Listed corn futures enjoyed a slight rally last week as the curve moved slightly higher as the fundamental news continues to focus around Argentina and Brazil’s weather and planting pace. Last week the wheat curves saw some strong buying as all three curves closed higher on global supply-related inputs. The March’24 Kansas City contract closed +$35.25/bu while the Chicago March’24 contract finished +$25.50/bu.
The US corn futures trade continues to be stuck in a downward rut and a slow grind lower. Recent US weekly export sales are encouraging and volume has been gaining momentum over the last month. Last week’s reported sales of 1.927 mmt was a 10 seasonal high and the overall pace during November has been at the top of the 5 year range. The weakening dollar has been helping spot FOB spreads favor US gulf corn over Brazil and Argentina which has been helpful for generating export sales. Weather in Parana, Rio Grande du Sul, and Uruguay has been dry despite and the latest VHI’s (vegetative health indices) confirm this concern. Recent rains help mitigate some of these early season production concerns but last week three Brazilian based agronomists cut their production estimates. Agroconsult lowered their Brazilian production estimate 128.7 mmt down 7% YoY citing lower planted acres which is in-line with the USDA 129.0 mmt estimate. Ultimately we believe that the softer dollar combined with questions about the southern hemisphere’s corn crop is directing global commercial end users to buy forward demand from the US.
US milling wheat has enjoyed a fundamental driven rally in the hard and soft wheat curves. Last week the hard wheat curve led the way higher on news that Russian winter wheat weather is less than ideal and that the country will be adjusting the export tariff quota to slow the export pace to suppress future domestic inflation. Late season harvest rains in Australia are promoting global thoughts about declining protein levels and increasing volumes of feed wheat which can shift export business back to the US. A recent Reuters article mentioned that following the late season rains that approximately 1.0 mmt of Australian wheat may be classified as feed. We’re skeptical of these claims but don’t deny that some quality damage has been present. Weekly white wheat export sales data indicates that Asian end users have been buying US demand during late August and September as YoY Australian production declines became more acute. USDA estimates a 15.1 mmt YoY decline in Australian wheat production. We feel that the US soft wheat curve has been supported by four variables: 1. Softening US dollar. 2. Systematic short covering of the wheat/corn and Chicago/Matiff trades. 3. Optimism about recent Chinese export purchases. 4. Global weather issues in the northern and southern hemispheres.
At the current price levels we advise corn end users owning long coverage in the 2024 old contracts. We like owning the March’24 500 call. We find value in owning at-the-money put spreads for the March’24 Chicago and Kansas Wheat contracts.
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Contact Scott Strand
Direct 612-486-4624 | scott.strand@hilltopsecurities.com
On the date of publication, Scott Strand did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.