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Weekly Update 30 October 2015

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Fund positions

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

Wheat: 550,500 mt, which is above estimates of 350,000-550,000 mt.
Corn: 708,800 mt, which is above estimates of 300,000-500,000 mt.
Soybeans: 2,156,000 mt, which is above estimates of 1,600,000-2,000,000 mt.
Soybean Meal: 218,700 mt, which is within estimates of 150,000-350,000 mt.
Soybean Oil: 82,100 mt, which is above estimates of 30,000-60,000 mt.

• Brussels has issued another relatively low week of wheat export certificates of 399,095 376,969 mt. This brings the season total to 7,572,830 mt, which is 2,028,631 mt (21.13%) behind last year.

• Chicago markets have today seen the grains gain and soybeans ease a touch in a continuation of what feels like confused price action.

• The International Grains Council (IGC) has again raised its forecast for global coarse grain harvests (fourth consecutive month) to 1.999 billion mt, a 3 million mt increase, but 27 million mt lower than the previous year. Global demand was raised a touch, by 5 million mt, to 1.991 billion mt.

• Egypt’s GASC has once again purchased wheat in their latest tender, this time for 1-10 December shipment. They secured 240,000 mt with 120,000 mt for France, and 60,000 mt each from Romania and Poland (a first this season) at an average price of $208.78/mt basis C&F, close to $3.50/mt below 15 October’s purchase.

• Chicago markets, corn, wheat and soybeans, all closed lower today with little in the way of fresh news to trade. Weaker Chinese trade was suggested although October is expected to see a record 10.3 million mt of soybeans from all origins shipped in. It is looking increasingly difficult to be too bearish on soybeans as we are at multi-year low prices, US crush margins are above $0.90/bu and the US will ship out record soybean volumes in October.

• In corn the spread between US Gulf and S American/Ukraine fob prices is narrowing and as Chicago prices ease back Argentine and Brazilian levels are not following.

• It seems that Black Sea fob wheat prices are rising on demand that can best be described as lacklustre. A rising Russian Ruble immediately after a falling Ruble is making life difficult in the extreme for interior wheat origination. World farmers appear to be very reluctant to part with corn, wheat or soybeans at current low prices and US farmers would not appear to be cash strapped right now, so grain and soybean movement remains slow, which ultimately will translate into a lack of Chicago futures selling.

• The US Fed has left interest rates on hold once again but gave what has been described as a signal of a possible rate hike at its next meeting.

• All in all we seem to be stuck in a trading range for now with little to push us out of that range at present. The end of the N American harvest and the start of a new growing season in S America gives little cause for any additional bearishness. On the other hand US grain export demand continues to struggle and (right now) Q1 US domestic demand is unknown, US soybean exports (as mentioned above) in October will be record large but unless we see a S American weather problem develop there is nothing to break us out of current rangebound trade.

• Last night’s update on US harvest progress showed soybeans to be 87% and corn 75% harvested, which compares with five year average figures of 80% and 68% respectively. The update also reported winter wheat rated as good/excellent to be 47% compared with 59% a year ago.

• The EU’s MARS unit updated EU crop yield estimates for 2015, and wheat, barley and corn were all increased compared to the September figures. Soft wheat was estimated at 5.86 mt/ha (Sep 5.81 mt/ha and 2014 at 6.14 mt/ha), total barley at 4.65 mt/ha (Sep 4.63 mt/ha and 2014 at 4.90 mt/ha) and grain maize at 6.47 mt/ha (Sep 6.43 mt/ha and 2014 at 8.16 mt/ha). As far as 2016 is concerned, the report suggests that poor weather in some eastern and northern areas of the EU may adversely impact winter plantings, which could in turn reduce yield. However, as we are constantly stating, it is still extremely early to draw a conclusion from such data at this stage of crop establishment and development.

• In Chicago today the grains (corn and wheat) both closed lower whilst soybeans closed higher and it was reported that funds were once again active in buying.

• There is an expectation that Thursday’s US export sales data will show soybean volumes to be in excess of 2 million mt as Chinese buyers remain active in the face of ongoing positive crush margins although it appears that the pace is easing a touch compared with last week. It should be noted that China still has December and January import requirements left to cover.

• In Russia the Ruble is down by 3% today, and 6% in the past week (on the back of lower crude oil prices), leaving exporters having an easier time sourcing grains from the interior. However, it has been noted that some growers are reluctant to perform against existing sales without further incentive or bonus payment leaving yet another hiccup in the export supply route.  Thankfully this is not a feature of our domestic market place, long may that continue!

• The week has started with Chicago grain markets soaring higher, led by wheat and corn tagging behind whilst soybeans and products (meal and oil) are all trading lower. Wheat started higher on technical considerations and soybeans fell on unwinding of spread trades (soybean/corn, soybean/wheat) that were popular in the last few weeks. Caution needs to be exercised here as sub $8.80/bu soybeans look difficult to justify right now given what appears to be significant Chinese demand at current low prices. A further 120,000 mt were sold to China today for 2015/16.

• We are picking up news of another major Brazilian trucker’s strike planned to start on 9 November. The truckers are complaining of low rates and lack of profitability, which could lead to another lengthy dispute. Corn  movement to ports as well as transport of crop inputs, fertiliser and chemicals, required for seeding will likely be impacted. The main concern is that it rumbles on into February and March, the heart of the soybean harvest period.

• The US’s weekly soybean export total was the second largest on record for an October figure at 98.1 million bu. The overall record was set in November last year at 114 million bu, and it seems China is ramping up demand at current prices, which are low in relation to recent years. Some are estimating total Chinese imports as high as 84 million mt, some 5 million above the USDA’s current forecast. Clearly China is a price buyer.

• US harvest progress figures will be released later tonight, and it is expected that soybeans will be over 86% and corn over 75% harvested.

• Friday’s Commitment of Traders report, which provides us with the data for our published fund position report, has come under question today. It was described this morning as, “A shocker”, with a much larger than expected net short wheat position, and a less long corn position, which has acted to support the grains in today’s trade.

• Despite today’s price action, we continue to struggle with finding sufficient fundamental information to support a lasting rally in global grain prices (aside from fund buying). As a final note, US unleaded gasoline is trading 27 cents below the price of ethanol!!!

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

Weekly Update 23 October 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: 359,200 mt, which is within estimates of 300,000-500,000 mt.
Corn: 248,000 mt, which is below estimates of 450,000-650,000 mt.
Soybeans: 2,032,400 mt, which is above estimates of 1,200,000-1,800,000 mt.
Soybean Meal: 269,100 mt, which is within estimates of 150,000-300,000 mt.
Soybean Oil: 24,800 mt, which is within estimates of 10,000-60,000 mt.

• US export sales year to date are down by 17% (92 million bu) for wheat, 35% (251 million bu) for corn and 22% (272 million bu) for soybeans. It is difficult to envisage any lasting bullishness until export pace plays catch up, and that will not happen until prices become more competitive.

• Brussels has issued the lowest weekly wheat export certificates in seven weeks amounting to just 376,969 mt. This brings the season total to 7,173,735 mt, which is 1,746,723 mt (19.58%) behind last year.

• Chicago’s early price upside moves that followed on from yesterday have been curtailed (with half an hour or so to go) as wheat, corn and soybeans are all in negative territory. US export data was not viewed as supportive despite ongoing Chinese soybean purchases being reported. The underlying fact that US corn and wheat prices remain non-competitive when compared with other exporting regions (S America and Black Sea) weighs on prices and further US sales will be hard won.

• The ECB (European Central Bank) maintained yet another month of unchanged interest rates with the potential for further QE looking forward. Unsurprisingly the US$ was buoyed up as were equity markets both sides of the “pond”. If the US Fed raises rates in December (as is being hinted) we will likely see further US$ strength and a rally into year-end.

• This coming Sunday sees Argentina’s presidential election, which could possibly help their farmers become more competitive in the world market. It is possible that the election will be a non-event, but a change in the export tax position in early 2016 could well be on the cards – watch this space.

• Chicago soybeans, corn and wheat are all having an “up day” today on what seems to be thin volume trade. London and Paris markets have followed higher.

• It appears that cash corn and soybean basis levels in the Midwest are rising, and sharply; crushers/exporters are fighting for the few soybeans that ARE moving. As harvest draws to an end, end users are beginning to realise that cash movement has been lower than previously thought and if nearby supplies are to be secured then paying up is the way to do so. The cash market is leading Chicago, particularly as far as corn and soybeans are concerned.

• History would suggest that the US farmer, once his crop is harvested and in safe storage, is reluctant to release supplies until after Thanksgiving. We could well be seeing a bottom forming in these markets and it will be very important to keep a close eye on prices in the next few days. The big picture from a global perspective remains bearish, BUT with global prices already historically cheap and we are starting to see demand being uncovered at these relatively low levels. A post-harvest price rally should not be ruled out, particularly if farm selling remains restricted and cash prices lead the way.

• In other news today Brazil’s AgroConsult estimate 2015/16 soybean output at 100.6 million mt, up from 92.6 million mt year on year. The crop is 14% planted so far, up from 11% year on year and improved rainfall frequency is expected to speed planting pace.

• Finally it was reported that Bangladesh has rejected another 20,000 mt cargo of French wheat due to poor quality!

• Chicago markets are mixed today with some upside evident. The wheat market is struggling amid rain forecasts for the Plains and the (dire) need for fob prices to become competitive in the global export market.

• US growers are pushing harvest pace as fast as possible to get ahead of the forecast rain and we understand yields to continue above farmer’s expectations in both corn and soybeans, but the market is already well aware of this. There is now a built in expectation of yield increase in the next USDA update scheduled for 10 November. However, a slowdown in farmer selling has not been factored in and this might put a spanner in the works.

• China is actively securing US soybeans with two more cargoes announced today, November and December shipments are their current focus. There seems to be evidence that Government stockpiles are being replenished whilst prices are sub $9.00/bu, alternatively growing livestock numbers that will require feeding could be the reason and we have no way of knowing, or finding out, which is correct!

• Russia’s IKAR has reported their winter grain to be 89% planted despite some dryness induced delays especially in the South, Krasnodar, Rostov and Volgograd.

• In Ukraine, the AgMin expects the 2016 wheat area to be 5.5 million ha, down from 6.2 previously due to dry conditions. They are also flagging reduced yield potential, which needs to be watched going forward.

• Chicago markets have started the week lower and one commentator has used the description, “Lacking inspiration, which feels very apt this afternoon. Weather forecasts are leaning bearish with harvest active and the US Plains are due some soaking rains later in the week. Cash selling is reported to be very active as farmers are running out of immediate storage and reports of elevators storing crops on open ground not under cover are not uncommon. November option markets expire on Friday, which together with the rapid pace of harvest is setting the market tone. There is a lack of fresh news input and we expect a narrow trading range to persist, unless we see a major macro event unfold.

• EU and Black Sea cash wheat markets are experiencing a slight anomaly at present; growers are strong holders of the crop based upon unusually large spot discounts caused by large harvest and tight storage. The discount is keeping a lid on farmer selling leaving exporters, who are short, to pay up for nearby supplies to fulfil commitments. This looks as if it could well continue for some while, unless we see a fundamental driver change things.

• Prices (in Chicago) are approaching our initial target levels, and we would be cautious about being overly bearish from here. Our preferred view is to look to sell rallies. The longer term continues to offer a bearish pattern but it should be noted that with historically cheap prices the end user is fast building forward cover and not waiting (entirely) for lower prices. This could well put a floor in prices, until such time as buyers become scarce once again.

• Overall today it still feels as if the path of least resistance for prices remains lower.

• Other news today includes the latest Australian 2015/16 wheat estimate from ABARES (Australian Bureau of Agricultural and Resource Economics and Sciences) at 24 million mt, which is down from their early September figure of 25.28 million mt. El Niño driven dry conditions and above average temperatures were cited as the main reason for the month on month reduction.

• India has raised its import tax level on wheat to 25% (from 10%) to cap imports of cheaper supplies from Australia and even as far afield as the EU.