As the South American harvest starts flowing into the export market, the market is increasingly looking towards the US new crop fundamentals.
However, the new crop balance sheet in corn and soybeans is expected to remain tight, in spite the estimations of planted surfaces in the USA should touch a record high this season, except if climatic conditions are adverse.
A below-average yield due to adverse weather would only add to the bullish fundamentals.
Maybe USDA may be overestimating the Chinese demand given the current torrid export pace.
In case the Chinese demand does not keep up the same rate, the balance sheet does loosen up a bit.
However, the crop yields will still have to be well above the average yields to prevent a bullish fundamental supply and demand scenario.
In the mean time, all prices did come off the mid-week highs on the back of disappointing US export sales.
However, even if we don’t see the low US export sales for one week as a major factor, as the overall export pace remains high vs. previous years, the decline in prices due to disappointing export salesreflects a one-sided market, and so, any bearish news have a larger than usual impact on the prices.
In fact, fundamentals for soybeans and corn remain bullish, and in case USD does weaken more, that will only push the grain and oilseed values even higher.
In add, there is also talk of reflation trade and commodity supercycle, which usually is associated with higher commodity prices.
Just to do an exemple, rally in soybean oil prices pulled oilshare levels above 57%, the highest since December 2020 last week.
Soybeans oil fundamentals, indeed, remain supportive in line with strength in competing oil prices.
And crude oil strength is only adding to the bullish case.
However, we must pay very attention as the ratio of long positions vs. short remains close to 90%, indicating a one-sided market, as we just said, and that increases the chance of a sharp pullback if there are fundamentally bearish news.
About soybeans, both the new crop and the current crop fundamentals continue to be bullish.
Traders could continue to hold a long position in beans with protective stops unless we see a significant long-term weather pattern change in South America or large-scale demand destruction due to higher prices.
Corn prices, on the contrary, again traded in a small range when compared to the price volatility seen three weeks ago, even if the new crop corn prices are a different story.
New crops corn prices, indeed, will mainly be a function of how the south American weather develops for Brazil’ssecond crop (between Mar 15- Apr 15 is the crucial yield sensitive period) .
About that, Argentine two-week weather maps are turning towards dryness yet again, only a few scattered showers forecast across northern areas, reinvigorating some concerns about yield drag with the dry finish.
At the same time, there is still more moisture set across Brazilian soybean areas.
Harvest has been pushing forward but still about half of normal, worries about quality and harvest loss remain, along with delays to Safrinha plantings.
Till harvest for the second crop (august) in brazil takes place, demand pace would continue to support world prices.
In add, prices could push more higher in the coming weeks as the corn and soybeans will have to trade higher to increase demand rationing and the fight on acres.
Markets are confident of a large expansion of the corn/bean total pie, but ideas on splits remain wide ranging.
Wheat prices, meantime, have restart to follow corn values, as seems ended the potential issues with the Northern Hemisphere crop, but really, this will can established only in April.
In the meantime, Western Europe is experiencing positive conditions.
In Black Sea, especially in Russia, frost damages are noticed but in usual proportions for this period of the year.
Warmer temperatures that we also see on the maps for the US southern Plains are bringing some expectations that wheat will start emerging from dormancy.
However, persist some questions about how much winter kill will be realised/confirmed.
On the other hand, lack of news from Russia on the export duty structure failed to add a new fundamental push to prices, even if lack of supply or reduced supply from Russian origin could set a floor on wheat prices, allowing it to trade higher, if there will be an adverse weather event for the Northern Hemisphere crop.
In this context, for exemple, we note spring wheat prices came in at $6.53/bu (vs $5.56 last year).
About last news, about earlier rumours of African Swine Fever in the Western Cape of South Africa have been confirmed, with sales bans going into place there in an attempt to stop the spread.
The week should begin on a firm tone as the economic outlook should be underpinned by the massive stimulus plan of 1.9 trillion $ to support the US economy.
The USDA’s next WASDE report is due out on Tuesday next week.
