Grain Spreads: Demand Potential

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Commentary

Soybeans, and especially soybean oil caught a preemptive bid from speculative funds intent on playing a possible bullish biofuel or export announcement by the President when he visits the state of Iowa tonight. For now, it’s a tale of two cities in South America. Brazilian weather continues to nurse a record crop. Argentina a different story so far, but its early. Crop scouts there are now starting to walk back both corn and soybean crop estimates, and state that the current weather pattern if it persists indicates further losses. This, combined with a sizable decline in crop ratings, supported today’s early trade in beans in my view. Geopolitical developments are weighing on corn as President Trump is considering additional tariffs on South Korea, one of the US’ leading corn trade partners. We did see two flash sales this morning with unknown buyers booking 110,000 metric tons of corn and 306,000 mt of sorghum. Sorghum sale is thought to be China, and in my opinion, corn is China as well. We have had a myriad of unknown sales of corn since last Fall, yet it hasn’t been revealed on who this mystery corn buyer is. Corn exports year on year are up a whopping 53%. If one thinks about it, had USDA not increased harvested acres 1.4 million higher than the average trade guess on the January 12^th crop report, March 26 corn maybe trading near 4.70 than the current rock fight/ struggle to close above 4.30. For a corn and bean rally to ensue in my opinion, we need either a significant weather market to develop in South America or new demand initiatives to be announced like 45Z for soy, and perhaps a revisit of year-round E15 for corn. Stay tuned.

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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