill its milling needs from June through March. And export sources say that the same drought impacted Iraq and its wheat import needs will be 5-6 million mt. If Pakistan and India turn into net wheat importers, the sheer size of demand is becoming daunting with North African wheat imports likely to reach 39-40 million mt.
  • World wheat importers and end users are poorly covered on forward needs on the hope for a Northern Hemisphere harvest price break. However, such a seasonal decline is looking less and less likely. If the EU drought worsens in the coming weeks, the world wheat importer/miller will find themselves in a rather dire supply situation of just a few reliable exporters. Depending on future EU/US weather, the wheat market could be preparing for another linear demand rationing rally. We would caution against being short of wheat futures amid the potential for new historical price highs.
  • Odessa news reports indicate that Russian President Putin is targeting the export ports with rockets that is increasing the damage/rubble. Russia reportedly used hypersonic missiles on Odessa today. Damage assessments are awaited. The longer the Russian war against Ukraine goes on, the greater the chances of lasting damage to Odessa port infrastructure which will take months/years to rebuild. We doubt that more than 1 million mt of Ukraine ag exports can move to the world marketplace in the absence of its Black Sea export facilities being operational. This falls way short of rising demand.
  • A 5–6-day period of warm/dry weather will allow for Midwest spring seeding to push ahead. Most Midwest farmers will restart planting either Wednesday or Thursday, so US corn seeding will not surpass 45% until after May 15. The midday GFS weather. Forecast has narrowed the window to plant before rain returns to MO and S IL. The N Plains will hold in a wet flow which will raise interest in the Prevent Plant program. Summerlike temperatures persist with 80s/90s/100s.
  • US corn seeding will struggle to surpass 42% by Sunday with soybean seeding at 27-28% leaving more than half of the crop to be planted after the middle of May. N Plains farmers won’t get back in the fields until May 18-20. 2022 will be a late seeded year with acreage/yield drags. If the US losses 1.0 million acres of corn and soybean seeding as feared, the 2022/23 balance sheets become exceptionally tight.  There is no room for error.

9 May 2022

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  • HEADLINES: Macro Monday, US stock market swoons and take Chicago grains with them; Recovery anticipated on Tuesday.
  • Chicago futures are sharply lower at midday except in wheat. Wheat has traded either side of unchanged. The sharp losses in the macro financial markets have pulled Chicago values lower. It is much like last Monday in that macro’s rule Monday’s price discovery. The DOW at one point was down a little more than 500 points with investors pulling cash off the table. A trading bottom should be forming in the DOW with April CPI due out Wednesday. However, rallies will be laboured as the US inflation rate is holding above 7%. There is a repricing of US/world equity markets that relates back to returns in the US 10-year note exceeding 3.0%. Capital shifts out of equities and into bonds is not bearish commodities, but on days where stocks are down 3-5%, it is difficult for commodity values to swim against the outflow. Sharp Chicago down days set up new ownership opportunities in corn, soyoil and wheat, this is not a place to be making new sales.
  • Chicago brokers estimate that funds have sold 9,500 contracts of soybeans, 9,600 contracts of corn, while being flat in wheat. In the soy products, funds have sold 2,100 contracts of soyoil and 3,200 contracts of soymeal.
  • China has allowed its currency, the Yuan, to fall 3% against the US$ to 6.74:1. The falling Yuan makes Chinese exports more competitive and provides an incentive to Chinese exporters. The weak Yuan does cause imported goods like soybeans to become more expensive if the dollar was not hedged. However, the Government often raises soy product prices in the back end of the curve to provide some help/compensation to crushers.
  • We would note that like last year, China has imported more soybeans than the USDA is forecasting in the first half of the international crop year. If one models out China’s 2021/22 soybean import pace, it works out to 99 million mt vs USDA at 91 million. That is a big difference of 8 million mt when S American is already running short of supply. We suspect that using a normal 5-year seasonal import pace is wrong with China’s Covid lockdowns, but 2021/22 imports of 96-97 million mt seems reasonable.
  • World wheat futures should be soaring on tightening supplies of the primary exporters. Black Sea wheat exports (Ukraine/Russia) will be cut due to the war from 60 million mt to a figure more like 32-35 million mt. This assumes that Russia exports 27-29 million mt of wheat and 5-6 million mt from Ukraine. Last, week we highlighted the importance of India not exporting 8.5-12.0 million mt and potentially becoming a net importer of 1-3.0 million mt. The net loss on world wheat trade between the Black Sea/India quickly adds up to 33-38 million mt. And world wheat demand will be focused on the EU (and US) until the Canadian crop is available in October (without India). The point is that not a single tonne of EU wheat production can be lost and a drought is threatening.
  • US exports for the week ending May 5 were; 54.8 million bu of corn, 18.5 million bu of soybeans and 8.7 million bu of wheat.
  • A 6-8 day period of warm/dry weather should allow for Midwest spring seeding to push strongly ahead this week. Midwest farmers should start to seed spring crops in earnest on either late Tuesday or Wednesday. The jet stream holds to the north with showers/storms over the N Plains and the NW Midwest with totals of 0.5-2.50”. Crops here will be late seeded with Prevent Plant enrolment rising. The Southern US Plains will be dry with heat noted with highs ranging from the 90’s to lower 100’s.
  • Stock market falls and improved planting weather is causing pressure on Chicago summer row crops. We doubt that the decline will be long lived with lows expected by Wednesday. December corn and November soybeans are undervalued relative to known fundamentals amid record large US export sales. Margins for US ethanol, renewable diesel and soybean crushers are strong. Cash basis bids are rising. We remain bullish with world wheat to be the upside price leader into late May. December corn and November soybeans are nearing seasonal lows.

6 May 2022

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  • HEADLINES: Weather and macro market falls produce pressure; December corn coming into value; Low March 31 Canadian canola stocks.
  • Chicago futures are mixed at midday with wheat futures higher, while corn/soybeans sag with the financial markets and improved Central US weather forecast with warm/dry weather to be offered for the C and E Midwest. The problem is the Northern Plains and the NW Midwest where frequent storms will continue to maintain wet soils and slower planting. Producers in this area will more seriously consider the Prevent Plant (PP) option if the weather forecasts are correct. The PP date for this area is May 20. Back in 2020, the Northern Plains signed up nearly 10 million acres under PP, which will not be tolerated by the world marketplace in 2022 due to exceptionally tight supplies. The loss of even 2-3 million acres of corn/soybeans/spring wheat is unacceptable. We look for a mid-range Chicago close with end users using the break to start adding forward coverage ahead of the USDA report next Thursday.
  • Chicago brokers estimate that funds have sold 9,500 contracts of soybeans, and 11,600 contracts of corn, while buying 4,100 contracts in wheat. In the soy products, funds have sold 3,100 contracts of soyoil and 2,200 contracts of soymeal. Funds have been sellers since the opening bell and are taking risk off the table heading into the weekend.
  • Stats Canada estimated their March 31 grain stocks at 10.1 million mt of wheat (down 6.4 million from last year and down 7.3 million from the 5-year average), a record low 3.9 million mt of canola (down 3.9 million from last year and down 5.4 million from the 5-year average), and 0.95 million mt of oats (down 850,000 mt from last year and the 5-year average). The March canola stocks estimate was record low and one wonders how the industry will be able to make it to the next harvest which is not until late August/September due to delayed seedings. Canadian canola, oat and wheat stocks are limited for world importers with US imports of corn to be record large for feeding purposes. The pressure is on for Canada to produce a bin buster crop in 2022 to relieve the acute stocks tightness. Latent seeding dates are already producing yield worry.
  • The US added 428,000 of new jobs during April, a strong pace. The job increase suggests that the US economy is strong and shows no sign of tipping into a recession until late in Q4, at the earliest. The problem is that US stock markets are worried about the pure strength of the US economy and that interest rates will have to rise further than liked. We believe that the US Central Bank will not finish raising rates until mid-2023 and that their bank lending rate may have to reach 3.5-4.0%. Such a rate is negative to US equity prices, but it will also delay/prolong the new investment that is needed in raw material markets. Therefore, commodity markets will continue to gain on equities. Nearby, commodity traders are monitoring the price change in the DOW. Come Sunday evening, we expect that it is weather forecasts and the DOW that will direct Chicago prices early next week.
  • Lower Chicago prices has put the brakes on US crushers or ethanol producers being able to secure old crop grain from the farmer. Most are raising their basis bid to attract sales. We look for US soybean crushers to bid 60-90 cents over July Chicago to get supply.
  • A final storm system is pulling thru the Eastern  US. This will be followed by a lengthy period of warm/dry weather. Midwest farmers should start to seed spring crops in earnest on either late Tuesday or Wednesday, May 11/12. The jet stream shifts north with showers/storms over the N Plains and the NW Midwest with totals of 0.5-2.50” into May 15. Crops here will be late seeded with Prevent Plant acres rising. The Southern US Plains will be dry with heat noted with highs ranging from the 90’s to lower 100’s.
  • Stock market falls and improved planting weather is causing short term pressure on Chicago. We doubt that the decline will be long lived or very deep. December corn is undervalued below $7.20 and November soybeans below $14.50. Wheat values will closely be monitoring a developing EU drought. This is a break to expand ownership into the summer.
To download our weekly update as a PDF file please click on the link below:

5 May 2022

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  • HEADLINES: Paris wheat futures to new highs and test €400/mt September; E Midwest soybean basis soars; DOW falls to 3% loss.
  • Chicago futures are mixed at midday with the sharp fall on the US DOW sparking profit taking by grain bulls. Chicago corn, soybeans and wheat were higher on the opening, but the DOW has caused worry about a slowing US economy later this year and in 2023. The DOW has traded down 1,100 points, a loss that exceeds 3%. US worker output fell 7.5% in Q1, the largest decline in US productivity since 1947. The decline in per worker output and rising raw material prices (inflation) is stoking concern about stagflation and future corporate profits. If the US GDP stays negative and the cost of goods keep rising, stagflation would be the result, the worst result for the US consumer/economy.
  • For consumers/employers, declining output/rising costs are not the ingredients to boost quarterly corporate returns or share prices. Chicago corn/soyoil pulled back at midday, but the worry on world wheat/corn supplies is real which will underpin any break. Ongoing dryness is elevating the worry over a sub 105 million mt Brazilian total corn crop while the wheat market is pricing sharp falls in Indian/Pakistani production. India was to save the world from the Black Sea shortfall with wheat exports of 8.5-12 million mt which are now in doubt. India’s ban would leave the EU/US as the only reliable world wheat suppliers into October.
  • If India/Pakistan become net wheat importers of 2-4 million mt, instead of net exporters of 10-12 million mt, the difference for early expectations will equal 2021/22 Argentine wheat exports which are estimated at 14.5 million mt. The loss of Black Sea supply and now India/Pakistani wheat are BIG deals to world wheat millers/importers. Therefore, world wheat futures are rising to new highs (Paris wheat) or looking to retest prior historical highs.
  • Chicago brokers report that funds have bought 3,600 contracts of wheat and 2,600 contracts of soybeans, while selling 5,300 contracts of corn. Funds have bought 3,200 contracts of soyoil and 5,100 contracts of wheat. Funds have been active buyers of wheat on any correction.
  • US export sales for the week ending April 28 were 4.4 million bu of old and 1.6 million bu of new crop wheat, 30.8 million bu of old crop and 29.0 million bu of new crop corn, and 27.0 million bu of old crop and 15.0 million bu of new crop US soybeans. The old crop US soybean export sales were larger than expected, which has helped narrow the difference with last year. US unshipped and sold soybeans are record large over 800 million bu which suggesting massive demand for US soybeans from late Summer into January of 2023. The US is facing record large US corn and soybean exports from July onward, should US export logistics allow.
  • An E Midwest (N IL) soybean processor is in the hunt for old crop supplies. The crusher raised their bid to 75 cents over July to keep the plant operating at full crush capacity due to near record large margins estimated at $2.70/bu.
  • The US crush industry is facing farmers that are nearly sold out of old crop beans. Crushers will keep bidding cash higher and higher to maintain plant operations. Amid record May crush margins, the risk for a US crusher is running of cash beans. The fight between the domestic crusher/US exporter will worsen with final US 2021/22 soybean end stocks pegged at just 150-170 million bu, the bare minimum needed heading into a delayed Delta soybean harvest.
  • A final potent storm system will be pulling across the East Central US in the next 48 hours. Rainfall totals are estimated in a range of 0.25-1.25”. Then, a lengthy period of warm/dry weather returns. Farmers report that when the last rainfall falls, it will take 3-4 days of drying before soils firm enough to hold large machinery. This means that E Midwest farmers should start to seed spring crops in earnest on either late Tuesday or Wednesday, May 11/12. The jet stream shifts north with showers/storms over the N Plains and the NW Midwest with totals of 0.5-2.50” into May 15. Crops will be late seeded.
  • Stock market falls of more than 1,000 points in the DOW is not producing Chicago selling. And the hunt for old crop US corn/soybeans is on while importers/end users hope for a bearish May USDA Report to make new forward purchases. Stay bullish. Any 2–3-day corrections offer new purchase opportunities.

4 May 2022

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  • HEADLINES: Paris wheat surges to new contract high; Indian wheat export confusion: US March census corn/soyoil exports surprise.
  • Chicago futures are mixed at the noon hour as corn/soybean futures sag on the prospect of improved US seeding weather across the C and E Midwest, while wheat futures hold solid gains. There remains some political uncertainty in the news as to the Indian wheat export ban/restriction. The volume of trade has been more active with funds and money managers back on the long side of the market following the sharp rally in energy values. Crude oil is up $4/barrel and following the US Central Bank’s hiking of its lending rate, we expect that capital flows will return to the long side of raw material markets. The last few days of break is based on risk reduction. Once the Fed has raised rates, it Is the coming April inflation rate and strong US economic growth outlook that will pull fresh funds back into risk assets. We look for a higher Chicago close with increased volatility into the close based on the US Central Bank’s interest rate decision.
  • Chicago brokers report that funds have sold 1,200 contracts of corn and 2,200 contracts of soybeans, and 4,200 contracts of soymeal. Funds have bought 3,200 contracts of soyoil and 5,100 contracts of wheat. Funds have been active buyers of wheat on any correction.
  • There are cash rumours this morning that China is back asking for offers on US soybeans (old/new crop) and new crop US corn. The break in Chicago new crop corn futures has caused Chinese importers to have renewed interest following their 3-day Golden Week Holiday. China’s State importers want to get ahead of crushers in making fresh purchases. The morning Chicago soybean break uncovered fresh Chinese interest.
  • Census reported that the US exported 117.1 million bu of soybeans and a far larger than expected 266.5 million pounds of soyoil in March. This compares to 84.3 million bu of soybeans last year and just 155.8 million pounds of soyoil. March US Census soymeal exports were close to last year at 1.0 million short tons.
  • US March corn exports are running far ahead of weekly FGIS totals. The US exported 293 million bu of corn in March, 36 million bu more than weekly inspections.  US Census corn exports through March are a record 256 million bu more, largely due to massive US corn exports to Canada in cross border trade. In fact, US corn exports for the crop year to date stand at 1,417 million bu vs 1,483 million bu last year. The US Census export pace is only down 66 million bu, which argues that the WASDE US corn export estimate of 2,500 million bu is too low by 175-200 million. We expect WASDE to raise its corn export estimate by 100 million bu on May 12.
  • The Oklahoma Grain/Feed Assoc in a survey pegged the state’s HRW wheat yield at 58 million bu, down 51% from last year. Small heads and a lack of tillers produced the very disappointing crop yield. Texas yield losses are even worse.
  • There is one thing that you can count on in India, confusion. Sudhanshu Pandy, Sec of public food distribution, stated that India has no plan to curb wheat exports as the country has enough stocks for welfare programs, despite the sharp fall in production. However, Mr. Pandy does not make official export policy. We understand that an export ban is likely amid a wheat crop that looks to be well below 100 million mt. India may have to import wheat if the crop is smaller than 97 million mt as yields have fallen sharply amid the record heat.
  • Frequent storm systems will be passing across the Central US over the next 10 days. A ridge of high pressure will be lifting the Jet Stream northward across the Eastern US with warmer temperatures to evolve by the weekend. There is not enough drying weather in between the systems for all out planting. The slowest area will be the NW Midwest/N Plains where rain totals will be the heaviest. The 2022 US corn/soy crops will be late seeded.
  • The new EU sanctions against Russia are sure to cause an increase in Ukraine aggression by Russia. We see high odds that India will ban exports to let sellers out of existing export contracts. The Indian wheat crop is more than 50% harvested and later maturing wheat will yield less than the early cut varieties. Paris Sept wheat is at a new contract high. We see any break in corn/soy as temporary on strong domestic/export demand. US ethanol margins are back to $0.90/bu with cash crush margins in soybeans above $2.70/bu and China returning from holiday and being short bought. Look for increased volatility surrounding the US Central Bank rate hike, but Chicago is a buy the break market, especially in new crop corn.  The Brazilian corn crop has lost 10-12 million mt due to the ongoing drought and latent US seeding limits any break in December corn below $7.25. The selling in December corn is due to wheat/corn spreading.