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• Brussels has issued weekly wheat export certificates totalling 243,580 mt, which brings the season total to 8.54 million mt. This is 967,407 mt (12.6%) ahead of last year. Barley exports for the week reached 4,315 mt, which brings the season total to 1.28 million mt, which is 2.9 million mt (69.3)% behind last year.

• Chicago markets are trading up again as we write this (earlier than usual) in a continuation of overnight price action with soybeans higher in technical trade, corn rallying with the beans and wheat also higher in line with higher global levels. The soybean complex is experiencing an upside breakout in meal on the back of a global growth theme, which it seems is the current mantra from some of the funds. Clearly the market is looking beyond the short term supply glut and focus is switching to a more macro outlook and fund managers are reported to be taking a more bullish stance on many commodity markets in the face of an improved demand outlook across the globe.

• Similarly in corn the short term supply situation has been moved to the back burner and the fund net short position, unlike soybeans, could well provide further upside impetus if December futures close above the 100 day moving average at $3.55, the market is currently trading higher, and funds decide to cover.

• In wheat, as the month end approaches, we have to watch to see if the funds decide to cover their short positions, or whether they will try to defend their shorts. Doubtless Egypt’s large purchase this week has given the market a “shot in the arm” and we are witnessing the outcome right now.

• Yesterday’s GASC wheat tender resulted in a purchase of 420,000 mt, by some way the largest of the season so far. Russia secured 180,000 mt, Romania the balance of 240,000 mt at $193.40/mt and $192.50/mt respectively (both basis C&F for early December shipment). By way of comparison the Egyptian season total stands at 1.6 million mt vs. 2.8 million mt last year when the average price then stood at around $209.00/mt.

• There has been a suggestion that Russia’s wheat crop may be as much as two to three million mt overstated by the USDA, which is adding a touch more support to pricing today. Consequently, our view that downside risk in wheat is limited is strengthened a notch or two today. US Gulf wheat pricing now looks comparable to Black Sea, Russia and Ukraine levels thereby limiting downside. US Gulf corn is now at a $0.10 discount/bu to Black Sea as far forward as February, which again suggests downside risk is limited.

• Chicago markets have today seen fund buyers, once again, active with the soybean complex leading the way and indeed with soybeans closing almost 2% higher. This “bounce”, for want of a better description seems all about solid demand, and the “big crop” vs. “big demand” story could well be taking a turn in favour of the demand side at this time.

• In Argentina the weather is leaning favourable for dry conditions, which will benefit planting in the coming week across the wettest areas. Meaningful rains are also forecast across C and N Brazil where frequent showers are a feature for the next two weeks. A welcome, and needed, boost in soil moisture levels across key areas of Mato Grosso, Gois and Mato Grosso do Sul is on the cards as are near to normal temperatures.

• Soybean future are close to or just above what seems to be fair value and the longer term thought process remains, namely price rallies will attract additional non-US production. Already we are hearing of price stimulated acreage expansion in spring plantings, although this is very speculative at this time. As prices rise, specifically in soybeans, we believe that there is an opening for downside unless there is a fundamental input to support a longer term bullish trend.

• Price action in Chicago markets can be best described as listless with wheat, corn and soybeans all just in positive territory as we write this. The US$ is pretty much unchanged, crude oil is down just over half a dollar/barrel and volumes are weak, almost as if market participants are bored with the whole thing!

• Egypt’s GASC has issued a further wheat tender, results are not yet published, with the lowest offer once again from Russia on an FOB basis. The offer lineup is said to include one US offer although it is expected that it will be rejected on a CIF price basis. The growing lineup of offers suggests that confidence in Egypt as a destination/trade partner Is growing.

• US physical cash ethanol margins continue positive and with Brazilian cash ethanol prices rising, the potential for US exports remains buoyant and the likelihood of solid corn grind into winter remains, which is positive for corn prices.

• The S American weather forecast earlier today was a touch drier in N and W Argentina, which is needed following recent rainfall. Moisture will exit Buenos Aires in the next 24 hours, and a lasting period of dryness develops thereafter. Corn planting should stay well ahead of last year. Otherwise, a pattern of light but near-daily showers continues across C and N Brazil. Two decent systems are offered to S Brazil in the next 10 days. Producers in N Brazil, especially, have cheered recent rainfall!

• Chicago has seen corn and wheat fail to breach technical resistance although we continue to remain reluctant to turn bearish on the news. Even at current prices, US Gulf corn is the world’s cheapest through to February and it should be noted that Gulf wheat better competes against Black Sea basis $4,00-$4,10 basis Chicago futures. The outlook continues choppy with direction unconvincing at best for now.

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Weekend summary 21 October 2016

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• The weather community over the last week or so has been abuzz over a cooling equatorial Pacific and rising odds that La Niña will be established through winter and early spring. Indeed, forecasts have trended such that La Niña is fully expected, but just how long it lasts will be important to 2017/18 yield potential. NOAA will release its updated seasonal climate and drought outlooks on Thursday morning, and we expect much of the text to center on La Niña odds and duration.

• Chicago markets are lower today as the trade saw and digested strong weekly export sales data; it feels as if there is a “buy the rumour, sell the fact” type of mentality at present and choppy price action is anticipated going forward.

• The US weekly export sales figures saw soybean totals at 74 billion bu up 22 from last week with meal at 398,000 mt, the largest since March and compares with 225,000 mt this week last year. Corn sales were 40 million bu vs. 34 last week whilst wheat sales were 19 million bu up slightly from previously.

• Brussels has issued weekly wheat export certificates totalling 270,282 mt, which brings the season total to 8.3 million mt. This is 1.12 milion mt (15.65%) ahead of last year. Barley exports for the week reached 64,462 mt, which brings the season total to 1.28 million mt, which is 2.84 million mt (68.9)% behind last year.

• Whatever is happening right now appears to be having minimal market impact, the next key fundamenta input will come from S American weather.

• Managed funds are sitting on one of their largest net short position in agri commodities since the harvest of 2015. The large fund short in corn and wheat could easily propel a further Chicago rally. However, the advance is unlikely to be linear, but rather choppy as a dance of “two steps up and one step backwards” plays out. The chart below shows that large fund shorts could help positive seasonal price trends persist as the US harvest nears completion. The record large US export demand for soybeans and corn through to January will offer support to Chicago markets. We would be careful about selling market breaks as US farmer selling eases back.

• Chicago markets are all higher as we approach the close tonight, price breaks found support! Reports from the US combines suggest that NASS’s latest figures are close whilst record corn yields across parts of IL, SD and NE continue to roll in. Soybean results have not changed significantly with yields mostly at record or better than initially expected levels. Cash basis prices are stabilising as we would expect as harvests approach 60 and 75% complete for corn and soybeans respectively. The lack of S American supplies is probably the key factor preventing further price decline.

• Macro markets are supportive today with crude once again at rally highs, spot prices are approaching $52/barrel and US stock levels continue to decline. The crude oil price rally is supporting currencies in Russia, Brazil and Australia, which is in turn supporting US wheat prices in the global marketplace.

• A host of private weather firms, as well as NOAA, are turning a bit more certain on the development of La Niña in the final weeks of 2016. Latest model guidance also indicates a moderate La Niña is probable through the first quarter of 2017. La Niña is, at times, a negative for S American rainfall and temperatures in the December-February period, but it’s late development produces more uncertainty with respect to crop-critical weather. We note the near term S American outlook suggests rising soil moisture and a boost in early season crop ratings, but along with a cooling PDO index long term weather watchers, ourselves included, will be on alert.

• US harvest in the next two to three weeks will be winding down, and seasonal price trends are steady/higher into late year. We would advise caution against turning overly bullish at current price levels.

• Chinese soybean oil prices rallied to new two year highs to start the week on shrinking domestic supplies and strong demand. Last week’s rapeseed reserve auction sold out with prices rising and the quickening price rally has some wondering if China does not become more active in canola and soybean markets to help bump up supplies. China will want to pressure domestic prices heading into the Lunar New Year which comes early this year on Jan 28th.

• Having said that, we saw early prices ease on hedge selling although that did not last with soybean futures pushing above 50 and 200 day moving averages and the grains are tagging along – for now. It seems the funds are back covering their shorts whilst farmer selling has slowed, both pressuring markets to the upside.

• Chinese demand for soy products remains robust with sharp domestic rallies noted overnight. Chinese soybean meal users continue to add to coverage which is partially related to the decline in DDG availability and also due to strong profit margins for pork producers. Chinese soybean oil prices broke out to the upside and domestic end users are adding to their coverage. The Chinese are more active securing US soybeans amid their rising soy product prices and crush margins. As ever, China is the key importer to watch as their activity so often dictates price direction.

• Brazil could import record amounts of US corn ethanol as their prices soar due to reduced cane production. Brazil could import 1.2-1.4 billion litres of ethanol, mostly from the US. The US ethanol export opportunity is solid amid rising crude oil values and this along with heady corn demand in the world feed market will help in furthering the current Chicago rally.

• Monday morning has been mixed with soybean and wheat futures higher while corn futures are slightly lower. The surge in world vegoil prices has offered support to Chicago soybeans along with huge weekly export inspections. The Chicago wheat market has followed world wheat prices slightly higher in the Black Sea while corn remains lacklustre on reduced fund selling and some fresh wheat/corn spreading. We would look for mixed close tomnight and we doubt that the grain futures will be able to sustain any lasting recovery. By early Tuesday, fund buying interest is expected to wane.

• Chicago markets are holding better than expected which could spark some additional late day short covering by the funds. We maintain that seasonal highs should occur in the last half of October or early November. Our upside price target remain; $3.60-3.70 December corn, $4.30-4.40 December Chicago wheat, and $9.90-10.10 in November soybeans. November options go off the board on Friday.

• The midday weather update is drier across the Plains and much of the Midwest, with the only real chance of soaking rain occurring across the Ohio Valley and northward into Ontario. The remainder of the Midwest, Delta and the Plains will enjoy excellent harvest conditions. The overall weather pattern remains a Trough/Ridge/Trough which will produce above to much above normal temperatures. If the forecast is correct, much of the Central US corn and soybean harvest should be completed in the next two weeks. We see little to no issues with Central US weather other than the drying of topsoil for US winter wheat germination.

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Weekend summary 14 October 2016

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Fund positions