29 March 2021

Posted on March 29, 2021 by simon

• HEADLINES: Soyoil rallies on end user pricing as debate rages over US old crop soy supplies; US weekly corn exports must average 69 million bu for 3 billion bu 2020/21 total.

• Chicago values are lower at midday with old crop soybeans sinking on risk off trading ahead of the end of the month/quarter and Wednesday’s USDA/NASS Stocks/Seeding report. It does not take much volume to push the market either higher or lower, but this will change after Wednesday with fund managers and traders willing to return to more normal trading volume. Today (and recent day) volume has been constrained by the uncertainty of the report and diminished confidence in USDA data following last year’s corn stock’s revisions. Research looks for a lower close today with the day’s low already set in soybeans, corn, and wheat. A modest recovery into the close.

• FGIS weekly export inspections for the week ending March 25 were 66.7 million bu of corn, 15.6 million bu of soybeans, and 11.1 million bu of wheat. For their respective crop years, the US has exported 1,328 million bu of corn (up 614 million or 87% above last year), 1,987 million bu of soybeans (up 830 million or 72%), and 746 million bu of wheat (down 6 million or 2%). We would note that for the US to export 3,000 million bu of US corn for the 2020/21 crop year requires a weekly average of 69.7 million bu/week. This annual corn export pace is attainable with the US exporting 85-100 million bu on some weeks during the summer.

• Chicago brokers estimate that fund managers have sold 5,600 contacts of soybeans, 8,700 contracts of corn, and 3,200 contracts of wheat. In the soy products, funds have bought 2,200 contracts of soyoil and sold 4,100 contracts of meal. May soyoil has rallied sharply on new cash related strength and end user pricing on the decline.

• The two key data points to monitor in Wednesday’s NASS March Reports will be March 1 US soybean stocks and 2021 US corn seeding. Both are gaining the acute attention of traders amid their fear for a bearish report estimate.

• The Dec 1-February US soybean residual could be 40-90 million bu larger based on number of US soybeans that were in transit on Dec 1. The record US export pace and the difficulty in counting beans in transit to China might have skewed the December Stocks estimate to be more bullish. Will some of these soybeans be found back in March, that is the key concern. The average trade estimate indicates that 40-50 million bu will be found back (1,543 million bu is the average trade estimate) which could make it difficult for the report to be overly bearish.

• Moreover, traders are quietly raising their 2021 US corn seeding estimates, based on US farmers planting additional acres for yield. In a good growing year, corn yield gains surpass soybeans. And Last March’s US corn seeding estimate was 97 million acres, with the final being 6.3 million acres less. Based on farmers liking to plant corn, could US 2021 corn seeding reach +95 Mil acres.

• The midday GFS weather forecast offers showers for Central Brazil on April 7-8 with a weak frontal pass. The forecast is mostly dry for Argentina and Southern Brazil with limited rain over the next 10 days. Above normal temperatures prevail with Brazilian highs running in the 80′s to the mid 90′s while Argentine highs in the 70′s to the mid 80′s. Brazil’s winter corn area needs rain, but totals look to be light or limited into mid-April. This will place considerable importance for rain in the last 2 weeks of April and the first week of May. Our concern for the Brazilian second corn crop stays elevated.

• Chicago has been speculatively long and fund managers are liquidating risk for the report and the end of the quarter. The cash markets are firm on basis with farmers unwilling to sell stored cash grain on the break. And record high Brazilian corn bids are pulling supply from Argentina. Chicago corn/soybean values have priced in a somewhat bearish NASS report. Research does not see December corn sliding too far below $4.50 or November soybean too far below $11.50 until trend yields are confirmed. This is a highly unpredictable report, but the risk is starting to shift back to the bulls. A smaller US soybean residual shorts US processors of supply and would cause a return to bullish trends in soyoil. This is why March 1 soybean stocks are the most important number on Wednesday’s report.

26 March 2021

Posted on March 26, 2021 by simon

• HEADLINES: Worry grows over Suez Canal reopening and record high ocean freight rates; Will it reignite world grain trade; Massive range for US soybean stocks estimate.

• Chicago is mixed at midday with soybeans, corn, and wheat futures trading either side of unchanged. Soybeans/soyoil have endured additional long liquidation while the grain markets are bouncing in thin volume trade. Wheat has paced the morning rally as traders try to assess the logistical/cost impact of the stuck container vessel in the Suez Canal on EU/Black Sea wheat exports to the east. Risk off remains the theme with soyoil falling back near limit losses.

• The exiting of corn/wheat and soyoil/soymeal spreads is ongoing. Rumours of S American soyoil imports into CA are widespread, but we would note that whether the soyoil is crude or refined, a 19% import duty will be charged. This hefty duty along with soaring freight rates makes such import deals difficult to justify economically. The same soaring freight cost makes the import of Brazilian soybeans into the US economically arduous. The rising freight costs makes the NASS soybean stocks estimate extremely important with stocks of 1,500 million bu or less causing an immediate need for demand rationing and a resulting sharp rally. Soy product pricing and soybean flat prices are all tied to the prospect of a large negative residual in the Dec-February quarter.

• Chicago brokers estimate that fund managers have sold 7,200 contacts of soybeans and 4,900 contracts of soyoil, while buying a net 1,200 contracts of soymeal. Funds have also bought a net 1,900 contracts of wheat and 4,400 contracts of corn. Active meal/oil spreading has been noted.

• The world will be closely watching whether the Suez Canal will be cleared this weekend with the spring high tide occurring Saturday. This will be best chance to float the sideways container ship and start the long process of returning Suez shipping to normality. Ocean freight rates are sitting at record highs and will soar if the canal stays closed. A lengthy closure would reroute shipping around the world and cause a dramatic cost increase for anyone in the EU or Black Sea that would be sending food supplies east. Moreover, the cost of energy could soar on the Mideast logistical disruption. Gauging efforts to unbeach this massive vessel will be closely followed this weekend.

• North America, Argentine and Australian wheat/grain could find themselves competitive to world importers on soaring ocean freight costs. Suddenly, EU and Black Sea exporters would not have a price advantage on a landed basis in wheat heading to the Mideast or East Asia. This has wheat trader’s attention.

• The average trade estimate for March 1 US soybean stocks is 1,543 million bu with the guess range being a massive 1,440-1,825 million bu. This range is more than 10 million mt of soybeans or 385 million bu from high to low estimate. We look for a zero second quarter residual, but the average guess is betting -50 million bu.

• The average March corn stocks estimate is 7,767 million bu in a range of 7,573-7,980 million bu (407 million range), while the average estimate for March 1 US wheat stocks is 1,278 million bu, down 10% from 2020. For the seedings report, the average guess is 93.2 million corn, 90 million soybeans, and 45.0 million acres of wheat.

• The midday GFS weather forecast is drier for Argentina and Southern Brazil and equally as dry for C and N Brazil. Limited rain is forecast for Brazilian winter corn areas for the next 10-12 days with generally above normal temperatures with highs running in the mid 80′s to the mid 90′s. Argentine highs range from the 70′s to the mid 80′s.

• Chicago is paying close attention to soaring world freight costs and how high ocean freight might rise if the Suez stays blocked. The weekend ship refloating effort will be closely monitored and reflected in Sunday’s trade. Otherwise, it is oil/meal and corn/wheat spread unwinding. Soyoil fell to another limit loss with values staying depressed on liquidation. Although the March Stocks/Seeding report will add to volatility, we doubt that it will usher in a sustained bearish Chicago price trend. Do not sell this break.

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

Weekend summary 26 March 2021

25 March 2021

Posted on March 25, 2021 by simon

• HEADLINES: Chicago sinks on risk off into end of quarter/month and NASS Report: China buys new crop Ukraine corn; US annual corn/soy sales reach 98%/99% of USDA full year forecast.

• Chicago values are sharply lower at midday as fund managers/speculators shed length ahead of the highly unpredictable March Stocks/Seeding Report. Option volatility continues to rise in corn/soybeans suggesting that there will be a sizeable price move following the March 31 report. Wheat option volatility has not expanding much, suggesting that traders are not looking for post report fireworks here. Today’s decline is all about risk reduction (market was long) amid the unpredictability of the March 31 report. Fundamentals are little changed with cash basis bids rising on the break. US and S American farmers are not using the break to make new sales.

• Technically, May corn fell to key downside support at $5.30-5.40, May Chicago wheat at $6.00-6.10, and May soybeans at $13.90-14.10 key long term support. May soyoil futures have fallen to limit losses at $54.98 with end users trying to add to their forward coverage on the break. Soyoil values are hinged to whether NASS can find extra US soybeans in the residual category (soybeans in transit Dec vs March 1) that would allow the US crush rate to be maintained. A US March 1 soybean stocks total of 1,500 million bu or less (0 bushels of residual) would cause a dramatic future rationing rally of soyoil US demand.

• Chicago brokers estimate that fund managers have sold 11,400 contacts of soybeans, 5,900 contracts of wheat and 18,400 contracts of corn. Funds have bought 3,100 contracts of meal and sold 9,700 contracts of soyoil. The selling across the grains has been strong since the morning reopening.

• Ukraine has been active in selling China corn on Thursday with rumoured totals placed at 1.2-1.5 million mt for a September/October/early November timeframe. This is the first corn that we can see that China has booked in a new crop position. European cash sources report that China is still asking for offers and may secure more than 2 million mt. This year, we estimate that China will import 8.5-9.0 million mt of Ukrainian corn and at least 25 million mt from the US during the 2020/21 crop year for a total of 33-34 million mt. Those who estimated China taking 40 million mt of world corn in 2020/21 are coming closer to reality.

• US weekly export sales for the week ending March 18 were; 15.2 million bu of wheat (12.6 million old and 2.6 million bu new crop), 176.4 million bu of corn, and 3.7 million bu of old crop soybeans. Through the daily reporting system, the USDA announced the purchase of 111,000 mt of US corn bt Japan. The corn sales were at the top end of expectations.

• For their respective crop years to date, the US has sold 2,558 million bu of corn (98% of the USDA estimate), 2,231 million bu of soybeans (99% of the USDA estimate) and 913 million bu of wheat (93% of the WASDE forecast). Research argues for the USDAS to elevate its corn export estimate by 400 million bu to 3,000.

• The USDA should raise their soybean export estimate by at least 100 million bu to 2,350 million bu with US 2020/21 wheat exports to be increased by 15 million bu to 1,000 million bu. US 2020/21 soyoil exports appear overstated due to strong domestic use.

• The midday GFS weather forecast is drier for Argentina and Southern Brazil and equally as dry for C and N Brazil. Limited rain is forecast for Brazilian winter corn areas for the next 10-12 days with generally above normal temperatures with highs running in the mid 90′s to the lower 90′s. Argentine highs range from the 70′s to the mid 80′s. The Argentine corn harvest is gaining speed amid arid weather.

• Fundamentals are bullish, but fund managers are cutting their risk into the March 31 NASS reports and the end of the quarter. April options expire Friday with funds are forecast to be net short wheat heading into a new growing season. This looks like an ideal opportunity for end users to scale into future coverage on this pre-report dip. The market knows that US 2021 corn/soybean seedings will very likely be large, that is known news. The bull market will not end next Wednesday.

24 March 2021

Posted on March 24, 2021 by simon

• HEADLINES: Chicago chops sideways in slow volume session. US corn sales will be massive on Thursday morning; HRW wheat feeding purchases become active.

• Dull/mixed is Chicago at midday with corn/wheat lower while the soy complex trades firmer. An early Chicago rally faded with strong cash markets underpinning the midday decline. US farmers show no interest in selling a break with commercial elevator sources reporting that rising cash soy basis is having no impact on securing additional supply. Cash soybean buyers argue that they could raise soybean basis bids by 50 cents and secure only limited bushels.

• Elevators/farmers are sold out of old crop soybeans and have only a modest amount of old crop corn in store. As farmers become active with spring fieldwork/planting, the last thing on their mind will be moving any remaining old crop grain. Regardless of what next week’s NASS Stocks/Seeding report shows, cash market strength will persist on record large cruslh/export demand.

• We look for mixed/firm Chicago close as traders’ position for large US corn/wheat sales tomorrow. S American soybeans are cheaper, so US soybean sales will be less than 10 million bu. But with the US already having sold 99% of its annual export forecasts in corn/soybeans, future slow sales will not produce a bearish market reaction. The surprise would be that current price does not produce a dramatic slowdown in US corn/soy export sales!

• Strong cash corn/soybean basis is producing an impression that the US has overused the corn/soy crop. May corn is trading at 16 cent inverse vs July with May soybeans at a $2.00/bu inverse to November. Cash basis and futures spreads argue for a bull report next week.

• Chicago brokers estimate that fund managers have bought 2,600 contacts of soybeans, while selling 2,200 contracts of wheat and 4,200 contracts of corn. Funds have bought 1,200 contracts of meal and 1,900 contracts of soyoil.

• Plain’s feedlots are securing massive amounts of HRW wheat to feed from April 1 onward. The recent Plain’s rain is providing hope for a big harvest which is providing comfort from elevators that they can offer HRW wheat as feedstuff across the Plains into October. The USDA indicated in its February Outlook Forum estimate that 140 million bu of US wheat (all classes) will be fed in 2021/22. Based on cash price spreads, we see US 2021/22 all wheat feeding being 175-195 million bu amid the $0.80/bu discount of US HRW wheat to corn in TX. It is the Plains wheat cash discount that is enticing massive HRW wheat feed use.

• The US ethanol grind produced 271 million gallons of production, down 14 million gallons from the prior week. US ethanol stocks grew to 916 million gallons.

• The GFS weather forecast is slightly wetter for Central Brazil with rain amounts of 0.25-0.75″. The coming sunshine/dry weather is initially helpful to winter corn, but regular and above normal April rainfall will be essential to final yields. The forecast offers above normal rainfall for Southern Brazil (RGDS) and the northern half of the Argentine crop belt. The rains come too late to produce a yield bump, but it will allow for stabilisation. Dry Argentine pockets remain, but they will be offset on above normal rains in other regions. Heat will be felt on NE and C Brazil with highs in the mid 80′s to the mid 90′s. The forecast leans mixed to supportive corn.

• Low volume and mixed is Chicago at midday. Thursday’s USDA corn export sales should be near record large at 160 million bu. Chicago has been choppy with soyoil/soybeans rising and wheat futures in decline. However, wheat has reached a spread (vs corn) where it is becoming the main starch ingredient in cattle rations through the summer. Moreover, Russia looks to hold to a variable rate tax system that will start on April 1. We fremain bullish on Chicago breaks with a desire to just get past the always uncertain March 1 Stocks/Seeding report. The market risk is to the upside.

23 March 2021

Posted on March 23, 2021 by simon

• HEADLINES: Chicago rallies amid limited fresh news; Cash market firm on tightening supply; Brazilian line up to load soybeans rises to 25 million mt, largest since 2016.

• Chicago ag futures reversed early losses and are higher at midday. Fund long liquidation slowed following the 8:30 morning opening with a reversal in wheat allowing Chicago corn to rise amid strong cash basis bids. Soybeans/soyoil rallied on strong cash basis with May soybean futures pushing back against chart resistance at $14.40-14.50. Renewed biodiesel and food end user pricing is noted in soyoil amid the concern over a summer slowing of the US soybean crush. There is no evidence of soybean imports from S America. Moreover, imported soybeans/soyoil are not eligible for RINs or the blender’s credit.

• The soybean nor corn market shows no evidence of demand rationing with soyoil/cornoil supporting domestic crush margins, regardless of high cash corn/soybean bids. The unknown remains next week’s Wednesday USDA/NASS report and whether a new demand rationing phase is needed. A bearish report will likely be purchased by end users amid the uncertainty of a new US growing season.

• Chicago volume is diminished with few resting orders above or below current values. This is causing Chicago to rally and fall sharply on limited fundamental news. US wheat futures have rallied more than $0.20/bu today without a change in demand or weather. Market volatility looks set to stay high into April.

• Chicago brokers estimate that fund managers have bought 4,500 contacts of wheat, 6,300 contracts of soybeans, and 6,700 contracts of corn. Funds have bought 1,900 contracts of meal and 3,400 contracts of soyoil. Fund managers bought the early Chicago break, but their purchase pace has slowed at midday. The weekly US export sales report will take on added importance on Thursday amid last week’s massive China purchase of nearly 160 million bu of US corn.

• Brazil has decided against lowering its soyoil blend rate in biodiesel from 13%. The industry and Government were having discussions on lowering the blend rate to cut costs on rising soyoil values. However, the strong farm lobby and a letter from the Ag minister has supported keeping the blend rate at 13% instead of 8%, which was being pushed by petroleum groups. The high price of food has some lobbying to use less vegoil in a new fuel vs. food fight.

• The Paranagua paper soybean market continues to slide on the massive export line up (and still growing) for Brazilian soybeans. Paper Paranagua soybeans are offered at 10 cents under and bid at 30 cents under, the weakest in years. We note that the paper market does not include a load out provision, so the longer the line to export Brazilian soybeans, the weaker the paper market. We put the Brazilian soybean export line up at 25 million mt as of March 22, the largest since 2016. This huge line up reflects the massive forward purchases of Brazilian soybeans by China. Yet, the Paranagua paper trade acts as a drag on Chicago soybean futures, but it is unlikely that Brazilian soybeans will be imported until June amid loadout constraint.

• The midday GFS weather forecast is dry for Central and Northern Brazilian winter corn areas while allowing the soy harvest to push ahead strongly. The sunshine/dry weather is helpful to winter corn, but regular and above normal April rainfall will be essential during April and early May.

• The forecast models argue for above normal rainfall for far Southern Brazil (RGDS) and the northern half of the Argentine crop belt. The rains come too late to produce a yield bump, but it will cause stabilisation of corn and soybean crop conditions. Dry pockets remain, but they will be offset by above normal totals in other regions. Heat will be felt on NE and C Brazil with highs in the mid 80′s to the mid 90′s. The harvest is ongoing, but Central and Northern Brazilian weather must be monitored for its winter corn crop.

• Traders are frustrated with the recent back-and-forth in Chicago. There was no clear fundamental reason for Monday’s break nor for today’s rally. However, tightening cash corn/soybean supplies and record large US corn exports through the summer underpins Chicago on breaks. Whether corn/soy needs to start a new demand rationing effort will be determined by the NASS March 1 Stocks report. US 2021 corn/soy seedings will be near record levels, the market risk is March Stocks totals.

22 March 2021

Posted on March 22, 2021 by simon

• HEADLINES: Chicago corrects last week’s gain in low volume; Fund managers reduce risk into the end of the month/quarter; US corn exports record large last week.

• Chicago ag futures are mostly lower in midday trade while soyoil futures rally to sharp gains. Risk off appears to be the mentality ahead of NASS March 31 Stocks/Seeding report. Fund managers were the sellers of the morning decline in thin volume. It does not take much order flow to push Chicago around at 9-year price highs with a new Northern Hemisphere growing season just starting.

• US, European or S American farmers are not going to sell a Chicago break and Midwest cash market basis is steady to firmer as a result. It is the cash market that will catch the break with the big risk being a bullish NASS report that does not match the trade’s expectation on record combined US corn and soybean seeded acres (182 million) or a decline in second Quarter corn feed/residual use. US first quarter corn feed/residual use record large, and the second quarter should be similar based on the huge premiums of sorghum, wheat, and barley. The USDA should raise their 2020/21 US corn exports by 200-300 million bu, the ethanol grind by 50-100 million bu and US corn feed/residual by 50-150 million bu.

• The result will be a US corn 2020/21 end stocks forecast of 1,000-1,100 million bu, which could easily fall to 850-900 million bu if China decides to ship out all its purchases. We estimate 2020/21 US corn exports at 3,000 million bu, 7% US corn stock/use ratio $6.00-6.50 spot Chicago corn futures and a growing need for demand rationing into summer. A cash led bull market lies in the offing for corn, with any new crop weather problem expanding the upside potential.

• Chicago brokers estimate that fund managers have sold 7,900 contacts of corn, 4,300 contracts of soybeans, and 3,800 contracts of wheat. Funds have sold 3,900 contracts of soymeal and bought 3,100 contracts of soyoil.

• FGIS indicated that the US exported 77.2 million bu of corn, and 18.0 million bu of soybeans, and 23.8 million bu of wheat in the week ending March 18. For their respective crop years to date, the US has shipped out 1,259 million bu of corn (up 594 million or 89% from last year), 1,971 million bu of soybeans (up 829 million or 72%), and 733 million bu of wheat (down 5 million or 1%). The US soybean weekly export shipping pace needs to decline to 12 million bu for the USDA 2,250 million bu forecast to be correct. We see the USDA 2020/21 US soybean export estimate as at least being 100 million bu too low. Brazil also shipped out a record number of soybeans last week at 134 million bu. World demand for corn, wheat and soybeans is staying strong and record large for the summer row crops.

• Last week’s US corn export estimate was revised upwards to 89.5 million bu, a record high surpassing a total that occurred in November 1989.

• The GFS weather forecast is dry for Central and Northern Brazilian winter corn areas while allowing the soy harvest to push ahead strongly. The sunshine/dry weather is helpful to winter corn, but regular and above normal April rains are essential for trend line yields. It is too late for weather to produce much change in the Brazilian soy crop, but 2 rainfall events will help the RGDS soybean. The RGDS soybean yield could reach near record levels amid frequent rain events since Jan 1. Our biggest weather concern is Brazilian winter corn as a lasting dry trend appears to be establishing over Mato Grosso, Goias, Mato Grosso Du Sol and Minas Gerias. Highs will range from the 80′s to low 90′s across Brazil.

• Rule 1 – Never sell a low volume break in a bull market. The corn drop is corrective in nature as China did not show up securing more US corn today. Yet, corn/soybeans are cash led bull markets amid tightening domestic stocks. Wheat values are declining seasonally, but we worry that the EU/Black Sea cash price falls are premature amid limited stocks and farmers that are unwilling to sell the discounted new crop. This is no place to be making new sales.

19 March 2021

Posted on March 19, 2021 by simon

• HEADLINES: China buys 4 million mt of corn this week, shifts corn outlook from sideways to new bull phase; Soy follows on 2021 planting fight; KC wheat too cheap vs corn.

• Chicago ag futures are mixed at midday with corn/soy futures sharply higher with wheat sagging on active corn/wheat spreading. China booked another 800,000 mt of US corn taking their weekly purchase pace to an unexpectedly large 4.00 million mt (157 million bu). Soy futures have rallied strongly following corn on tightening domestic supplies amid a lack of farm selling. Wheat is sagging on fund selling and weakening world fob offers. A higher Chicago close is expected with the next upside price resistance in May corn being at contract highs at $5.72/bu. November soybeans have likely scored a trading low against $12.00.

• The premium of the old vs. the new crop fob wheat market is being unwound. Yet, finding a new crop Russian new crop fob offer is nearly impossible. Importer fears are growing that Russia (due their floating export tax) will be a substantially smaller exporter of wheat beyond June 1. This would push world wheat demand to Ukraine, E Europe and Europe from the Mideast and North Africa. The inability of world importers to find Russian new crop offers beyond June 1 will become increasingly important to world wheat markets. New crop Ukraine offers are starting out around $240/mt or $6.50/bu. Importers and end users see fresh weakness below this price as a purchase opportunity.

• The USDA confirmed that China secured another 800,000 mt of US corn today. This takes China’s weekly purchase total to 4.0 million mt. We estimate that China has booked 25 million mt of US corn with 8-9 million from Ukraine in the 2020/21 crop year. From all world corn exporters, we estimate that China booked 33-34 million mt of corn (9-10 million above the March USDA estimate of 24 MMTs). The USDA needs to raise their estimate of US corn exports by at least 250 million bu with research estimating US 2020/21 corn exports of 3,000 million bu. This massive US corn export pace would reduce 2020/21 US corn end stocks to 1,100 million bu without any upward adjustment to the ethanol grind or feed/residual use. 850-950 million bu 2020/21 US corn end stocks estimates are quickly becoming reasonable with stock/use ratios that justify a price of $6.00 plus spot Chicago futures.

• The May KC wheat/corn spread narrowed to a 28-cent wheat premium this morning, the tightest since the Midwest spring flooding of 2019. The nearby KC wheat/corn spread reached a low in August of 2019 as the winter wheat harvest was completed. The prior spread low was set in 2012/13 as North America enduring a dire drought that knifed US corn/soybean production. Looking backwards, you can count the number of days on one had that KC wheat has traded below spot Chicago corn. History shows that anytime the KC wheat/corn spread reaches a $0.20/bu or below (wheat premium), it is a longer term spread opportunity. US HRW wheat economically works into US cattle feed rations in the Plains in a new crop position which could produce additional wheat feeding of 75-100 million bu. The problem is that the US cannot afford to feed too much HRW wheat without causing a dramatic tightening in US HRW wheat stocks.

• The midday GFS weather forecast is much wetter in S Argentina but consistent with prior drier outlook for N and NE Brazil. The dominant feature of S American weather into early April is the return of high pressure ridging to NE Brazil. This pattern funnels consistent/heavy rainfall into Argentina/S Brazil while leaving N and C Brazil arid. This is a growing worry for the Brazilian winter corn crop with needed moisture to fall during April before the start of the dry season.

• Brazilian temperatures reach above-normal levels next week. The GFS forecast is overdone with Argentine rainfall, but this broad long wave pattern is correct. The EU model is drier and has been the best performing model since March 10.

• This week’s China corn buying of 157 million bu (4 million mt) along with a threatening/arid weather for N Brazilian corn is likely to push May corn futures to test contract highs at $5.70. If the NASS Stocks/Seeding Report on March 31 does not hold a big bearish surprise, spot Chicago corn futures will push to resistance at $6.00-6.25 in a demand rationing effort. And as corn goes, so will soybeans and wheat. This is a cash led bull market.

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

Weekend summary 19 March 2021

18 March 2021

Posted on March 18, 2021 by simon

• HEADLINES: Market shrugs off corn export demand; Crude falls sharply.

• Chicago ag futures have extended overnight losses on weakness in crude oil, sharply lower global canola prices and as market focuses attention on a paper released from China suggesting feed operations find alternative sources of supply. China’s massive rice stocks have been cited, but otherwise it will be difficult to replace corn and meal with minor feedgrains and meals without massive Northern Hemisphere production this spring and summer. Liquidation is the theme at midday, but we doubt this break can be extended into Friday.

• Crude and gasoline futures are down sharply as US stocks rise and as longer-term energy outlooks are mixed. Demand rises sharply worldwide once vaccine distribution ramps up across Europe and Latin America. But the market is aware there is a price that OPEC begins to boost daily production rates. There is similarly a price that US shale production comes back online. Energy markets needs to see and feel the coming demand boom before newer highs are scored.

• US weekly corn, wheat and meal sales exceeded expectations, while even soybean sales are viewed sales are viewed as positive.

• Through the week ending March 11, exporters sold 39 million bu of corn, vs. 16 million the previous week. Wheat sales totalled 14 million bu, vs. 12 million the previous week. Soybean sales were 7 million bu, vs. 13 million the previous week, with US meal sales a sizeable 235,000 mt. The pace of meal sales is now in much better alignment with the USDA’s forecast.

• For their respective years to date (as of March 11), the US has sold 2,382 million bu of corn, up 109% on Last year and a record 92% of the USDA’s forecast, 2,228 million bu of soybeans, up 74% on last year and just 22 million bu short of the USDA’s annual forecast, and 901 million bu of wheat, up 2% on last year.

• FAS announced another 27 million bu of US corn sales to China for old crop delivery. This brings total Chinese purchases this week to 121 million bu, which in turn puts total US export commitments on a known basis to just over 2,500 million bu. Exporters now must average sales of only 4 million bu/week late March onward. There will remain debate over the full execution of Chinese purchases, but we have little doubt the USDA’s 2020/21 US corn export forecast is 250-300 million bu too low. China last week also secured 11 million bu of US sorghum.

• But crosscurrents abound. The recharging of US soil moisture has weighed on new crop values this week. Additionally, drought has been eliminated from Central KS and Eastern NE. Another round of widespread showers impacts the Southern and Central Plains next Tues-Thurs, which will further relegate drought to far Western HRW producing regions.

• However, NOAA’s updated seasonal climate forecasts maintain warmth and dryness across the Plains during spring. The risk of abnormal warmth in all regions through summer is elevated. The shedding of weather premium is logical, but winter wheat crops are made in Apr-June.

• The midday GFS weather forecast is much wetter in Argentina but consistent with prior output in Brazil. The dominant feature of S American weather into early April is the return of high pressure ridging to Eastern Brazil. This pattern funnels consistent/heavy rainfall into Argentina, with cumulative totals of 3-4″ offered to Cordoba and Santa Fe, while leaving Brazil arid. Brazilian temperatures reach above-normal levels next week. The GFS forecast is overdone with Argentine rainfall, but this broad outlook seems to be correct.

• Choppy trade continues into March 31. Volatility stays elevated into autumn. We continue to caution against chasing breaks and rallies until planting intentions are known but maintains that it is important to boost old crop supply coverage on weakness as US 2020/21 balance sheets tighten further.

17 March 2021

Posted on March 17, 2021 by simon

• HEADLINES: USDA confirms additional Chinese corn demand; ethanol production hits 12-week high.

• Chicago futures are mixed as corn finds strength on confirmation of Chinese corn buying and rising US ethanol production, while soybeans/wheat sag on limited export interest. Chicago soybeans have bounced despite an accelerating Brazilian harvest. World importers are absorbing 2021 S American soy supplies quickly amid record shipments. But the associated price risk with the coming March 31 Stock/Seeding report is keeping trading volume curtailed. Other than China’s purchase of US corn, other fresh demand news is limited. We look for a mixed Chicago close with old crop corn underpinned on any 2-4 cent break.

• USDA/FAS announced another 1.2 million mt Chinese purchase of US old crop corn. This increases China’s 2-day purchase total to 2.4 million mt with another 2 cargoes said to be found on the weekly export sales report. This package of buying is said to be 2.5 million mt in total or just under 100 million bu. US exporters report that the purchase was for July/ August export and it takes China buying on a known basis to 21 million mt. Cash grain traders argue that an additional 2-2.5 million mt of China corn purchases is held in an unknown destination category. This raises China’s corn imports from the US to 23-24 million mt and 28-30 million from the world. This allows the USDA to increase US 2020/21 corn exports to 2,800-2,900 million bu.

• Cash corn basis across the Plains will only get stronger as summer approaches while basis gains in new crop HRW will be laboured without Apr-May weather issues. Current cash wheat-corn spreads are supportive of July KC below $6.00 but have given the Chicago corn rally a pause. Yet, amid rising animal numbers total grain fed this summer will be enlarged. Whether wheat can be substituted on a scale greater than 100 million bu will be determined by Mother Nature.

• US ethanol production through the week ending March 12 totalled a 12-week high 285 million gallons, vs. 276 million the previous week. Recall production in mid-Feb was just 193 million gallons, and so the market has recovered rather quickly. We calculate that weekly grind of 280 million gallons/week is needed to meet the USDA’s forecast, and production no doubt rises further May onward.

• Importantly, US ethanol stocks fell for a fifth consecutive week to just 896 million gallons, down 13% from the same week in 2020. Tightening ethanol stocks suggest that production must rally to meet the needs of the summer driving season. Export disappearance remains elevated. RBOB’s sizeable premium to ethanol ($0.28/gallon) along with rising RIN prices indicate stronger blend consumption longer term. The biofuel outlook has brightened.

• Chicago has announced that it will list Ukrainian wheat futures and options in mid-April pending regulatory approval. The Ukraine wheat futures offer is likely pushed ahead due to the proposed Russian floating export tax. There are no offers for new crop Russian wheat amid June’s forward tax rate uncertainties.

• The midday GFS weather forecast is wetter in Mato Grosso and Mato Grosso do Sul in Central Brazil into the weekend. Cumulative totals there of 2-4″ will boost soil moisture but sustain soy quality issues. The forecast beyond the weekend is consistent with previous output and maintains a noticeable S American pattern shift. High pressure ridging aloft E Brazil dominates S America’s climate in late March/early April. This new upper air flow will block precipitation from all but RGDS in far Southern Brazil. Heavy rain will linger across NE Argentina. High temperatures in Brazil rise under this ridge, with sizeable soil moisture due across key safrinha producing states in the 6–15-day period. The return of rain is needed no later than mid-April.

• US corn stocks are tightening, and elevated wheat feeding will be required to solve corn’s supply/stocks issue during the summer. Any correction in old crop corn futures will be limited until the March Stocks report. A record large second quarter feed use rate would likely send spot Chicago corn to $6.00. The risk vs the return is tilted to the bulls. And the US wheat market cannot allow supply to be priced as a feed.

16 March 2021

Posted on March 16, 2021 by simon

• HEADLINES: Chicago markets flat at midday; China buys US corn; Brazil trending drier.

• Chicago futures are mixed, and Little changed at midday. Rallies and breaks lack momentum. Paris milling wheat futures have recovered from early morning, while row crops benefit from solid, and in the case of corn rising domestic demand.

• We maintain an outlook for choppy Chicago trading in diminished volume into the release of NASS’s stocks and seedings data on March 31. Neither the bulls nor bears can manage any leverage amid the uncertainty of the report. Plains rainfall has been and will be beneficial. Additional precipitation into April will fully replenish Midwest/Central Plains US soil moisture. The Northern Plains will be largely missed. Strong cash markets suggest end user buying lies below Chicago while Brazilian safrinha corn yield risks stay elevated. Precipitation across Brazil into mid-May will have a dramatic impact on the world’s exportable surplus of corn.

• FAS announced that China has secured 1.16 million mt of US corn for old crop delivery. We would mention that this corn was purchased in the cash market last week with China announcing the sale head of Thursday’s Anchorage Bilateral meeting. The sale raises 2020/21 corn sales to a record 2,400 million bu. We hear that another 700-800,000 mt of China sales announcements could be made.

• 2,400 million bu plus of US corn sales reflects 92% of the USDA’s 2020/21 forecast, a record for mid-March. The pace needed moving forward drops to just 10 million bu/week (sales last Mar-Aug averaged 25 million). And the recent surge in shipments supports the idea that China will indeed ship out its purchases.

• US ethanol production through the week ending March 12, to be released Wednesday, is estimated at 278-283 million gallons, vs. 276 million the previous week, as mobility data indicates a further uptick in miles driven has occurred since early March.

• Brazil’s interior corn price index scored fresh all-time highs when valued in Reais, with a weaker currency only modestly offsetting the recent dramatic rally. Brazil’s corn index is quoted at $6.90/bu, vs. $5.00 a year ago. Short and long-term forecasts maintain the risk that a lengthy period of dryness returns to Central Brazil beginning next week.

• Corn has taken over bullish leadership amid the need for perfect Brazilian weather and as the shift in world consumption from the Northern to the Southern Hemisphere will not occur in full until late summer/early autumn.

• Chicago brokers estimate that funds have bought 5,200 contracts of corn, while being flat in soybeans, and selling 2,100 contracts of wheat. In the products, funds have sold 3,000 contracts of soyoil while being flat in soymeal.

• The midday GFS weather forecast is wetter in Argentina and drier in Eastern Brazil relative to overnight output. Additional rain lingers in Buenos Aires into Wednesday. Unwanted showers continue in Mato Grosso and far Northern Brazil into the weekend before net drying makes a return.

• A pattern shift occurs next week. High pressure ridging returns to Centre-East Brazil next week which blocks precipitation from all but far Southern Brazil during March 22-30. This pattern will allow soy harvesting to be completed, but the duration of dryness in Mato Grosso/Parana should be closely monitored.

• In just two weeks the market’s perception will shift over to US new crop supply potential. Chicago old crop breaks will be brief and shallow on tightening supplies. Minor oilseed/veg oil markets continue to rally, but one must be careful regarding a top in palmoil in seasonal supply expansion. World oilseed crush margins are profitable. Cash wheat at current prices finds increased feed use. The global corn market cannot afford the loss of Brazilian corn this spring. Corn/soybean prices in April hinge on the March 31 Stocks/Seeding report data.