Grain values traded sideways last week, while the oilseed complex continued to rally, pushed higher by poor crop conditions in South America and higher crude oil prices, leading to an increased value of biofuel feedstock.
Crude oil’s rally, indeed, has continued on the ongoing production holds by OPEC and post-corona demand optimism with WTI that ended up two and a quarter bucks to $66.1 such as Brent ended to $69.4.
An attack on a Saudi Arabia oil facility, pressured more.
On the other hand, even if the South American harvest is starting to flow into the export market, the market is increasingly looking towards the US new crop fundamentals.
Ongoing Brazilian harvest delays, indeed, continue to attract attention as many areas that are still a muddy, flooded mess.
More overall losses and quality downgrades are reported each day in the wettest areas.
Things aren’t set to improve this week, further rains forecast for central Brazil, more southern areas have a forecast with a short reprieve and that is increasing cause for concern even if we have note that chinese crush margins currently are under pressure.
However, the demand from cursh may have its margin expansion and contraction cycles so, we do not believe that this volatility in margins will impact the annual demand for soybeans from China.
The real issues, indeed, continue to be on the supply side, i.e., current yields in south America and tight balance sheet in the US at trend yields so, any adverse impact on the yield for the US crop season would push the new crop prices exponentially higher, as the balance sheet outlooks its tight even with trend yields.
The US stimulus bill has passed the Senate and will go to the House to approve Senate amendments.
It should hit President Biden’s desk for signature fairly promptly.
Meantime the dollar was strengthened vs. euro and rouble at respectively 1.1920 and 74.20 and also the dollar index, traded higher, closing to 92.
However, we believe this is short term move, because given the excess money supply on the market, USD will most likely continue to a weakening trend.
In any case, the fundamentals for soybeans and corn remain bullish even without the impact of USD weakness, and in case USD does weaken, it will only push the grain and oilseed values even higher.
In add, there is also talking of reflation trade and commodity supercycle, which usually is associated with higher commodity prices.
However, we must note that the ratio of long positions vs. short remains close to 90%, indicating a one-sided market, which increases the chance of a sharp pullback if there is fundamentally bearish news, just like happened this week on the back of low export sales values.
Wheat prices were trading within a range past week and largely continued to follow corn values, as wheat lacks fundamental news to push prices outside its current trading range.
For wheat to price to trade higher, either corn need to trade at higher levels or the Northern Hemisphere crop face adverse weather leading to production loss.
An other factor, could be the lack of supply or reduced supply from Russian origin that would set a floor on wheat prices, allowing it to trade higher if there was an adverse weather event for the Northern Hemisphere crop.
About corn prices, past week again traded in a small range when compared to the price volatility seen a month ago, while new crop corn prices were a different story.
In fact, given the fundamentals developing for the new crop corn, the December contract closed 2.5 % higher again on the week.
About oilseed complex, remain bullish outlook.
The worsening conditions in Argentina is adding support also to the soybean meal price.
Oilshare continues to climb higher, with a rally in crude oil and other competing oils continues to add support.
Soybean oil fundamentally continues to be supported.
Palm oil is surging Kuala Lumpur, with prices have breached the threshold of 4 000 Ringgits/t this morning.
The European rapeseed continues to progress for both the current and the 2021 harvest.
The market is underpinned by the rise of crude oil and soybean. In 2021, the European deficit in rapeseed should be posted between 6 and 7 Mt.
The Fundamental situation in soybeans continues to be supportive, and we struggle to see how the tight carry out will be solved without significant demand rationing.
So, traders will 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.
The March USDA WASDE report will publish on tomorrow.
Traders are betting on a bullish USDA, as the US Ag Minister could cut US ending stocks’ estimations in a stretched supply context.
Pre-report surveys suggest US 2020/21 corn carryout is likely to be 1.47 billion bushels, slightly tighter than the February estimate of 1.5bbu, soybeans carryout 117 million bushels (mbu) and wheat 840 mbu.
In three weeks we will also get the USDA March Planting Intentions, which will be watched more closely than this WASDE in many ways.
It will be the first formal reflections on acres for the 21/22 row crop supply/demand balance sheets.
Firming row crop markets have left positive margin opportunities for US farms in both corn and beans, but working out the splits on acreage has resulted in many diverging opinions.
On, the international stage, despite the high level of prices, Algeria cameback on the market and has announced a soft wheat tender.
Shipments are planned in April for European origins and during March for American ones.
It excited wheat markets over the weekend as the bulls looked for a further rally in EU values, especially on the Matif boards.
Pakistan has cancelled its tender in 300 000 t of soft wheat.
Saudi Arabia’s SAGO barley tender should see results out early this week.
Beneficial freight spreads and cheapening Black Sea region and EU values may deliver more competition for Australia.
