Ahead of the Open: Grains, Soy Surge Higher to Start New Trading Month

Posted on Mon, 05/03/2021 - 06:21


Corn: Up 14 to 21 cents.

Soybeans: Up 16 to 21 cents.

Wheat: Up 8 to 14 cents.

GENERAL COMMENTS: Corn futures extended April’s strong rally to start the new trading month, with nearby futures touching $7.58 1/4, the highest since July 2013 as dry weather in Brazil raised concerns about global supplies and U.S. cash corn basis continues to firm. Wheat is following corn higher, while soybeans were underpinned by stronger vegetable oils markets.

Before the reopening USDA did not announce any fresh export sales this morning.    

CME Group expanded daily price limits overnight for a variety of commodities. That includes for corn (to 40 cents), soybeans ($1.00), soymeal ($30), soyoil (3.5 cents), and both SRW and HRW wheat futures (45 cents). Paired with the March 15 expansion to speculative position limits, this is expected to boost market volatility.

Iowa, Nebraska and Minnesota were hot over the weekend, with temperatures climbing as high as the 90s Fahrenheit in dry areas of northern Iowa over the weekend. But around 0.3 inch to 1.3 inches rain was possible for the region overnight and today, according to Drew Lerner, meteorologist with World Weather Inc. While these rains are welcome and some areas missed out, Lerner says “much, much more is needed,” and dry conditions are likely to return “for a while.”  U.S. Midwest, Delta and southeastern states will experience alternating periods of rain and sunshine during the next ten days keeping field progress a little slow but assuring a good start to emergence and establishment. He says forecast models remain uncertain whether rain will fall in the Canadian Prairies and northern U.S. Plains next weekend and early next week. Any rain would be welcome and would improve prospects for the spring wheat crop. Excessive rain also fell in the Texas Blacklands and Coastal Bend areas, but crop damage was likely limited, according to Lerner. West and south Texas are expected to be dry over the next 7 to 10 days, he adds. Lerner says more bouts of cool weather are possible for the northern Kansas Plains and Northern Plains over the next week to 10 days, including frosts and freezes the next two mornings.

Meanwhile, net drying continues to take a toll on Brazil’s safrinha corn crop and cotton producing areas. Northern Mato Grosso is the only area expected to welcome rain “for a while,” according to Lerner. Milder temperatures for southern areas of the country should help limit evaporation, however. Argentina got down to 35 degrees Fahrenheit over the weekend in Buenos Aires, and more frosts and freezes are possible early this week. The cold air is not expected to have material impact on late-developing crops.

Safras & Mercado slashed its Brazilian corn crop estimate from 112.8 MMT to 104.1 MMT, with dry weather lowering safrinha corn crop prospects. The firm lowered its safrinha corn crop projection 10 MMT to 70.7 MMT. Some are already forecasting a crop below 100 MMT.  

it was surprising that fund ag positions did not rise as much as expected in the week ended April 27 – even as the price of grain/oilseeds soared and became extremely volatile. The CFTC data highlights that the CBT grain markets are driven by commercial short covering and rising cash basis bids. The grain and soybean market rallies have been a “cash led” bull. Last week, the net managed money corn position fell about 5,400 contracts to 378,663 contracts, CFTC data on Friday showed. Traders were looking for funds to have purchased 100,000 to 150,000 net contracts. It was the second straight week that funds were net sellers when traders were looking for significant buying. Commercial end users covered nearly 67,000 corn short positions through April 27, though their shorts still numbered 1.45 million futures and options contracts, more than ever before at this time of year. Funds were net buyers of 7,470 contracts. While far lighter than expected, the new net-long positions of 180,014 contracts were the largest since the end of December.  Funds increased their net long in SRW wheat futures to 13,399 contracts from 1,583 a week prior, and that is their most bullish since mid-March.

Holidays dominate today's session so far, with China, Japan and the U.K. all closed for trading. Overnight, the MSCI Asia-Pacific ex-Japan Index slipped 0.7% amid mixed economic news in the region.   S&P 500 futures pointed to a move higher at the open. The dollar retreated after its recent bounce on Monday as investors made a cautious start to a week crammed with central bank meetings and big-ticket U.S. economic data, waiting for clues on the global inflation outlook and policymakers' responses. Comments by Luis de Guindos, the European Central Bank's vice president, helped the euro gain against the dollar at the start of the London session. The ECB can start to phase out emergency stimulus measures when the pace of coronavirus vaccinations reaches a critical level and the economy picks up speed, he told an Italian newspaper.

CORN: July corn was the main driver of overnight trade volume and is holding with double-digit gains this morning, after the grains exploded out of the gates. July is working to take the place of the spot May contract with it now in delivery, and attempt to ration off demand until 2021 supplies arrive. May futures touched $7.58 overnight, up nearly $1.70 in two weeks. Meanwhile, the Midwest radar is active this morning but planting progress was swift in the U.S. Midwest during the past week, with some looking for corn planting to be reported this afternoon at 40% to 45% completed, up from 17% a week earlier. Focus this morning will be the weekly export inspections. China needs to ship about 675,000 MT per week to ship the sales already on the books. Last week, shipments were 562,000 MT.

SOYBEANS: July pushed up near but not above the contract high from last week. Prices have settled back to near midrange but still above the gap higher opening last night. Malaysian palm oil futures soared 4.8% on Monday, the biggest daily gain in 11 months, supported by stronger April exports and growing worried about tightening global vegetable oil supplies. Later this morning, the March U.S. soybean crush is expected to come in at 188.4 million bushels, up from 164.3 million in February but below the 192.1 million bu. from March 2020. Estimates range from 188.0-189.2 million bushels.

WHEAT: Wheat is following corn higher as it small premium or narrow discount to corn will promote large wheat use in feed rations.

CATTLE: Steady to firm.
HOGS: Steady to firm

U.S. personal incomes soared in March by the most in monthly records back to 1946, powered by a third round of pandemic-relief checks that also sparked a sharp gain in spending.  ahead of the sector's recovery. That’s a positive signal for the 2021 meat demand outlook.   Meanwhile, the Restaurant Revitalization Fund was created as part of the March Covid aid plan, offering up to $28.6 billion to help the restaurant industry battered by the Covid pandemic. The grant program provides money to restaurants and can be used to cover expenses since Feb. 15, 2020 through March 2023, including payroll, mortgage payments, maintenance, food, supplies and more.

CATTLE: Live cattle are trying to form a weekly cycle has bottom but strength in both cash and futures is needed to confirm a low. Boxed beef values continue to soar, with Choice rising $2.74 and Select jumping $3.26 on Friday, with the former now within $3.50 of $300.00 per hundredweight. Just 78 loads changed hands, but movement last week was solid. The product market has been screaming for more production, but last week’s kill retreated 2.4% from the week prior. Already strong packer profit margins shot nearly $79 higher over the past week of $651.10 a head, according to HedgersEdge.com’s Friday update.

HOGS Hogs don’t always push higher in the first half of May, but they rarely experience sizable net weakness. The mid-April lows are now key support after pushing to new highs to end last month. the end. Pork production edged 0.8% the week ending May 1, according to USDA, with hog weights holding steady and slaughter numbers dipping. Packer profit margins dipped into the red last month, which could be easing processing activities but more likely it reflects seasonal slowdown in marketings as cash hogs continue to surge to the highest since 2014. Bids climbed $1.39 on Friday on a national average basis. The pork cutout value rose $2.91 on Friday, with 290.92 loads changing hands.