• Turnaround Tuesday has not materialised as we have seen a more stable day of trade in Chicago markets. Despite improved weather in Argentina there remains a debate in the soybean complex as to whether S America’s surplus will meet or even exceed increased global demand, and thereby whether the US will have to fill any gap in world trade. The key indicator will be global cash prices, which have not rallied since early January. This is a key point to watch going forward.

• There is little fresh news today, certainly nothing market changing and it is far too soon to assume we are about to see a US export collapse on the back of S American surplus production. Also our view of cash markets suggests the US will see export volumes continue at least through February.

• Chicago markets have started the week on the defensive with losses across the board as we enter the final 30 minutes of trading. Volumes have been reasonable and weather models offer a favourable shift in Argentina as the week unfolds as well as forecasting soaking rains across NE Brazil in the early to mid-February period. Early soybean harvest in Mato Grosso (largest producing state) has been slow but yields have been described as “solid”. Similar yields are being quoted across Goias in C Brazil.

• Market one-liners today:

Soybean markets are holding onto huge weather premiums and soybean meal remains overpriced.
Corn traders see good weather in S America and are wary of concerns with Mexico.
Wheat markets will struggle to hold support levels if other grains move lower.

• It seems that weather premium is being extracted from markets today, and we will doubtless see additions and subtractions over the course of the next four or five weeks into early March. As important from a market perspective will be yield reports from Brazil. Neutral market views are our stance right now until such time as we see just how well, or otherwise, S American yields have fared and how their exports pan out in early springtime.

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

Weekend summary 27 January 2017

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

Fund positions

• Our latest update on global wheat stocks can be downloaded by clicking on the link beow:

Major Exporter Wheat Stocks (Jan ’17)

• UK wheat premiums to feed barley remain at high levels, in the order of £21.00/mt on an ex farm basis. Whilst not creating records, there is a suggestion that the recent increase in poultry placings could add further pressure to the market. UK wheat prices look to remain well supported for the time being.

• One line summaries:

Soybeans: The threat in Argentina is shifting to dry, not wet and “normal” means down!
Corn: The trade sees growing concern with a big S American crop and weakness in ethanol markets.
Wheat: The US remains uncompetitive in global markets.

• Chicago markets have been lower today with under half an hour to go, soybeans easing to weekly lows and an early rally unable to be sustained on the back of weak US and S American cash markets. Volume has been poor in Chicago as traders tire of back and forth trade with little to show for it.

• US exports were reported as follows:

• Egypt’s GASC has tendered, once again, for wheat and at the time of writing there has been no announcement as far as awards are concerned; we will update accordingly in due course.

• For much of the past seven months, US corn has been the cheapest feedgrain in the world. This has bumped up US corn export inspections by 76% over the prior year in what we have coined the “big crop” vs. “big demand” marketplace. The chart below is reflecting the rise in world feedgrain values with S American offers well above the US until April or May in Argentina. The point is that world feedgrain prices are now rising, and unlikely to relax in a big way until sizeable Argentine corn exports are offered. Corn appears rangebound for now.

• Simplistic market commentary tonight suggests that soybeans will require daily supportive news input to avoid long liquidation and lower prices; corn is extremely overbought and there are fears of increasingly slower trade; the wheat market’s technical action is turning bearish and US exports continue to slow down.

• Away from the US it is now clear that UK wheat is the most expensive in the world having six months ago been competitive to say the least. We are seeing a tighter balance sheet, which is in stark contrast to the globally well supplied market, coupled with an early season strong UK export picture. Last month we saw LIFFE wheat hit a £30 premium over Chicago, which has eased in the last week or so, but this was a three year high. London futures rarely trade at a premium to Paris although this has been the case in recent times, likely as a consequence of French quality this year. There remains room for UK wheat prices to make further gains in relation to other world levels.

• There was a large surge in Index Fund net long positions in US ag futures during the yearly rebalance period. The inflows are charted in the graphic below with the combined ag index fund position at its largest level since late 2014. The biggest index fund flows came into cattle, wheat and corn. The question is whether new funds will continue to be pushed into the ag futures markets in coming weeks? Our bet is that heading into a new N Hemisphere growing season, that fund managers will continue to see US ag futures as historically cheap.

• The overnight rally in Chicago was not sustained as the trade mulled over the US Presidential executive orders signing the Keystone and Dakota pipelines as a vote for oil as against biofuels. In addition there were concerns that retaliation could erupt against US ag exports on the back of President Trump’s America First Platform. Arguably he is not intending to harm ag exports and is indeed working to build demand but there remains potential for trade wars to develop in the wake of US domestic trade defence.

• It is estimated that US farmers have sold more than 75% of their soybean crop and 55% of corn. US and S American farmers are now seeming less willing to cash grains on price breaks, which is limiting downside in these crops at present. Bearishness and downward price trends are consequently difficult to establish despite non-bullish fundamentals.

• Argentine Ag Minster Buryaile discussed cutting Argentine soybean and soybean oil export taxes on Monday. However, our sources suggested that such discussed tax cuts are not expected to occur until early 2018 when soybean export taxes will be reduced .05% per month going forward. However, the talk of soybean and oil tax cuts is causing Argentine farmers to be an even tighter holder of old and new crop supplies, adding somewhat to support.

• We, and others, have not found riches by selling price breaks or buying into rallies as both have been short lived and not sustained. It is our view that the current break will be any different as cash selling is already thin on the ground. S American crop uncertainty remains and the “gap” on the soybean chart remains a strong support level. Today’s move appears “corrective” and that we will return to the range, which we would anticipate lasting into February.

• Chicago futures have spent the morning trading both sides of unchanged. There was an increase in selling across Chicago when President Trump (in a meeting with US manufacturing executive) announced that the US should be considering a border tax. The market is listening to trade matters and how protectionist the US could become from under the Trump Administration. However, the charts are up and the corn/wheat charts look bullish with funds still holding a sizeable net short position. As long as soybeans hold above last Monday’s open chart gap, funds will continue to be a buyers of breaks.

• President Trump has signed an order backing the US out of the TPP Trade Deal (Trans Pacific Partnership) that covered 40% of the world’s economy and 12 nations. The TPP was called a disaster for US manufacturing sector by President Trump. The actual signing sparked selling in Chicago as the Chinese worry about additional political friction heading into their New Year’s Holiday. The Chinese speculator has been liquidating long positions since the start of the year due to their political concern about US/Chinese relations.

• The market is trying to understand the Trump discussed US border tax and its implications in terms of US inflation. A US border tax would spur a dramatic increase in US inflation rates. The precipitation outlook for Argentina is dry for the next ten days, and although La Pampa received soaking rains, some key areas of Buenos Aires were missed. There is an open weekly chart gap on soybeans with a downside price target of; $10.42-10.53. Funds are likely to remain buyers of the grains due to their short positions and bullish chart set up. An uncertain S American soybean crop supports March soybeans below $10.40.

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

Weekend summary 20 December 2017

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

Fund positions

• Thursday was a dull day in the Chicago soybean markets with an inside day and lower close on profit taking. Old crop soybean meal took the complex lower and it seems funds were net sellers on the day. It is noteworthy that EU imports of soybean meal are running behind last year with last week at 385,992 mt and the cumulative figure from October standing at 5.4 million mt, which is only 91% of last year’s figure.

• Corn markets eased higher for another post-harvest high as weekly ethanol production hit another record, and was much larger than expected. Additional momentum would appear to be necessary to ensure the uptick remains in place, and a close above $3.68 could well trigger buy stops and fund short covering and/or additional buying. Argentine corn planting has reached 95% complete, a pretty normal figure for this time in the year, and BAGE estimates only 290,000 ha (6% of the total area) to be significantly impacted ny flooding, which is less that was feared by many.

• US wheat prices fell somewhat in an effort to maintain world trade share; Russian cash prices are unchanged through to April and it is important to point out that there is little bullish input in this market at present. Climatic estimates contain no real threats anywhere in the main wheat growing areas of the world through to early springtime. With potentially increased Black Sea acreages it will require adverse weather somewhere to draw down global stockpiles.

• As mentioned above, weekly ethanol production in the US continues to impress with another record set in the week to last Friday. This implies the USDA’s estimate is too low at this time but the graphic below shows seasonal production drops sharply from mid-winter into mid-spring. Doubtless there is a correction in the offing and reduced production margins will likely pressure grind rates in the next few months.

• Chicago markets saw soybeans extending gains on technical trade; whilst a touch weaker overnight on profit taking gains were in evidence by the close. Funds were buyers of both soybeans and meal although flat in soybean oil. China appears to be crushing soybeans at a record pace and uncertainty over S American crops is keeping price spreads tight, particularly from an historic perspective.

• Chicago corn ended a touch lower and momentum is necessary to keep the rally going! Argentine weather remains a concern throughout the latter part of January but there appears to be clear evidence that corn demand will be stressed if prices continue to rally. Ethanol margins have collapsed as cash corn prices have risen and ethanol and DDG prices have dropped. This will likely trigger some changes!

• Wheat prices in Chicago have consolidated somewhat and global cash markets are a touch weaker. It seems the rally in US prices is somewhat overdone given current fundamentals. US export growth is required to draw down on stocks, which remain large to say the least! EU cash prices are a touch easier despite futures contracts making gains this week. A stronger Rouble and sufficient storage will help protect Russian farmers from having to sell, which could keep a price floor in evidence. Otherwise wheat fundamentals lack fresh input, other than global surpluses and until the N Hemisphere crop breaks dormancy we will see a lack of direction unless dictated by corn.