Last week we saw to a broad sell-off in grains and oilseed complex, except for soybean oil.
The market came under pressure due to talk of ASF impacting the local hog herd in China.
Brazilian harvest continues to plug along slowly, but there’s little immediate change to the delays and quality/yield losses being reported.
There is a slight drying bias in some of the latest weather runs for central Brazilian soybean areas, but some rains it’s forecast and so other breaks are still possible.
Meantime, however, the estimates on total Brazilian crop size continue to increase.
In any case, fundamentals for soybeans and corn continue to remain bullish and if USD does weaken, it will only push the grain and oilseed values even higher, as they are likely to be used as an inflation hedge.
The stimulus money are coming, like vaccines and this continue to roll out optimism about the economic recovery.
President Biden’s push to open vaccinations to everyone there by May has helped reinforce this sentiment.
New position limits on CBOT futures will be effective today, nearly doubling limits on most ag futures.
The changes mostly impact spec trading, with hedge exemption rules mostly unchanged.
However we must note that the ratio of long positions vs. short remains close to 90%, indicating a strong one-sided market, which increases the chance of a sharp pullback if there is fundamentally bearish news, just like past week on the back talk of ASF in China and larger Brazilian crop size.
In add, concerns remain in the EU with comments from a European Central Bank member on Friday reconfirming that the ECB decision last week to continue bond buying was based on significant concerns about the faltering recovery in the eurozone.
Despite some rumours mid-last week about more Chinese purchases from the US, no flashes hit on the week.
In this context, funds positions have largely remained the same, with corn positions still closer to record levels, making prices more susceptible to an eventual fund liquidation-led.
The only exception was on soybean oils where saw a reduction of 8 k contracts, on the wake of ASF concerns.
Wheat price action will be a function of the North American crop in the coming months.
Forecast snow/rain across the central Plains of the US, including most of the Hard Red Winter wheat belt, are set to bring much needed moisture to winter wheat crops.
Western Kansas recorded fairly widespread falls of 1 ½ -2″ and another inch plus potentially to come.
Cold and snowy conditions with this storm are raising some concerns about winter kill/frost damage in western parts, but overall temperatures are not set to drop as low as in the previous cold snap.
There’s overall optimism about the moisture which outweighs concern about damage.
Meantime, French wheat crop conditions continue to hold at elevated levels, leading to liquidation in Paris milling wheat contract prices.
While, in the Egyptian tender last week, there were Russian origin offers, indicating that supply could potentially continue to form the black sea even with the limiting export tax structure.
Consequntly, wheat prices traded lower last week, along with weakness in the rest of the complex.
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.
Consequently, wheat prices, largely continued to follow corn values, as lack fundamental news.
And corn prices this week again traded in a small range when compared to the price volatility seen a month ago.
USDA report, indeed, did not have any surprises, with carryout estimates left largely unchanged.
While spot corn prices will continue to be a function of the South American crop, where a lot of the nearby supply depends on the Brazilian second crop.
Meantime, however, rains are still on the map for parts of northern Argentina, with 1-2″+ forecast north of Buenos Aires improving some ideas on crops even if recent weeks of hot/dry weather have already done some irreversible damage.
Buenos Aires Grain Exchange, indeed, last week cut its soybean crop estimate by 2 million tonnes (Mt) and corn by 1Mt, attributed to recent weather stress.
So, we are now in the most crucial yield sensitive phase for the argentinian and brazil crop, and further price direction on the nearby month will move in line with the forecasts.
With better expectations on the South American crop, we believe it will be harder to reach more high levels.
About oilseed complex, USDA report did not have any significant changes in the soybean balance sheet.
We have seen two bearish fundamentals development past week were the increasing threat of expanded ASF (Asian swine flu) in china, which potentially can impact the import demand of soybean in a significant way and secondly, the improved expectations on the Brazilian soybean crop, with some analysts calling for a crop larger than 135 million bu.
However, the fundamental situation in soybeans continues to be supportive, and we struggle to see how the tight carry out in the new crop will be solved without significant demand rationing.
Also soybean oil fundamentally continues to be supported; however, with the impending tightness in soybean meal expected due to Argentine weather/growing conditions, we could see some pressure on oilshare levels.
Brent and WTI continues to climb higher, and this rally in crude oil and other competing oils, continues to add support.lo no
