• US new crop soybean export sales are well below prior years and argue for WASDE to trim their 2015/16 soybean export estimate by as much as 150 million bu.
• China has secured large volumes of S American soybeans for September into early November.
• The US will not enjoy the huge export pace like last year during the harvest.
• This means that the US window to export soybeans is narrow and that the US may not see 2015/16 exports exceed 1,600 million bu

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• Unlike the past few years, US Central IL soybean cash basis bids have not exploded to the upside on the more abundant old crop supplies. Midwest cash soybean bids have firmed modestly since May, but there is no squeeze for supply, and as the harvest will start across the Gulf States in August, the pipeline for US soybeans is adequate. We expect that cash soybean basis will weaken during August and early September on slowing crush/export demand and the arrival of the Midwest harvest.

• Our outlook for US soybean yield based upon weather predictions for the next three weeks, bearing in mind that soybeans are “a crop of August”, is for trend or better, and we are optimistic that 46 bushels/acre could well be the bottom end of expectations. However, the bulls want to take US acres down, they won’t accept that trend yield remains possible, and they want to run with the USDA’s demand base, despite the current pitiful pace of export sales and the lack of last year’s need to refill the pipeline (end stocks of 255 million bu against 92 million bu). And whilst it’s still a long way off, there is already talk of a 100 million mt crop in Brazil next year, and 60 plus million mt in Argentina given the move away from wheat and corn crops – none of which is bullish US for exports. So whilst the market still needs to pin down the supply side, the focus will switch to demand in a few weeks.

• In corn, the US yield debate goes on but it appears clear that the crop’s potential is improving, and today’s export sales look as if they confirm that at current prices, the USDA is way too high on its export number.

• Black Sea wheat is getting back towards the early summer lows but the Ruble has lost 8% in the meantime, which has more than protected the interior price, and there is still little sign of the declines bringing out any real consumptive interest. US funds are getting close to square and the charts are starting to look oversold, but US fundamentals remain poor and the market will watch for funds shifting to a net short position.

• The USDA has today released its weekly export figures as detailed below:

Wheat: 502,800 mt, which is above estimates of 200,000-400,000 mt.
Corn: 534,800 mt, which is below estimates of 555,000-950,000 mt.
Soybeans: 322,600 mt, which is within estimates of 300,000-700,000 mt.
Soybean Meal: 33,700 mt, which is below estimates of 75,000-250,000 mt.
Soybean Oil: 18,100 mt, which is above estimates of zero-15,000 mt.

• Brussels has issued weekly wheat export certificates amounting to  431,148 mt, which brings the season total to 1,315,696 mt. The season to date total is 745,454 mt ahead of last year.

• The Chicago soybean complex has led the market lower since midday whilst the grains have proved somewhat more resilient displaying unchanged to slightly lower prices with just over an hour to go. The morning break was all about demand, not weather as some have suggested. Taiwan and S Korea have both booked corn from Brazil at prices well below US Gulf, and US new crop soybean sales continue to run at around 50% of last year’s pace, which currently suggests a run rate some 200 million bu below the USDA’s latest WASDE numbers. First half July Russian wheat exports are at their lowest level in ten years (blame export tax issues) and with a reported two Argentine soybean meal cargoes en route to Europe, without a home, and we can begin to understand why the demand side of the S&D equation has many worrying. Our understanding is that US soybean meal exporters discounted prices (heavily) in a tender to the Philippines – and missed it! Little wonder US prices are in retreat, with more to go if export volumes are to pick up.

• Finally, the midday Central US weather forecast calls for showers and storms across the N Plains and the NW and N Midwest which would be ideal. Some areas of IA and SW MN are in need of rain. A few light showers will bleed into S IL and IN to keep soil moisture adequate. Any heat will be centred on the S Plains and the SW Midwest with highs in the lower 90’s. Generally favourable weather is offered across the Midwest for the next few weeks.

• The graphic below displays cumulative Brazilian soybean export commitments in 2015, as through last Thursday. Brazil’s “local” marketing year begins Feb 1st but vessels start to show up in the lineup in early January. Not surprisingly, commitments this year are well ahead of last year amid a record harvest, but also notice that the pace of new commitments has not slowed. Typically, Brazilian sales plateau in mid/late July, at which point the US takes over. This year, there’s no indication of a slowdown. Brazilian soybean export commitments to date stand at 45.8 million mt, up 10.5% from last year, which compares to the USDA’s projected 5% annual increase in Brazilian exports. In addition to record S American harvests, the willingness of S American farmers to sell is weighing on new crop US demand.

• The US$ has resumed an uptrend, testing multi-week highs, while currencies elsewhere are weaker. Some works suggests that currencies do affect exports to some extent, but have a greater correlation with planted acreage and production. With global commodities priced in US$, weak currencies offer greater revenue and greater incentive to expand seedings. The graphic below displays the percent change in a host of currencies since July of 2014, and all are weaker – some sharply weaker. The value of the Russian ruble has fallen nearly 40% in the last 12 months, the Brazilian real is down 30%, and even the €uro has lost some 20% since last July. Currency will likely remain an issue in the 2015/16 crop year, and major exporting countries will benefit from advantageous fob offers in the world market and greater revenue.

• US grain seedings have drifted steadily lower amid declining net farm income, but our point is this loss of revenue is not uniform across the globe. The strength of the US$ works against the US farmer, but non-US acreage could be steady or expand further in the coming years. Notice in the graphic below, which charts December Chicago corn and wheat over the last 12 years in various currencies, that corn in US$ is unchanged on the year and Chicago wheat is down 14%. However, December Chicago corn price in Argentine pesos is up 13% and corn in Brazilian reais is up 44%. This is comparable to the US farmer facing prices of $5.80. December Chicago wheat priced in Russian rubles is up 40% from last year, which is comparable to $8.80 in the US. A Russian wheat sale to Egypt at $195/mt is revenue of 11,400 rubles; the same sale a year would be revenue of just 7,000 rubles. There’s incentive enough to keep producing and selling outside of the US.

• The soybean analysis is similar, with weakening currencies in Brazil and Argentina – and even Canada – offsetting losses in Chicago. November soybeans priced in US$ is down 8% from a year ago. November soybeans priced in Brazilian reais, however, is just over 30% higher than last year, while November soybeans in Argentina and Canada are up 3-11%. In Brazil, prices are testing the highs of 2014 at 3,250 reais/bu, with planting in S America to begin in mid-September. While US yield is debated, and is no doubt important, it is critical to stay abreast of global production trends and world trade. Our concern is that the US will be further marginalised in the world market amid currency issues, and it is premature to project any widespread decline in global seeded area.

• This morning, US exporters reported the sale of 110,000mt of new-crop soybeans to an “unknown” destination (rumoured to be China). However, cumulative new-crop sales to China are down sharply from recent years. This is because US FOB prices are some $.30-.75/bu above Argentine offers for delivery into autumn. In fact, the USDA’s current projection of Argentine exports for old crop (2014/15) already looks too low. We estimate that cumulative shipments by the end of July will be 8.2 million mt, above the USDA’s projection of 8 million mt. The lineup of ships at Argentine ports suggests that the country could easily export another 1-2 million mt in the August-September period (September marks the end of the USDA’s international soybean marketing year). S American exports are cutting into US new crop demand.

• Yesterday saw Egypt’s GASC secure a further 175,000 mt of wheat for early September shipment, all from Russia in a tender that saw some huge volume offers. Seemingly there was 600,000 mt of Russian wheat on offer, 250,000 mt of which was sub-$193 FOB basis standard 12.5% protein specification, well below replacement. Our take on this is that despite harvest delays and tax issues there is insufficient demand to stimulate a traditional marketplace. French offers were more expensive on an FOB basis that the majority of the C&F Black Sea offers. As an aside, but potentially very relevant, there are concerns in France that whilst yields remain generally very good (potentially same as last year) the protein levels are reducing as the harvest moves north which will leave exporters struggling for export quality volumes.

• Today has seen Black Sea traders licking their wounds after the Egyptian tender; Black Sea wheat FOB prices at just above recent lows suggests (as we have reported) that it is more a demand led than a supply driven marketplace right now as end users fail to queue up to make purchases on the current price break. Russian wheat yields continue to look reasonable but, as with France, there are quality issues being raised as we speak. We would not be at all surprised to see new lows in Black Sea prices before too long – watch tis space!

• The current crop tour in Canada is reporting poor spring wheat yields in SE Alberta and close to record high yields in S Manitoba. Agritel reports the German wheat crop at 24.9 million mt, some 10% down year on year but above the five year average and the Romanian wheat crop at 6.99 million mt down around 6% year on year but above the five year average.

• For the first time since April, crude oil has quietly drifted just below the $50/barrel support level. In addition, broader commodity indexes are retesting multi-week lows. The drop in energy prices is curtailing the incentive to produce biofuels above government mandates, and the graphic below illustrates the recent decline in ethanol production margins – as well as weakening margins in deferred positions. With US corn yield threats in retreat, the goal of market is to maintain near record consumption.

• NASS reported 56% of the soybean crop as blooming with 17% setting pods. National crop ratings for the week stabilised with good/excellent unchanged at 62%. Our index of all ratings was shows the US crop holding above the long term average. Our initial downside target for November rests at $9.50, to be reached later this summer with favourable weather. Longer term our view is that a sharp decline in US export demand through harvest will result in US soybean end stocks in excess of 400 million bu, which could push soybean futures to $9 or below through harvest.

• Corn crop conditions as of Sunday were unchanged from the previous week at 69% good/excellent, which matches the trade’s expectations. Changes of note include 3-5% improvements in KS, ND and OH, and 1-2% downgrades in IL, IN and MO. The yield model, too, is unchanged – yield in NASS’s August report is projected at 165-166 bushels/acre, and the model’s accuracy increase with each passing week. The odds of a sub-160 yield are retreating fast. The crop is 55% silking, vs. the 5-year average at 56%. And our longer term focus remains 2015 export potential. Argentine corn is now offered at just $.20/bu over Dec futures for delivery in October, while US Gulf basis is steadfast at $.70 over. Black Sea feed wheat is also cheaper than US corn. Ethanol margins are negative beyond late summer. A test of $3.95-4.00, basis December, is projected if late July is void of widespread Midwestern heat.

• Egypt’s GASC is seeking wheat supplies for early September arrival, which no doubt will be met with a high volume of Russian and Eastern European origin. US spring wheat conditions as of Sunday were pegged at 70% good/excellent, down 1% from the previous week and unchanged on the year. The decline is largely a function of further deterioration across the PNW, where the crop in WA is rated as just 21% good/excellent. Dakota ratings are unchanged. Note also that the spring crop is 96% headed, vs. 82% a year ago, and harvest progress will be reported in next week’s release. With El Niño so far not having any negative effect on Aussie weather, competition for world export demand will be that much more extreme in 2015/16. We maintain that US fob prices must better compete with other world origins to reach annual export shipments of 900 plus million bu. Russian wheat is offered at a level comparable to $4.90, Sep Chicago. We are accordingly sellers of rallies.

• CBOT markets are all lower at the time of writing and European wheat markets also closed in the red.

• Technicals have driven today’s markets in Chicago; soybeans saw a price reversal on 14 July and short-term weather is leaning bearish right now. The recent upward price trend channel was violated on Friday and adds to bearish tone. In corn the weather is bearish, US exports are very slow and the US$ is pressuring prices. The recent addition to long positions by speculators and the fundamental chart damage is putting these guys on the wrong side of the market from the off this week. How long will they “hang in” in the hope that it goes their way? Our guess right now is “not very long”. However, it is extremely unlikely that we will see a full corn crop recovery even if the weather plays ball from now on but look for more downside to come even if we do not see fresh lows. Wheat’s short term downtrend looks set to continue regardless of other grains and outside forces, but with added negatives from elsewhere the downtrend looks steeper than it possibly would otherwise.

• Prices have fallen as long position liquidation and fresh short position taking has been in evidence from the funds. Today’s early soybean decline was countered midday as weekly export inspections were better than expected, but the grains have continued lower with wheat leading the way. Whatever weather premium has been injected into markets over the last few weeks is being extracted right now as conditions and forecasts improve. Globally, the only are of concern remains dryness in W Europe as production threats continue to erode across the E Midwest, Canada, Australia and China.

• Reports from Russia suggest that wheat exporters and customs officials are working on a resolution to the export tax debacle which is making forward export pricing difficult to say the least. Russian wheat exports are currently operating largely on a spot basis with exporters reluctant to secure forward business with such uncertainties and potential losses so close to home.

• Tonight’s crop progress report, released after the close, will likely dictate tomorrow’s price direction and any “turnaround Tuesday” effect. Whether any improved yield potential in the West will offset losses in the East remains to be seen. It remains our belief that we have seen seasonal highs made last week with improved and improving US weather, active S American farmer selling and an ongoing lack of US export competitiveness. Argentina remains the world’s lowest cost seller of corn and soybeans into early autumn.

• One final point, French wheat condition has stabilised with soft wheat rated 75% good/excellent, unchanged week on week and corn dropped 4% to 67% good/excellent. Their grains harvest is now well advanced and it looks as if France will lose out on last week’s Algerian tender on account of Baltic origin. Remember last year Algeria was forced to switch away from French and they now have a taste of better wheat! EU wheat price-wise shows France to be $15 above Russian and German is a further $10 higher – hardly encouraging from an export perspective! The supply position is one small part of the trading equation, demand profiles have been described as “awful” and there is a feeling right now that the EU will follow the US in struggling to sell wheat particularly as Asian feed demand is no longer there. Black Sea prices continue to ease and any favourable Russian tax resolution could well see an acceleration of this direction.

We talk frequently about the funds and their influence on markets and market pricing, probably more so in the last five or six weeks where we have seen some huge moves in positions and pricing where there has been a rush out of short positions and into new net long positions in the US Ag futures markets. The biggest change has been in corn, soybean and wheat positions in the past 3 weeks. And note in the chart below, the combined activities of funds has been much more volatile and in concert with each other since 2013. If combined net long ag positions exceeded a net 400,000 contracts, it would signify that traders start watching for a net short position in the grain and soy markets. It seems that funds are now either long or short – instead of being out on the sidelines!

Weekly CCI Analysis:

The CCI/CRB index closed lower as the value of the US$ rallied to new multi-month highs. Capital continues to flow into the US which helped push the US stock market to a new historic high. US housing starts were up 10% on July and the US Central Bank is likely to start normalising its interest rates in September. The US economy continues to gain speed while the EU and China are slowing. Chinese economic data remains soft, and our worry is that a deeper economic correction lies in the offing. New Chinese loan demand is not expanding and an over-leveraged economy is likely to correct further. Technically, the CCI/CRB is breaking out to the downside and without a reversal in the week ahead, a test of the March lows is expected. Our view remains bearish with crude oil to test the mid 40’s during the 3rd quarter. A multi-year rally in the value of the US dollar lies ahead with a test of the 2004 highs likely by 2017.

Longer-term soybean analysis:

Soybean futures closed the week lower on improved Central US weather and news that soybean meal was going to be imported into the SE US from Argentina. A seasonal top was likely scored in CBOT soybean futures last Monday evening – unless extreme heat or flooding rains return. US soybean crop conditions are expected to hold steady or improve on Monday. Unlike corn, soybeans are able to produce/utilise their own nitrogen and branch to fill in the barren spots to boost yield potential. Soybeans are a crop of August, and according to some long range forecasts, favourable Midwest weather is expected. Research forecasts a 45.5 bushels/acre US soybean yield and US 2015/16 US soybean end stocks above 400 million bu. What is becoming the biggest problem for the US is that Brazil and Argentina are stealing Sept/Oct and even November soybean export demand to China. Research argues that 2015/16 US soybean exports will be 125-200 million bu lower than the WASDE July forecast. This means that a supply bull market will ultimately become a demand bear once US soybean yield/acreage losses are identified. CBOT soybean and meal rallies look like a sale.

Longer-term corn analysis:

It’s been a week since the July WASDE was released, and Dec corn has found a peak just above $4.50. Corn ended the week 14 cents lower as Central US weather improves; rain has fallen where it’s needed in the Western Corn Belt, while a lasting period of warm dry weather is offered to the East. US corn export demand is lacklustre. It seems reasonable to suggest that without additional flooding precipitation or excessive heat, a seasonal top has been scored. South American fob premiums have fallen to $.25-.43/bu, vs. Gulf premiums of $.60- .70, and ethanol margins beyond Aug/Sep are weak. Yield models maintain a range of 164-167 bushels/acre, which if realised will produce harvest lows of $3.60-3.80. Producers should catch up on 2015 sales on any further test of $4.35-4.40 basis December. There are production issues in Europe, but this extra demand will be awarded to S America. A dramatic improvement in US export demand is required to maintain $4.00+ corn beyond the next few weeks. Corn yields in IA, MN, SD, WI and NE are expected to be record large.

Longer-term wheat analysis:

CBOT wheat ended the week lower, closing at three-week lows. Following NASS’s Stocks & Seeding report, corn has offered support to US wheat but, world wheat cash prices have fallen and the US market is too expensive. Tender results from Egypt and Algeria last week indicate that the going price for EU/Black Sea origin rests at $198-204/mt, which is comparable to $4.90-5.10, basis Sep Chicago. There’s little hope for improved US export demand in the months ahead. Recent heat has not affected European production, normal/above normal rainfall continues across E Australian crop areas, and threats to the global 2015/16 crop are in decline. Even Canadian weather is more favourable into the end of July. To compete for non-traditional business, US futures are required to trade in a range of $4.90-5.40 and there’s been no sign that Black Sea prices will endure any lasting rally with a Russian wheat crop of 57-60 million mt. We are bearish above $5.60 basis September Chicago.

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

Weekly Update 17 July 2015

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

Fund positions

• The USDA has today released its weekly export figures as detailed below:

Wheat: 291,500 mt, which is below estimates of 300,000-500,000 mt.
Corn: 656,200 mt, which is within estimates of 475,000-825,000 mt.
Soybeans: 552,500 mt, which is above estimates of 150,000-550,000 mt.
Soybean Meal: 72,200 mt, which is below estimates of 125,000-300,000 mt.
Soybean Oil: 3,600 mt, which is within estimates of zero-15,000 mt.

• US old crop corn exports were a marketing year low at only 13 million bu (330,000 mt) while old crop wheat sales were just 10.7 million bu (291,000 mt) and old crop soybeans were 1.7 million bu (46,000 mt). New crop sales were little better with corn at 12.8 million bu (325,000 mt), and soybeans at 18.6 million bu (506,000 mt). All told, total sales were around half the volume they should be at this time of year demonstrating the point we repeat ad nauseam, I.e. The US is struggling as prices rally while other key exporters are far cheaper on an FOB basis.

• Brussels has issued weekly wheat export certificates amounting to  494,856 mt, which brings the season total to 974,548 mt. The season to date total is 579,514 mt ahead of last year.

• US and world weather has improved in the past week with needed drying over much of the waterlogged E Midwest while the rain chances shift NW to include the N Plains, W and N Midwest. The rain here is desired. Also, the key corn and soy areas of the N Plains of China have received needed moisture – as have most of the Canadian Prairies and Eastern Europe. Even E Australia has enjoyed an abundance of rain for their new wheat crop. This leaves only France/Spain as being in dire need of rainfall. The good news here is that the major forecast models now offer 2 chances of moisture in the next 8 days. It will be welcomed; US and world weather is improving.

• Algeria is reported to have purchased between 300,000-400,000 mt of wheat at a price of $222-224 C&F for Oct shipment, which looks to be $7-9  below replacement basis yesterday’s levels. Currently French wheat calculates into Mexico, below US – yes that is correct! Russian is cheaper than French, and their feed grade wheat is cheaper still making it a competitor to corn. In terms of more unusual markets or market anomalies, it is strongly rumoured that Dreyfus are to ship two cargoes of Argentine soybean meal into the SE US (alongside some grain) with arrivals anticipated in late Aug/early Sep and October. This news was probably the trigger for the soybean market to drop into negative territory towards the close tonight – another argument for overpriced US markets (sorry to labour the point!).

• Matif corn markets lifted higher on growing crop concerns as heat records were broken across France. Aside from some isolated thunderstorms there is little in the way of precipitation forecast for the stressed French crop. Focus on the EU corn crop at 62 million mt, and falling, together with imports at 15 million mt, and rising, places strong focus on Ukraine’s S&D. There is a strong argument for corn consumers in Europe to consider taking cover right now!

• Today has seen a mostly weaker Chicago led by soybeans as light soybean/corn spreads were unwound on profit taking. Chinese stock market weakness added to the weaker tone. Also the fundamentally overpriced US soybean and meal markets when compared with S America appears to be being noticed right now. Technical support in Sep CBOT wheat has also given way leading to weakness.

• As the US$ rallied energies (crude oil, gasoline and ethanol) weakened pressuring ag markets. Weekly US ethanol production was 289 million gallons, 1 million lower than the previous week, and roughly in line with the pace needed to meet the USDA’s projected forecast.

• The US weather forecast, which is so influential right now, is little changed with helpful rain across the W and N Corn Belt with warm/dry conditions in the East. There is no excessive heat indicated outside the S and E Plains.

• Anticipated export sales are at levels unlikely to inspire confidence of a return to US competitiveness and as such new crop corn and soybean export commitments look as if they will remain well behind last year’s levels.

• US corn and soybean markets will require a steady flow of bullish news (where from we know not) in order to maintain the recent rally. Yield data will be unknown until August/September and coming weather looks favourable, and the US’s poor position as far as export competitiveness in global markets will likely cap rallies. In the absence of lasting heat/dryness in August, or a rapid shift to further flooding in the E Midwest, it certainly feels as we have made intermediate highs in the early part of this week.

• Yesterday (in the absence of an update due to travel commitments) saw Egypt secure a further 235,000 mt of wheat, 120,000 mt from Romania and 115,000 mt from Russia pretty much as expected. The volume of offers from Russia and Romania reached over 800,000 mt, all offered cheaper C&F than the single French FOB cargo (most of the French were away celebrating Bastille Day). Of note is that the Russian/Romanian prices were some$15-30/mt below comparable US Gulf levels further highlighting the non-competitive position of the US right now.

• The Iran nuclear deal looks as if it will open the path to weaker crude oil/biofuel prices as well as the return of Iran to the wheat market (despite their $50/mt import duty which may be something of an obstacle). Something to watch in coming weeks and months.