GAP Observations: Feb 24, 2021

GAP Observations


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


RANGES: CK = 556.50 – up 4¢ (551 – 557.25). WK = 673.75 – up 3.5¢ (668.75 – 675.50). KWK = 651.25 – up 4¢ (645.25 – 651.75). SK = 1421 – up 13.5¢ (1409.50 – 1425.75). SMK = 430.50 – up $4.50 (426.40 – 431.90). BOK = 4871 – up 34 (4812 – 4892)

USDA DAILY SALES: none…the crickets continue (and will continue).

FND and month-end: Friday, 26 February



$$ inflows continue. Soy re-testing Tuesday highs. SOAM cash markets headed in the opposite direction in soy & SM. Another round of new contract highs in soy oil.

  1. Open interest — Soy +720. Soy oil -7989. SM -3735.
  2. USD — has turned from lower to higher into the 8:30 a.m. CST reopen.
  3. Crush — May @ 61.9¢ (58.2¢, 64.1¢). July @ 58.5¢ (56.2¢, 59.9¢) — mid-Jan low = 50.7¢.
  4. Oil share — May @ 36.13% (36%, 35.61%) — working its way back to early 2020 highs = 36.71% and then collapsed to 31.27% by mid-March 2021.
  5. Soybean rally — more questions than answers on what spurred Tuesday/and into Wednesday price action. The inflation trade remains ever-present in headlines/papers/blogs/talking heads around the globe. Super cycles forever. Commodity mania to become a self-fulfilling prophecy (again). Case in point — the Bloomberg Commodity Index now has RSI of +84 — which is the most overbought since March 2008. Brazil — if anything — its logistics are getting sorted/better and harvest kicking into another gear. This as SOAM soybean premiums again weaker and have really collapsed thru February. Same goes for Argentina and its SM premiums — everything in South America (save for soy oil) seems to be in a hunt for a bid. Argentina will be dry into March — but the market there/farmers are not overly concerned as rains continue to come in much better than expected. This has largely been the theme in Argentina this growing season — “better than expected.” Farmer selling has come back/turned back on in Brazil. Argentina farmer has been a super consistent seller for the past 30-45 days. Canola market has made new highs — so there might be a v. minor influence/general market sentiment there. We will see the money inflow impact in the managed money positions in this Friday’s CoT report (that does include price action thru close of biz on Tuesday, 23 February).
  6. FOB Paranagua soybeans are now worth the equivalent of those delivered to St. Louis — glug, glug, glug. IHS takes its Brazil production = 136MMT (133MMT previous). Long, long, long export tail coming to the world soy market to start MY2021-22. Also, of note in the cash market — is Parana with its domestic cash market down -83 on Tuesday (this exceeds the one day in 2020 where the basis was this weak…and harvest this year has “only just begun…” so sang The Carpenters…not to date myself or anything).
  7. China — more of the same. SM pricing was a bit better at nearly 150KMT — but again, the demand is just not there vs crush rates/crush margins. SM prices mixed-weaker. Edible oil firm-steady. Reportedly palm oil traded into China for Apr-May. In-port soy stocks slip just below 8MMT at 7.96MMT. Crushers sitting on their hands/working thru ownership. Crush margins remain “less than” thru Q4. China bid has been largely absent for Brazil soybeans. A bit of tire-kicking on Tuesday evening/into Wednesday. JCI notes average hog price down 22% since the start of CY2021. Margins are down 40% vs this time LY. Minister of Agriculture notes that the worst pork shortage period has passed, supplies will be ampler going forward, and the number of hogs slaughtered and supplies of pork will return to normal levels in the second half of the year.
  8. Brazil — 5.4:1 — remains under pressure/weak. Farmer selling has started to pick back up — focus is on 2022 positions. Soy basis was down another 5¢. Production range for Brazil soy crop seems to be inching higher to that 134-136MMT type numbers. Soymeal premiums weak/defensive — call it down $1-2/MT in the hunt for the ever-elusive world buyer-bid. Soy oil — steady with few offers in the nearby. Export line-up: soybeans = 15MMT (3.63MMT). Soymeal = 890KMT (752KMT loaded). Soy oil = 109KMT (57KMT loaded).
  9. Argentina — believe it or not, the farmer selling has remained remarkably consistent in the past +month. This has re-filled the cash pipeline to crushers — and reflected in that much higher than expected/back online crush rates for the world’s largest SM & BO exporter. Rosario Grain Exchange confirms its 49MMT production forecast. Crush margins have slipped a bit — call it $25/MT for Apr-May. However — still making money and still much better than 60 days prior. Soy and soymeal premiums — call it unchanged. Remains defensive as bids are simply not there. Soy oil — steady with few offers. Export line-up: soymeal = 2.68MMT and 596KMT for March loading (big jump in registrations past 24 hours for Feb-June = 658.3KMT). Soy oil = 517KMT with 67KMT for March. Biodiesel = 105KMT.
  10. Key question remains just that: does the market trade the U.S. soybean balance sheet OR a record Brazil soy crop + bigger production prospects in Argentina + no change to Argentina export tax + truck strike now resolved + China weak crush margins + weakish demand ex-China for Brazil soy + widening discount Brazil to U.S. + weaker SM premiums in Argentina (now back to unders and still slipping despite lower futures) + India back in decent volume in the world SM grid? Fund length remains v. large/at record levels for this time of the year in both soy oil and soybeans.
  11. REPEAT: Brazil soybean discount to the U.S. — continues to widen. SOAM SM premiums continue to work lower — led by Argentina and lack of any buying interest. India is back in the world SM with decent volume MYTD. Europe SM imports down 6%. China soy stocks — v. comfortable and can handle any load delays ex-Brazil. Sino reserves releases are also “highly likely” to be released in the weeks ahead to take advantage of the current inverse.
  12. REPEAT: Brazil export tail going forward: China U.S. soybean import demand — will end up being closer to 38MMT than not (record = 36.1MMT) vs 16.3MMT LY. So, 21-22MMT more U.S. to China — despite China import demand +1.5MMT vs LY and the rest of the world soy importers have total demand +55KMT (basically one vessel) vs last year. Brazil exports are forecast down 7MMT vs last year’s record…Bottom line: there are at least 13MMT of soybeans that are “unaccounted” for in this math equation and that “unaccounted” = Brazil long export tail into MY2021-22.
  13. 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 increase 55KMT (-33KMT in January) vs LY.


Higher. Follower. China quiet — more focused on procuring barley.

  1. Open interest -1394
  2. USD — has turned from lower to higher into the 8:30 a.m. CST re-open.
  3. U.S. ethanol production + stocks — out mid-a.m. — expected to be a sharp slowdown in production given the cold snap/lack of nat gas/selling nat gas ownership into the spot market. Stocks to remain at multi-year highs/near record highs. Going forward — note that margins have improved of late with higher corn oil + higher DDG prices.
  4. Brazil export line-up = 208KMT (386KMT loaded).
  5. Argentina export line-up = 1.18MMT with 382KMT for March.
  6. World corn imports are forecast to increase 13.7MMT in total. This as China corn imports are forecast +16.4MMT. Ergo — China accounts for 120% of the world’s corn increase. Said another way — no growth if China was not in the grid.
  7. World supply cushion = 38.3 days — loses 5.5 days vs LY — lowest level since 2010-11 (38.9 days). World consumption = 2.36MMT/day world feed demand cut again — basically flat or a “mere” 200KMT. FSI demand is forecast to increase 1.4% or 4.65MMT — 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. Follower. Russia back from holiday. Black Sea wheat inverse remains in that 40-45/MT. July-Sept traded even money on Tuesday.

  1. Open interest W -4166. KW -1098
  2. USD  has turned from lower to higher into the 8:30 a.m. CST re-open.
  3. MATIF wheat making new highs in general commodity market sentiment/buying. Black Sea nominally $288-290/MT. French W at $300/MT . Not many bids around. New crop French W indicated at $253/MT FOB with Russia @ $245/MT and Ukraine @ $243/MT. Russian export tax — and this moving target that will be in the market for the weeks/months ahead. The overall question being: does the government repeal this by the time new crop rolls around?
  4. India — monster wheat crop in the making — now forecast = 115MMT vs 107.6MMT LY (and a record). Again — India in the export grid for wheat, corn or soymeal — is NOT a bullish factor.
  5. REPEAT: March is typically the weakest seasonally for wheat.
  6. World import trade — reminder that it is CHINA that accounts for 110% of the increase in world wheat import trade vs LY. China imports are +4.622MMT higher vs LY. While world wheat imports are +4.22MMT higher vs LY. Ergo – no China, no growth.
  7. World wheat supply cushion = 87.3 days (88.1 days LY) – down 1/2 day. More upside to Australian production (market in that 32-33MMT vs USDA = 30MMT) and exports. Daily wheat consumption (w/out China) = 1.71MMT/day. U.S. will store 15.2% of the world (w/out China) wheat reserves and its own STU at 39%.
  8. 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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