• We have today seen Chicago markets ease a touch on what seems to be profit taking although the grains, corn and wheat were holding onto gains early on. Crude oil extended its overnight rally as OPEC agreed to cut production in 2017 by 4.5%, the first organised cutback in eight years. The US$ is a touch stronger with the dollar index testing last week’s highs, which is dampening enthusiasm in fund buying in the ag sector.

• Egypt’s GASG secured a further 240,000 mt of wheat, for early Jan ’17 shipment, from Russia in its latest tender, the reported price paid was $202.50 basis C&F, which is the highest price paid so far this season.

• The weather forecast for S America shows a more favourable pattern for S Argentina through to the weekend, which if realised, will be beneficial to crops, otherwise the forecasts are little changed. Main area forecasts include steady to moderate rains in the coming two weeks with soil moisture replenishment in evidence. Parts of Argentina are facing moisture deficit, which needs to be watched, but remember that corn and soybeans are less than half planted at this time. Excess heat is not forecast, which has to be regarded as good news.

• Other news is markedly absent and looking back in history it should be noted that late November/early December is traditionally a slow period for inputs.

• Tuesday has seen a red day in Chicago with corn, wheat and soybeans all easing back as the 1st December first notice day fast approaches and funds slow their purchases of Chicago soybeans. December Chicago wheat has fallen to contract lows and this has pressured markets in London and Paris, both of which are lower today. Chicago soybeans have fallen below yesterday’s low, which has triggered further selling. A closing price below $10.42¼ basis January futures would point to a $10.20 target, which was the former contract high price level.

• The soybean/corn and soybean/wheat ratio appears to be out of line. In spot soybeans/corn, that ratio rests at a historically high 3.05:1, while in new crop it sits at 2.7:1. Amid our estimate of 500 million bu plus of old crop soybean end stocks with new crop end stocks forecast in excess of 600 million bu, such premium of soybeans to the grains makes little fundamental sense. We suspect that the only reason why Chicago soybean futures are trading at such lofty levels is based on the ongoing speculative interest of China in positioning long in Dalian soymeal and vegoil futures. China’s speculative buying translates to strong crush margins and actual purchases as hedges in Chicago.

• It seems we are destined for a price bottom to be formed in Chicago grains before first notice day with a secondary rally in the soybean complex to determine if a longer term “top” is being formed. As stated above, we believe soybeans are overpriced relative to the grains; OPEC appears to be struggling to reach a supply deal, which is bearish to energy prices and pressuring to the ags; and US corn and soybean export demand is beginning to slow.

• Monday has seen a mixed start to the week with the grains, corn and wheat easing into first notice day (December futures) whilst soybeans hold onto gains. Volume of trade has been uninspiring.

• There has been a suggestion, as yet unconfirmed, that Chinese speculative buyers are once again active and that this will persist with the value of the Yuan heading towards 7:1 vs. US$. Additionally, some debate is going on over whether the funds will once again start to add to long positions or exit positions into month end. Many fund managers are still hurting from their swift repositioning following the US election and the sharp rise in the US$ and interest rates. We favour something of a “take risk off the table” stance going into month end, which will cap rallies and/or pressure prices.

• The charts look bullish and are driving soybean and product futures higher. A 50% retracement of the summer decline pencils out to $10.70 basis spot soybean futures, with an extreme upside price target at $11.00. It is our belief that this would create a selling platform because, at present, thee is little fundamentally that supports a rally of such magnitude.. Corn and wheat are laggards and cash wheat prices remains well below cash corn west of the Mississippi River. It’s hard to be bullish on corn without adverse S American weather.

• Chicago grain futures were down sharply in early trade, before the EPA announced its 2017 Biofuel mandates, something that has to occur in law prior to November 30th. It was expected that the EPA would announce 2017 biofuel mandates on November 30th (like last year), but they jumped the gun announcing it today. The new mandates caused a dramatic rally in soybean oil which has pulled soybeans higher, while soybean meal prices fell to sharp losses. Although the EPA mandates were long expected and did not come out much different from what has been advertised, they did cause a big flurry of fund buying in soybean oil. The EPA increased its conventional ethanol mandate from 14.5 billion gallons to 15.0 billion gallons, up 500 million gallons, the same increase as 2016. This would consume a potential extra 170 million bu of corn, which is not going to change the US corn balance sheet much for 2016/17 or 2017/18.

• Bear in mind that there is already talk from the Trump administration that they will move to end the blenders credit in their effort of tax reform. The point is that there are still a number of moving parts in the final determination of what the actual US biofuel use will be in 2017!

• Whilst today has seen a big push to the upside in soybean oil on the back of massive fund buying following the EPA announcement we would argue that we are in the process of forming a major “top” in vegoils, possibly by early December; we are not therefore about to turn bullish on either the grains os soybean complex just yet.

• Paris, MATIF, wheat futures have traded to a high not seen since August and Russian wheat export prices have now risen for nine consecutive weeks, which is somewhat different from the flat Chicago wheat futures picture.

• Today has seen Chicago futures trade back and forth with funds somewhat less active that yesterday. It has been suggested that yesterday’s rally was sparked by Goldman Sachs advice to be overweight in commodities for the first time in some four years. This, together with the Trump administration’e expected huge infrastructure spending spree has sent soybeans and commodities higher. What is being coined the “Trump Trade” has fund managers in a rush to secure stocks and hard assets based upon rising inflation.

• In the wake of recent fund buying it seems that funds are back to a net flat ag futures position (corn, wheat, soybean, lean hogs, live and feeder cattle). Will funds go long has been a common question  in recent days. So far there has been no evidence of inflation but with the Trump administration wanting to lower tax rates and spend on infrastructure, it would seem likely that we will see a return to modest inflation that would bolster the US$ and see US interest rates rising. This could, in turn, see some bullishness injected into some of the ag markets.

• In Chicago, March corn is getting close to $3.60 and January soybeans to $10.31 resistance. Even March Chicago wheat should uncover resistance above $4.30. The CBOT is trading money flow which is supporting today’s rally in reduced volume. We suspect that this rally effort is nearing a peak, and seasonal trends turn down following the Thanksgiving holiday.

• Today has seen Chicago markets led by soybeans, which are trading higher, retesting the post-harvest rally high at $10.20 basis the Jan ’17 contract. That high was posted prior to the USDA’s hike in yield to the record 52.5 bushels/acre in their November report. Crude oil has also gained sharply adding support to commodity markets and has provided some bullish momentum in reduced volume pre-holiday (Thanksgiving) trade. It should be noted that Jan ’17 soybean futures have pushed above the 100 day moving average, a potential trigger for additional buying. The grains have followed but in a more subdued manner.

• The US Thanksgiving holiday frequently provides a bullish momentum and our current feeling is that we should let this run its course as there is no fundamental driver to support a significant move higher at this moment in time. We understand that Chinese soybean purchasing is in the process of switching to Brazil although we have no hard evidence to back this up today. S American farmer selling in the cash market will likely see a solid price cap emerge and limit gains. The grains appear to have limited upside for now.

• It seems that there are fund managers around who are willing to dispute and disbelieve the USDA’s huge US soybean carryout figure and global end stocks number. Whether they are right, or wrong, will doubtless be proven one way or the other in the fullness of time! S American weather forecasts are in good agreement right now with normal weather prevailing. A strong jet stream is producing good showers/storms across N and C Brazil whilst drier conditions are scheduled for S Brazil and Argentina in the coming ten days. There are no extremes of heat forecast and Brazilian and Argentine crops appear to be heading for a good start to the season. The one minor concern is that Argentina looks as if it will trend drier in the 10-15 day period and this needs to be monitored; initially it will benefit seeding and fieldwork as soil moisture levels are adequate, but concern would rise if dryness continued into mid-December.

• Brussels has issued weekly wheat export certificates totalling 213,893 mt, which brings the season total to 9.2 million mt. This is 797,395 mt (9.5%) ahead of last year. Barley exports for the week reached 266 mt, which brings the season total to 1.325 million mt, which is 3.03 million mt (69.6)% behind last year. Note, next week’s update will be based upon actual customs reported export figures rather than the export certificates granted. Clearly this will create a temporary “blip” as data catches up, although the longer term will reflect a more accurate picture of actual exports.

• The bears have rising US end stocks; the bulls have demand and very competitive, if not cheap, US offers relative to other origins. Our view is that a more bearish pattern may resumes once (if?) trend yields in S American can be confirmed beyond January.

To download our considered view of the November USDA report please click on the link below:

Nov 16 USDA contemplation

• The USDA’s November WASDE is viewed as moderately bearish. Soybean yield was raised, which was expected, but by a bit more than thought, and surprisingly US corn yield was hiked to a new record 175.3. US corn ending stocks were lifted 83 Mil Bu to 2,403 Mil, soybean stocks were raised 85 Mil to 480 Mil, while wheat stocks were raised marginally to account for lower projected food consumption.

• Corn yields were raised across much of the Central US, with major upward adjustment noted in ND and MN, harvest results there did improved as the season progressed, and NASS’s ten state ear weight was pegged at 0.36lbs/ear, vs. 0.355lbs in October. It is a surprise, but NASS’s yields in November are typically very close to final, therefore these numbers will be used moving forward. Soybean yield at 52.5 is a new record and some 14% above the 30-year trend, and this deviation from trend is something that has not been seen since 1994. Substantial increases, compared to October, are noted in MI, WI, MN and KS. The USDA raised ethanol demand draw 25 million to a record 5,300 million bu. Other industrial corn use was boosted 60 million bu, but amid production of 15.3 billion, and total supplies of just over 17 billion (vs. 15.4 billion in 2015/16), a stock building year lies ahead. US corn production is forecast to exceed total consumption by a sizeable 600 million bu. Soybean exports were raised 25 million bu to 2,050 million, but crush was lowered 20 million bu amid a decline in projected meal exports. Total US soybean consumption was raised only 7 million bu, allowing end stocks to jump considerably.

• Global corn and soybean stocks were lifted slightly, mostly to account for higher US ending stocks. S American corn and soybean production was left unchanged, and major exporters’ corn stocks were also left alone. Slightly higher production is offset by rising global trade. Global numbers are far less exciting than US balance sheet changes.

• Corn, soybeans and wheat are down 5-20 cents at midday, with soybean leading the way, which is probably a fair and reasonable reaction. Indeed, yields were surprisingly high, and the need for the markets to find demand will remain intact. However, on breaks the markets will continue to find this needed demand. Following today’s price action, Gulf corn will be offered even further below other origins and at parity with Black Sea feed wheat. US Gulf HRW’s discount to Russian origin will be rising, and reliable S American soybean exports are still some months away. For some while research has indicated corn will trade at $3.35-3.60, basis spot futures, into late 2016. Soybeans are valued fairly between $9.75-10.20, basis January ’17 futures, with wheat’s range pegged at $4.05-4.30. NASS’s November crop report did little to change this, and we maintain that the next major driver of price will be S American weather in late December and early January. It is a bearish report, but Chicago futures are already viewed as cheap relative to biofuel margins and global prices. Neutral, choppy trade is still projected through the end of 2016.

• Away from the report we should note that Egypt purchased a further 240,000 mt of wheat for mid December shipment in its latest tender. Russia picked up 180,000 mt with Romania the balance of 60,000 mt at an average price reported to be $199.31/mt basis C&F. Interestingly, the price paid is close to $6.00/mt above the last tender and some $26 above purchases made last summer!

To download our USDA data recap please click on the link below:

USDA-Recap-9-November-16