GAP Observations: Jan 29, 2021

GAP Observations


Welcome to GAP Observations – a bi-weekly, no-nonsense analysis of curated market drivers and data for the global corn, wheat, and soy complex futures, by industry consultant Emily French.


RANGES: CH = 542.75 — up 8.25¢ (533.25 – 544.50). WH = 654 — up 7¢ (643 – 654.75). KWH = 630.75 — up 4.75¢ (623.25 – 631.50). SH = 1358.75 — up 5.5¢ (1351.50 – 1370.75). SMH = 425.30 — down $1.80 (424 – 430.60). BOH = 4521 — up 56 (4453 – 4558)


USDA DAILY SALES:  2.1MMT corn to China (this year). 132KMT soy to China — new crop (2021-2022) — these new crop sales going to reserves is supporting talk that Sino/government will look to move the reserves into domestic market in the months ahead and take advantage/utilize the inverse (more on that in the China soy complex snapshot portion).



  1. 6-15 day break for wet spots in Paraguay/far SW Brazil.
  2. NE Brazil stress narrows to mainly 1/3 coffee in week 2.
  3. Europe wheat/rapeseed trend colder in week 2 but not strong enough for winterkill; showers improve moisture.
  4. Models not quite as cold in week 2 for Black Sea wheat but still heightened risk due to diminished snow cover.
  5. North Africa wheat benefits from rains next week; keeps early growth favorable, with only spotty dryness in east 1/4.



Another wide trade range. Soy oil the leader. Inverse breaks down in soymeal. Big support test = 420-418 with air pockets below. China to sell more of its reserves in the months ahead given the inverse? Would limit Brazil soy exports to China — and again, world soy import demand by others is forecast to contract. Brazil soy premiums down decently this week.

  1. Month-end — today. Hardly knew you January as it flew by. Soy oil +6.6%. Soybeans +3.6%. Soymeal -1%
  2. Open interest: soy -1971 soymeal +1402 soy oil +78
  3. Board crush — mixed. 74.2¢ (76.2¢) March. 64¢ (62¢) May. 61.9¢ (62.3¢) July
  4. Oil share — continues to firm: 34.7% (it’s been a vertical move since 15 January low = 31.12% vs contract high = 35.56% on 27 August). Like the move in oil share as the soymeal demand outlook is rough to say the least…or at least worse than soy oil (for now…the for now more directed at soy oil rather than any type of improvement risk for world soymeal off-take).
  5. Optionality — SK21 — over 26% and reportedly this is the highest implied vol ever in this contract.
  6. U.S. o/s soybean sales = 12.27MMT vs 6.2MMT LY – essentially double. Of interest: China has 3.62MMT (1.13MMT) or 60.3%. Unknown = 3.97MMT (1.75MMT) or 37%
  7. U.S o/s SM export sales are “only” 2.84MMT vs 3.62MMT this time LY. Again — this is happening while Argentina’s crush had taken it on the chin since July (and blasted in December). And now? Argentina’s soy production looks v. good + improved crush margins + concerns about world SM off-take/consumer demand + the inverse that “shouldn’t” be there. To further gut-check my extremely bearish outlook for soymeal — take a look at U.S. soy oil export sales — those are similar to this time LY (despite contract highs): o/s sales = 233.7KMT vs 224.7KMT LY (even with the inverse in soy oil).
  8. China soy complex snapshot: soymeal pricings back to a very low sub-25KMT into month-end (multi-week lows). This has been a bit of a surprise (and yet not given the ownership put on back in October for Jan-May coverage) ahead of the New Year (11-17 February). Edible oil values firmer. Both palm oil and soy oil stocks — little changed vs LW. Stable/healthy. In-port soy stocks — back on the rise at nearly 8.4MMT to start February. Crush margins — nothing to write home about on weak SM off-take/spot demand vs a weekly crush of +2MMT/week. China crushers — focus on new crop (SEPTEMBER ON PAPER)/take advantage or utilize the inverse. Nothing out of Brazil. Given the inverse in the market — more talk that China will sell its soybean reserves into the domestic market (if this happens — would be super bearish Brazil soy premiums — that are already down 30-40¢ this week with minimal China demand) and replace with new crop out of U.S. (or the extended, long export tail I expect to see out of Brazil in the July-Aug forward period given the (1) size of its crop and (2) the size of China-U.S. soy ownership vs last year at +20MMT).
  9. Brazil snapshot: Real-USD — remains closer to lows than not. Good for the farmer. Focus on harvest. Yields remain all over the place — but no doubt, there are some v. big yields being reported in some areas that received relatively perfect rains once the crop was in the ground. Brazil soy premiums are down again — down 30-40¢ on the week! Soymeal weaker — with offers down over $3 for Apr-June. Soy oil — offers firmer but bids not chasing. Biol Auction on tap for next week. Export line-up: soybeans = 8.72MMT (30KMT loaded). Soymeal = 1.19MMT (820KMT loaded).
  10. Argentina snapshot — farmer selling continues to pick up as rains arrive with solid rains forecast thru at least mid-February. Crush margins hold nicely at $35 for Feb-March but have slipped a bit for new crop at $20/MT Apr-May (crushers push to get physical sales on the books to lock in cash margins). There is ongoing talk of higher taxes for the entire grains & oilseeds landscape — if this talk starts to sound more concrete would look for an even greater push of sales (soybeans and corn) from the farmer. BAGE Argentina soy production = 46MMT. Soymeal premiums weaker with March offered down another $3 as bids largely absent/just not there. Soymeal exports so far this month = 2.16MMT (exceeds all January for 2020 , 2019 and 2018!). Soy oil — all about the China rumors and more biodiesel cargoes traded to Europe.
  11. December U.S. crush — will be out post close on Monday, 1 February. Market looks for crush = 192-195 mil bu vs 191 mil bu in November. Soy oil stocks in build mode = 2254 mil lbs (average estimate) vs 2118 mil lbs. Will watch the soy oil stocks number closely — as this should be influential to front end board spreads (inverse in BOK forward part of the curve).
  12. India to unveil a $10 billion budget — and 5-year plan to reduce its dependency on veg oil imports (the world’s largest). Key is to provide an incentive to farmers to switch to oilseeds vs grains. Canola is the highest yielding oil vs soybeans — the highest yield protein for its animal sector.
  13. REPEAT: Brazil soy production — average estimate for Brazil’s soy crop = 132.2MMT. I remain more comfortable with a 134MMT type number but that’s really splitting hairs at the end of the day. The bottom-line remains: Brazil will produce another record soy crop with record soy prices for this years (what is left to market) and in 2022 with land, land and more land quickly being brought into production.
  14. World soy supply cushion = 83.2 days (98.2 days LY — 31 August 2020) — down 15 days. Daily consumption = 1.01MMT vs 971.4KMT/day. China soy imports = 100MMT (+1.5MMT vs LY). ROW imports are forecast to contract -33KMT vs LY.



Higher. Massive jump in OI after CH filled the 550 gap on Thursday. Argentina down again & now 20-30¢ discount to U.S. China books another 2.1MMT U.S. corn flashed.

  1. Open interest +21954 — another record sales number flashed to China month-end. Will the market again go after that 550 gap?
  2. For the month — corn is +12.1% — and the leader of the grains/oilseeds space for January/start of the CY.
  3. New highs in CN-CU and CN-CZ into month-end.
  4. Argentina corn plantings — 98% complete — same as LY and ahead of the 5-year average of 94%. This as rains continue to be just about perfect thru all of January and now February shapes up v. nicely on extended forecasts. BAGE production = 47MMT with good-excellent rating -6% and fair up 4% with very poor-poor +2%. Farmers selling more aggressively — esp. with talk of higher export taxes on corn from 12% to 20%.
  5. Argentina corn premiums — down 25-30¢ from recent highs. Farmer selling + higher confidence in production prospects.
  6. Brazil export line-up = 491KMT (2.13MMT loaded).
  7. EU corn imports (EU Commission) = 18.5MMT (19MMT previous). Production = 62.6MMT (62.5MMT previous).
  8. REPEAT: Argentina farmer selling — for 2019-2020 crop 78.4% sold and new crop at 20.3% (25.3%) — this selling too has picked up since the start of January. Corn premiums/basis levels trend weaker. Not a lot of demand out there. World buyers lack a bid. Domestic demand is also v. quiet at these prices.
  9. World supply cushion = 39.2 days — loses 4.8 days vs LY — lowest level since 2010-11 (38.9 days). World consumption = 2.37MMT/day world feed demand cut again — now up less than 1% or a “mere” 3.2MMT. FSI demand is forecast to increase 1.5% or 4.9MMT — this is a major risk given ethanol economics and potential off-ramp by China with its own domestic ethanol industry/use of corn as a fuel (vs food security).



Higher, led by Chicago.

  1. Open interest — Chicago -635  Kansas +2986.
  2. For the month — up 2.1% into month-end.
  3. EU wheat exports (EU Commission) = 26MMT (24MMT last month). Production = 116.4MMT (116.1MMT previous).
  4. REPEAT: world import trade — reminder that it is CHINA that accounts for 90.3% of the increase in world wheat import trade vs LY. Said another way — if China did not increase their imports from 9MMT to 5.4MMT LY — world import trade would “only” be up 400KMT or 8 panamaxes. #perspective
  5. World wheat supply cushion = 90.8 days (88.1 days LY) — up 2.7 days. More upside to Australian production and exports. Daily wheat consumption (w/out China) = 1.69MMT/day. U.S. will store 14.9% of the world (w/out China) wheat reserves and its own STU at 39%.
  6. Bottom-line: U.S .will continue to do what it does best –> act as a transparent backstop for a majority of world importers for various classes of wheat. So, no change there vs previous years. Certainly no bullish theme on its own. Biggest question for 2020-21 is the demand side of the equation and the price relationship between corn-wheat in forthcoming weeks + months.


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