• Overnight rallies in Chicago markets have failed once again leaving closing prices a touch lower in what seems to be low volume trade. Consumers appear reluctant to follow any upside and Argentinian aggressiveness in wheat pricing to Egypt has surprised many. Many are questioning whether corn and soybean sellers will follow in their aggression in coming weeks as global exporters chase the few buyers that choose to raise their head above the parapet.

• Egypt’s GASC purchased 120,000 mt of wheat in a snap tender for 21-30 January shipment at an average price of $190.94/mt basis C&F with Argentina the seller – a first this season, but not totally unexpected given the Peso devaluation. Offered levels were some $8-10 below others and delayed payment of Letters of Credit is a hot topic today. The price is considered a season low and probably reflects the competitive nature of global grain pricing right now. Corn pricing is also expected to be equally aggressive and competitive in coming weeks so a “watch this space” approach would not go amiss at this time.

• Today’s Chicago markets started higher but turned lower in somewhat more active volume in the grains, corn and wheat. The soybean complex is seeing a reduced volume as traders vacillate over N Brazilian weather forecasts and exactly how much January rain will materialise. It seems that if grain prices are to move lower, and convincingly, we will need to see the rainfall that N Brazil needs.

• Farmer selling has been evident in the US today and this has reflected in Chicago prices this afternoon, and it feels somewhat bearish at this time. As we suggested yesterday, a loss of 1-3 million mt of soybean output in Mato Grosso/Goias does not seem to be hitting the market adversely at this time.

• Brazilian corn export volume commitments have reached a record 33.8 million mt and look likely to exceed 34.5 million in the crop year. Continued offers from both Brazil and Argentina look as if they will certainly “dent” US export prospects in nQ1 2016. The Dec-Mar US export window is being squeezed and reducing as each day passes and S American fob offers remain below US Gulf levels. US corn end stocks should be revised higher in the January USDA report.

• Chicago markets are trading lower into the close at the start of the holiday week as grains lead the way down, albeit modestly. Some early buying was fund short covering inspired and once filled farm selling pressure from both N and S America prevailed. Improved rainfall prospects for Brazil in the 10-15 day window added to downward pressure and it seems funds have joined the sellers in today’s last hour or so of trading.

• When all said and done the potential loss of 1-3 million mt of soybean output in the Mato Grosso and Goias regions of Brazil is now accepted to be of limited significance and unlikely to change the overall bearish outlook. It would take an extended and widespread drought across Brazil to make such a change. On the other hand too much rain may create a fungal rust problem that could lend support, however neither position is tenable at this time but we maintain a “watch Brazilian weather” position to ensure timely decisions can be, and are, made.

• January’s WASDE report may well contain firework inducing data as has been the case in previous releases. Soybean imports by China in December based upon vessel loadings and lineups will fall (sharply) from last year at 4.9 million mt. We know Chinese imports tend to bottom seasonally in January and then increase through to July  however the December slowdown (if validated) will keep WASDE from increasing their estimates in January’s report. It appears that China has all but filled its Jan/Feb requirements from the US at this time.

• Market action in Argentina is slow, and it is estimated that their farmers could well be sellers of 8-10 million mt in the next quarter. Once exchange rates for the Peso normalise it is expected that farmers will become regular sellers in the New Year, which will likely reduce early demand (and price support) for Brazilian soybeans.

• Of note, and worth watching, is the lack of snow cover across much of the Black Sea wheat growing region. With cold temperatures forecast the potential for winterkill could be greater than normal. That said the GFS weather model for all of Europe and Russia remains warmer than normal.

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Weekly Update 18 December 2015

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Fund positions

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

Wheat: 320,200 mt, which is within estimates of 250,000-450,000 mt.
Corn: 677,600 mt, which is below estimates of 700,000-950,000 mt.
Soybeans: 1,023,800 mt, which is within estimates of 900,000-1,300,000 mt.
Soybean Meal: 108,600 mt, which is below estimates of 150,000-300,000 mt.
Soybean Oil: 10,200 mt, which is within estimates of 5,000-25,000 mt.

• Brussels has issued weekly wheat export certificates totalling 1,105,722 mt, which is more the second largest weekly volume this season. This brings the season total to 12,488,841 mt, which is 1.409 million mt (10.14%) behind last year.

• Chicago grain prices have continued to weaken during the morning with the Argentine Peso priced at 13.90 vs. the US$, a devaluation of nearly 30%. Combined with export tax reductions of 20% in corn, 23% in wheat, and 5% in soybeans, Argentine farmers have to be smiling at the end of the week. They are showing their glee with sizeable cash grain and soybean movement this morning. Doubtless Chicago is feeling the cash connected Argentine selling on rallies.

• The strong US$ and fall in crude oil to new 2015 lows is keeping the entire commodity complex under pressure. Some commercial traders are wondering if the long only index fund holders are finally bailing on their strategy of holding commodities as a hedge against their equity holdings. Index fund holders are looking at losses of over 60% since 2013 and most have had enough! The index funds will continue to sell commodities on liquidation for tax loss purposes heading into 2016, which could pressure commodities on rallies for another two weeks.

• China priced 424,000 mt of soybeans this morning, which was reported by USDA. China has been a buyer of the soybean break which is offering some support. Additionally, China is enjoying positive crush margins and they are securing Chicago soybeans on a scale down basis. However, China has nearly booked its import needs from the US through January and will soon turn attention to Brazil which is offering soybeans below the US after early February.

• Data releases today included Informa Economics who lowered 2016 US corn acres to 88.926 million acres from 90.1 million previously and soybean acres were also reduced to 84.537 million acres from 85.3 million previously.

• Stratégie Grains forecast the 2016 soft wheat output at 143.6 million mt,a decline of some 6.4 million year on year, and the first decline since 2012. Planted area was down around 100,000 ha at 24 million and yield forecast was also reduced from last season. Export prospects were more upbeat with a forecast of 27.6 million mt, some 800,000 more than previously estimated, and this would represent a 16% year on year decline. Ending stocks, estimated at 18.4 million mt remain at substantial levels.

• Chicago markets have continued to ease lower with January ’15 soybeans trading below $8.60/bu support and March ’16 corn testing last week’s $3.70 low. Interestingly, wheat has been trying to hold on fund short covering but it too has turned lower in sympathy with corn and soybeans. Volumes are unimpressive with many reluctant to enter into new net positions in advance of the holidays and, more crucially, the Fed’s expected rate hike due later today.

• The Real has fallen sharply today, back around 4.1 vs US$. The fall is based around political uncertainty and ongoing pressure on President Dilma to resign or face impeachment. Brazilian finances remain under scrutiny with deficits on the rise and a test of the summer lows of 4.2 vs US$ is possible. Any such test will help the Brazilian farmer maintain profitability and the fall in the Real is more than offsetting Chicago’s fall in soybean prices (so far).

• Rumours continue to grow on Argentine devaluation being imminent, possibly later today, which together with the Fed’s announcement later on today is creating nervousness in markets. The potential for Argentine grain and soybean exports to grow, and maybe sharply so, looks very real today.

• Overall an Argy devaluation looks as if it could further damage US export competitiveness leaving it in a difficult position, consequently our cautiously bearish stance remains.

• Midday saw what appeared to be a classic “Turnaround Tuesday” in both soybeans and corn as March corn was unable to break to the upside through its 50 day moving average. Wheat received some support from fund short covering. Early losses are being eroded as we move towards the close although soybeans and corn remain in negative territory.

• Argentine corn offers continue to fall as confirmation emerges that grain export taxes are removed. This leaves Argentine offers at $0.45 over March futures for spot delivery compared with US Gulf at $0.60 over and the discount widens for further forward positions. France, Germany, Ukraine, Russia and Argentina are offering (and reputedly selling) wheat below $195/mt for nearby arrival compared with US Gulf quotes at $208-218, which is an unrealistic premium.

• S American and general N Hemisphere weather forecasts remain largely non-threatening and favourable, and as such we have to continue to view price rallies as limited in potential and the bearish outlook having more credibility than a bullish picture at this time.

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

Weekly Update 11 December 2015

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

Fund positions

• Chicago has seen mixed trade as many are unwilling to add to positions ahead of tomorrow’s USDA report and Argentina’s presidential installation on Thursday. There appears to be some stability offered from global financial markets in the aftermath on Monday.

• We are not expecting anything spectacular tomorrow, some tinkering with corn exports and an increase in corn for ethanol could be on the cards. US stocks are not expected to see significant change, ang it is global stock levels that will likely drive prices going forward. We will update as soon as possible given travel commitments this week.

• Today’s Chicago rally stalled as selling returned to the market amid news that US fuel producers are “unhappy” with last week’s Congressional Bill, which aims to shift the biodiesel credit from blender to producer. Major US oil companies are arguing that if their biodiesel blending incentive is removed there is no reason to use more biodiesel and that biodiesel stocks will likely grow dramatically based upon overproduction, in turn depressing prices. There are threats of lawsuits and claims of lack of WTO compliance, clearly passion is running high.

• In Argentina we are hearing that newly elected Marci is claiming he wants the Peso float freely and end the two tier system. A free float and an end to export taxes (or at least any reduction) could well see farmers incentivised to release stocks of grain and soybeans that have built up as an inflation buffer. The market is watching developments closely and it seems that there are more aggressive corn offers from Argentina from March onwards.

• In addition to potentially growing Argentine corn availability we could well be seeing Brazil’s exports expanding significantly. There are suggestions that a record 33 million mt could well be exported by Brazil, which if proven correct would likely hinder US sales that are already struggling on a competitive basis.