• Chicago markets are somewhat more mixed today with the grains, corn and wheat trading with modest gains whilst soybeans are again lower on further fund selling. It is first notice day and positions are being pared back as debate rages hotly on just how high the US national soybean yield will be in the September report. Nov ’16 soybeans have dropped below the early August low of $9.43, and closing levels will bear close scrutiny for clues to further direction. News that Chinese delegates to the US are in the process of agreeing frame contracts is not hugely significant as they take place pretty much every year although it is a market talking point.

• Soybeans falling to two week lows, the ongoing big supply story amid general commodity weakness and US$ strength continue to lead the market. Improving crop condition in late August is rare and this is also foremost in price discussions at present, as is the lack of threatening weather into mid-September, which will likely benefit the crop further. Studies are starting to suggest that downside objectives are close at hand, hence our reluctance to join the bearish trend. We should remember that soybeans are a global crop and whilst US yield/output is close to being a “done deal”, we will not know the relevance of S American crop weather until year end. To that end US supply and demand is one factor and S America is another, we should not lose sight of that.

• Egypt cancelled its latest wheat tender having received a solitary Ukrainian offer, recall our suggestion that exporters may well be reluctant to engage in fresh activity in the light of the renewed zero tolerance ergot policy.

• Russia’s AgMinistry has proposed eliminating ite wheat export tariff effective 15 September. Whilst not a significant factor the key going forward will be export capacity and whether the prior record 25.5 million mt figure can be exceeded; winter conditions will be a major factor.

• Big or record US crops continue to be digested, while there is a first indication of demand rising at current cheap prices. A bullish outlook is not advised at this time. Whether NASS yields match expectations will be theme of mid-September.

• The graphic below highlights the “silver lining” of falling grain prices! US ethanol margins have been rallying steadily since late summer, and there is even a modest incentive given to ethanol blenders, basis spot prices. Also, in the cash market, calculated margins are some $.10/gal above ALL costs, and so the market is working to clear excess supplies. US corn end stocks look likely to stay north of 2.0 billion bu, and no doubt a record crop will harvested this autumn. It is just that with prices at multi-year lows, and the goal of the market to find/boost consumption this is being accomplished slowly but steadily. Supply data will have been fully digested by early September, and focus thereafter will be placed upon US demand and S American seeding intentions.

• We should note that Egypt made their third wheat tender of the season last Friday and secured 180,000 mt from Russia for late Sep/earlyOct shipment at a reported price of $185.52/mt basis C&F, which is more than $8.00/mt above the 12 August tender. The market on Monday was sharply lower on further news from Egypt, this time they have reverted to a zero tolerance policy on ergot contamination. International acceptance standards permit 0.5% contamination but Egypt has once again adopted their last season (partial) zero tolerance. This will push their costs higher as exporters only commit with reluctance as the costs of rejection are so high, in addition the absence of France (so far) from international line-ups will further restrict Egyptian options.

• Monday saw another week of what could best be described as excellent US crop condition ratings, which spurred weakness, and this has been followed today. We remain in the grip of the supply side of the equation and many are speculating on a boost in soybean yield in the September USDA crop report. The ProFarmer tour results, released late on Friday, placed yield at 49.3 bushels/acre, higher than the USDA’s August estimate, and the weather appears to remain favourable potentially seeing further yield upside prior to harvest. It is interesting to note that on an historic basis the ProFarmer estimates have tended towards under rather than over estimation.

• The tour corn yield estimate was reported at 170.2 bushels/acre, below the USDA by 4.9 bushels/acre, which if proven correct would see end stocks a touch below 2 billion bu. However, the market was not shaken and Monday saw the fifth consecutive lower close and Friday saw new contract lows.

• The US markets are suffering some pain right now as they dip yet lower searching for price levels that will trigger a demand led recovery. August is traditionally a weak period for soybean and grain markets, it seems that the US is moving back towards becoming a dominant exporter by mid-autumn.

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

Wheat: 379,700 mt, which is below estimates of 400,000-600,000 mt.
Corn: 1,131,000 mt, which is within estimates of 900,000-1,250,000 mt.
Soybeans: 2,054,700 mt, which is above estimates of 1,150,000-1,500,000 mt.
Soybean Meal: 213,800 mt, which is within estimates of 90,000-300,000 mt.
Soybean Oil: 3,700 mt, which is within estimates of zero-40,000 mt.

• Brussels has issued weekly wheat export certificates totalling 491,748 mt, which brings the season total to 4.372 million mt. This is 972,690 mt (28.6%) ahead of last year. Barley exports for the week reached 79,945 mt, which brings the season total to 974,983 mt, which is 1.4 million mt (59.0)% behind last year.

• Latest global crop estimate figures released today include SovEcon’s 2016 Russian grain output at 117 million mt, a month on month increase of 1.7 million. This includes 73 million mt of wheat, which accounted for the overall increase.

• The International Grains Council increased their 2016/17 global wheat output estimate to 743 million mt, a 8 million mt increase from last month. 2016/17 global corn was put at 1,030 million mt, 13 million above July and up from 969 million mt last year. Global soybean output for 2016/17 was also estimated higher than last year at 325 million mt, which is a 9 million mt increase. Of note was that US corn output was increased 14 million mt month on month to 379 million mt.

• News was received today that the Nord Cereals silo facility in Dunkirk, which is a delivery point for MATIF wheat, is to suspend deliveries as of Monday. No further information was given.

• Chicago markets have seen a “red” session so far today with soybeans pacing the way lower with the grains similarly easing. It seems that China has a  limited desire to extend cover much further forward and the story swings from “big demand” back to “big supply” as we have suggested would be the case on m ore than one occasion in recent weeks.

• The ProFarmer tour results continue to give potential for a modest hike in the next NASS yield report due for release in September whilst they currently validate a corn yield at/close to/just above 170 bushels/acre. Consequently we are unlikely to see any substantial downward adjustment in US corn supplies. US crop supplies remain in an upward trajectory and end users can see this, and are less inclined to follow or chase rallies right now. The final ProFarmer results will be available on Friday and we will update as and when we have the data.

• It must not be forgotten that we are still in the month of August and right now it is supply ideas that are driving markets and prices, and likely to remain the case until early US harvest is well under way. With funds heavily short and US corn now globally competitive we see the global market building (albeit slowly) a sizeable demand base, which is likely to see downside potential limited.

• Chicago markets have seen further selling in the soybean complex as the Pro Farmer tour reports strong pod counts with obvious associations to yield prospects. November ’16 soybean futures pushed to a new weekly low, which in the event of a breach of $9.96 would see the trend reverse to downwards. Corn has made a rally attempt on the Pro Farmer tour suggestion that the NASS yield estimate is too high with its 175.1 bushels/acre forecast. Wheat is a follower (nothing changes!) and Chicago Dec ’16 futures pushed to new contract lows adding to the bearish profile.

• Recall our comments on big crop/big demand, we continue to caution against an overly bearish stance despite seemingly bearish fundamentals! Trade looks likely to remain rangebound until US harvest gets well into harvest or a S American weather problem emerges.

• The trade is watching the steady stream of internet updates from the Pro Farmer crop tour via social media. Traders are leaning to smaller US corn yield than USDA and larger soybean yield. Yet, export demand for Gulf corn, soybeans and wheat is cooling. Funds are exiting shorts in corn, but are flat in wheat and sellers of soybeans. It appears that the market has any real trend heading into this week’s close.

• Gulf cash corn basis levels continue to rise higher based on an active load out program and a slow start to the Delta corn harvest due to excessive rainfall. As Brazilian corn exports are expected to decline by 15-17 million mt (total depends on final Brazilian corn crop size) and Argentina being nearly sold out of its harvest, the US and Ukraine will battle for world feedgrain demand going forward. We expect that with the Russian and EU corn crops in retreat, and the US corn export profile (which is growing by the day) US corn yields will have to rise above 175 bushels/acre for even weaker corn prices during harvest.

• After the close last night , NASS reported that 72% of the US soybean crop was rated as either good or excellent, unchanged from last week, and up from 63% last year. Including all crop ratings, the US soybean crop is now the second best rated crop on record. Strong export demand continues to underpin November soybeans, with major moving average technical targets at $10.34 and then $10.45.

• NASS also reported that 75% of the US corn crop was rated as good or excellent, versus 74% last week and 69% a year ago. The US corn crop is now the best rated crop on record, for late August. The trade will closely monitor the daily updates from the Pro Farmer crop tour. As noted in tonight’s report, Pro Farmer results have proven to be a good indicator of the USDA’s September crop report. This makes sense, since NASS will begin it’s own crop survey at the end of the month. Technical trading and slightly better than expected demand is offering support for the corn market, with initial technical targets at $3.60-3.70.

• The Black Sea is where world wheat prices will be determined and talk that Russia is preparing to halt its export duty until next July was seen as slightly bearish. Although the modest duty was not having much impact on Russian wheat exports to date, the trade well understands that Russia has a huge pile of wheat (27-30 million mt) to export, and that the ending of the duty may produce a bump in domestic cash bids to entice farm sales. Russia does not have the storage to hold a record large wheat and corn crop into the winter and a stepped up producer sales program is expected once the summer row crop harvest commences. US spring wheat harvest advanced to 65% complete versus 48% last week and the 5 year average of 46%. A global cash-led rally looks to continue through autumn, but without major N Hemisphere threats next week rallies look as if they will be tough to sustain.

• Chicago markets saw mixed trade this morning with soybeans making gains as the grains, corn and wheat sagged. It was larger than expected weekly soybean exports that rallied the market to testing $10.15-10.20 basis Nov ’16 futures. The grains were unable to follow where soybeans led. Long soybean vs. short grain trades are featuring today. Any close above $10.21 in Nov ’16 soybeans will likely trigger further chart based buying. The market is very much focussed upon big demand in soybeans and grains are lagging behind on big crop prospects.

• We have today heard that the Russian Minister of Economy has issued a statement supporting the elimination of there export duty on their wheat exports. It appears that the the odds are growing that by the end of harvest, in mid-September, the duty will be scrapped. Despite the duty not having a substantial impact upon wheat exports, a record harvest of some 72-73 million mt and lack of funds for more than maybe a million mt of intervention purchases will likely continue pressure Black Sea prices. Maybe, just maybe, the duty will return in July 2017 with the new harvest, but Russia is in the throes of becoming even more competitive (and aggressive) in global grain export trade. Consequently, the news is being taken bearishly in both Chicago and EU wheat markets.

• In summary, US soybean exports were huge for the week ending Aug 18th at 35 million bu. We have cut our 2015/16 US soybean end stock estimate to 225 million bu and 2016/17 to 300 million bu amid a 30 million bu export bump. Thus, a 50 bushels/acre US 2016 soy yield would not hike 2016/17 soy stocks above 400 million bu! This implies that a seasonal low price was scored at $9.43 basis Nov ‘ 6 futures. Our immediate upside target if $10.25-10.40 basis Nov ‘ 6. Corn/wheat have also forged lows, but will likely chop irregularly higher until the summer row crop harvest commences.

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

Weekend summary 19 August 2016

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

Fund positions

• Yesterday in Chicago saw soybean markets lower but $10.00/bu support held and prices closed well off the early lows. Products were similarly weaker early on in the session but found support at the session moved on.

• Corn in Chicago ended higher for the fifth consecutive session again finding support at the lows. Strong demand for US supplies appears the underlying issue as Black Sea cash premiums have rallied to levels above US Gulf. US ethanol blend margins have turned positive amid the ongoing crude and gasoline price rally, which is also supporting corn cash and futures prices.

• In wheat we note that the US has reportedly sold to Algeria, a traditional French stronghold, which is maybe indicative of the concerns over French crop quality. French and German offers for Nov/Dec have reached $200/mt, the highest level in some 13 months! Chicago fund short positions continue to be pared back and this too is adding support.

• The new crop soybean/corn ratio pushed to a high in late June of 3.1:1, and since held in a very wide range, at historically strong levels. The only other year that the ratio has held so strong at this time of year was in 2009. The ratio is often used as a guide to potential acreage shifts ahead of planting, but once crops are planted becomes a function of each commodities individual supply and demand outlook. This year, it’s the record corn yield and the monstrous soybean export demand that has held the ratio at historic levels.

• Chinese crush margins have recovered to their best levels since February as soybean oil demand/price recovers. The chart below reflects that Chinese crushers are back to making money! Chinese crushers are securing US soybeans trying to lock down domestic margins. We are told that an additional 4 to 6 cargoes of US soybeans sold to China Thursday and for the week to date, China has secured 20 to 25 cargoes. Brazil and Argentina are sold out of old crop soybeans and the US will export record large totals of soybeans through January. It’s this demand for US soybeans that helps absorb record large yield/production.

• Chicago markets have once again moved higher with soybean oil providing the initial stimulus as funds added fresh longs in the wake of overnight palm oil firmness. The one story we subscribe to at present is the fundamental bullish tropical oil picture based upon tight Malaysian stocks and good export interest. We can add to this the 2016/17 US soybean oil stock level forecast to reduce to its lowest in many years, despite record large crush rates that are straining capacity. The reduction in US soybean oil stocks together with the improved export demand is the bullish input right now. Technical soybean oil chart patterns are in the process of building a bullish “head and shoulders” pattern, which could well add to upside momentum in the short to medium term.

• Regardless of supply position in corn and soybeans we are beginning to see a build up in demand for US supplies and this is contributing to support, which will spill over into non-US markets.

• Soybean oil remains the bullish driver in the near term, but caution should be observed in adding to positions until such time as we see confirmation of growth in US export demand. Price upside is not yet guaranteed!

• We have seen Chicago markets trade back and forth this morning and as we approach the close soybeans are a shade down whilst the grains, corn and wheat are just in positive territory – a “non-day”. Crude oil, which is a little firmer is having a positive influence and the potentially large US summer row crops, which are only just around the corner suggest that caution should be adopted when making large purchases. Further US soybean sales to China have been noted and one can only wonder how much they will chase prices should they continue higher given the potential for a record large US crop.

• On the subject of China, it is reported that their government will halt reserve corn and soybean stock auctions in early October. The point being that if China is serious about shifting old crop stocks it will have to become more aggressive as far as prices are concerned in coming weeks, which could pressure prices.

• Weather prospects appear to be improving for pressured farmers in Germany and Poland, and the next ten days appears to offer a window of harvest opportunity. Their harvests have struggled over the past few weeks amid frequent rain showers, which have harmed quality and yield, and the forthcoming window should help harvest progress more strongly. Additional downgraded (to feed) wheat is the last thing required within the EU market at this time. Germany’s feed coops are forecasting their 2016 wheat crop at 24.21 million mt, some 8.8% below last year’s record output.

• Next week sees the start of the influential US Pro Farmer crop tour and it will be interesting to see if they validate the US’s latest yield estimates in corn and soybeans. We see little to trigger either bullish or bearish price trends until such time as we see the start of mainstream US harvest activity.