• The USDA has reported on US weekly export volumes as follows:

• Chicago markets have vacillated on the last trading day of 2016 with funds cutting short grain/long soybean spread trades, volumes have not been heavy and prices have moved around quite sharply as a consequence. It has been interesting to hear some fund managers asking about long opportunities in 2017; seemingly after four years that have been largely bearish they are looking at Chicago as cheap and offering opportunity. However, this remains a “big crop” vs. “big demand” market place and it will require a S American weather issue in January/February to change this materially.

• January is a key month for soybean yields in Brazil and the forecast includes reduced prospects of rainfall across NE and NC Brazil. We struggle to become overly bearish as a consequence, and additionally the fact that the US has hit some 87% of annual soybean export forecasts supports this stance. This would appear to not be the point to turn bearish.

• We would like to wish everyone a very happy New Year and look forward to an interesting 2017.

• Chicago market volumes have been light as traders look forward to New Year and soybean futures have been liquidated in advance of first notice day Friday. Corn sagged with soybeans but wheat futures have firmed. Reduced volume markets leave themselves open to back and forth price action, which is something we have been seeing today.

• Chicago will trade normally (hours that is) on Friday and will close until Monday evening. January is the most critical month for weather and soybean yield impact in Brazil. Doubtless the markets will remember this week’s big $0.26 price surge and unless we see a change in the weather outlook and dryness in N Brazil, additional weather premium will feature strongly. Forecasts for S America hold some concerns into late January, and the trade will hang on to this feature until such time as it can truly be discounted.

• Egypt tendered again for wheat, and most offers were from Russia with no Argentine or US offers on the table. GASC secured a total of 235,000 mt with Russia picking up 175,000, the 60,000 mt balance from Ukraine. The average reported price was $197.42/mt basis C&F for early February shipment.

• S American weather is (as we have previously suggested) becoming a key driver of market direction and forecasts are little changed today. NE Brazil is forecast to see little or limited rain in the coming two weeks whilst NC Brazil chances range from 30 to 60%. This is, or should be, the wettest time of the year and with temperatures rising the risk of crop stress will be rising and potentially rapidly so. There is little, if any, evidence that dryness across La Pampa and S Argentina will end soon and it has to be stated that this is not a typical S American January weather pattern. Recall that January is key for soybean yields as stated earlier.

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Fund positions
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Weekend summary 23December 2016

• Chicago markets closed mostly lower with soybeans leading the way! China’s Dalian market saw overnight weakness in soybean meal and corn on account of avian influenza concerns and funds followed the trend. The drop coincides with another week of solid US exports and the funds have added to new short positions in the grains whilst liquidating soybean length. The market has a refreshed bearish feel although US soybean export sales at record large levels and some concerns over NE and NC Brazil will likely prevent an out and out return to bearishness. Also, bear in m ind we have just seen the third day of fund selling in the grains, and this is generally as far as fund selling extends – unless tomorrow proves different!

• Weekly customs export data shows EU wheat exports of 804,900 mt, which brings the season total to 12.987 million mt. This is 240,564 mt (1.8%) behind last year. Barley exports for the week reached 115,279 mt, which brings the season total to 1.997 million mt, which is 3.5 million mt (73.8)% behind last year.

• January is the most important month for S American crop production of the year. We would not want to be a seller of summer row crop futures until more is known about the 2017 Brazilian and Argentine yield potential. January soybean futures should target the $10.00 strike heading into option expiration on Friday. This is not a normal S American weather pattern and has to be closely watched. Our view is not to sell the three day drop in corn!

• Egypt’s GASC tendered for wheat once again, this time for end January 2017 shipment. They secured 360,000 mt with their first purchase of the season from Argentina included in the deal. The deal was concluded at an average price of $197.52/mt basis C&F, with Russia awarded 180,000 mt, Argentina 120,000 mt and Romania 650,000 mt; one of the Argentine cargoes was the cheapest at $196.53/mt basis C&F. Worthy of note is that the overall price average was almost $5.00/mt below the last tender at the end of November.

• Chicago markets are approaching the close with the grains, corn and wheat in negative territory and soybean just in the green. It seems that soybeans have failed to continue to decline as fund managers are reluctant to add to sales today in the wake of recent trades. Much of the recent decline and liquidation has centred on January futures, which will move into delivery next week. Grains are sagging on slowing demand. The month, quarter and year end are all pressing the markets into stagnation as holidays, P&L’s and bonuses rear their heads. European wheat markets are similarly starting to move towards a standstill as traders head for an extended holiday break.

• Rainfall remains in the forecast for much of Argentina in the coming five to seven days and this will likely limit trade to its recent ranges.

• Bird flu continues to expand across SE Asia with the price of eggs and poultry meat rising sharply. The H5N6 outbreak has culled a record 20 million birds so far. Most in SE Asia fear that the cull number could reach as much as 30 million birds if the incidence of the disease does not soon slow. Some are  estimating that such a dramatic cull of poultry could reduce corn consumption by at least 90 million bu.

• Dull is the session with funds selling corn as the market pushes below key moving averages. The soybean market is holding on grain/soybean spreading and modest cash connected buying in soybean oil. The Chicago market just seems to lack conviction ahead of the holidays. Traders are closing out positions as they look forward to 2017. NE Brazil accounts for 15% of the soybean crop with some dryness worries there offering some support. We continue to doubt that rallies or breaks will be able to be sustained into the holiday break.

• “Reflation” is a topic on every economist’s mind. The chart below reflects world inflationary trends since 2000 with a conservative forecast for 2017 of 3.4%. The New Year looks to be the first time since 2011 that inflationary pressures will build. Since then, the big worry has been stagflation and deflation due to growing world debt, aging western population demographics, and the displacement of jobs via technology. That has all changed with new confidence in the US political leadership amid the mass of $29 trillion of QE that has been pushed by Central Banks. This reflation makes being bearish raw materials a more risky proposition into 2017.

• Technical selling has been the feature in Chicago markets today with the soybean complex taking the bearish lead as yesterday’s $10.20 support level gave way as did a plethora of other support levels including the 50 day moving average. Sell stops triggered and markets fell and the complex looks heavy into the close tonight. Sharp selling in soybeans has impacted the grains, which have also lost ground; Mar ’17 corn futures have tested support, as has wheat, and whilst fund selling in grains is not as robust as in soybeans it remains tough to shrug off 15 plus cent losses.

• We have seen a snap tender by Egypt’s GASC to purchase wheat, and the results are still awaited as we write this. Doubtless we will have a result tomorrow, and will update accordingly.

• It has been down and out throughout today’s trading with fresh fund selling expected near today’s close. China is not showing interest of supporting the market on this dip (yet) and fund related selling could emerge in tropical oil markets. We would argue that new rallies will surface in 2017 on inevitable S American weather scares. Our view is that a broad trading range will continue through until the USDA Crop Report on January 12th. This is not a break we would be inclined to sell heavily, if at all.

• The week has started mixed in Chicago markets although as the day has progressed we have seen the market decline to losses across corn, wheat and soybeans. Early trade saw wheat in Chicago jump on bitter cold conditions across central US regions in trade that was described as active. Both bulls and bears could claim success today! Needed rain fell across Argentina and S Brazil over the weekend, the best amounts reaching ½- 1½ inches across Buenos Aires/La Pampa, and bear traders can claim S American yield potential remains intact. The bulls can claim Chicago have not collapsed on S American rains, and have actually traced in positive territory for much of today. Take your pick!

• One thing seems sure to us, and that is that we will gain some measure of quite how much weather premium is in soybean prices and whether or not it is a demand driven rally that we have been witnessing since late November.

• The US$ has held largely steady overnight and the Chinese Yuan is at 6.96 vs. US$. Dalian soybeans and meal futures closed mostly higher, helping early US prices. China continues to ship its existing purchases giving no concern for defaults or rollover of positions at this time.

• Jan ’17 soybeans have continued to hold $10.20 support, for how much longer? It has been tested more than once!

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

Weekend summary 16 December 2016

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

Fund positions

• Chicago markets traded lower on a stronger US$ earlier although soybeans are now in positive territory as the surge in the dollar lacked lasting impact. January ’17 soybeans bounced off $10.20 support once again as fund buying on the support level resumed.

• The market is leaning bearish, strongly so according to many, with some traders finding frustration that their positions are not working, particularly with rain in the forecast for Argentina and S brazil. 2016’s rallies and declines have added to frustrations as forecasting them has been tough. Now, we are seeing a lack of cash selling on price breaks and this is preventing (or making difficult) Chicago futures declines. US farmers are reported to have sold 66% of their soybeans and S American farmers are unwilling to sell amid the bearish views on their currencies. They will likely want to see their new crops closer to harvest before adopting a more aggressive cash sales position.

• US export data has been released as follows:

• Soybean and corn sales were well above expectations.

• Brussels has issued weekly wheat export certificates totalling 681,597 mt, which brings the season total to 12.18 million mt. This is 306,453 mt (2.45%) behind last year. Barley exports for the week reached 122,749 mt, which brings the season total to 1.88 million mt, which is 3.26 million mt (63.4)% behind last year.

• Frustrated bearish traders are exiting their short positions as wet weather foreacsts for Argentina and S Brazil have not pressured soybean futures. It is inflationary fears and the flow of index fund money which appears to be supporting soybean futures against a bearish fundamental landscape. The grain markets are in a trading range with upside targets at $3.70-3.75 basis March ‘17 corn and $4.30-4.40 in March ’17 Chicago wheat.

• Our latest take on global grain balance sheets can be downloaded by clicking on the link below:

Global Grain Balance Sheets Dec ’16

• US futures based ethanol margins are resting at their best levels in years. The chart below plots these margins excluding costs. Working backwards on costs suggests that most plants are making $1.14/bu of corn or $.39/gallon. The hefty margin of ethanol producers is one reason why Chicago corn prices are rising as US farmers hold onto stored supplies and US exporters and ethanol producers fight for supply. Rising crude oil/gasoline prices are only accentuating the ethanol production gains. Ethanol margins may have to peak before corn prices head back down.

• Chicago markets have been choppy with wheat, corn and soybeans a touch lower in slow volume trade. The Fed announcement has been the main watchpoint, and they did not disappoint with a ¼ point increase with a suggestion of faster paced increases in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation.

• The feeling this afternoon is that fund managers are wanting to buy breaks rather than sell rallies, with a belief that funds are just not in a bearish mindset right now, despite the global supply and stock position. However, we should point out that Jan ’17 soybeans have held support levels at $10.20 (so far) although there is a looming chart gap below $10.00, which should be watched carefully. There appears to be a lack of S American and US farmer cash related selling on declines, which has allowed Chicago futures to bounce. Recall US farmers have sold as much as 66% of old crop soybeans and S American farmers are bullish on surging US$ strength.

• Weather forecasts remain favourable for S America and private forecasters are increasing their estimates slightly for Brazilian corn and soybean crops. It appears to be the rain in Argentina that could expand soybean and late corn seedings.

• Our leaning remains towards longer term bearishness although we would expect and anticipate rallies into early 2017 on growing inflationary expectation in the US.