Morning Commentary 5/4/21

New Crop CBT Markets Recover; Spot Basis Stays Firm; Complete Dryness Plagues Central Brazil

6:30 AM CT CBT Prices: July soybeans are up 13.25 cents at $15.375, July corn is up 10.5 cents at $6.90 while July Chi wheat is up 2.25 cents at $7.2025.

AgResource Morning Grain/Soy Comment & Analysis: Good Morning! It’s Tuesday and a classic turnaround is underway at the CBOT. Market input is similar to recent days, with interior basis levels still showing no signs of relenting despite newer highs in May corn. Weaker basis levels can be found, but for the most part and at larger markets, the scramble for nearby supply continues. Central IL corn basis is firm at $.50-.55 over, with soy basis at $.60-.70 over for May-July arrival. There were 9 contracts of soymeal, 12 contracts of soyoil, 64 contracts of soybeans, 36 contracts of CBOT wheat and 311 contracts of KC wheat tendered against May futures. There remain no corn delivery intentions.

Corn maintains its bullish leadership role as the market begins to pay more attention to the sheer size of Brazilian safrinha yield loss. The EU, GFS and Canadian models agree that complete dryness will persist for another 10 days. Regional heat is offered to Parana, Mato Grosso do Sul and Sao Paulo. The EU model’s updated weekly climate outlook extends a pattern of below normal rainfall – likely ongoing complete dryness – across Parana into May 24. Weather beyond this date will do little to salvage crop potential.

This looks to be the driest safrinha growing season in decades, eclipsing the devastating drought of 2015/16. Seed genetic improvement is noted, but the USDA’s Brazilian corn production forecast is easily 10 million tons too high. This is rather important as export demand will be forced to the US August onward – which compounds any Midwest weather issues that develop.

AgResource also notes that soybean crush margins have only moved higher in the last two weeks amid strength in soyoil. The July futures-based crush margin this morning sits at $.85 per bushel. Margins in the cash market are even stronger amid massive soyoil premiums. US corn & soy export demand will be fading into very late summer, but prices are not viewed as overly expensive in the domestic marketplace. The need for enlarged ethanol production ahead of the driving season is bullish ethanol and ethanol production margins into mid-summer.

In international ag trade, Malaysian palm oil futures ended 29 ringgits lower. Paris milling wheat futures are up €1.25-1.50 per ton, Paris rapeseed futures are up €2.00 per ton, with new crop contracts nearing new rally highs. Spot WTI crude is $1.15 per barrel higher. Argentine fob corn basis remains weak at $.05 over CBOT for spot delivery but surges to $.50 over in August and beyond.

Markets continue to probe for prices that trigger the outright cleaning of bins on behalf of the producer. AgResource cautions against chasing breaks in old crop markets. Yet, as US export demand returns in autumn, new crop futures are undervalued barring exceptional Northern Hemisphere weather throughout the next 4 months.

North American Weather Pattern Discussion: The Central US forecast is consistent with prior runs, though the EU and GFS models remain at odds over rainfall amounts and locations across North Dakota and Saskatchewan. AgResource’s bias lies towards the better-performing EU model (attached), with NOAA’s QPF this morning keeping meaningful rain just west and south of major ND’s primary growing region.

An active pattern of showers will stay intact across the Southern and Eastern Midwest and Delta into May 10. Cumulative rainfall of 2-5” will hinder seeding progress across Louisiana, Arkansas and pockets of Indiana and Ohio. Lasting delays are not expected though. The bigger concern is still additional soil moisture loss across the Western Plains, PNW and North American spring wheat region. Wetter patterns are not indicated in these regions into May 18. The need for precip thereafter becomes more immediate.

10-Day US Precip Forecast:

10-Day Brazilian Precip Forecast:

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