GAP Observations: Feb 5, 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: CH = 549 — down 1¢ (547.25 – 550.25). WH = 643.75 — up 6.25¢ (632.25 – 645.25). KWH = 624.50 — up 5.75¢ (612.75 – 625.50). SH = 1374.25 — up 1.75¢ (1365.50 – 1377.75). SMH = 433.90 — up 80¢ (431.50 – 434.70). BOH = 4480 — down 14 (4462 – 4515)

USDA DAILY SALES: 101.6KMT corn to unknown (this year).


  1. February concerns build for center-west Brazil fieldwork
  2. U.S. cold late next week threatens limited winterkill
  3. Significant snow across Black Sea wheat over next week protects crops from strong cold outbreak late next week
  4. NE Europe wheat/rapeseed most likely to see sub-0F readings next week and snow still favored to protect crops
  5. North Africa/Middle East rains getting underway and continue this weekend, improving moisture supplies for wheat

INDEX ROLL — those that have H21 exposure — roll starts today (5 February).



SOAM cash markets rolling over. Premiums weaker across the complex. SH works around 20d MA (1375.25). SM board spreads bear-mode. BO and S spreads mixed. 

  1. Open interest: soy -1812, soymeal -1162, soy oil +5134.
  2. Board crush — Mar @ 73.1¢. May @ 64.1¢. July @ 64.8¢.
  3. Oil share — 34.05% — Remains well above its major moving averages but does look toppy on the charts + weaker SOAM premiums/widening spread between palm and soy oil (Argentina). Crush margins are v. good in Argentina and the farmer has been a significant seller in January…this continues in February to date. Truck strike — viewed more as a nuisance. Government intervention will be in the backdrop as it desperately needs those export tax dollars/FX… New mechanism now being promoted to encourage all on-farm stocks to move into the market (as if the steep inverse wasn’t enough… especially when it comes to soybeans).
  4. U.S. soy ending stocks — Market looks for 123 mil bu vs 140 mil bu ending stocks in January. Will cover WASDE outlook in this weekend’s State of Play. WASDE out on Tuesday @ 11AM CST.
  5. Stats Canada canola 31 Dec stocks = 12.14MMT (this was lower than expected = 12.3MMT) vs 15.9MMT LY (and the 5-year average = 14.4MMT) … will be sucking on fumes before next crop is out of the ground.
  6. 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 today. Chart shows potential reverse signal/bearish bar pattern.
  7. SM charts support: Big test vs 420-418. A break below that opens up air pockets. 20d MA = 440.60. 50d MA = 417.70.
  8. World freight summary (USGC) — Dry-bulk ocean freight markets continue dancing to an up and down beat that provides trading opportunities but makes little headway either direction. This has been another mixed week that resulted in little net movement in rates. Most market optimism remains out in Q2 and forward positions. The hottest market appears to be the Handymax and Supramax sectors in the U.S. Gulf where vessel supply is tight. Daily hire rates in the Panamax sector traded at $12,600 for February-March and at $12,750 for Q2. There has not yet been an observable jump in Panamax fixtures from the U.S. PNW to China but looking at the widening spread in the U.S. PNW-Gulf corn basis, such pricing is likely occurring.
  9. China soy complex snapshot: Soymeal sales limp into the week — very light week with pretty much every day sub-50KMT. Prices called weaker/lower. Edible oil prices mixed-lean higher. Inverse in the veg oil market appears to be working with confirmed washouts and that were replaced with new crop positions ex-Argentina (Apr-May). In-port soy stocks = 8.22MMT — slight build vs mid-week. Crush margins — nothing to write home about as trending towards negative. Q4 crush margins trend towards low single digits/ negative. Crusher buying interest really is not there. Any trades going on more inter-trade houses with LH Feb ex-Gulf reportedly trading at cheap levels. Persistent talk of washouts of Feb-Mar Brazil cargoes given load delays and poor domestic SM demand/weak crush margins (oh – and that little thing called an INVERSE).
  10. Brazil snapshot — Real-USD at 5.39:1 — mixed (no major changes to trend -> closer to contract lows than not). Farmer selling — focus on harvest + plantings. Any selling interest (volume) slated for 2022 — and not this year until there is a better handle on yields. Soy premiums continue to crash lower — down another 5-10. Soymeal weaker — follows Argentina -> down another $2-3/MT. Soy oil weaker. Export line-up: soybeans = 10.7MMT (88.5KMT loaded). Soymeal = 907KMT (103KMT loaded).
  11. Argentina snapshot — Farmer selling really picks up — very good volume sold this week and expected thru the month. Market comfortable with 46-47MMT type production number. Soy crop rated 19% good-excellent (+1). 72% fair (+3). 9% poor (-4%). Moisture good/adequate for 87% (+11% vs LW). Crush margins hold nicely — crush, crush, crush. Country dries a bit here with rains returning mid-late next week. Soymeal premiums — weaker. Not many bids. Soy oil weaker in spot — called down 50-100 points and weaker for new crop.
  12. U.S. o/s soybean export sales = 11.1MMT as of 28 January – much of that will be pushed out in the next 4-5 weeks and then fall off a cliff with world focused on Brazil March 2021 forward (Brazil has pushed out +14MMT of soy/month… this was last year & there has been more & more infrastructure investment).
  13. U.S. o/s soymeal export sales = 2.95MMT vs 3.66MMT – down 710KMT and Argentina’s soy crop looks much better than it did in December. January rains have been much better than expected. More and more aggressive offers coming out of Argentina. Crush margins very good. Farmer selling continues.
  14. REPEAT: Argentina — Its government continues to work for a resolution/tool to incent farmers to sell their on-farm reserves (export tax revenue/foreign payment expected to be record levels for CY2021 given current FOB prices). Reportedly, Matba-Rofex and the government have a financial instrument to do so. BCRA is expected to announce a rule that gives foreign exchange coverage to guaranteed sales contracts at fixed prices. Called the Guaranteed PAF (that has been available since only December 2020). Utilizing the PAF, the buyers take 110% of the value of the grain/oilseed received as a guarantee, producers avoid the risk of difficulties in collecting payment (recent memory of the Vicentin default). The government estimates 2019-2020 on-farm soybeans = 15MMT or the dollar equivalent of $7.5 billion dollars. Clearly  — export tax revenue is first and foremost for this government…and any and all strikes will continue to be addressed as effectively/quickly as possible to push out as much ag product as possible in the weeks and months ahead.
  15. 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
  16. 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.


That 550 zone continues to be the point of gravitation/contention for CH21. Argentina prem defensive/trend lower. Ukraine steady.

  1. Open interest +8784.
  2. USD modestly weaker into the weekend – YTD +1.5% as of Friday a.m.
  3. BAGE Argentina corn production = 46MMT (-1MMT vs previous). Market looking for a 47MMT type number. Harvest in full swing March-April. Argentina premiums have been moving lower for the past few weeks with farmer selling really picking in January and this momentum has only built in February.
  4. U.S. export challenge — This will be the ultimate key for the size of the U.S. corn export program. Huge sales on the book/record for this time of the year. However — there has only been one week that has hit the “need” export rate with 5 months now off the MY. It will be the actual loadings that will make/break this USDA export forecast. REMINDER: In 2013/14 – China had 5MMT on the books in November and ended up only taking 2.7MMT – canceled the rest by the time 31 Aug rolled around).
  5. Brazil export line-up = 477.8KMT (45KMT loaded).
  6. World DDG summary (USGC) — U.S. DDGS are steady this week with ethanol production rising slightly and end-users having booked most of their Q1 and early Q2 needs. Kansas City soymeal prices are $5/MT higher despite declines in FOB prices. The DDGS/soymeal ratio stands at 0.50, steady with the prior week and up from the three-year average of 0.42. The DDGS/cash corn ratio is down from the prior week at 115% and above the three-year average of 110%. Industry sources say the export DDGS market is mixed in quiet trade. Merchandisers and exporters report a wide bid/ask spread is creating volatility in traded prices. Barge CIF NOLA values are slightly lower this week while FOB NOLA offers are steady/$1-2/MT higher. Prices for 40-foot containers to Southeast Asia are higher this week, with product destined for Malaysia leading the way. On average, containers to Southeast Asia are offered at $355-356 for February-April shipment, with spot offers up $8/MT while deferred positions are up $6/MT.
  7. Feb WASDE: Increase to U.S. exports – call it 150 mil bu (pace of exports is a huge problem/hurdle ahead…easily pencil a scenario where China corn biz is rolled forward or even cancelled in the months ahead. In 2013/14 – China had 5MMT on the books in November and ended up only taking 2.7MMT – canceled the rest by the time 31 Aug rolled around). Feed +50 mil bu (or they take a pass on this until the 1 March stocks out on 31 March). Ending stocks cut 200 mil bu = 1350 mil bu/34.3MMT or 9.1% STU.
  8. Feb WASDE: World – China corn imports go to 25MMT or even 20MMT vs current 17.5MMT. Fine-tuning elsewhere.
  9. Bottom-line: Feb WASDE comes down to U.S. and China.
  10. 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…
  11. 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.
  12. 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. Dead cat bounce into weekend? Stats Canada stocks lower than expected but above the 5-year average. 

  1. Open interest — Chicago +10,  Kansas +1531.
  2. USD modestly weaker — solidly higher to start CY2021 at +1.5%.
  3. Stats Canada all wheat = 24.854MMT — less than expected with market looking = 25.4MMT. This compares to 25.9MMT LY — so down about 1MMT and seems to be the catalyst in the wheat market here into Friday’s full session. All wheat average ending stocks for this time of the year (5-year) = 24.18MMT. Pretty much every single crop Canada produces had lower 31 Dec 2020 stocks vs 31 Dec 2019.
  4. Feb WASDE: No major changes expected to U.S. balance sheet and only fine-tuning for world wheat balance sheet. Russian exports lowered. Aussie production + exports higher. EU exports higher.
  5. Feb WASDE bottom-line: Wheat supply cushion is the only one that shows a build for this year with minimal/no growth forecast from last year to this year.
  6. REPEAT: The month of March is typically the weakest seasonally for wheat (although February has not been kind month-to-date).
  7. 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
  8. 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%.
  9. 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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