• Midday comments:

• Yesterday’s rally in Dec ’14 wheat, to new highs, followed by a lower close could pave the way to downward pressure today. However, the contract showed some independent strength and made its high despite weakness elsewhere. The hedge fund exodus from short positions has supported the fundamentally weak grain commodities and the volume of trade has been high. It has been suggested that the funds are now “done”, or almost so, and the markets will now resume trading on their own fundamentals once more. As if a reminder was necessary, the grains fundamentals remain bearish, and an added pressure is coming from fears of global slowdown which has seen equity markets sharply lower, crude oil futures declining and currencies taking something of a battering. At some stage we see these issues pressuring the already fundamentally pressured commodity markets.

• Stratégie Grains has forecast EU 2014/15 soft wheat output higher at 147.403 million mt, compared with 146.6 million mt last and 135.4 million mt last year.

• In corn the market still has the threat of fund long liquidation hanging over it and hedge pressure from farmers selling and making more grain available to commercials will also remain a negative force, particularly if prices remain at, or above, current levels. Talk of improved US harvest weather conditions and the collapse in energy and equity markets as well as storage space issues from the grower’s point of view, all lean negatively on the corn market, particularly as time goes on. The weather outlook appears far better as we approach the weekend and into early November, and we would expect to see the harvest pace increase rapidly. Current price levels will be looking attractive to growers who may begin to look at moving their corn straight off the field, which would pressure cash as well as futures.

• In soybeans the large open interest in the front month Nov ’14 contract coupled with the fund net short position remains a supportive factor. Short covering is one side of the story, with the record US crop just around the corner farmer hedging will remain active and slow or restrict upside gains. Perhaps the largest longer-term issue remains the likelihood of increased S America soybean planted acres followed by increased US acres in spring 2015, which (if realised) would extend the oversupply position even further forward. Ultimately price has to become the balancing and driving factor to correct this potential trend. Currently the market remains very nervous and twitchy, hence volatility stays high, but the big picture remains unchanged.

• Evening update:

• It appears that Chicago markets have (at last) paused to take a breath after the volumes and gains of the last few days. As some equity markets and crude oil prices have recovered somewhat it seems that fund manager liquidation pressure is easing.

• Brussels has issued weekly wheat export licences totalling a massive 1,004,854 mt, which brings the season total to 8.92 million mt. This is 530,262 mt (6.3%) ahead of last year’s same time total. Clearly there has been some strong global demand for EU wheat as prices have reached their recent low levels, and consumer cover would seem to reach into early 2015 based upon these latest figures.

• With an hour of trading in Chicago corn, wheat and soybeans all remain in positive territory.

• Midday comments:

• CBOT wheat markets continued to piggy back strength in corn and soybeans although volumes dod not reflect any strong following. Perhaps the strange thing is that funds do not appear to be too concerned right now given the heavy selling being seen in crude oil which is causing liquidation of longs. Paris wheat made a good “recovery” bounce on the back of US grains. Any turndown or setback in corn or soybeans could well put the skids under wheat given its recent upsides. Last night’s planting report showed winter wheat at 68% complete vs. 56% last week and compared with the ten year average of 70%.

• Corn markets are likely to suffer from growers initially storing their corn whilst selling soybeans but in all likelihood storage will fill to bursting quite fast, and news of piles of corn on the ground will place the market under considerable pressure, particularly cash markets, which will in turn impact futures prices. Current market volatility in corn is high and the recent rain delays to harvest must be seen as a key driver of the latest upswing in prices. A resumption of better weather conditions and harvest will likely trigger a resumption of the longer established downtrend. Weekly crop conditions showed 74% of corn to be rated good/excellent, which is unchanged week on week and compares with the ten year average of 63%. Current crop condition is becoming less relevant right now, but keeps yield at the forefront of discussions, specifically in relation to the next USDA report in November.

• In soybeans we see a test of the $10 level in the Mar ’15 contract as a selling opportunity as the market faces a record US harvest and also a record S America crop which will be harvested in early 2015. Yesterday saw the second day of strong gains as funds withdrew taking profits which improved the short-term technical outlook. Volume, particularly in Nov ’14, was impressive with a life of contract set at over 200,000 contracts traded, mainly early in the session. Delayed harvesting, as with corn, and dry conditions in Brazil have been key drivers of the latest upswing in prices. Weekly condition reports showed soybeans at 73% good/excellent, unchanged week on week and compares with the ten year average of 57%. Harvest was quoted to be 40% done vs. 20% last week and the ten year average of 57%. The week on week change leans bearish for the market we believe.

• Evening update:

• Eventually CBOT corn futures gave way dropping almost 2.5% at the close with soybeans shedding half that amount.  Wheat futures closed in the red but not significantly lower. Financial markets have seen sharp losses in equities and US$ whilst Chicago grains have seen huge volume trade in the day. We could well have seen some fund repositioning although the evidence, if there is any, will be slow in coming forward. Friday is the reporting day for Commitment of Traders reports, and the next release will only show data up to yesterday (Tuesday). US debt futures have posted sharp gains on a weakening global economic outlook, one trigger has been suggested to be the ebola outbreak and it should not be forgotten that crude oil has dropped below $80, the lowest level in the last four years.

• The ebola issue has the potential to be a major global destabiliser. CNN have been reporting on one US health worker diagnosed with the virus who flew the day before displaying symptoms. The fear is that the 132 passengers on the same flight may also now carry the infection which could spread and create a “hotspot” unless they are contained for the incubation period, suggested to be 21 days. The interview process for these passengers illustrates just how fast paced the virus can travel and and how difficult it can be to contain. Ebola can not be considered bullish for commodities or financial markets, perhaps with the exception of gold, as economic activity potentially slows and large crowds, public transport and large cities become less desirable places to be in outbreak situations.

• S American weather forecasts show the wet season commencing in earnest next week across northern Brazil with progressively wetter patterns emerging into November. Normal precipitation and temperatures are projected across Argentina and far southern Brazilian crop areas.

• The € gained over 120 points and Matif wheat closed a touch lower today. Spreads widened in surprisingly high volume trade, possibly on November option expiry. Russian corn output, extrapolated from current harvest data, suggests that the potential 14.5 million mt suggested three weeks ago may well be optimistic. Current estimates now look closer to 11.5 million mt, and possibly falling, and compares with the USDA’s 12 million mt forecast.

• One commentator described EU markets today as “stunningly boring”, November options expiring with a whimper and a flat €. This makes market commentary somewhat difficult!

• Recent rains in the US have slowed harvest, as we reported yesterday, and strong nearby demand from crushers and exporters alike is keeping cash basis firm, which has in turn lent some support to futures markets. Early fund support has slowed this afternoon.

• S American weather patterns show a move towards the wet season commencing next week, seasonally normal, with a wetter pattern unfolding into early November.

• Fund short covering has been the feature in the last few days as equity markets decline and fund managers take risk off the table. Technical pictures suggest that we may well have seen a secondary seasonal high today with limited corn and soybean price upside going forward – as always, time will tell. Our view continues to be one of “sell this rally” and we look for a resumption of the bear market before long.

• Midday comments:

• Wheat markets traded lower overnight despite the USDA report on Friday offering a supportive tone whereas weakness in corn and soybeans may well contribute pressure as the week progresses.

• Corn markets look vulnerable with expectation of higher yield in next months report as well as the return of improving harvest weather for the next two weeks. Furthermore there is an added pressure coming from the need for US markets to regain competitiveness in global export markets. Despite some headline data looking supportive the market fundamentals continue to lean to the bear camp with the bulls having virtually nothing to get their teeth into.

• Soybeans, as with corn, saw a lower close Friday despite some supportive USDA headlines and the immediate post publication rally, and this (we feel) gives the bears the edge going forward.Near term harvest delays will keep cash levels supported as buyers active in order to meet existing commitments, but the weather outlook is improving and we should see drier weather later into the week and next week which will help speed harvest pace.

• Evening update:

• Despite some early market nervousness, the latter part of the day has seen something of a rally. Rains in the US have limited hedge selling, which would normally keep a lid on the market. It truly feels as if we will see a “Turnaround Tuesday” tomorrow because the market fundamentals do not support a rally of any strength or duration.

• Grain futures in Europe lost value in the face of oversupply, Friday’s Egyptian tender saw good volume from a number of directions and there is a marked lack of buyers around to start the week.

• Weather conditions in S America are slowly showing that the wet season, which is currently delayed, should commence in earnest in coming weeks (described as seasonally normal). Forecasts are not overly wet across Mato Grosso, Goias and Bahia into Nov 1st but it is key that the blocking high pressure over central and north Brazil fades by the weekend, which will allow the wetter pattern to unfold. The crop boosting El Niño phenomenon (as far as S America is concerned) looks as if it will remain in existence, although not at full strength, through to mid/late spring.

• Finally, corn and soybean yield reports received over the weekend are off the charts/stratospheric, take your pick which superlative you wish, rain is slowing harvest right now and that is what has triggered buying and higher prices today. We do not expect this to last.

• Midday comments:

• Overnight in Chicago wheat was near unchanged. There was early talk of a drier outlook across much of the Black Sea region as their plantings proceeded as well as reports of Russian export sales continuing to slow going forward. This news added some nearby support to the already buoyant wheat markets. Some are questioning quality wheat availability towards the second half of the season IF Russia does indeed slow exports. Whilst there is nothing like a global shortage of wheat we are likely to see a combined 2 to 3 million mt in Australia and Argentina (25.5 and 12.3 million mt respectively), and with funds still heavily net short this could place a strain on further downside, particularly in the short term.

• Corn eased fractionally overnight and the latest rally in Chicago leaves the US crop uncompetitive in the global market place right now. The bulls are encouraged by some wet weather, which is slowing harvest, and the technical nature of the latest market correction. For those US farmers who have been able to get into their combine and harvest, the yield reports continue to impress to the upside.

• Overnight soybeans were higher, again on reports of short covering ahead of Friday’s report. S American weather reports are somewhat mixed and merely add confusion into the marketplace resulting in a somewhat two-sided affair. US forecasts continue to offer a decent 8 to 14 day window of harvest opportunity, which will no doubt be welcomed, and seized with both hands by farmers anxious to get on with their harvest.

• Ahead of Friday’s report there have been concerns voiced over (significantly?) reduced corn and soybean acres, which does not feel quite right to us given the lack of major weather driven planting issues this season as well as prices that were high at the time of planting. Clearly we will be proved right (or wrong!) on Friday afternoon.

• We came across this interesting graphic showing projected world soybean carryout – a record – which we thought worthwhile including in today’s update.

• Evening update:

• Various pieces of data have been released today including:

• The Institute for Agricultural Market Studies (IKAR) in Russia have reduced their latest forecast for 2014 wheat output in the country by 1.5 million mt to 58.5 million mt, mainly as a consequence of delays to harvest caused by rain and some snow.

• French 2014/15 wheat closing stocks, as reported by AgriMer, are increased to 4.4 million mt vs. 3.9 million mt month on month, and are also up 88% year on year. Their corn figure stands at 3.7 million mt, which is a decline from 3.9 million mt month on month, but a 61% increase year on year.

• Lanworth has forecast the US 2014 soybean crop at 3,947 million bu with yield at 47.9 bu/acre, which is an increase compared with their last estimate of 3,880 million bu and 47.1 bu/acre. Their corn figure stands at 14,647 million bu with yield at 175.5 bu/acre, again an increase from their last figures which stood at 14,596 million bu and 174.9 bu/acre.

• Looking back on history, it is maybe of interest that fund movements in and out of positions tends to span a three day time frame. The current short covering spree started on on day, and is indeed showing some (slight) sign of petering out today. Today’s morning upswing saw a marked rise in farmer soybean selling which capped the upside somewhat. Grains have remained at their recent highs, but momentum appears to be slowing and we could well be looking at the pre-report “top”. Given the significant volume remaining to be harvested, and the fact that whichever way you slice and dice it, the US corn and soybean crops will be BIG, we find it virtually impossible to believe we have yet seen the season’s low just yet.

• Incoming yield data (apologies for harking on about it!) from the W and N Midwest remains record large, well above both records and grower expectations. As harvest progresses and more data becomes available it feels very much as if yields can not fail to hit 50 and 180 bu/acre for soybeans and corn respectively. Will Friday show that, “big crops do indeed get bigger”?

• In a meeting between Argentine grain exporters and the government yesterday it seems the government “insisted” that the exporters collectively invest $1.2 billion (as a loan?) in Argentina for their ability to export. It seems unlikely that the exporters will capitulate to such a strong-arm tactic and whether we will see government led grain exports in future remains a possibility (although unlikely). There seem to be little in the way of an end in sight to their ongoing economic and political chaos through which farmers, processors, exporters and the population as a whole have to muddle through.

• Our longer term thought process remains unchanged.

• Midday comments:

• US crop conditions and progress data was released after the close last night and revealed that corn condition was unchanged from last week at 74% good/excellent which compares with the ten year average of 62% . Soybeans were rated 73% good/excellent, a 1% improvement week on week which compares with the ten year average of 58%. Spring wheat was reported to be 96% harvested compared with 94% a week ago, winter wheat is 56% planted which and is exactly the same as the the ten year average and compares with 43% a week ago. Corn is 17% harvested, behind the 20% expected figure and the ten year average of 30%. Soybeans are 20% harvested, behind expectations of 23% and compared with the ten year average of 37%.

• It is worthwhile reminding that this year’s crop is forecast to be a “monster” and will doubtless take longer to harvest, so the numbers are not all doom and gloom. Clearly there is some delay caused by cooler and wetter (I.e. beneficial) conditions that have boosted the crop and there is some tradeoff with the time it will take to gather.

• US wheat export inspections were 650,000 mt for a season total of 9.544 million mt, which is 33% behind last year. Soybean inspections reached 974,000 mt for a season total of 2.475 million mt, 36% ahead of last year. For completeness corn inspections were 884,000 mt with the season total at 4.026 million mt, which is 69% ahead of last year.

• Yesterday’s rally has taken many by surprise, not insofar as the rally has existed, but more the sharpness, and that it has extended into Tuesday. The lower US$ has undoubtedly added some fuel to a fire which seemed to self-ignite ahead of this week’s USDA report. The key for the market appears to be about money coming off the table and managing risk particularly with some uncertainty in the air over the NASS/FSA acreage data.

• The gains seen in Matif Rapeseed have lasted six straight days and we are (this morning) at a ten week high, the two week gain is €21.00/mt. Explanations are scarce and varied but one common theme suggests some insecticide bans and the impact upon pollinating honey bee populations may be behind the uplift in prices. Frequent spraying to control aphids, particularly at and immediately after crop emergence, has been the norm. Some news from Germany suggesting that the inability to spray is already displaying some damage to the newly emerged winter planted crop. There is no empirical data to support this at present, and the discussion can only be one of the suggestions behind the price jump. An alternative explanation hinges on the perceived delay in the US soybean crop mentioned  previously.

• Evening update:

• Early trade suggested we were going to see a reversal as prices in Chicago eased, however this has not been the case. Yesterday’s “Mystery Rally” took many by surprise particularly given US harvest data that continues to point to a very big crop. There are few who are suggesting corn yield will come in above 180 bu/acre and soybeans above 50 bu/acre. In addition, world grain crop sizes keep on growing with many suggesting the EU corn crop will reach in excess of a record 72 million mt, which will further restrict imports. It should not be forgotten tat last year the EU was the world’s 2nd largest corn importer. Ukraine will have to compete with the US for S Korean and N African markets in order that new crop supplies ultimately reach market rather than remain in farmer’s sheds. In the light of the global grain surplus it is difficult to see the current rally being sustained for too long.

• Harvest weather conditions across the N Plains and N Midwest look set to remain fair into the weekend, a large area of rain appears likely across the S Plains, S Midwest and Delta into early next week with drying forecast thereafter.

• There have been rumours circulating (currently unconfirmed) that China has secured as much as 2 million mt of corn from Ukraine in recent days. There is a high degree of credibility to the rumour given that China lent £3 billion to Ukraine in 2013 and 3 million mt of corn imports could well be the expected route to payoff. The purchase, if confirmed, is not viewed as market bullish, and it should be noted that China has not relaxed its demand for non-MIR162 corn, which currently all but eliminates the US, whilst Ukrainian corn is argued to be GM free.

• Neither Black Sea or EU wheat values have followed the CBOT rally with Black Sea FOB levels actually dipping slightly in the day. This suggests to us that US values are pushing into a position of reducing competitiveness in a marketplace which dictates that the reverse is somewhat more desirable. The US cannot afford to miss export demand (neither for that matter can other origins).

• The sharp market price declines seen in recent weeks/months are being countered by the current rally, which we view as a short-term market correction ahead of Friday’s key USDA report. We continue to suggest that neither corn or soybeans have scored their seasonal lows at this time.

• Midday comments:

• Wheat markets made some early gains based upon some short-term weather issues which may potentially impact crops in Australia and Argentina as well as some fund short covering/profit taking, both of which were seen as supportive to prices. The Aussie weather issue relates to some dryness which may take the shine off yields, whereas Argentina (and Brazil) have seen some heavy rains that may result in quality or acreage losses. Informa Economics forecast the Australian wheat crop at 23.9 million mt which is a 900,000 mt reduction from their last figure and compares with the USDA’s 25.5 million mt. Their estimate of the EU crop was increased by 2 million mt to 153 million mt. Despite the foregoing it is hard to dispute that global supplies are big, in fact very big, but there remains the issue of how much of it will make milling grade given the quality issue in France. The outlook for the global 2014/15 wheat crop remains that is set to be the biggest on record with Russian and Ukraine output the largest since 2008 and second highest on record. Forecasts have been growing, and there is no suggestion that the growth is yet complete!

• Corn markets received early support from wheat, talk of reduced acres next year and a possibility of some harvest delays by the end of this week. Despite active soybean/corn spread selling, which is supportive to corn, the overwhelming US crop prospects remain the dominant longer term driver of this market in our opinion. 2015 corn production costs look to be above market prices, and this bodes badly for corn acres which are likely to switch into a mix of soybeans and wheat depending upon geography. The lower corn yielding states are most likely to follow this pattern

• Soybeans found early support to start the week from a variety of factors including the oversold market conditions, frost conditions in N Dakota, dryness in N Brazil and a slowing of harvest in the central and eastern corn belt due to heavy rainfall. Despite these issues, private forecasts continue to support an average US yield of 48 bu/acre plus, which is keeping big carryout numbers in the forefront of the market’s mind. 2015/16 looks as if US soybean acres could grow, which when added to the potential growth in S America (5% is commonly quoted right now) suggests that long-term price upside looks fragile to say the least.

• Evening update:

• The market has continued to push higher throughout the day with feature short-covering across much of the commodity spectrum as Friday’s USDA crop report looms large in trader’s minds. Funds appear not to be making fresh purchases, rather they are “managing” risk on their net shorts, particularly as market technicals are looking a touch more positive in the recent price upswing, as well as the potential for the USDA to spring a surprise later in the week.

• Whilst recent trade in the form of short covering has not been a surprise (indeed we would have been surprised if it was NOT taking place) we are surprised at the voracity of the market appetite. There is a concern that the USDA may incorporate FSA data reducing both planted and harvested corn and soybean acres, and the market is positioning ahead of that possibility.

• Our longer term view remains that we doubt the season lows have yet been scored in corn, soybeans and wheat just yet. There still appears to be too much supply in the world to fuel a significant price rebound, and we have not yet reached the 50% US harvest mark which will (we believe) further confirm this point. At that time we would expect to see the market begin another leg down in price.

To download the weekly update as a PDF file please click on the link below:

Weekly Update 3 October 2014

Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions

• Today’s uplift in Matif wheat appears to stem from news of the EU’s sale of 400,000 mt of German, Lithuanian, Polish wheat to Iran providing some €4 uplift on the day and €6 in two trading days! However, according to one source the reported sale is as erroneous as yesterday’s “Russia exits the wheat export market” story that we mentioned. That said, the market has reacted in a positive way and it remains to be seen whether or not it gives back the gains in the fullness of time as and when the truth is out.

• Brussels gave a further big week of wheat exports with 488,342 mt bringing the season to 7.228 million mt, which is almost to the tonne where we were a year ago. Corn import licences for the week reached 96,000 mt, and on an October to September basis (which is the relevant cropping year) is marginally ahead of last years pace.

• US weekly export data was released as follows:

Wheat; 741,100 mt which is above estimates of 400,000-600,000 mt.
Corn; 686,000 mt which is within estimates of 650,000-900,000 mt.
Soybeans; 890,600 mt which is within estimates of 700,000-1,000,000 mt.
Soybean meal; 232,500 mt which is within estimates of 125,000-325,000 mt.
Soybean oil; 24,000 mt which is above estimates of minus 5,000 to 20,000 mt.

• CBOT markets closed higher with wheat picking up on the better than expected export data as well as a slightly weaker US$ and news of Russia’s intervention programme, which (if our data is correct) equates to about $215 FOB, some $20 below current levels, and appears to be the ONLY absolute floor in the market right now.

• Whilst we may have now established a potential low level for wheat, it is likely that corn and soybeans have yet to do so and that will be difficult until such time as the USDA’s November yield data is released.

• Midday comments:

• Markets received little in the way of a lift from yesterday’s USDA stocks report despite some of the the intrinsically bullish (historic) data therein. The market has, instead, focussed on the fundamentally bearish picture looking forward rather than the historically bullish stock position, which is now behind us!

• The one “big picture” warning has to remain in the large fund short positions which have the ability to trigger short covering rallies, which could be volatile and encourage following. However, as things stand right now we would still advocate a strategy of selling any such rally, which has proved correct so far this season.

• Evening update:

• Egypt secured 120,000 mt of wheat for early November ’14 shipment, all from France, in its latest tender today. The price, reported to be $241.20 C&F ($223.70 FOB) was clearly engineered by the eventual seller to be competitive. US wheat was conspicuous by its absence in the list of offers, Ukraine was $7.00 over, Russian $10.00 over, German $11.00 over and Romanian $14.00 over (all figures approximate and rounded). One Reuters news article suggesting that Russia has exited the export market should be ignored as this is highly unlikely to be factually correct, and potentially misleading.Their suggestion that 10 million mt is half the exportable surplus is wrong, the exportable surplus is more like 25 or 26 million mt; domestic grain demand has not risen 4 million mt since the embargo on food imports (livestock numbers just don’t grow that fast!) and intervention is not an issue as prices are far too low right now. Russia has to deal with good, old fashioned, competition in a market with big stocks right now and, with some 15 million mt left to export, we would expect to see them competing in the not too distant future.

• Ukraine corn markets have need of some explanation insofar as official, AgMin,  data last week reduced their crop by 3 million mt, only to see 4.4 million mt added back today! Have their officials just opened a futures trading account? This has put the crop back to 30 million mt, maybe 27 million mt is a realistic number right now, but “official” data now comes with a health warning!

• CBOT markets have traded either side of unchanged through the day with wheat, corn and soybeans closing just in positive territory. The trigger for the slight gains being cited as a correction in the technically oversold position. Next week sees the important USDA crop report, which will carry far more weight than yesterday’s stocks report and market participants will not wish to carry large risk into the report despite our longer term view, which remains unchanged! We steadfastly believe it is too early in the season to see a lasting price bottom being scored.