The Fever Breaks

May 14, 2021

The Fever Breaks

Whew! What a week. Major crop report, cracked bridge stops traffic on the Mississippi, weather, China cancellations. A lot to digest. For the week, Kansas City wheat lost 80 cents, Minneapolis lost 57, Chicago wheat was down 55, corn dropped 88 and soybeans lost just 4 cents.

USDA disappointed the trade in May’s supply/demand report. They did not increase old crop corn exports as much as expected, thereby keeping old crop end stocks just barely enough not to panic the market. For soybeans they decreased exports (sales have slowed with Brazil’s crop hitting the pipeline) and end stocks were increased slightly. As for wheat, old crop exports were lowered slightly (20 million bushels) with old crop end stocks up the same amount.

New crop numbers were about as expected. Wheat production up 46 million bushels over last year at 1.872 billion bushels on increased acres and yield. Imports were up 20 million. Feed use was bumped up 70 million to 170 million bushels, the highest since 2013-14. Exports were shaved 65 million to 900 million bushels and end stocks lowered 98 million to 774 million bushels on lower carry-in for the new crop year.

No big shocking numbers for new crop in corn or beans. But USDA did not lower Brazil’s corn production as much as the trade is already assuming will be the final number. So, the trade did not get the bullish push it expected, and prices took a hit. A bullish report would likely have established a high anyway.

Then, traffic on the Mississippi River near Memphis was closed for a few days as engineers assessed a major crack in a bridge spanning the river. Barges were stranded on the river and grain backed up in the interior, creating a sudden drop in near term demand. Traffic was starting back up by the weekend.

China began to cancel old crop corn sales, switching to new crop and creating another sudden demand decline. Those thinking about demanding delivery on Friday’s expiring May contract had a change of heart, and the contract lost a whopping 72 cents in its last two days of trading. The weekly charts look brutal with a major reversal down. The July contract comes on as front month 41 cents discount, so we will get a significant gap on the weekly chart as well.

For wheat, there has been a great deal of price action in the spreads between the three markets. Minneapolis was a brief leader on Northern Plains’ drought, but recent (light) rains and forecasts for a nice soaker across much of North Dakota and the Canadian Prairies this week have subdued concern for spring wheat. In the PNW, however, ongoing drought is wreaking havoc on white winter wheat, creating underlying support for Chicago futures.

For hard red winter wheat, the major freeze from a few weeks back has all but been forgotten as numerous rains move across even the dry regions of the southern/central plains. Crop conditions ratings are shaky, especially for Texas, but harvest is about to begin there, and Kansas is coming on strong to wrap up its growing season. Recent rains in western Kansas will shore up production prospects there and likely offset losses from Texas.

Technically, the charts look rough. Huge reversals and gaps on the corn weekly will likely spur more long liquidation from computer models. Wheat will likely head lower as harvest looms and if corn doesn’t recover. Soybeans seem to want to hold together but seeding will be done soon (ahead of the average) and acreage will be set.

From here on out, it is all about weather. For the row crops of corn and soybeans, it is about US weather first and foremost, and then China, and then the EU. For wheat, the central plains are pretty much set for winter wheat, and it looks like we will get a strong finish. Drought is still present in the Northern Plains/Canadian Prairies and has moved into the northern Midwest – which would be a game changer if it lingers there this summer. But the near term rains will quell those concerns for the short term. We will just have to wait and see what Mother Nature dishes up.

Louise Gartner,

Spectrum Commodities

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