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Weekend summary 18 October 15

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Weekly Update 16 October 2015

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Fund positions

• Brussels has issued weekly wheat export certificates amounting to  447,244 mt, which brings the season total to 6,796,766 mt, which is 1,118,838 mt (14.13%) behind last year.

• Chicago markets are again a touch lower into tonight’s close and both London and Paris markets also closed in negative territory.

• The NOPA crush report showed September soybean crush to be at the lower end of expectations at 126.7 million bu (range of expectation was 125-133 million bu). Despite being below expectation it was still the largest crush since 2007 and it appears that crush margins are still very profitable, which will likely encourage high crush rates to continue until this changes.

• Egypt’s GASC tendered for November 21-31 shipment wheat and secured 240,000 mt with 180,000 mt going to Russia and 60,000 mt to Romania, which was no surprise. The average price of $212.16/mt basis C&F were up another $5 from a week ago and are back at levels last seen in early July.

• US soybean good/excellent condition is at 64%, unchanged from last week and the crop is 62% harvested vs. the five year average of 54%. Corn good/excellent condition is also unchanged week on week at 68% and is 42% harvested vs. the five year average of 43%. The US winter wheat crop is reported to be 64% planted, which is just behind the five year average of 66%.

• We have seen a generally weaker Chicago today with Nov ’15 soybeans backing off the lower level we mentioned yesterday ($9.20/bu) before closing at $9.10/bu. Whether this is the end of the bulls’ energy remains to be seen! Fund buyers have not been very active, and this could signal the general willingness to follow the market higher. Corn and wheat have also followed lower (6 and 10 cents respectively) after yesterday’s push higher.

• The US$ Index fell to a new month low, and the Brazilian Real was 1% higher against the US$ earlier in the day. Crude oil is a touch lower and equity markets continue lower as well.

• S American weather forecasts continue to look favourable with good rains in the South. Elsewhere is a touch dryer but not sufficiently so to raise undue concern and planting is continuing apace.

• We continue to believe that a secondary price top is in the process of forming.

• We are looking at Chicago soybeans and wheat heading into the close on a firm note with corn also trading (just) in positive territory. It seems that soybean volume is well above what has been seen in the last few weeks whilst the volumes traded in grains are closer to normal. The reason given for the higher volume in soybeans is Chinese buyers fixing prices to lock in favourable crush margins, which has triggered technical buying as prices (basis Nov ’15 contract) pushed strongly through the 50 day moving average. Soybean products, meal and oil, similarly pushed higher, breaching key resistance levels.

• Outside markets have been mixed with crude oil bouncing back from Monday’s price break and gaining $0.50/barrel whilst the US$ Index is firm and the US$ some 2% up vs. The Brazilian Real. Commodity Indices are generally firmer whilst equity markets are also clawing back from earlier losses.

• Weather in Brazil looks to remain dry in the coming five days, which will allow planting to continue apace, although some are suggesting it is dryer than desirable but it is too early to raise excitement levels just yet. Seasonal rains are expected to develop in coming weeks, but it would be prudent to keep an eye on weather developments – just in case!

• It seems that soybeans are set for their best close (basis Nov ’15) since mid-August and the break of key resistance will pave the way for firmer trade into the end of the week as $9.20-$9.30 is targeted. This is the level at which we would expect to see a secondary top form, from which we would expect prices to decline. Time, as always, will prove us either right – or wrong.

• We have Chicago grains, corn and wheat, trading a touch lower into the close tonight whilst soybeans are in positive territory (just). The market is lacking any follow through direction and a note of frustration could well emerge as a consequence. Funds are reported to be unwinding corn/soybean and wheat/soybean spreads.

• Thursday will see the release of NOPA’s September crush data, and the market is expecting a record or near record rate, which will be supportive if the data comes in at expected levels.

• Other news is very limited and focus is, or will be, coming back to demand levels, which are low and with holidays in Brazil, US and Canada this is unlikely to change in the immediate short term.

• A rangebound soybean complex and further weakness in the grains is our current view.

• This week has seen the first three days feature short covering of CBOT grains and soybeans sending prices rallying to their monthly highs. Today, Thursday, has the bulls expressing disappointment at the need for a bullish surprise on acres in Friday’s report to keep the rally alive. Selling has not been huge but the lack of demand remains the key feature and likely to weigh on prices into today’s close.

• China’s Dalian exchange has shown little inclination to follow Chicago higher, and it seems that interior cash prices are also failing to follow. Indeed, following the return to work after the week long holiday, Chinese soybean and corn prices fell to two week lows, initiating yet more disappointment for the bulls. Chinese crush margins are reported to have turned negative with their meal price decline and fresh cover from crushers is likely to be limited given their current extensive cover.

• It has been reported that the EU is asking banks to report their commodity exposure in view of the declines witnessed in markets and the struggles of certain commodity firms (??Glencore). Bank sensitivity clearly remains an issue!

• We await the key October report tomorrow with interest.

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

Wheat: 293,100 mt, which is within estimates of 175,000-375,000 mt.
            This year 288,200 mt; Next year 4,900 mt.
Corn: 466,600 mt, which is below estimates of 550,000-750,000 mt.
          This year 519,700 mt; Next year minus 53,100 mt.
Soybeans: 2,280,000 mt, which is above estimates of 700,000-1,200,000 mt.
                 This year 1,284,600 mt; Next year 995,600 mt.
Soybean Meal: 275,700 mt, which is within estimates of 50,000-350,000 mt.
                        This year 275,500 mt; Next year 200 mt.
Soybean Oil: 8,500 mt, which is within estimates of zero-40,000 mt.
                    This year 8,500 mt; Next year zero mt.

• Brussels has issued weekly wheat export certificates amounting to  663,556 mt, which is the largest weekly tonnage this marketing year. This brings the season total to 6,349,522 mt, which is 878,161 mt (12.15%) behind last year.

• Markets have so far this week lacked any meaningful drivers, bullish or bearish, and Friday’s report and the need to reduce position size and risk has led the way.

• Big picture – Midwest US soybean yields continue to surprise with many reporting record yield levels in the W and C Midwest. We continue to be of the “sell rallies” opinion. US corn yield looks as if it will be in the 165-168 bushels/acre range – but price rallies look as if they will struggle without a meaningful US export programme, S American export offerings into late January continue to look cheap compared with US values right now. Global wheat trade for Q1 is some 4.1 million mt behind last season and there is little to suggest that this is changing at present, particularly as we head into the N hemisphere winter. US wheat on a fob basis is non-competitive in global terms to the tune of $0.75-0.80/bu. We remain longer term sellers of rallies on the back of a world which seems awash with grains and wheat in particular.

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LIFFE Closes wc 2 October 15

• Friday’s USDA October Crop report looms, and the overnight trade has been mixed. So far this week the markets have been offered very little information for directional guidance, other than the constant flow of anecdotal yield reports. Based on the reduction in wheat acres, the trade appears prepared for a slight drop in both corn and soybean acres in October. Soybean yields are expected to inch higher based on favourable late season weather and strong early yields, while the corn yield could slide on mixed field data.

• Ahead of the report, December corn looks to be willing to test it’s 200 day moving average, just under $4, November soybeans are holding right in the middle of a trading range that has been carved out over the last six weeks, while December wheat is holding just under it’s 100 day moving average. All three markets await fundamental guidance from the USDA, while cash basis remains seasonally weak from harvest pressure.

• The US soybean crop condition rating on Monday rose 2 points to 64% good/excellent – 9 points under last year. National ratings have held under last year all season, but began to improve starting in mid-July. Producers indicate that the stable ratings and the generally favourable late summer finish has provided surprisingly better yields across the Midwest. Many fields across IL, IA, and MN have produced record setting yields.

• 27% of the US corn crop and 42% of the US soybean crop had been harvested through last Sunday evening. The corn harvest is running slightly behind the 5 year average of 32% while the soybean harvest was 10 points above average. Winter wheat planting progress advanced 18 points last week to 49% complete, and was just under the 5 year average of 51%.

• China remains on holiday through Thursday, and the trade will be watching for sales announcements in the days following. S American offers on soybeans have dried up with Brazilian stocks now seasonally tightening, while farmer selling in Argentina has slowed as producers await on the October 24 the presidential election.

• PM – update – Dec ’15 wheat pushed through its 100 day moving average, which added further upside pressure, whilst corn broke its 200 day average and the September highs and soybeans are at the top of their six week range – all looking firmer Tuesday. Aside from technical chart levels it is difficult to find a fundamentally market supportive stance. It would take a marked (1 or 2 bushels/acre in soybean or 4 to 5 bushels/acre in corn) drop in yield to justify further rallies in price.