14 April 2021

Posted on April 14, 2021 by simon

• HEADLINES: Corn soars to new contract high with May nearing $6.00/bu; Parana Brazilian corn ratings decline on acute dryness; C IL corn/soybean cash basis strong.

• Midday Chicago grain and soy futures are sharply higher with corn/wheat pacing the advance on tightening US domestic supplies amid adverse weather. Brazil’s winter corn crop is being hit with a flash drought while cold/dry weather limits seeding across the N Plains/Canadian Prairies. Funds and speculators have been active buyers on the rally. Wheat futures have advanced on talk of reduced offers by Russian exporters.

• May corn futures reached a new rally high at $5.9725 while December corn pushed to a new rally high at $5.125. May soyoil futures have pushed against last week’s high at $54.58. A close in May soyoil above $54.63 will produce a retest of contract highs amid the exceptionally strong cash markets. We hear that domestic end users/exporters pushed bids for old crop corn and soybeans. There are rumours that July Central IL corn traded at 45-50 cents over with soybeans trading at 70-75 cents over July. End users are competing for tightening supplies which is spurring nearby and summer basis gains. Research argues that a demand rationing rally is required in old crop corn/soybean to assure adequate stocks and that needed imports arrive. US soybean imports from Canada/S America are well below the USDA forecast.

• There were 158 contracts of deliverable Chicago soyoil receipts that were cancelled as Central IL cash basis holds at a firm 5.5-6.0 cents over May futures. As the US soy supply dwindles and processors are    forced to slow crush rates, soyoil should score new highs on strong demand and tightening supplies.

• Chicago brokers estimate that funds have bought 6,200 contracts of wheat, 5,400 contracts of corn, and 4,700 contracts of soybeans. In the soy products, fund managers have bought 2,200 contracts of soymeal and 3,700 contracts of soyoil.

• APK reports that large exporters of Russian wheat including Dreyfus, KZP, Bunge and Sierentz Merchants have left the cash market citing the uncertainty of the Russian export taxes and their risk. Moreover, Cargill and Gemcorp have also suspended cash purchases. Most are waiting for the €50 euro duty to end on June 2 to sell stored purchases. We look for a noticeable decline in Russian wheat/grain exports during April/May and that the USDA’s annual Russian wheat export total of 39.5 million mt is at least 2-3 million too high.

• US corn ethanol production fell 10 million gallons from last week to 277 million gallons, which was up 65% from last year, but down 7% from 2019. US ethanol stocks were down 76% on last year. We look for US ethanol to reach 2019 levels in May.

• US gasoline consumption is only down 5% from 2019 and as more of the US economy reopens, it will reach or exceed pre-pandemic levels by summer. Crude oil futures are $3/barrel higher on the outlook for increasing US/world demand.

• The midday S American weather forecast follows the overnight GFS output with 0.3-1.25″ of rain for the winter corn areas of Brazil mid next week. Limited rainfall is expected through the weekend before a frontal pass sparks shower activity midweek. The 11–15-day period shifts back drier with warming temperatures as the tropical humidity flow retreats north. Highs will range from the 80′s to the mid 90′s. The extended range 16–30-day forecast is drier with the dry season starting on time in early May. This leaves Brazilian corn parched heading into the reproductive period.

• Other than occasional profit taking, there is limited selling above Chicago. Thursday’s weekly export sales report and NOPA Crush data should maintain the rally in soybeans/soyoil. Parana’s Deral cut their winter corn condition rating from 76% good/excellent from 92% the week prior. This sharp rating decline reflects the flash drought stress that is being placed on the second corn crop. Corn remains the bullish stalwart with wheat following on dry Plain’s weather.

13 April 2021

Posted on April 13, 2021 by simon

• HEADLINES: A whiff of inflation and dry Brazilian/Plains weather rallies Chicago to reclaim Monday’s losses; New historical high for Brazilian cash corn prices.

• Chicago grain and soy futures are sharply higher at midday with corn futures pacing the advance on tightening domestic cash supplies amid adverse weather for the 2021 Brazilian winter corn crop. Soybeans and wheat are following corn with volume diminished at midday. There has been a recent trend of active volume on the opening and the close with curtailed volume at midsession. The market has a firm tone with old crop/new crop spreads performing which is better reflecting the strength of the cash market A higher close is forecast which reflects the growing unease in the marketplace over the 2021 Brazilian corn crop size and the dryness which is starting to envelope much of North America.

• US consumer prices rose a hefty 2.6% in March (from a year ago) including the market volatile energy and food sectors. The rise in gasoline prices accounted for more than half of the gain amid the more rapidly growing US economy. Compared to February, the CPI rose 0.6%. The March-to-March comparison was the largest since August of 2018 and well above the 1.7% gain in February. The report offered the clearest sign of inflation as stronger prices and supply shortages were being fed to the consumer. Food prices nudged higher, but only by 0.1% for the month and 3.5% for the year. Meat, egg, and fish prices rose 5.5% year on year.

• The whiff of US inflation has some fund managers expanding their exposure to raw material markets, ahead of the full reopening of the US/world economy. Any lasting dryness or extreme heat will accelerate the rally in US food prices amid a lack of an old crop stock’s cushion. The world nor Chicago grain markets will have any tolerance for a weather induced supply dislocation.

• Chicago brokers estimate that funds have bought 6,800 contracts of corn, 5,100 contracts of soybeans and 2,400 contracts of Chicago wheat. In soy products, funds have bought 3,500 contracts of soyoil and 1,100 contracts of soymeal at midday. Funds are on the buy side of the market with some selling expected on the close on the index fund roll.

• Russia is offering new crop wheat at $235-240/mt for August. This is up nearly $30-35/mt from last year and the price would include an estimated tax of $24.50/mt. Starting June 1 the tax fluctuates week to week, which makes its calculation so far in advance all but impossible. So far, above normal rain has fallen across SW Russia, but these rains can only bring back to life the wheat that was not lost to winter cold or the extreme dryness( following seeding). Although wheat crop estimates of 80 million mt  or more are being offered by several private analysts, it is just too early to make any real crop assessment with May and June weather being critical to yield.

• Brazilian domestic corn scored new price records above $7.36/bu with IMEA reducing their corn crop estimate by 1.3 million mt to 35 million on the March seeding delay. Another 2 vessels of Argentine corn have been contracted to arrive in Brazil during the first half of June. Argentine corn for June is bid at 60 over Chicago, while the US Gulf holds at 93 over on a massive China export program.

• The midday S American weather forecast follows the overnight GFS output with 0.3-1.25″ of rain for the winter corn areas of Brazil early next week. Limited rainfall is expected to drop through the weekend before a frontal pass sparks the showers. The 11-15 day period shifts back drier with warming temperatures. Highs range from the 80′s to the mid 90′s. The timing of the end of the rainy season will be important with soil moisture levels short to very short. Brazilian winter corn will be pollinating from late April through early June.

• Our market thoughts remain  the same with a trading low scored yesterday followed by a rally into the May delivery period. December corn futures have scored new highs at $5.0575 while November soybeans are forming a flag formation on the charts. US farmers will be able to quickly seed the 2021 crop, but cool/dry weather suggests slow germination. New crop US balance sheets require record US corn/soy yields for prices to sustain a decline, which cannot be confirmed until July.

12 April 2021

Posted on April 12, 2021 by simon

• HEADLINES: Chicago falls on speculative profit taking in post USDA report hangover; Cash basis firm as farmer selling hits the skids; Chicago low to form by early Tuesday?

• Chicago grain and soy futures are lower at midday on liquidation and technical selling following the lingering disappointment from Friday’s April USDA report. The USDA failed to raise China’s corn import estimate while trimming their annual 2020/21 crush rate by 2 million mt. The lack of confirmation of increased Chinese demand produced a cautious mood from traders to start the week.

• Moreover, a bearish mentality that was created in industrial metal markets by China’s Premier Li Leqiang when he stressed the need to strengthen market regulation to ease the cost pressures on enterprises amid rising global commodity prices. This sparked selling in copper and other metals which had a knock-on impact on the ag markets. If China wanted to cool domestic inflation it should be importing additional grain or food. Yet, the mindset of increased regulation from China was enough to spark profit taking from the faster moving fund managers on the fear that China would somehow force commodities lower.

• We have repeated the comment several times in recent months that bull markets always let you in. This morning’s break offers such an opportunity. US and S American farmers will not be selling on the break, with their sales already well above historical averages. A low should form by early Tuesday.

• The Chicago price pattern since January has been that a post USDA break provides the next buying opportunity with values forming a mid-month low followed by a rally into the delivery period on tightening supply. With cash soyoil offered 5.5 cents over May soyoil futures and Central IL corn trading $0.27/bu above May futures, We expect this “same” seasonal to be followed. Bull spreads and flat prices should gain following the end of the index roll on Wednesday.

• Chicago brokers estimate that funds have sold 5,800 contracts of corn, 7,200 contracts of soybeans and 3,500 contracts of Chicago wheat. In soy products, funds have sold 4,100 contracts of soyoil and 1,100 contracts of soymeal.

• For the week ending April 8, the US exported 62.3 million bu of corn, 12.0 million bu of soybeans, and 16.8 million bu of wheat. The corn and soybean exports were within trade expectations while wheat was better than forecast.

• For their respective crop years to date, the US has shipped out 1,479 million bu of corn (up 667 million or 82%), 2,013 million bu of soybeans (up 827 million or 70%) and 786.5 million bu of wheat (down 3.7 million or 1%). China continues to export some 15-20 million bu of US corn or 2-2.5 million mt/month. US exporters report that China will ramp up its corn export programs from early May into July.

• Brazilian soy basis bids have rallied on the Chicago break as exporters and crushers seek supply. There are also strong rumours that Brazil has purchased large amounts of Argentine corn to cool their soaring domestic feed market. The Brazilian corn demand is estimated at 500-700,000 mt which is a key reason why Argentine fob corn premiums have rallied. The structure of the world feed market is one of rising values and tightening supplies into September.

• The midday S American weather forecast follows the overnight GFS output with 0.8-1.50″ of rainfall for the winter corn areas of Brazil early next week. Limited rainfall is expected to drop through the weekend before a frontal pass sparks the shower activity. The GFS forecast has been too wet In prior weeks. Traders are waiting for the new Canadian/EU model runs for confirmation or denial of the GFS forecast. Our bet is that GFS rainfall totals should be cut in half with 10-day rainfall amounts of 0.2-0.8″ on coverage of 50%.

• Post USDA monthly reports, Chicago drops as fast moving fund managers bank profits on the fear of slowing demand or improving weather. Yet, the structure of the US/world grain market has not changed with tightening supplies and rising cash markets being its backbone. Selling May soyoil or May corn when the cash is trading at hefty premiums will not produce a financial reward in our opinion.

9 April 2021

Posted on April 9, 2021 by simon

• HEADLINES: USDA takes the feeble approach in raising demand; Leaves hard choices to the May 12 report; Market turns its attention to cash premiums and weather.

• The USDA April Crop Report was broadly neutral to positive for Chicago futures with prices mixed at midday. Amid tightening US and world grain stocks, it appears that everything will be a process for the USDA amid the uncertainty of them trying to decipher when demand rationing starts. The grains are higher while soy futures are sagging. We doubt that the sag in soy will be long lived amid record large world oilseed demand and surging non-US vegoil prices.

• Chicago will focus entirely on tightening US cash corn/soy supplies and rising basis bids, and US/world weather. The biggest nearby worry is the Brazilian winter corn crop and its increasing stress levels amid a lack of soil moisture. Corn will remain the upside leader while new crop November soybean futures are expected to hold support at $12.40-12.60.

• The USDA dropped 2020/21 US corn end stocks to by 150 million bu to 1,352 million bu while holding the average farmgate price steady at $4.30. The USDA raised its US feed/residual use estimate by 50 million bu to 5,700 million and the corn ethanol grind by 25 million bu to 4,975 million. In total, domestic demand was hiked 75 million bu to 12,100 million (85 million bu less than last year). US 2020/21 corn exports were raised by 75 million bu to 2,675 million bu, which are arguably too low by 325 million bu.

• By not raising US corn exports as much as statistical sales/shipment data would suggest, the door remains open for additional upward export adjustment and cuts in 2020/21 US corn end stocks. We note that by mid-April, the US will have sold more corn than the elevated USDA annual forecast with Brazil’s corn price at record highs. In our opinion the USDA should have sent a clearer message for the immediate need for US corn demand rationing.

• The USDA dropped 2020/21 world corn end stocks by nearly 4 million mt to 283.8 million. They cut their Argentine corn crop estimate by 500,000 mt to 47 .0 million, while holding Brazil at 109 million mt. The cut in the Argentine production resulted in a like drops in domestic feeding with exports holding steady at 34.0 million mt. The USDA shockingly left China’s corn exports at 24 million mt even though the US has sold that amount and there are another 8-9 million mt of corn sales/shipments from Ukraine. It seems the USDA is way behind in forecasting China’s corn import program, they continue to be stubborn in the understanding of China’s corn import need.

• The USDA estimated 2020/21 US soybean end stocks at the same 120 million bu but adjusted the US soybean crush rate down 10 million bu while exports gained 30 million bu to 2,280 million bu. USDA cut their soy residual forecast by 17 million bu to 4 million bu based on the March stocks data. Research argues that the USDA is too low on both crush/export estimates. The average US farmgate cash soybean price was raised $0.10/bu to $11.25. The USDA is not sending the right signal on demand rationing by raising its domestic price forecast more. US crushers/exporters will overuse soybeans so that cash supplies virtually run out this summer.

• USDA raised their estimate of the 2021 Brazilian soybean harvest to a record 136 million mt while leaving Argentina at 47.50 million. China’s soybean crush was trimmed 2 million to 96 million mt while imports were left unchanged at 100 million mt. The net result was that China’s soybean end stocks were raised by 2 million mt to 31.6 million. 2020/21 world soybean end stocks were raised 3.1 million to 86.8 million mt.

• US 2020/21 wheat stocks were raised by 16 million bu to 852 million bu based on a 25 million bu cut in feed/residual and a 10 million bu drop in imports. Class breakdowns showed a 28 million bu hike in HRW stocks (411 million bu) while spring wheat stocks fell 3 million bu, SRW stocks 5 million bu (94 million bu), and durum stocks 5 million bu. The average farmgate wheat price was left at $5.00/bu.

• There are many points that one can argue with the USDAS in this April Report. The big glaring data point is keeping China corn imports at 24 million mt, and why they have been so slow to adjust in recent months. Yet, they will get it right in the end and for now the tightening cash markets and flash drought for Brazilian winter corn will underpin a Chicago break. Corn is the upside leader, followed by wheat, and then new crop soybeans. From a longer-term perspective, the best risk vs reward is owning November soybeans and December corn on breaks. US cash basis is strong.

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

Weekend summary 9 April 2021

8 April 2021

Posted on April 8, 2021 by simon

• HEADLINES: Chicago corn soars to test contract high on rumours of China demand for US HRW and corn; USD 2020/21 corn sales exceed crop year forecast; USDA Friday.

• It has been a bullish morning with corn/wheat pushing to strong daily gains, while the soybean market is being pulled along. Strong cash basis bids and renewed basis pushes from W Midwest ethanol producers rallied old crop corn futures to sharp daily gains. May corn is back testing last week’s post report spike high at $5.85. The May/July corn spread pushed out to a 17-cent May premium as the market is trying to entice pre-planting cash sales from the US farmer. December corn futures are testing their contract high at $4.9375.

• There are rumours that China’s is asking for offers on US HRW wheat for July/August. WE are uncertain if any US wheat has been sold but based on the cheapness of US HRW wheat to Chinese corn, it makes economic sense. Note that it was a 130,000 mt of US SRW wheat sale a few days ago to an unknown buyer (China?). When the Chinese Government starts to secure US wheat, we doubt that the buying will stop at just 2 cargoes.

• There are also rumours that China is seeking 1-2 million mt of US old crop corn for late summer shipment. We cannot confirm these rumours with cash connected traders. The CIF nor FOB markets in the Gulf or PNW are confirming the buying. We have heard cash talk that China was seeking US new crop corn for 2-3 million mt which is economically more attractive for October/ November than late summer. Chinese corn buying talk is likely “rumours” chasing the market.

• Chicago brokers estimate that funds have bought 15,800 contracts of corn, 5,100 contacts of wheat, and 1,900 contracts of soybeans. In soy products, funds are buyers of 900 contracts of soyoil while selling 1,200 contracts of soymeal. Funds have NOT been very active in the complex in recent days, fearful that the USDA will not change or raise 2020/21 US soybean end stocks.

• The index fund roll starts on today’s close and there may be some profit taking ahead of Friday’s USDA report. However, rising cash basis bids will underpin any correction in wheat/corn/soybeans post the report.

• CONAB estimated their 2021 soybean crop at a record 135.5 million mt, up 400,000 mt from March with their corn crop pegged at 109.0 million mt, equal to the USDA March forecast. CONAB raised their crop seeding estimate and trimmed yield estimates slightly to arrive at the record 109 million mt corn crop forecast. We see the CONAB crop estimates as 5-7 million mt too high amid ongoing drought related crop stress. Weather forecasts are arid for the second Brazilian corn crop. US weekly export sales for the week ending April 1 were 3 million bu of old crop and 19.5 million bu of new crop wheat, 29.8 million bu of corn, and net cancelations of 3.4 million bu of US 2020/21 soybeans.

• For their respective crop years to date, the US has sold 925.4 million bu of wheat (up 4.4 million or 1%), 2,617 million bu of corn (up 1,288 million or 97%), and 2,232 million bu of soybeans (up 864 million or 63%). The US has already sold more corn than the USDA is forecasting for the entire 2020/21 crop year with 5 months left. We statistically argue that 2020/21 US corn exports will be 3,000 xmv or more. US corn remains competitive into SE Asia.

• The midday S American GFS weather forecast is drier across the eastern two thirds of Brazil’s safrinha corn area. A high-pressure ridge will limit the flow of tropical moisture southward. The southern half of Mato Grosso has a limited chance of rain for the next week with bone dry weather conditions for MGDS and Parana. High temperatures range from the 80′s to the lower 90′s. Crop stress will be increasing amid arid weather conditions.

• Chicago corn values are sharply higher in anticipation of a bullish USDA report tomorrow, along with China purchase rumours for US corn/HRW wheat. The US has already sold more corn as of April 1 than the USDA is forecasting with 5 months remaining in the crop year. Midwest soyoil basis is pushing to 5-5.50 cents over which will become a feature heading into first notice day in a few weeks. There can always be profit taking declines, but as Brazilian winter corn and Northern US Plains dryness shows, you do not want to be short when Mother Nature is not fully cooperating. This why we will hold a bullish bias heading into summer.

7 April 2021

Posted on April 7, 2021 by simon

• HEADLINES: Hard wheat futures rally on Dakota/S Canadian prairie dryness; Weekly US ethanol grind just 3% below 2019, CONAB out with monthly report Thursday.

• Hard wheat markets have come to life with Minneapolis and KC wheat futures rising to noticeable midday gains. The rally in wheat has taken the selling pressure of old crop corn futures (wheat being fed to Plain’s cattle beyond mid-May on the discount), while fund liquidation in soybeans/soyoil has pressured the complex. The volume of midday trade is diminished with end users looking at breaks in corn/soyoil for new purchases. Chicago has a mixed tone at midday with the grains higher and the soybean complex weaker on fund order flow. The index fund roll starts at the close which continues for the next 5 days. The tone of the grains is bullish on N Plains and Canadian Prairie dryness. Soybeans are struggling on rallies amid improving, but still negative Chinese crush margins.

• Research notes that December corn nearly reached an open chart gap left from the March NASSS seeding estimate between $4.775-4.8075. The corn market should be the upside Chicago price leader following the USDA report. November soybean futures never left an open chart gap, but values have been consolidating at a high price level and forming flag formation. Both Dec corn and November soybeans are undervalued based on our Stock/Use ratio analysis.

• Chicago brokers estimate that funds have bought 4,400 contracts of corn and 3,900 contacts of wheat, while selling 3,600 contracts of soybeans. In soy products, funds have bought 3,400 contracts of soyoil while selling 1,900 contracts of meal futures.

• The US Census Department indicated that the US exported 67.1 million bu of wheat, 248.4 million bu of corn, and 167.5 million bu of soybeans during February. Compared to February FGIS inspections, Census soybean exports were 10 million bu larger, corn exports 6.4 million bu larger while wheat exports were up 4.6 million bu (including flour). The US is well on its way to exporting a record 2,350 million bu of soybeans, a heady 100 million bu above the WASDE 2020/21 forecast.

• CONAB will be out Thursday with its monthly April Brazilian crop estimates. The trade is looking for an increase in the Brazilian soybean crop estimate to closer to 135 million mt and a cut in their corn to around 105 million mt due to recent adverse weather. CONAB has consistently been below the USDA on its corn estimate. The US ag attaché in Brazil cut their total corn crop estimate from 109 million mt to 105 million due to recent dry weather. The May CONAB corn crop estimate will be released on 12 May, the same date as WASDE.

• Central IL cash corn is bid at 25 cents over May corn futures at midday which is well above delivery equivalent. The strong cash corn market should pull May corn futures to a deeper premium vs July. Surprisingly, the strong cash basis is not spurring additional corn movement from producers.

• US weekly ethanol production reached its best level in a year as production nears 2019 pre-pandemic levels. The US produced 287 million gallons of ethanol last week, up 3 million gallons from the prior week, and up 45% on last year. The difference from 2019 weekly production is just 3%. Research maintains that US ethanol production will reach the 2019 production levels by May. The USDA needs to increase its US 20/21 US corn grind for ethanol by 75-150 million bu.

• The midday S American GFS weather forecast is dry across the eastern 2/3rds of Brazil’s safrinha corn area. A high-pressure ridge is forecast to strengthen which will act to limit the flow of tropical moisture southward. Dryness returns to all Brazilian winter corn areas in the 7–14-day period. High temperatures range from the 80′s to the lower 90′s.

• The FAS weekly US Export Sales Report and the CONAB April crop report will be released on Thursday. US cash market strength will underpin May soybeans at $13.90 while May corn likely forged its post report low at $5.50 on Tuesday. It will not take much of a weather problem in the US or Canada to produce a “spicy” wheat market. We stay bullish of corn, while wheat is forging an early seasonal lows. Buying breaks appears to be a sensible policy.

6 April 2021

Posted on April 6, 2021 by simon

• HEADLINES: Early Chicago rally fails as wheat retreats; May KC wheat even money with May corn, historical rarity; GASC receives 19 August offers.

• The volume of Chicago trade was active for the first half hour and has since slowed with mixed prices noted at midday. KC wheat has continued its decline on liquidation while bull spreading is back in vogue in old/new corn and soybean spreads. Cash basis bids in both the US and S America are rising on diminished farm selling. US farmers are active with fieldwork on the season’s first 70–80-degree day while the Brazilian soybean harvest surpasses 85% with farmers willing to await higher bids before making new cash sales. One chore of the market is to buy additional grain to replace daily use. Cash sales are likely to remain somewhat limited as farmers seed crops over the next 6-8 weeks.

• Chicago has a firm tone at midday with the April USDA report due out on Friday. The April report does not normally cause wild market gyrations and Friday’s post report activity should be similar as EU/Chinese traders are already enjoying their weekends. The theme thereafter will all be focused on supply, and coming weather patterns for Northern Hemisphere crops. Some of the selling in new crop futures has been related to the prospect of normal spring planting weather and producers that are active to get seed in the ground. Key support is noted between $3.78-3.83 basis December corn futures.

• Chicago brokers estimate that funds have bought 5,600 contracts of corn, 4,100 contracts of soybeans, while selling 2,300 contracts of wheat. In soy products, fund managers have bought 3,400 contracts of soyoil while selling 1,900 contracts of soyoil. Funds are on the buy side of the market; it is just the midday totals are sagging.

• Egypt’s GASC received 19 offers on August wheat with the cheapest offer being $234/ mt with the tax estimated at $23.80/mt for Russian wheat. The large number of offers indicates that GASC will have no problem of securing/receiving new crop wheat. US wheat futures took the news as bearish, and prices declined. In fact, the break in wheat pulled old crop corn futures lower with May KC wheat trading at even money with May corn. Historically, it is extremely rare that KC wheat trades at a lasting discount to corn. In the cash market, KC wheat is priced at $0.85/bu cheaper than corn which is causing feedlots to take large amounts of forward coverage.

• NOPA will be out with their March crush report next week Thursday. The report is expected to reflect a record crush rate with builds in US soy products. The US crush industry is likely to exhaust soybean supplies on a local basis that produces local shortages. Somehow, Chicago must punish the US crush margin such that the monthly crush rate slows. We note that China’s crush margins are in fast retreat, and several days of strong cash meal is needed to turn margins around. China does have record tonnages of soybeans that are afloat coming from S America which will keep crushers there well supplied.

• The midday GFS weather forecast is drier across the eastern two thirds of Brazil’s safrinha corn area. A high-pressure ridge is forecast to strengthen which will act to limit the flow of tropical moisture southward. Dryness returns to all corn areas in the 7–14-day period. The forecast shows no return of regular or normal rainfall which would aid Brazilian winter corn. Our concern is rising on terms of Brazil’s second corn crop with the reproduction phase due in late April and the first half of May. High temperatures range from the 80′s to the lower 90′s. Soil moisture declines will persist into the end of the month.

• Chicago tried to rally on the flow of new funds into old crop corn, soybeans, and Chicago wheat. However, once the fund flow of new money slowed, the market was not able to sustain the rally and values retreated. Any Chicago break should find support based on the strengthening cash market. Basis bids for corn/soybeans are rising as end users seek additional supply to replace stocks. The result of the GASC tender is awaited with the lowest offer being $234/mt with a tax of $23.80/mt. KC wheat continues to sag on sliding world wheat values. Wheat must bottom for corn to sustain a rally.

1 April 2021

Posted on April 1, 2021 by simon

• HEADLINES: Old crop futures correct ahead of holiday weekend; No sign of corn demand slowing

• Chicago futures are wildly mixed at midday, with wheat and old crop corn and soy down sharply, while new crop contracts maintain modest gains. Profit taking ahead of a 3-day weekend is noted, particularly following fund buying corn and beans on Wednesday of 32-35,000 contracts. The ongoing collapse in Black Sea cash wheat values continues to weigh on US and EU futures. EU and Canadian canola markets also sharply lower at midday, with soyoil following.

• Fresh news of any kind is sparse. US weekly export sales are bullish corn but confirm that wheat and soy exports will be limited until late summer/early autumn. Corn sales through the week ending March 25 totalled 31 million bu, down sharply from the prior week’s 174 million but this reflects sustained buying from traditional importers of US origin, which will continue through summer. Total US corn export commitments now sit at 2,588 million bu, just 12 million short of the USDA’s annual forecast with 22 weeks remaining in the crop year. An upward revision to US corn exports of 200-300 million bu is expected within the April USDA report.

• US wheat sales totaled 9 million bu, vs. 13 million the previous week.

• US soybean sales totalled 4 million bu, unchanged on the prior week. the rapid slowing of US sales reflects more aggressive Brazilian fob offers, which as of this morning remain $0.60-0.65/bu below US Gulf quotes. US soy export demand will remain slowed into the tail end of summer. Yet, domestic crushers are now left to battle for remaining supplies. We would reiterate that interior soy basis levels firmed following Wednesday’s limit moving. This indicates that there is a real scramble for origination, which will worsen during the summer months.

• And we also maintain that the USDA’s US soy export forecast is still 100 million bu too low. To meet the USDA’s annual forecast, weekly sales over the next 22 weeks must average only 1 million bu/week. Even in years of large spring/summer exports from Brazil, US sales to nearby destinations average 10-20 million bu per week April-August. Exports will not be a driving market factor, but will not cease entirely.

• Spot WTI crude oil is up $1.40/barrel to $60.50 at midday as the market expects OPEC+ production increases to be rather gradual (350-450k per day) in the May-July period. Energy demand in the US and Asia will absorb such supply increases easily and downside risk in energy remains limited. May Chicago ethanol is up $0.08/gallon at $1.91, a new multi-year high, on depleted US stocks. Normal ethanol production rates lie just ahead, which suggests USDA’s corn feed, industrial and export forecasts are understated.

• The midday S American GFS weather forecast is wetter in N Brazil but drier across the southern 2/3rds of Brazil’s safrinha corn belt. High pressure ridging will remain intact across south-central Brazil throughout the next 10 days. This will act to block precipitation, and sustain heat, across major producing states Mato Grosso do Sul and Parana. Dryness returns to all areas in the 11-15 day period. There is also concern surrounding Canadian model output that is completely dry across a bulk of Brazil’s safrinha belt throughout the next two weeks. The Canadian model has been the best performer in the 6-15 day period over the last 30 days.

• For better or for worse, volatility will stay at levels not seen in years throughout the spring and summer months. But structural supply issues will not be solved without two consecutive years of above-trend corn/soy yields.

31 March 2021

Posted on March 31, 2021 by simon

• HEADLINES: USDA March stocks/seeding report a bullish shocker; Corn/soybeans limit up on bullish 2021/22 balance sheets; US corn feed/residual too low.

• The USDA Stocks/Seeding Report was bullish with 2021 US corn and soybean seedings well below trade estimates. This creates a need for the marketplace to secure/buy additional acres this spring. Moreover, March 1 US corn stocks were 100 million bu less than expectations which creates the need for the USDA to raise its feed/residual use estimate by 75-125 million bu in April. A final 2020/21 US corn feed/residual use above 5,900 million bu can be argued based on feed usage rates in the first half of the crop year. Price has not created any rationing of demand in the US feed, ethanol, or export markets. And in the case of soybeans, supplies are not adequate to meeting the expanding crush for biodiesel.

• Chicago corn raced to limit gains of 25 cents, soybeans to limit gains of 70 cents, while wheat is following with gains of 15-20 cents. The KC wheat/corn spread is expected to narrow close to even money in the coming trading days. US wheat futures will not be able to trade much lower amid the bullishness of corn and new crop soybean balance sheets. Midwest spring weather conditions just became significantly more important in the weeks to come. Somehow the market must encourage farmers to seed an additional 1.5-2.0 million acres of US soybeans.

• US farmers indicated they will plant 316.2 million acres to all crops, up 6.1 million acres from 2020. Kansas crop seedings were up 3.7% while North Dakota seedings were up a solid 10.6%. Iowa total seeded acres held steady at 24.3 million acres. US 2021 all crop seedings are the largest since 2018, but well below trade hope that US farmers would plant a combined 183 million acres of corn/soybeans. NASS indicated that US farmers would seed 178.7 million acres of both principal crops which is 4.3 million acres less than pre-report expectations. NASS forecast that total US harvested crop acres at 291.7 million acres, up 6.9 million acres.

• US 2021 corn seeding was estimated at 91.1 million acres, up just 300,000 acres from last year. IA corn acres fell 2.9% to 13.2 million acres, while IL was down 3.5% to 10.9 million acres. Even Kansas corn acres fell by 4.9% to 5.80 million acres. Assuming harvested acres of 82.50 million acres and trend yield of 179.5 bushels/acre, 2021 US corn production is forecast at 14,810 million bu. Such a crop is well below 2021/22 usage which we forecast at 15.25 billion bu. The 2021 crop year is now a stock depleting year without acute demand rationing.

• US 2021 soybean seeding was forecast at just 87.6 million bu which was up 4.5 million acres or 5.4% from 2020. North Dakota farmers indicated that they would plant 22% more soybeans or 7.0 million acres, Minnesota seedings were up 5.4% to 7.8 million acres, while Iowa was up 4.3% to 9.8 million acres. Finally, Illinois acres were up 3.9% to 10.7 million acres. US harvested soybean acres are estimated by us at 86.7 million acres with trend yield producing a crop of 4,405 million bu. This crop is 140 million bu below calculated use, producing negative or pipeline 2021/22 stocks.

• NASS forecast that 2021 US wheat seeding would reach 46.4 million acres, up 5% from 2020 with spring wheat acres estimated at 11.74 million acres, down 4.2%. Montana cut its spring wheat seeding by 12% to 1.38 million acre while N Dakota spring wheat seeding was off 1.8% to 5.6 million acres. US winter wheat was pegged at 33.1 million acres, up 8.8% from 2020. US wheat seedings were above forecast.

• US March 1 corn stocks at 7,700 million bu, were down nearly 100 million bu from trade forecasts. The second quarter feed/residual use rate was 1,396 million bu, the largest since March of 2018. First and second quarter corn feed/residual use argue for the USDA to raise their 2020/21 usage rate by 75-125 million bu, at least. On a stock/use ratio at the beginning of March, the ratio was a record low with massive US corn exports to China working. We forecast 2020/21 US corn end stocks between 850-900 million bu which could push May futures to $6.00-6.25. Any Brazilian winter corn crop losses now become highly important in April/May.

• US March 1 soybean stocks at 1.56 million bu were slightly larger than forecast with a quarterly negative residual use of -56 million bu. For the crop year to date, the residual is just 18 million bu. NASS did find back soybeans, but the recovery was not enough to counter the unexpected loss of 2021 US soy seedings.

• To conclude, spot Chicago corn has upside potential to $6.00-6.25 with December corn rising to $5.00-5.25. May soybeans are likely to score new highs and rise close to $15.00 with November needing to rally to $13.50-14.00 to secure extra acres. Wheat will be the follower in its effort to stay out of the US feed ration.

30 March 2021

Posted on March 30, 2021 by simon

• HEADLINES: Chicago takes a lashing on pre-report liquidation as cash market basis holds; CONAB to survey Brazilian wheat stocks in April; Funds massive sellers this morning.

• Chicago futures are sharply lower at midday with May corn sliding below $5.35, while May soybeans drop to $13.70 and May Chicago wheat to $6.00. Trade volume is moderate which has helped to exacerbate the downward slide as fund managers take off length heading into the end of the quarter and March NASS Crop Report. Few speculators want to stand in front of the slide while cash markets hold firm. US nor S American farmers appear willing to sell cash grain on the drop.

• May soyoil has declined to another daily limit loss which is caused additional exodus of oil/meal spreads. May soyoil is limit down at $50.46 as technical sell signals are issued following an $0.08 decline from a peak less than 2 weeks ago. The selling in nearby May has spread to the back end of the soyoil price curve with December soyoil falling to $43.20. Buying has been relegated to end users making forward purchases on resting orders. The market is moving to the orders on a lack of speculative interest ahead of the USDA report. The sharp Chicago decline is digesting a bearish USDA report. Unknown is whether the USDA report will confirm or deny the break. Today feels like a exhaustion washout of weak and tired bulls.

• Chicago brokers estimate that fund managers have sold 11,200 contacts of soybeans, 14,900 contracts of corn, and 8,200 contracts of wheat. In the soy products, funds have bought 1,200 soymeal and sold 8,100 contracts of soyoil.

• We have been asked, “What has changed that would produce the sharp Chicago break?” Our response is that nothing fundamentally. In fact, it can be argued that Brazilian winter corn dryness is more acute. The Chicago break is about money and order flow amid a stronger US$. US 2020/21 US corn end stocks are forecast at 1,000 million bu or below with either US corn or soybean balance sheet being shorted by acres in the coming spring planting season. The US farmer cannot seed 95 million acres of corn and 90 million acres of soybeans, there just is not enough arable farmland for everything planted in 2021 to increase.

• Unless the NASS Stocks report offers big bearish surprises for US soybean/corn, just getting past the report will be relief with the cash market then directing Chicago price direction. Today’s slide is not about firming cash markets, but the charts and fund length heading into the end of a quarter and a key USDA report. These are big markets and volatility will be the hallmark of Chicago for many months to come. Be prepared.

• Renewable biodiesel is a new demand driver for US soyoil, cornoil, tallow and restaurant waste oil. State Government incentives of as much as $2/gallon will push a slew of new plants to open in 6-12 months. December soyoil should be well supported between $0.40-0.42/gallon on any bearish report on Wednesday.

• Brazil’s CONAB (Brazil’s USDA) will be conducting their first stocks survey between April 5-23 on domestic food stocks of rice, coffee, and wheat. Brazil like a host of emerging nations is battling food inflation and wants to gauge domestic stores of foodstuffs to make correct future policy decisions.

• The midday GFS weather forecast offers showers for Central Brazil on March 7-8 with a weak frontal pass. The forecast is slightly wetter in this timeframe compared to the overnight run as the high pressure ridge weakens. The showers are slated to drop between April 8-10 which is too far out for confidence. Until then, Central Brazilian rainfall will be limited to a few light showers. The models have been trying to drag a weak front across Mato Grosso while keeping West Central Brazil dry. A generally dry trend holds across Argentina.

• This is a good old spring cleaning ahead of the end of the quarter and a major USDA report with fund selling accelerating as Chicago prices decline. This is no place to make new sales. End users should consider forward purchases as the structure of the bull market has not changed amid record large US corn/soybean demand. If NASS does not uncover larger March US stocks, a quick snapback in price will develop.