• NASS reported a further decline in soybean crop ratings, with national good/excellent slipping 1% to 62% as declines in the east continued to offset gains in the west. Excluding the 2012 drought, IN crop ratings are now the lowest since 1996 (for mid-July) while MN ratings are the 2nd best on record. It’s a case of the good and ugly for Midwest soybean conditions. 38% of the crop was blooming and 6% was setting pods, both of which are right near the 5 year average. The weather forecast at the start of the week calls for near to above average temps with near to below normal rain for the wettest parts of the Midwest. Our view is that the season’s low in crop condition ratings is at hand. US ratings will likely improve into August. We hold to a US soybean yield of 45.5 bushels/acre and that a seasonal high is being scored at the CBOT amid bearish seasonal trends.

• US weekly corn crop conditions were steady at 69% good/excellent. Changes of note included good/excellent downgrades of 4-5% in IL, OH and PA which was offset by 1-2% improvements across MN, MO, NE and the Dakotas. The ratings point to WASDE being right on keeping yields at trend at 166.8 bushels/acre. In 1993, another wet year, US corn good/excellent ratings fell to just 49% good/excellent, 20% lower than the current crop. The 2015 US corn crop is 27% silking, vs. 31% a year ago and 34% on average. We view this evening’s crop update as bearish relative to $4.50 Dec, with the 2-week forecast projecting welcomed warm/drier weather across the E Corn Belt. And while the speculative market debates yield/production, prices are viewed as expensive against S American & Black Sea origin supplies as well as deferred ethanol margins.  A US yield at or above 164 suggests a range of $3.60- 3.90. Current corn futures are very rich relative to known fundamentals.

• US spring wheat crop conditions improved 1% to 71% good/excellent amid uniform boosts across the Dakotas, MN and ID. This compares to 70% good/excellent a year ago and a 10-year average of 68%. The crop is 91% headed, vs. 66% a year ago. Winter wheat is 65% harvested. Our sources maintain a Russian harvest estimate of 57-59 million mt and so total Black Sea production may rise another 1-2 million mt in subsequent WASDE releases. We expect a test of $5.30, Chicago, once a top is posted in corn, and wheat is overvalued via any statistical measure above $5.50. The world market is facing record large stocks. There is no demand story in wheat and futures are overvalued relative to stock/use analysis.

• Today’s early decline in prices in Chicago failed to hold with the funds once again moving in to buy, which saw prices move into positive territory, although not convincingly higher. Discussion on yield and weather has moved up a gear following Friday’s USDA report and is the current “hot topic”.

• The bulls are arguing that US 2015 corn yield will be below 160 bushels/acre, and the bears are calling for trend or better. In fact, the USDA type corn yield model based on Central US rainfall and precipitation that has occurred and what is forecast for the next 2 weeks argues for a US corn yield of 172-173 bushels/acre – a record! To counter this, growers are citing record rains that have caused significant losses and a below 160 bushels/acre yield. Some areas have seen soybean and corn crops washed away by rain, but this is only in localised areas. It appears that you pay your money and take your choice. In corn, will the yield be above 170 or below 160? That is the question!

• Today’s crop condition report may help to strengthen one or other side of the debate, and we will report the figures tomorrow, but for now it appears the trade is looking for a 1-2% decline in good/excellent rating in both soybeans and corn. This is probably one of the reasons for the funds to be adding length to their positions.

• It should be noted that both crops have historically suffered more in hot and dry conditions rather than in wet conditions and the likelihood of wet conditions lasting through the remainder of July and August is remote. It should be borne in mind that the wet conditions will likely leave corn and soybean crops with shallow root systems as they have not had to “search deep” for moisture! A change to hot and dry conditions could leave such shallow rooted crops vulnerable to stress, but it is far too early to be considering such matters just yet.

• In Paris the Matif wheat market fell to 2-week lows as harvest moved ahead without interruption and demand patters remained thin to say the least. Both Russian and Ukraine harvests are reported to be slower than last year but both are reporting higher overall yields. However, the Russian export tax position continues to be a lottery and a meeting between the government and customs officials may (but we are sceptical) bring a resolution.

• The potential Greek deal (potential as it needs ratification by the Greek government) brought little relief to the strained €uro and Greece has yet to find interim financing – no easy task. It should be noted that the Greek Finance Ministry has effectively surrendered all control to the Troika as Tsipras caved in on just about everything!

Weekly CCI Analysis:

The CCI/CRB index closed lower with crude oil pushing closer to $50/barrel amid the anxiety over China and Greece’s economic outlooks. Greece is seeking a package of $50 billion to stay in the €uro while China is struggling to maintain its pace of 7% GDP rate growth as it becomes more of a domestic led economy. Although China’s stock market was able to recovery 8-9% by the end of the week, the damage to consumer confidence was already accomplished with 1000’s of stock issues closed and a loss of $3 trillion noted. We have previously pointed out the serious issues that China has with excessive debt and a rapidly ageing population. Although China will be likely be able to orchestrate a stock market recovery, the outlook for China’s future economic expansion is dimming. This means that the bullish super cycle for world commodities will have to find another long-term demand driver into 2020.

Longer-term soybean analysis:

Soybean futures traded a broad range through the week and finished little changed. Selling and profit taking developed in the first half of the week, while fund buying and short covering returned into and after the July WASDE report. The report offered little insight, but expectedly confirmed a tighter old crop balance sheet. The USDA lowered old crop stocks to 255 million bu on increased crush, exports, and residual use. New crop US soybean production increased due to larger acreage and no change in yield, while stocks declined due to lower carry in. The big question for the market going forward is weather and yield. Warmer/sunny/drier weather conditions are needed in the E Midwest for crop condition ratings to improve. We believe in a minimum US 2015 soybean yield estimate of 45.5 bushels/acre – 0.5 bushels/acre under the NASS July forecast. Longer term, it’s the lack of US soybean export demand that will pressure prices as China is active in securing Latin American soybeans that could drop US soybean exports by 100-200 million bu and raise 15/16 US soybean stocks above 500 million bu.

Longer-term corn analysis:

Corn futures settled 6-7 cents higher and advanced to new rally highs. Greater than expected rain fell across portions of IL/IN this week, and the trade’s estimates on yield are wide ranging. Funds are placed firmly on the long side of the market. Whether these new bets are ill placed will hinge upon July/August weather – which we note is improving. The models in recent days have trended drier/warmer across the C and E Midwest. If this outlook is realised, we maintain that national yield will exist in a range of 164-168 bushels/acre, which in turn suggests an average fall price of $3.40-3.70, basis Dec. Even the USDA’s crop balance sheet in July suggests the market is overvalued by 30-40 cents. The focus of the market will shift to lacklustre export interest beyond the next 5 weeks. US exports are needed to sustain any lasting bull run, and this will be difficult amid steep discounts in South America. Brazil sold 2 cargoes of their corn into the US this week. A more dire weather pattern in July is needed to validate $4.50 Dec.

Longer-term wheat analysis:

The wheat market lost 14-20 cents as the interest of funds in new long positions waned. Black Sea cash prices are only inching higher, rather than following sharp gains in the US, and prices now are only discouraging demand growth. The USDA’s July WASDE added more fundamentally bearish input by raising Black Sea production (and exports), and projecting total world end stocks in 2015 at a record large 220 million mt. This is largely due to lower Chinese demand, but is also indicative of weak global consumption. Russian fob prices remain the world’s benchmark and offers for Aug/Sep rest at $200-205/mt, which is comparable to $4.90- 5.00 spot Chicago. EU wheat is offered at an equivalent to $5.15. We view Chicago wheat as overvalued by some 30-50 cents. Funds are expected to liquidate their newly established net long position as the US export opportunity languishes. A return to $5.00 is forecast.

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

Fund positions

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

Weekly Update 10 July 2015

To download our recap of today’s USDA report please click on the link below:

USDA Recap 10 July 2015

• CBOT markets have managed to regain some of Tuesday’s losses as fund buyers emerged once again to defend their longs. Wetter weather in the E Midwest is once again being discussed with ½-2” likely in the next 24 hours. Additionally, the market is nervous ahead of Friday’s July crop report.

• Informa Economics has reduced its estimate of soybean plantings in the state of Missouri by 1 million acres (from the USDA’s June estimate) due to rain delays. It also cut its estimate of US 2015 soybean output to 3.77 billion bu, reflecting a 41 million bu drop in Missouri’s output based upon the reduction in plantings.

• Wheat yields in C France are reported to be better than expected, which is encouraging.

• Egypt’s GASC purchased 180,000 mt of wheat for August 11-20 shipment, at an average price of $212.26/mt, a shade below their last purchase on 2 July. Russia picked up 120,000 mt and Ukraine the balance in a lineup of offers that also included France ($20 too expensive) and Romania ($1-2 too expensive). Matif prices slumped as much on the reaction to the lack of business secured by the French as well as on yesterday’s French AgMin crop number.

• Tuesday’s trade has shown us some lower levels on the back of further improvement in Midwest weather and a risk-off mentality, both of which have combined to pressure prices, particularly so in early trade. Both China economic and Greek exit concerns have headlined as the CRB Index continues to fall, sharply. The US DOW looks to be set for its lowest close since February as global markets fret over future global economic growth, and Greece’s unpaid debt burden.

• Funds and large speculators are reported to have been huge sellers – seemingly they now appreciate that the recent rally was built upon a record shift of managed money from equity and industrial commodities into the ags. It appears that the funds have not been moved from their longs in grains, whilst in the soy complex it is the soybean oil market that has reflected the funds length disposal. Soybean oil is closely watching, indeed following, crude oil which is itself watching the nuclear negotiations in Iran – that extended overnight.significant

• US soybean crushers and grain consumers are reported to have secured significant volumes of cash supplies during the past few weeks of price rally and have cover extending well into August. They are now looking for improved weather and its impact upon new crop prices before extending their cover further forward.

• Reports from the Black Sea are suggesting that there will likely be an upward revision to the 2015 Russian wheat crop, possibly as high as 59 million mt, on the back of high early reported harvest yields in SW Russia. The early harvest is also reported to be of high quality, but the unknowns over the export tax situation has prevented any significant market move. Exporters are reported to have reduced bids to growers  on both the yield and quality news as well as the export tax uncertainties.

• Matif wheat closed €4 lower helped by losses in Chicago as well as reports of better than expected prospects in C France as well as a French AgMin crop forecast of 37.9 million mt, up 1% on last year. Additionally, one major weather model has taken most of the heat out of the European forecast from Wednesday, but not added rain apart from in Germany.

• The fund positions were updated with data released last night (rather than last Friday on account of the 4th July US holiday). Readers will notice some big changes; we have seen the largest weekly combined soybean, corn and wheat net gain since our data collation began at the start of 2012. The funds added a massive 253,336 contracts (corn 147,053, wheat 56,863 and soybeans 49,420) This still leaves them net short in corn and wheat, 9,214 and 22,413 respectively and we saw the net soybean long position position grow week on week.

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

Fund positions

• We have in recent weeks reflected on what we saw as a massive shift of ownership within the CBOT grain and soy markets. Key moving averages were breached and fund managers piled into a massive amount of long corn positions that drove CBOT values higher into July. The chart below reflects this massive ownership change and whether this net long fund position is justified will be determined by weather and yield estimates in coming weeks.

• Soybean planting progress through Sunday advanced to 96% complete, with this week’s report to be the last national planting progress update. Crop ratings were unchanged with national good/excellent steady at 63%. MO soybean seeding advanced to 73% and by next week we argue that some 80% will be planted leaving 1-1.1 million acres unseeded. We continue to hold to a bearish outlook on large global stocks and declining competitiveness in global markets. S American exports look to deeply cut into traditional US business leaving the US with a potential to hold over 400 million bu of 2015/16 stocks.

• US corn good/excellent ratings were pegged at 69%, vs. 68% a week ago and 75% last year. Highlights include 3% improvements in MN, MO, OH and TN, while IL, IA and KS were down 1%. Such a national rating – as of this week – points toward a yield range of 164- 169 bu/acre. Further improvement is expected next Monday. The US crop is 12% silking.

• US wheat crop ratings are down slightly on the week. Winter wheat conditions are put at 40% good/excellent, vs. 41% a week ago. Ratings across the PNW continue to erode, with ID and WA down 3 and 6 points, respectively. Good/excellent in KS is up 1% at 33%. Good/excellent is OH is pegged at 52%, up 6% on the week. US spring conditions fell 1% to 70% good/excellent – also amid deterioration in ID and WA. Winter wheat is 55% harvested, unchanged from last year. Spring wheat is 76% headed, vs. 44% a year ago.

• Today is a sad day for traditionalists, like us, the closing bell in Chicago will mark the last open outcry market in grain and soy futures, with all trade thereafter being electronic. Option trade will continue as previously but we will see the end of some 167 years of pit based trading come to an end!

• It has been an interesting start to the week, particularly in the light of recent higher prices, as we have seen improved US Midwest weather pressuring CBOT soybeans, corn and wheat (significantly earlier in the day). Some of the losses in wheat were pared back as speculative buying kicked in on the back of EU dryness and question marks over just how much damage may, or may not, have hit the crop which is just about to enter harvest. Do not forget that the recent US and world rally was sparked by “reduced supplies due to adverse weather”. How and when the rally ceases will also be a function of Mother Nature; thereafter it will be demand that will be the driver of price direction.

• Further market concerns remained over the Greek “Tragedy” which continues to play out in the mast bare faced display of brinkmanship (or blind hope) we can recall. The €uro showed less weakness than might have been expected but the issue has been rolling on for so long, maybe, just maybe, the market is already fully reflecting a Grexit.

• Crude oil (August WTI) fell more than $3/barrel on the potential for Iran seeing an easing of sanctions tied to a proposed nuclear deal, and this was its lowest level since April.

• The US weather outlook appears to be improving and this should see an easing or capping of the latest price rally, hopefully confirming our view of last week that a seasonal top is being formed. US export demand is at best sluggish in soybeans, corn and wheat with the limited Chinese soybean interest being filled by S America, and this looks as if it will remain the case well into October unless we see a substantial change in the current price relationship between S & N Americas.

• Closer to home whilst we saw Matif wheat close up 50c it is clear than nearby cash positions are searching for buyers, cash premiums in France, Germany and the Baltic were all falling in thin vessel lineups. The south/Balkans harvest reportedly beat the heat, expectations are rising up to Paris, but north of Paris is much more debatable (the Paris Basin should start harvesting this weekend). European temperatures are forecast to ease this week although they remain above normal but rain looks mostly confined to Germany, the Baltic, parts of central Europe and S Russia where there are reportedly some specific weight problems. Also, Russian exports in general are again a mess: as customs officials are reported to have no clear instructions on what price to use, they are reportedly taking average prices since 1st January from their own data, which is producing export taxes of $10-30 instead of just $1 – helpful to all concerned!

• Paris wheat hit a contract high close (but not quite a contract high) as weather concerns continue to bite and internet pictures circulating of crops on fire amid all time temperature highs across much of Europe (although not Greece!). Wheat is probably the least affected, particularly compared with corn and spring barley and the USDA’s latest 4% production decline may prove to be optimistic. Matif corn took its gains to €33 in under two weeks as the current heat shows little sign of relief and non-irrigated crops are reported to be in a mess and irrigation controls/quotas are being questioned, added to which any precipitation across Ukraine in the next two weeks has been removed and temperatures are forecast to rise. The crucial crop pollination period is about to commence, and the timing could not be worse.

• Egypt purchased a single 60,000 mt cargo of wheat for 1-10 August shipment from Romania at $212.47 C&F, which compares with their last purchase on 12 June that was priced at shade over $200 C&F. Russia, France and Ukraine all offered, but the list of offers was not (unsurprisingly given current weather concerns) huge.

• The IMF have openly stated that Greece needs both debt extensions and a write down, and if they put forward a “No” vote on Sunday all talks are over. Brussels issued weekly wheat export licences totalling 311,539 mt which brings the season total to 33,163,315 mt, this is 3.517 million mt (11.86%) above last year.

• In the US fund buying was reported to be only moderate as cash selling in S America was active and the US farmer was a slower seller. US crushers are reported to have sufficient cover to around mid August and once they add a further couple of weeks there will be much less aggressive buying around with harvest just around the corner.

• Informa Economics estimated the 2015 US soybean crop at 3,808 million bu, corn at 13,412 million bu and all US winter wheat at 1,477 million bu. Compared to the June WASDE/NASS reports, US estimated corn production is down 176 million bu, US soybean production is down 42 million bu and US winter wheat production down 33 million bu. All combined, this amounts to 251 million bu or 1.3% of estimated US production.

• It appears that everything (US wise) is now about Central US weather going forward and the forecast looks to be improving! As Informa advised yesterday, it is too early to rule out trend or above trend yields in corn or soybeans although we would not expect to see this reflected in next week’s WASE report. Strong inward fund flows in recent days are more linked to technical, chart based patterns than fundamentals – we believe – and the dramatic price rise we have witnessed justifies a substantial US and world cropping decline, which we doubt will materialise. Unless we see a dire Central US weather disruption, our belief is that we are witnessing a “price top” formation and buying into such a rise would, at this time, be unwise. Time will prove us right or wrong – and we hope that it is the former rather than the latter!