GAP Observations: Feb. 3, 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 = 541.25 — down 1.75¢ (536.50 – 544.25). WH = 636.75 — down 8¢ (634.25 – 646.25). KWH = 613.75 — down 5.25¢ (612 – 619). SH = 1358.25 — up 3.5¢ (1342.50 – 1358.75). SMH = 430.90 — up $2.90 (425.80 – 430.90). BOH = 4399 — down 33 (4333 – 4442)  


  1. Frequent showers to hinder center-west Brazil fieldwork.
  2. Snow limits winterkill risk to 10% of U.S. wheat next week.
  3. Snow protects northern Black Sea wheat from cold next week; limited in southern 1/3 but strong cold unlikely to reach that far.
  4. Rain/snow in Europe wheat/rapeseed next two weeks enhance moisture; strong cold limited to snow-protected NE 1/3.
  5. North Africa/Middle East wheat still favored for rains late-week and next week; improves most soil moisture supplies.


BOH drops solidly below that key support = 4423. Palm oil slammed (-165 or 4.8%). S and SM making session highs into biscuit break. Spreads mixed. 

  1. Open interestsoy -2150, soymeal -1228, soy oil +4603.
  2. Tuesday trade volume — very light. Hasn’t been this low since Christmas Eve (24 December and a shortened trade session).
  3. Board crush -, Mar @ 73.6¢ (78¢). May @ 62.4¢ (66.3¢). July @ 62.4¢ (65.6¢).
  4. Oil share — lower/weaker after looking quite toppy to start February — call it unwinds into mid-week (sell BO/buy SM as BO breaks below that 4423 zone).
  5. BOH support = 4423 – breaks below this, confirms bearish divergence. Reminder: BO fund position was closer to record levels than not. Updated as of 2 February in CoT out post-close on Friday. Chart shows potential reverse signal/bearish bar pattern.
  6. SM charts support: big test vs 420-418. A break below that opens up air pockets. 20d MA = 440.50. 50d MA = 416.
  7. February crop insurance month — here we go — will really set the tone for exactly what U.S. farmers plant in 2021 as crop insurance is expected to be maxed out this year. 2020 spring crop insurance = 917 vs harvest price = 1054.
  8. China soy complex snapshot: Dalian soy down 50¢. SM down $8.60. BO down 100 points. Greatly exceeds losses in Chicago/CME so far this week. China PMI at 52 — lowest in nine months (expected 55.5). ASF back in the headlines (new variant)/growing risk for the recovery of China’s swine/pig herds. Meanwhile, the market largely ignores the expanding bird flu cases in Europe/Asia and India. Soymeal sales improved a bit — just over 75KMT. Still nothing to write home about. Flat price mixed. SM stocks build to = 804KMT (vs mid-600KMT LW). Edible oil defensive. Talk of a possible BO cargo being washed out? Odd. In-port soy stocks = 8.15MMT. Crush margins holding in there — but well off highs. New crop/Q4 are barely positive/lean more negative: ergo — Sino likely the major buyer for new crop U.S. for its reserves.Crushers v. quiet since later part of January and to start February.
  9. Brazil snapshot — Real-USD firms slightly into mid-week: 5.33:1. Weather improves in MT — harvest/combines rolling hard & fast with planters right behind. Parana reports record rains over the past 10 days. Rains stick in the center-west until late this week and then moves north (to its relief) over the weekend and thru early next week. Very welcomed! Soybeans — no change with better trade volume (most of it called within trade houses vs China being the bid in the market: but volume/demand is demand: May-July positions). Soymeal mixed. Soy oil is weaker. Export line-up: soybeans = 9.36MMT (74KMT loaded). Soymeal = 931KMT (150KMT loaded). Soy oil = 57KMT (nothing loaded).
  10. Argentina snapshot — cash movement picks up even more to start February (vs the major improvement in January). Truck strike remains in headlines — to move from BsAs to Rosario. Government resolution expected. Farmers have high confidence that there will indeed be an average/steady production for both soy and corn combined with risk of higher export taxes has this segment of the market on the sell-side. Nice crush margins: Feb improved to nearly $40/MT (35/MT at the start of the week) with new crop at $29/MT (was $25/MT) — Apr/May. Solid rains continue into the end week and then slowly dries into mid-month. 20% stressed in the far south toward the latter part of February. Rains moving back into the forecast for late Feb/early March as winds die down. Soybean and soymeal are called mixed/lean weaker as both face lack of bids (vs a farmer that is more engaged as soy production looks much better than it did even 30 days prior). Soy oil — quiet but feels decently supported. Export line-up: soybeans = 45KMT. Soymeal = 1.55MMT. Soy oil = 267KMT. Biodiesel = 30KMT.
  11. 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.
  12. 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.


CH gap zone = 530-528. Argentina market feels supply-heavy/lacks bids. U.S. ethanol data points out mid-AM. Ukraine called weaker. Spreads mixed: lean bear-mode. 

  1. Open interest -6082.
  2. Another round of new highs in corn-wheat spreads (both Chicago and KW).
  3. March Gulf corn trading well above delivery values (called 9-10¢).
  4. Market rumors persist on more U.S. 2020-21 corn to China. China is reportedly also shopping for Q4 ex-U.S. (new crop). No sales flashed Tuesday or Wednesday. Meanwhile, Dalian corn is 70¢ off its mid-January highs.
  5. U.S. cost of inputs: have exploded higher. DAP trade highest since October 2012. Urea highest since May 2014.
  6. U.S. ethanol production — over past month – down 11.5% vs same period LY. Gas demand -9.5% below same period LY.
  7. Brazil export line-up = 382KMT (45KMT loaded) – only light selling from the farmer.
  8. Argentine export line-up = 737KMT.
  9. REPEAT: U.S. corn export outlook – market is all excited about taking U.S. corn export forecast higher. Slow your roll. Let’s start with some context… Firstly – to even hit this year’s current export forecast, Feb-August exports need to = 44.91MMT/1.77 bil bu!  That would mean that exports need to be 20% greater than the Feb-Aug 2017 period that set the record! #perspective. I’ll re-think my perspective when we actually see weekly exports hit that need level for multiple weeks in a row. Until then…
  10. REPEAT: February crop insurance month — and into we go. February 2020 = 388 vs harvest price = 399. Crop insurance is a major influencer (Mother Nature/weather is THE key) when it comes to the U.S. planted area. Corn has gained favorability over the past +month.
  11. 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).


Lower led by Chicago. KW gains on W. Spreads in bear-mode. Inverse in Chicago K-N still looks super fat given the current landscape. Wheat trends to corn values. 

  1. Open interest — Chicago -4323,  Kansas -394.
  2. USD — again moving higher…breaking down one of the investment legs of a weak USD vs investing in commodities.
  3. REPEAT: Russia floating export tax for 2021-2022…as proposed to — “it’s a disaster” (Sov Econ) — as proposed/floated for 1 June. Why on earth would any Russian plant wheat unless absolutely necessary if SovEcon’s example proves spot on or if the government actually implements this? Example of the floating tax: 0.7X($300 FOB wheat – 200) = $70/MT or $1.90/bu. 0.7X($320 FOB – 200) = $84/MT ($2.29/ bushel). So on and so forth. Quote “it’s a disaster” – end quote. As such — there was an outlook for expanded spring wheat plantings, rather oilseed or barley should capture that area. Not only spring wheat — but if this wheat floating tax idea is implemented for the entirety MY2021-22, would look for a sharp drop in winter wheat plantings Fall 2021.
  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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