Wheat plunges to lowest since early March on ramped up US HRW rain expectations, tech selling and
continued slow pace of US wheat export sales (6/16 US wheat stocks likely revised higher than trade
expects tomorrow). Corn dragged lower by strong wheat undertow as WK/CK shrinks to unusually
narrow 91 cents. Latest weather forecasts (warmer and drier for eastern Midwest/Ohio Valley), if
realized, suggest that enough corn will in the ground by late April to pre-empt onslaught by bulls.
Wheat price action today since last Wednesday’s close (down 26 cents) is a precursor of likely row
crop behavior in coming weeks if and when favorable weather boosts yield prospects. Corn and
soybean markets, like wheat, are characterized by adequate old crop stocks, shrinking US market
share prospects for above average early season crop ratings.
New lows in dollar cited as supportive to new highs in soybeans which enjoy added tailwind from
concern that 9/16 US soy stocks tomorrow may erode more than 6 mb cut indicated by average
trade guess. Additionally, with only 15% of Argentine soy crop harvested–BACE trims 2016 Arg soy
production by 2 mmt to 58 mmt. And while technicians suggest that SK, trading at highest level
since August, is on a mission to close late summer $9.33-9.50 gap—we are hard pressed to provide
fundamental justification for SK move to $9.50 given more than adequate old crop US soy stocks
profile even if 9/16 US soy carryover slips from 460 mb to 420 mb.
Soybean strength today getting added boost from prospects for slow Argentine soybean harvest
amid wet 2 week outlook. Argentina is by far the largest soy meal exporter (2X as much as Brazil
and nearly 3X as much as US). Any perceived soy harvest delay could spark follow up short
covering by managed funds who expanded there meal short by 7K to -20K on the latest CFTC report.
SMK today gets additional lift from penetration of 100 DMA.
Interesting to note that old crop SMN/SMQ spread trading closer to typical seasonal behavior than
old/new SMN/SMV which has eroded gradually since early Feb vs. seasonal tendency to advance
Feb/March. US meal export sales to date of 8.3 mmt are down 1.5 mmt vs. USDA’s forecast for a
1.950 mmt decline which suggests that USDA may be understating old crop US meal export sales.
Short term, however, fundamental support for narrowing meal spreads is lacking with eroding
domestic meal premiums, increasing crusher ownership of beans and sharp rebound in US crush
margins from late Feb lows.
Bottom line here is that the fundamental backdrop for upside breakout in meal is not nearly as
compelling as soy oil. Thus if soy oil unable to follow through on the upside (assuming topping out
of palm market in 2700 ringgit area) is accompanied by stalling out of meal rally (Argentine meal
export flow unlikely to be seriously delayed) it’s difficulty to make a case for further gains in soybean
futures which are already posting a 2.55/1 SX/CZ board ratio that should attract marginal corn land
back into soybean production. We would rather sell strength in soybeans at current levels than corn.
CWG today generally dismissive of report today citing heightened prospects for summer crop
damage from rapid shift to La Nina from El Nino. Attached maps, detaining 30 precip as % of
normal and 16-30 day precip outlook, indicate that most of late April rains shifting westward to
areas with below normal rains over last month while entire Midwest/Plains/Delta thrives under abve
normal temps. Rather than trading possible summer crop adversity via La Nina (which may or may
not occur) suspect ag market’s initial focus will be on impact of spring weather on plant populations,
early growing season crop ratings and development of row crops relative to normal. CWG’s 16-30
map, if realized, could hardly be better for a better than average start to the 2016 row crop growing
season.
USDA reports 4% of US corn planted (4% average), 13% HRS planted (10% average) and winter
wheat rating down 3% vs. LW to 56% G/E (42% YA). Winter wheat rating today ranks 13 highest of
29 years.
Additional Items of Interest:
• (Reuters) – Wheat sourced from the United States was the cheapest on offer in Iraq’s tender
to buy hard wheat, at $238 a tonne c&f free out, European traders said on Monday. The
tender by Iraq’s state grains board to buy at least 50,000 tonnes of hard wheat closed on
Sunday and offers must remain valid up to Thursday, traders said. No purchase had yet been
made and offers were still being considered, they said.
• (Bloomberg) — 2015-2016 Argentine soy crop volume to fall to 58m mt from April 7 forecast
of 60m, Eduardo Sierra, who has been tracking weather for Buenos Aires Grain Exchange for
4 decades, says in telephone interview. Excessive rain last 2 wks in key soybean region in
Argentine Pampas will create harvesting delays. Rain, humidity to continue at least 2 more
wks. Weather conditions also will increase costs for farmers to dry seeds, reduce payments
from silo cos. El Nino isn’t fading as expected, will persist until Sept. La Nina still hasn’t
emerged
• (Reuters) – India’s annual monsoon rains are likely to be above average, the country’s only
private weather forecaster said on Monday, snapping two straight years of drought that cut
farm output and farmers’ income. The July to September monsoon delivers nearly 70 percent
of annual rains and waters half of India’s farmlands that lack irrigation facilities. Monsoon
rains are expected to be 105 percent above a long-term average, with a 35 percent
probability of above average rainfall, Skymet said in a statement.
• (Reuters) Egypt in for wheat—May 21-31.
• (Reuters) – Forecasts for a record winter corn crop in Brazil look overly optimistic after
summer rains ended sooner than expected, which could prolong the country’s recently
aggressive imports of the grain and even trim the area planted to soybeans in September.
The Agriculture Ministry’s Conab crop supply agency is expecting a record 57.1-million-tonne
winter corn harvest in the coming months, up from 55.3 million tonnes last year. Mato Grosso
state is forecast to account for 20 million tonnes alone
• (U of IL’s Dr. Good) The current uncertainty about corn yield prospects in 2016 leads to two
observations. First, only a small shortfall in the U.S. average corn yield below trend would be
required to eliminate the current modest surplus of corn. Second, the market appears to be
taking a wait and see attitude about yield prospects with little production risk reflected in new
crop corn prices. These factors suggest maintaining patience in pricing the 2016 corn crop.
An average yield above trend would likely put some additional pressure on corn prices, but
that risk is not immediate
• (ERS) Grocery store food prices are forecast to rise between 1.5 and 2.5 percent in 2016,
exceeding the 2015 increase of 1.2 percent, with some variation across food categories. Egg
prices are expected to fall between 0.5 and 1.5 percent as the egg industry recovers from the
highly pathogenic avian influenza (HPAI) outbreak, which reduced the supply of eggs in the
U.S. market and drove retail egg prices up by 17.8 percent in 2015. Retail beef and veal
prices will also likely decline in 2016, dropping up to 1 percent below 2015 levels. Like eggs,
beef, and veal prices experienced higher than average inflation in 2015, but as producers
expand their herds, more cattle will be ready for market in 2016. On the other hand, prices
for pork and dairy products, which experienced deflation in 2015, are expected to increase up
to 1 percent, and 2 to 3 percent, respectively. As the drought continues throughout much of
California, ERS forecasts prices for fresh fruits and vegetables to rise between 2.5 and 3.5
percent.
• (CME Daily Livestock Report) The broader thesis expressed in the futures market, especially
as one looks at the deferred contracts, is that a combination of expanding beef supplies,
weaker export demand and notably lower prices for competing meats will continue to exert
downward pressure on both fed cattle and beef prices. That shows up in the discounted
futures curve and wider than normal spreads. As with cattle, the mood in the hog complex is
not as buoyant as it was in mid March. Cash prices have failed to advance as rapidly as some
expected, in part because wholesale price have been range bound for the last two months.
• EXPORT INSPECTIONS:
Wheat 339 tmt or 12.464 mil bu–Expecting 10-20 mil bu
Corn 1,122 tmt or 44.167 mil bu–Expecting 40-50 mil bu
Soybeans 387 tmt or 14.211 mil bu–Expecting 10-15 mil bu
• Trade estimates for April crop report:
US carryover stocks
Wheat Corn Soy
Average trade estimate 0.977 1.845 0.454
Highest trade estimate 0.996 1.902 0.480
Lowest trade estimate 0.961 1.787 0.430
USDA March 0.966 1.837 0.460
World Carryover stocks
Wheat Corn Soy
Average trade estimate 237.22 207.35 78.96
Highest trade estimate 238.50 209.20 80.50
Lowest trade estimate 235.14 206.00 77.50
USDA March 237.59 206.97 78.87
S American Crop Estimates
Argentina Brazil
Corn Soy Corn Soy
Average trade estimate 27.18 59.16 83.79 100.20
Highest trade estimate 29.00 60.00 85.00 101.00
Lowest trade estimate 26.50 58.20 82.00 99.50
USDA March 27.00 58.50 84.00 100.00