• The USDA’s stocks and seedings reports are viewed as bearish corn and neutral wheat and soybeans – but not that there were any real bullish surprises in any of the data. Below is a table of quarterly stocks, which were above expectations in wheat, but otherwise very close to previous trade estimates.

• Wheat’s feed consumption is expected to be lowered 10-25 million bu in the April WASDE – pushing ending stocks even closer to 1,000 million bu – but no changes are expected in US corn and soybean balance sheets. However, NASS did confirm that stocks of all major crops are well above last year, and that major row crop acreage declined only slightly despite a full year of low prices.

• March 1st corn stocks at 7,808 million bu are just a bit higher than expectations, and work indicates that total disappearance through the first half of the crop rests at 7,553 million bu, down 2% from last year and a number that suggests the USDA’s total consumption forecast is overstated by 50-100 million bu.

• Soybean stocks as of March 1st totaled 1,531 million bu, 20 million below expectations but 204 million above last year. Soybean residual disappearance is estimated at 34 million bu, the first positive number in four years. The differences between corn and soybean stocks and trade expectations is not significant enough to trigger any major revisions within the April WASDE.

• The big surprise of the day, however, is acreage. To the surprise of many, US farmers intend to plant 93.6 million acres of corn, up a full 4.4 million from intentions a year ago and well above trade guesses. The by-state data correlates well with the drop in winter wheat seedings, and with normal weather and trend domestic use, 2016/17 corn stocks will reach well above 2,000 billion bu. Soybean acres at 82.2 million were roughly a million below expectations, but this is likely to be raised 0.5-1.0 million amid corn planting delays in the Delta/Southeast. And stripping one million acres from corn will do little to change corn’s new crop balance sheet. NASS data today confirmed that there are more than enough acres to go around for spring row crop production – supply-driven rallies now await July/August weather.

• Spring wheat acreage at 11.3 million was surprisingly low. Some of this will be buffered by a lack of HRS export demand and huge carryover stocks, but no doubt MGE contracts will continue to gain on KC and CME futures until N Plains/Canadian summer weather patterns are known. Winter wheat acres at 36.2 million are down 400,000 from NASS’s January estimate, with additional losses noted in TX and CO. Acres in KS, NE and OK are steady to higher. US wheat ending stocks will end up at 990-1,000+ million bu, and this will more than offset any loss of production in 2016/17. Note that European wheat futures are down the equivalent of $.10/bu at midday.

• Our immediate view of today’s release is that corn acres are the highlight, not only bearish at first glance but also when compared with trade expectation, the 3.5 million acres surplus will act as a buffer against lower that anticipated soybean acres as well as minor planting issues which may, or may not, arise. Corn price could well test $2.75/bu at or close to harvest.

• US Gulf soybean basis has fallen to four year lows with spot Gulf bids at $.40/bu. This low basis speaks volumes on the availability of old crop US supplies. 2015/16 US soybean end stocks are likely to end up being the largest in a decade at 450-530 million bu. The last time that US soybean end stocks exceeded 225 million bu was 2006, which was the pre-ethanol era. For a decade, US soybean end stocks have never been larger which highlights the supply pressures building in the cash soybean market. We do not expect much change in basis into summer.

• The US$ scored a secondary top in February against the Brazilian Real, just under 4.1 Reals/Dollar and has since declined to 3.6-3.7 over the last several weeks. US$ weakness against the Real has lifted Brazilian soybean offers to near even with the US, while Argentina has the cheapest soybeans for sale. While Brazilian soybean prices have rallied, the chart below illustrates that Brazil continues to undercut both the US and Argentina in the soybean meal market. Brazilian meal today is offered at $44/mt under the US and Argentine meal can be had $15/mt cheaper. While the underlying market fundamentals offer no good reason for markets to move higher, the momentum right now is up and funds continue to buy ahead of the USDA report. We continue (rightly or wrongly) to hold to a view that Chicago soybean (and product) markets are forging a seasonal top.

• Wednesday started firmer at the US$ eased lower on what were perceived as dovish comments by US Fed Chairman Janet Yellen, a rate hike in April looks less and less likely. However, Chicago markets have eased and are in negative territory as we approach the close. It should not be forgotten that N Hemisphere weather is becoming a greater influence and more important, and this has not been missed by latter trade particularly in Chicago wheat markets. Soaking rains across the drier areas of the Plains in the latter part of the next two weeks appear to be growing in forecast confidence at this critical crop development time.

• It seems that the recent rally in US soybean (and product) markets has been about fund flows, palm oil and the weaker US$, this situation has seen the funds pushed out of a record net short into a small net long position in the face of bearish fundamentals. Our thoughts are that April, with planting in the US, will see a return to a more fundamental approach to prices and direction.

• Argentine harvest data is impressive in both corn and soybeans with crop estimates rising. The majority of private forecasters are putting Argy soybean output in the 60.5-62 million mt range with feed corn at 27-27.5 million mt. Bear in mind if this year’s yield equals last year we will see output at 64 million mt.

• We have been witnessing pre-report position liquidation which has taken its toll on wheat prices with corn following. Clearly anticipation of the data release tomorrow and its likely impact on markets is getting to traders!

• Chinese soybean meal values declined to a new eight year low on Monday with their forward soybean crush margin at the lowest level since March of 2014! These extreme negative margins and China’s flotilla of soybeans that are afloat only look to worsen the supply situation. The only aspect of margin that is supportive is vegoil pricing which is tied to palm oil  However, even China’s palm oil import margin has reached negative margins not seen since last September. The net result is that China will most likely pull back on soybean and palm oil imports, suggesting that the current soy rally has about run its course.

• Monday saw a mixed start to the week for the Chicago soy markets with May soybeans reaching a new rally high overnight, and then turning lower at the close. Soybean meal struggled amid weak cash markets while soybean oil found support from firming palm oil. US weekly soybean export inspections for the week ending March 24th were 20.9 million bu, but a new post harvest low. Annual US inspections now total 1,522 million bu and are now 7% behind a year ago.

• Chart based buying has been the dominant feature in Chicago as the trade prepares for Thursday’s USDA March Stocks/Seeding Intentions report. Fund managers continue to reduce their net short positions in corn and wheat, while they add to new market length in soybean oil/soybean futures. Note that soybean oil and soybeans are back to testing their recent rally highs with the RSI (Relative Strength Index) in each at its most overbought position since the wet weather rally last June.

• US vessel line ups show that China has just two soybean cargoes waiting to be loaded in the next week, and no new cargoes are currently indicated for the month of April. The US weekly export pace is going to decline sharply in the weeks just ahead to single weekly digits. Chinese demand for soybeans in either Brazil or Argentina is switching from the US with the harvest glut starting to arrive at Argentine port. Brazilian farmers are reported to have sold more than 70% of their 2016 soybean harvest.

• The key message as we see things is that once funds have stopped their short covering, which will likely happen in advance of this week’s USDA report, there seem to be few (if any) other buyers in the market place right now and we all know what happens when buyers are scarce or absent from a market – PRICES GO DOWN! The current Chicago rally remains highly technical with the market not seeming to care about China’s change in Farm Policy which would end their corn reserve purchase program and push an additional 20 million mt of feed grains back into world trade during the next crop cycle. We would expect that China will also end its soybean purchase program, and that its soybean seeding will be revitalised over time. Research argues that current Chicago corn, soybeans and wheat values are overvalued and that the past three week rally is more technical than fundamental.

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

Weekend summary 24 March 2016

• Today has seen Chicago markets lower (maybe a day later than we would have liked!) in what has been described as “moderate” volume, front month (May ’16) corn is testing an open chart gap formed between March 11 and 14 and May ’16 soybeans having broken through the 200 day moving average resistance are now using that level as support for now. The market is trading technicals rather than fundamentals and that is the point we have been attempting to make in recent days.b Today’s reports have suggested that the funds have been sellers in soybeans, corn, wheat, soybean oil whilst buying soybean meal today.

• There is worry that China may be raising a new pythosanitary hurdle in its latest CIQ (the Chinese Quarantine Agency) demand that it seeks contract certification that the Zika virus does not exist in mosquitoes or larva in soy cargoes. The request has initially been for Brazilian, but most US exporters expect that such certification will also be demanded from the US as the virus spreads across the Southern US in coming months. One Brazilian port is already certifying that cargoes will be Zika free, and exporters are urged to fumigate at discharge to be absolutely sure. The lack of certification at other Brazilian ports may allow Chinese buyers to wash out of cargoes and take a profit at a reduced cost.

• Recent history reflects that Chinese grain/soybean importers have been able to use tougher CIQ demands to their benefit. Recent cases include Canadian canola (residue contamination), GMO US corn, and red beans (dioxin) back in 2004. We doubt that Zika will pose as much as a pythosanitary problem, but there is no doubt that with Chinese soybean crush margins at their lowest level in two years, that there could be a desire to slow future imports (maybe we are just cynical!).

• We note that a cargo of Brazilian soybean meal has set sail for the US, the first this year

• S American and Chinese cash traders now estimate that 6-9 cargoes of Brazilian soybeans have either been washed out or switched (to Argentina) in the past 24 hours, and there is a desire to do more. Soybean oil market length is record large and it is estimate that funds are long nearly 50,000 contracts of soybeans. If Thursday’s US sales report does not hold solid sales totals, we would look for further liquidation into the long holiday weekend. So many cash soybeans have moved in the Midwest, it feels like a second harvest! Research argues that a seasonal high was set yesterday in soybeans with the market make-up now more balanced heading into the March 31st report. Unfortunately, the world is still awash in grain.

• Despite our thoughts yesterday that we would be seeing a classic Turnaround `Tuesday today, Chicago grains (corn and wheat) are all but unchanged whilst soybeans closed in positive territory. Fund buying has continued as May soybean futures pushed above the 200 day moving average, the last time this occurred was August on fear of adverse Midwest weather. Whilst there is no such threat right now it is the technical market status and imminent new crop planting season that has triggered the push higher. We acknowledge the jump in prices yet struggle to accept that the longer term fundamentals have changed materially, consequently believe that some protective measure needs to be put in place to ensure that opportunities are not missed. Matching physical purchases with a put option would give some such insurance and this can be discussed further if desired.

• From an historic perspective we see the rally in soybeans as contrary to supply fundamentals; we have more soybeans in the world today than was the case at the time of the end December or even October highs and harvest is fully under way in S America. Clearly we need to watch the position very carefully in the next days and weeks to look for a confirmation of trend or otherwise.

• Wheat losses in the US due to the weekend freeze fall into a very broad range of estimates ranging between 5 and 60 million bu. We have seen such conditions previously and feel that it is too early to place a substantial output loss as the crop has time to re-tiller and form a new head before maturity and harvest. Again close scrutiny will be the required in the near term. Interestingly global cash wheat prices have not reacted higher with abundant old crop stocks keeping a lid on prices at present.

• On balance we continue to favour a view that suggests we are close to a seasonal high price as the current move higher appears technical and chart based rather than fundamentally driven. Plentiful global supplies should cap upside before too long – unless other factors intervene!

• Chicago markets are starting the week on a slightly firmer note as fund buying continued after the weekend break. Seemingly buying by the funds started in the Kansas wheat market and spread to remaining markets including soybean oil. As we approach not only month end but also quarter end the funds appear willing to shed more of heir net short position than many would have anticipated. Some of the data coming from the Kansas wheat crop suggests losses are inevitable although largely inconsequential in  volume terms when placed into perspective of a globally oversupplied market and record stocks.

• On a slightly different note Chinese soybean crush margins are at their lowest level in two years, some $1.35 below last year. Soybean meal prices are at eight year lows and imports of soybeans in the coming few months will be at record levels pressuring prices with supply. Consequently, we maintain Chicago prices will struggle to maintain the current rally.

• There is an expectation of Chinese reserve stock sales to be announced by 1st April and as much as 50 million mt of corn and 6 or 7 million mt of corn could well be made available – AND it is suggested that the  large volume of stock will not be replenished.

• We would be looking for a very classic turnaround Tuesday tomorrow as Chinese demand for S America soybean and meal supplies is reported to be slowing at the same time Argentina is becoming more aggressive in its export offers. Low Chinese margins and prices combined with huge (potentially record) supplies looks as if we are close to a seasonal high in prices right now.

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

Weekend summary 18 March 2016

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

Fund positions

• Soybeans and corn pushed higher yesterday although closing well below the top of the range (uncertainty??) whereas wheat closed convincingly lower and this spilled into European prices as well. A weaker US$ and fund short covering added support to corn and beans whilst Black Sea and French cash wheat offers were still in decline as old crop stocks are looking for homes ahead of what could prove to be another record harvest. Abundant global wheat stocks remains the message.

• NOAA (The National Oceanic and Atmospheric Administration is an American scientific agency within the United States Department of Commerce focused on the conditions of the oceans and the atmosphere) released their latest long range forecast which calls for above normal precipitation across the Plains with cooler than normal temperatures into  midsummer. The Midwest would see near normal rainfall with above normal temps from the N Plains through the Great Lakes. Near to above normal temperatures was suggested for the July/August period, but there was no mention of any lasting Midwest/Delta dryness. The forecast was seen as bearish for wheat with their April forecast calling for near to above normal rains and near below normal temps.

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

Wheat: 372,400 mt, which is within estimates of 350,000-550,000 mt.
Corn: 1,288,500 mt, which is above estimates of 700,000-1,250,000 mt.
Soybeans: 858,800 mt, which is above estimates of 400,000-800,000 mt.
Soybean Meal: 83,500 mt, which is within estimates of 50,000-300,000 mt.
Soybean Oil: 17,500 mt, which is within estimates of 4,000-30,000 mt.

• Brussels has issued weekly wheat export certificates totalling 765,635 mt, which brings the season total to 21,452,755 mt. This is 1.92 million mt (11.55%) behind last year.

• Friday’s COT (Commitment of Traders) report will make interesting reading, to see by just how much the funds have changed positions, and also whether crude oil’s key price resistance at $40/barrel will hold or be breached – which will likely impact agri-commodities.

• Egypt’s GASC has secured 240,000 mt of wheat for April shipment with France picking up half the volume and the balance was split between Romania and Ukraine. The price paid was reported to be $188.86 basis C&F, which is just over $4.00/mt above their last tender on 2 March. Offers were limited to six amid ongoing conflicting signals over ergot content.

• Chicago markets are struggling once again for fresh news and midday saw minimal change, and the run up to the close tonight is little different. Wheat has failed to trade above the week’s high and flirted with 50 day average prices, and has shed 4 cents. Soybeans are all but unchanged as the Brazilian Real plunges and a 100,000 mt old crop sale is announced – mixed inputs resulting in stagnant prices. Recent firming in the Real has pushed trade towards the US but the recent downturn will likely trigger Brazilian farmers into making further sales. However, as Chinese crush margins erode still further demand from China for further soybean supplies remains muted at best.

• US crude oil stocks, as recently suggested, reached a new record volume as of data based upon last Friday, the figure 1,218 million barrels, is 6% above last year but prices rose $1.50/barrel as expected stocks levels were higher.

• Neither the bulls or the bears have a hols on this market right now, the upcoming US stocks and seedings report may provide some pressure one way or the other. New crop corn and soybean prices justify some form of premium given acreage uncertainty and weather conditions at planting and establishment, and at this time the wheat premium over EU and Black Sea has been very reluctant to erode amid uncertainty over W Plains moisture. However, the ongoing big picture of large global stocks continues to dominate and lasting rallies look doomed to failure unless the weather chooses to intervene.