Perspective: Mid-Day Commentary for April 1

By: Arlan Suderman, Chief Commodities Economist

Fri, 01 Apr 2022, 16:18

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

April 1 - Modest losses characterized Wall Street to start the new month and quarter, as traders fret about economic risks reflected in a flat to inverted yield curve. The VIX edged a bit higher to trade just below 21, reflecting heightened concerns, but no real panic at this point. The dollar index is firmer near 98.6, while yields on 10-year Treasuries are trading near 2.38%. Crude oil prices are nearly 1% lower at midday, while the Ags are mixed in general follow-through trade from Thursday when USDA unleased a few surprises on the trade.

The Minneapolis market continues to lead the wheat complex higher as it seeks to buy more spring wheat acres away from many of the specialty crops grown in the Northern Plains. However, Chicago wheat remains the weak link in the complex, after yesterday's quarterly stocks data showed an increase in soft red winter wheat supplies. Spreading continues to support December corn at the expense of November soybeans, as the market tries to encourage a shift back from soybeans to corn. Some shift naturally occurs each year when the weather is favorable for rapid corn planting, but that's not assured yet at this point, and the market cannot afford to wait. Ironically, the nearby corn futures also came under pressure when they failed to take out overhead chart resistance on Thursday, leading to chart-related selling that is seeing follow through action today as well. Meanwhile, traders are convinced that soybeans are amply supplied for now.

StoneX Brazil updated its production estimates today based on its latest customer survey. The numbers reflect improving weather conditions over the past month. It's soybean production estimate rose to 122.059 million metric tons, up slightly from its estimate of 121.167 mmt the previous month. The increase was a product of yields coming in a bit higher than the previous month as the harvest advanced, with a slight increase in Mato Grosso and a bit larger increase in Goias. Brazil StoneX left its summer corn crop at 25.044 mmt, but increased its winter (safrinha) crop to 91.904 mmt, up from 89.380 mmt the previous month. The increase was a product of a modest increase to both area planted and to yields. The winter corn crop was planted on 15.842 million hectares, up from 15.792 the previous month and up 10% from the 14.366 million hectares planted the previous year. Add in a small third crop, and total production comes in at 118.61 mmt, up 2.5 mmt from the previous month. Yields most notably jumped in Mato Grosso and in Parana. The overall average yield for the winter crop came in at 92.4 bushels per acre, up from 65.7 bpa in last year's drought-stricken crop. The total area planted to the combined summer and winter corn crops rose 9.4% to 20.316 million hectares, or 50.2 million acres.

The winter crop makes up 78% of Brazil's total anticipated production, and therefore the bulk of its exportable supplies. It's the equivalent of late June in the Midwest growing season for the crop. The crop looks good, but the monsoon rains need to continue through April to realize that yield potential. That's sometimes in doubt in years when La Nina is in decline. It looked like La Nina was going to linger long enough to finish the Brazil crop, but water temperatures started warming again in recent days, and the weather models started turning sharply drier for Mato Grosso and surrounding areas over the next two weeks raising risks that the monsoon rains may be ending early. It's too soon to panic, but with Ukraine out and U.S. acreage down, we need to monitor the Brazil rains over the next 30 days. Every metric ton of production will matter for the global balance sheet until we see global supplies restored - either via Ukraine returning or elsewhere.

Weather models shift drier for Mato Grosso. SOURCE: ECMWF, WeatherBELL & Nutrien

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