• This morning, the FSA division of the USDA published their first round of monthly data featuring a snapshot of what registered certified acreage and prevent plant are at so far this season. The data is not considered viable until October when NASS (the statistical division of the USDA in charge of estimating planted acreage) will use the data to support their estimates. Typically, this leads to a change in planted acreage in the October Crop Production report. There are always a few key things to keep in mind while analysing this report: not all acres are certified/registered, there is no indication of farmer reporting pace compared to previous years, there is no indication of FSA database entry rates compared with previous years, and even small things such as staff size at certain offices can have an impact on the numbers, there is not a fixed acreage spread from NASS to FSA, and the month to month change in the FSA data is not consistent.

• Consequently, we have to bear in mind that:
  • The data is neutral to bearish, we will call it neutral because the of the preliminary nature of the data, and the lack of a consistent tracking between FSA and NASS.
  • August acreage numbers are similar to last year. From this data alone, NASS corn acres could be too low. NASS soybean acres are correct.
  • Prevent plant acreage (which does not normally change much from Aug to Final) is elevated from last year at 5.2 million acres. 5.2 million is on the lower side of expectations. Some are estimating 2015 PP at 6.3 million.

• The Pro Farmer Midwest Crop Tour’s initial corn and soybean yield potential,on day one of their annual tour, suggests that yields are showing potential for an above average figure. Today’s data is based upon west-central Ohio, which is trending above average whilst crops further north were showing the effect of excess rains in spring. The final results of the tour will be published on Friday, and whilst interim data is of interest, it is really the final figure we are looking for.

• NOPA (The National Oilseed Processors Association) today released data showing its members crushed a record 145.22 million bu of soybeans during July, about 3-4 million bu above trade expectations. US soybean oil stocks rose to 1,624 million pounds with meal exports pegged at 590,582 mt. The crush data was seen as supportive, but the CBOT rally was short lived as favourable Central US weather continues to raise US soybean yield expectations.

• Black Sea wheat prices continue to decline to new lows as tepid demand and rising Russian wheat crop estimates continue to offer pressure. We have heard that Russian 12.5% wheat is offered as cheap as $181/mt with bids at $177.00. The lack of demand for Russian wheat is pushing traders to become more aggressive with offers as they think ahead to the cold of autumn, which is not that far away!

• Midday US weather forecasts look favourable with a mix of rains and cool temperatures into the end of the month. Chicago markets are heading into the close on a lower note tonight.

To download our weekend summary report please click on the link below:

Weekend summary 16 Aug 15

• The ongoing decline in crude and gasoline is expected to weigh on ethanol production and blending longer term. ARC has no major disagreement with the USDA’s new crop 5,275 Mil Bu corn used for ethanol forecast, but the issue ahead surrounds discretionary blending. New crop ethanol production margins are calculated at just $.15/Gal, and futures-based blend margins are slightly negative. The incentive to produce above government mandates is lacking, and ethanol prices are expected to drop further over time.

• Selling returned to the soy complex on Friday and beans and meal ended lower. Market news at the end of the week was limited, but the November soybean contract registered the largest one-week loss in more than a year. Next week will bring another flood of fresh fundamental data for the market. On Monday, July crush data will be reported by NOPA while the USDA’s FSA office is scheduled to report certified acres as of August. The crush report is expected to show a large July processing total, but at this point in the year will have little (if any) impact on prices. The certified acreage data in recent years has received a lot of attention on release days, but has not proven to be a reliable indicator of any changes in acres. Additionally, a number of private crop tours will be underway, most notably the Pro Farmer Crop tour, with yield estimates to be released at the end of the week. The USDA yields this week was one of the largest surprises on record, so the trade will look to the Pro Farmer estimates for confirmation. Our view is that rallies will continue to struggle under excess US and global supplies. Initial price resistance is expected above $9.30 basis November ’15 futures and our initial downside target rests at $8.50-8.60 by harvest. Any short covering rallies should be viewed as selling opportunities at this time.

• Corn futures settled unchanged on Friday, and ended the week down 8 cents. Corn-soybean spreading was noted amid heavier rain forecast for the vast majority of the Central US. This will affect soybean yield more, but this too will be favourable for late developing corn. Additional long liquidation is possible next week if the current US forecast materialises – latest forecasts project rainfall of .50-3.00” across the whole of the Corn Belt next from mid to late next week. Near normal temperatures are scheduled for the last half of August. Crop condition reports on Monday are expected to be steady to down 1% following this week’s dryness across the C and E Corn Belt, as conditions historically decline in late summer. A counter-seasonal boost is possible if next week’s forecast rain actually falls. Pro Farmer’s crop tour kicks off Monday and conditions in the Eastern Corn Belt, specifically, will be widely followed. With NASS’s August crop report now digested, the goal of the market is to boost domestic and export consumption in an era of weak Chinese growth, eroding ethanol production and blend margins and steep competition from other major exporters. Supply driven rallies (based on FSA acreage data or upcoming Crop reports) will provide selling opportunities. Severely adverse S American weather this winter is needed for lasting bull run.

• US futures ended steady to 5 cents higher on Friday and settled down 5-8 cents on the week. There’s little fresh news available, but the session was marked by funds buying grains and selling soybeans amid ongoing improvement in next week’s Central US weather forecast. We continue to believe that rallies in the weeks ahead will be short-lived – Gulf SRW basis rallied sharply this week, which along with support in the futures market has further widened the US’s premium to other origins. Russian domestic prices in US$ terms, as evidenced in the graphic below, have fallen to seasonal lows and range from $3.75-4.20/bu. Australian weather will increase in importance beginning in late August, and following recent rainfall a drier than normal trend is offered to Southern and Eastern production areas in the next ten days. But there’s been no end to declining Black Sea cash markets of late, and some are now pegging the Aussie crop at 24 million mt, unchanged from ABARES’ first estimate in spring. New fund long positions hinge upon an Australian drought in September. Fundamental resistance is pegged at $5.20 basis December ’15 Chicago futures.

Further thoughts on this week’s USDA report are available as a pdf file, the main conclusion is, “Broadly, it’s yield potential that will drive price action moving forward, not acreage.” To download please click on the link below:

Aug 15 USDA contemplation

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

Weekly Update 14 August 2015

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

Fund positions

• Hot on the heels of yesterday’s price rout in Chicago we saw Egypt’s GASC slip in a crafty wheat tender for 21-30 September shipment! Of note was the 13% maximum moisture limit that would, once again, potentially present issues for EU (read French) exporters. They picked up 175,000 mt at an average price of $194.74/mt (basis C&F) with 115,000 mt from Ukraine and 60,000 mt from Russia. The price paid was some $4/mt below that paid earlier in the month when they broke the $200 barrier for the first time in ages, in a tender that attracted more than 1.4 million mt of offers. Today’s business, once again, reflects the desire of traders to secure sales as the FOB levels reflect a discount of between $5-10/mt below quoted replacement levels.

• Today has seen a degree of consolidation in the market following yesterday’s plunge in prices, which followed the release of the latest USDA figures. Short-term direction will be driven largely by the volume of rainfall across Central US growing regions.

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

Wheat: 422,200 mt, which is within estimates of 400,000-600,000 mt.
Corn: 531.100 mt, which is within estimates of 350,000-750,000 mt.
Soybeans: 756,800 mt, which is within estimates of 300,000-1,000,000 mt.
Soybean Meal: 334,100 mt, which is above estimates of 25,000-175,000 mt.
Soybean Oil: minus 800 mt, which is below estimates of 5,000-20,000 mt.

• The figures could hardly be described as exciting, wheat figures reached around half of the prior week’s level, new crop corn at 20 million bu was the best of the season to date and new crop soybeans at 26 million bu were down 14 million bu from a week ago and compare with 43 million bu at the same time last year. This may be considered a depressing set of figures from a US exporter’s perspective!

• Brussels has issued weekly wheat export certificates amounting to  390,395 mt, which brings the season total to 2,488,255 mt. The season to date total is 524,278 mt (26.69%) ahead of last year.

• Stratégie Grains has updated EU 2015 soft wheat output to 144 million mt, a 3.1 million mt increase month on month although it is around 4% down year on year.. Barley was forecast 1 million mt higher at 58.8 million mt, which is down 3% year on year whilst corn at 59.6 million mt was 7.1 million mt down month on month and 21% down on last year’s record 75.7 million mt level.

Our considered view on yesterday’s USDA report can be downloaded as a PDF file by clicking on the link below:

USDA Report Analysis Aug 15

• General comments upon first sight of the report suggest that they are outright bearish, US corn yield at 168.8 is 2 bushels/acre higher than July’s estimate and soybean yield up 0.9 bushels/acre at 46.9 bushels/acre. Our earlier commentary suggesting that excess June rain correlates poorly with yield appears to be holding water (no pun intended). Also,  corn and bean yields across IL, IN, MO, OH and the drier pockets of the Southeast are down 5-20% from a year ago. Yields in the Western Corn Belt are up 2-15%. It should be noted that USDA yield forecasts are now a function of weather and statistical modelling rather than what was previously thought to be a “wet finger in the air”!

• Soybean harvested acres, following NASS’s resurvey, were lower 0.8 million. Corn harvested acres were left unchanged. Additional fine-tuning of yield and acreage will no doubt occur in subsequent months, but barring a widespread early frost, our takeaway from the August report is that US supply risks have been nearly eliminated.

• Global 2015/16 corn stocks were boosted 5 million mt to 195 million mt due to higher production and a modest downgrade in domestic feed use. Wheat stocks were raised another 1.7 million mt to 221.5. Global soybean stocks were lowered 5 million mt, as Increased domestic use and trade offset higher production.

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

USDA Recap 12 Aug 15

• National soybean ratings through last week held steady at 63% good/excellent although the index of all ratings advanced slightly as 1% moved from good into excellent. Crop ratings bottomed in early July and have since counter seasonally inched higher on reduced rainfall and sunshine. The mid-summer increase in ratings is improving the odds of trend or above national yield, while a few late summer soakers could push the US yield to 46 bushels/acre or above.

• However, despite the national figures it is interesting to break out crop ratings by the East and Western Cornbelt. Note  from the graphic below that the WCB continues to creep higher and is nearly unchanged from a year ago, while ratings in the WCB continue to advance. From our view, yield potential is improving at the end of the summer.

• US corn good/excellent ratings as of Sunday were unchanged at 70%, down just 3% from a year, and which some work indicates an August yield of 166 bushels/acre. By-state changes of note include improvement in MN (now at 89% good/excellent), SD and NE. Downgrades were recorded in NC, ND, PA and WI. All other major producing states were unchanged. Nationally, 50% of the crop is in the dough stage, vs. 49% on average. The market as a whole expects US yield to be 164.5 bushels/acre, and 2015/16 end stocks to be lowered 150 million bu to 1,450. But also on Wednesday, S American exports should be increased based on the pace of sales to date, which suggests US shipments will (should) be lowered.

• US spring wheat conditions as of Sunday were pegged at 69% good/excellent, vs. 70% a year ago. Spring harvest has reached 28% complete, vs. 20% on average. NASS’s August report is expected to reveal lower corn and soybean harvest estimates and end stocks. But US wheat production should be raised 10-20 million bu, and recall EU and Black Sea crops should be raised a combined 1-3 million mt. Major exporters supply and stocks/use will be higher on the month. Russian fob prices for delivery into November are priced at levels comparable to $4.70-4.80, basis Chicago futures. Winter wheat is 97% harvested, up from 93% week on week, up from 94% year on year and ahead of the 5 year average of 90%.

• Today’s markets have lived up to expectation by displaying a classic “Turnaround Tuesday” with soybeans almost 30 cents lower, with corn and wheat shedding 3% in nearby positions. Wheat in both Paris and London and Rapeseed in Paris have (generally speaking) finished the day at levels below Friday’s closing prices displaying a serious disregard for the turmoil in Chicago yesterday.

• Is the Chinese currency devaluation, with potentially more to come, a factor? Our belief is that it is, as it will likely weigh on US$ denominated commodities and fears of further devaluation are not boosting confidence today. Crude oil is $1.80/barrel lower and gasoline and ethanol futures are trading $0.01-0.02/gallon lower. Last night’s crop ratings (see above) must also have come as a disappointment to the bulls.

• Tomorrow will be key but as a general comment the market is clearly poised to move – which way though? In soybeans one private forecaster has suggested as much as 2 million acres could have been lost to weather, which is supportive if true. If dry topsoils hit the E Cornbelt in coming weeks this too is supportive as yields could well fall and tighten the supply outlook, which is also supportive. On the other hand, US new crop exports are well behind last season at this time and S America is certainly pressuring US sales and looks likely to do so for some while to come, including the early US new crop period, and this will pressure prices.Technical momentum was seen as potentially (short-term) supportive yesterday, but today’s close could well reduce that support somewhat.

• In corn, EU November ’15 corn futures translate to $5.24/bu, up from $4.80 on 3 August. It is highly possible that tomorrow will see the USDA adjust the EU crop downwards by as much as 5-6 million mt and the Ukraine crop by 2-3 million mt (due to late season conditions). This is, unsurprisingly, supportive. On the other hand, US pollination weather and lack of heat in the forecast looks as if it could provide big yield potential in the N and W growing region, which would help to offset the heavy July rains in the East, particularly if weather conditions return closer to normal.

• US wheat stocks are seen higher by the trade tomorrow, and there is an expectation of an upward revision in both Russian and EU output.This, if delivered, will limit upside price moves.

• Clearly, tomorrow’s report is an important one!

• Whilst fresh news may have been thin on the ground today it has been very active in Chicago with markets rebounding to the upside. Soybeans are up as much as 30 cents, corn plus 15 and wheat 12, which means corn is the biggest gainer on a percentage basis. Interestingly, metals and energies are also trading higher. Given there is little, if anything fresh to trigger the move we turn to technical considerations, which have shown reversal patterns, particularly in soybeans and corn at the end of last week, and these seem to have been picked up – and followed – today.

• Wednesday’s acreage and yield estimates will be the next significant item to be picked over by the trade. Average trade estimates are a touch lower than the FC Stone and Informa figures released last week, and it appears that there is a general impression that downward revisions in new crop end stocks are on the cards.

• Reuters reported that forecasts for strong soybean meal demand from China and anticipation of a smaller US crop were the key drivers of todays hike in European price levels. S American meal prices rose some $5-10 in Europe and EU origin meal also gained a similar amount. The new forecast estimates that China will import a record 76 million mt of soybeans this year, an 8% increase on the 2014 season. July customs data from China showed July imports to have reached a monthly record of 9.5 million mt, 17.4% up on June. The news countered fears of a Chinese slowdown, which has in recent months fuelled a broad selloff in commodities.

• Staying in Europe, the French AgMin released its latest estimate of the soft wheat crop at a new record level, 39.3 million mt. The figure represents a month on month increase of 1.4 million mt. However, the corn crop was put at 13.2 million mt, down a staggering 28% year on year. The barley crop was also forecast 0.5 million mt higher at 12.2 million mt whilst rapeseed was seen 100,000 mt lower month on month at 5 million mt.

• Hot on the heels of the French AgMin was Stratégie Grains who updated their UK crop estimates. The early wheat harvest data showed yields to be slightly above the longer term average and they viewed weather forecasts as conducive to further harvest progress in coming days. Their UK crop estimate was raised 147,000 mt month on month to 15.295 million mt, the third largest in 11 years. Barley output was also seen at the third highest level in the same period with a crop of 6.884 million mt. Quality data was limited but they implied that initial specific weight were ranging from 65-69 kg/hl although the late July unsettled weather could lead to some of the later crop displaying poorer quality although this is not confirmed at this time.