Grain markets were mixed with December corn closing 1 ¾ cents lower at $5.02 ¾, November soybeans 3 ½ cents higher at $12.31, and July wheat 13 ¾ cents higher at $6.96 ½. Wheat was strong from a hot and dry weather forecast for the next 10 days in the Southwestern Plains. This helped rally corn early but corn eventually found sell pressure before the close. Old crop soybeans were negative for most of the day before rallying into the close. The May – July soybean spread is down to only +2 cents, it had been as high as 36 ½ cents on April 1st. It appears this spread is on its way to repeating what the March – May spread did into first notice day in late February (see chart below).
It is rather interesting to see substantial spread weakness heading into first notice day when we are supposed to have the tightest stocks/use carryout on record. Interior soybean basis levels are also averaging below a year ago. The re-routing of cargoes originally bound for China which are now heading for the US may have a larger impact on our final carryout than the USDA currently has projected. There was a sale out of Argentina today bound for China for July delivery. Their prices are at a substantial discount to US gulf FOB which should be a limiting factor for price. With the massive unwinding of these CCFD’s it will be interesting to see how the funds react over the next 30 days (For more information about the Chinese Commodity Funding Deals please visit the following link http://www.zerohedge.com/news/2014-04-21/how-chinas-commodity-financing-bubble-becomes-globally-contagious )
The funds are still massively long old crop soybeans and corn. If we see favorable weather and more unraveling of South American soybean purchases there could be more downside risk to the market in the short run than previously thought. The outliers are still the drought conditions for wheat in the US and the Ukrainian situation. If weather is favorable and the eastern European tensions subside, look out for downside market pressure.
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