• US Gulf soybeans are now trading at their lowest levels in five years as competition between Brazil and the US heats up. The chart below reflects that US fob Gulf soybeans are offered at $.31/bu (basis) for April as the US tries to encourage some additional export demand. US farmers have reportedly sold large amounts of their old crop holdings on the prospect of record large S American production. Yet seasonally, a bottom on Gulf basis soybean bids often occurs in the next 2-6 weeks as stocks tighten. US farmers are likely to slow their cash sales on seeding and awaiting summer weather trends.

• Chicago markets have been lower once again today, and slower in terms of trade volume with weaker global markets and favourable weather (or benign if one prefers) patterns. US weekly export sales and a recovering crude oil were unable to counter the decline. US export data showed soybean sales better than estimated, corn at the lower end of expectation and wheat in line with expectations despite US Gulf prices attaining discount status to all other origins.

• This week has seen crude oil prices rally, and this has assisted the Russian Ruble hit 20 month highs. Russian wheat replacement prices in S Russia (where export volumes are sourced) are only just below current fob levels and it seems that their prices are unlikely to relax significantly in the next few months. Meanwhile EU cash prices continue to drift lower. The favourable weather conditions in US and S America is well known and reported but the main forecasting models have recently trended wetter across C Europe and Black Sea. Given tis and normal to above normal temperatures will leave early season crop conditions above average. It remains too early to suggest above trend yield for N European wheat crops but there remains no evidence of a weather threat in the near term. With corn and wheat both competing in the feed markets and trying to secure marginal demand gains the overall feed grain market continues to lack the necessary spark which could trigger higher levels.

• We see prices currently leaving us with a more neutral view on things, additional downside will require some bearish input from tomorrow’s report or further significant erosion in S American cash markets.

• It is reported that Brazilian farmers have held and/or stored a larger share of their recent harvests due to the rising value of their currency, the Real. The Real has rallied 19% to 0.335 since late 2015. The ending of the Dilma Presidential political crisis and lowering Central Bank interest rates in late 2016 due to improved economic activity has helped support the currency, yet US farmers should be asking when or can a larger rally in the value of the Real unfold? Such a rally is needed to limit further acreage/seeding expansion. It feels doubtful that a sustained rally in the Brazilian Real can unfold until a commodity bull market is confirmed.

• Chicago markets have been, and are, trading either side of unchanged today with little impetus seen to place bets on long or short positions ahead of Friday’s report. Post-report will see focus shift towards weather for the new growing season. Current fear is that Friday will reveal record US corn and soybean plantings, but, as we wrote yesterday, we have yet to be convinced this will be the case and remain sidelined.

• Slightly weaker Chicago values are based upon renewed fund selling as the saying goes, “the trend is your friend”. However, with the end of the quarter dead ahead and funds’ holding their largest net short position at the end of March on record, it is no place to be a seller. Our hope is that Friday’s report comes out slightly bearish (larger US March stocks) and that futures have one final push downwards. The odds are high that the world will have at least one major weather scare into summer.

• Managed funds are now holding their largest net short grain position heading into a N Hemisphere growing season on record! Funds have been adding to their net grain shorts and shedding length in soybeans. Index funds have been holding their ag ownership, with a modest amount of liquidation heading into the end of the 1st quarter. We see no evidence that Index Funds won’t continue to hold their ag investment. The large net fund short position adds to the upside potential in the grains if adverse weather were to develop? It is premature to be overly bearish prior to the March Seeding/Stocks report.

• The morning saw Chicago markets higher on fund short covering as positions were trimmed ahead of the stocks/seedings report scheduled to be released on Friday. Seasonal price trends are higher on the back of a new growing season and farmers not liking current prices and avoiding new cash sales. The large S American corn and soybean crops are discussed to death and the market has digested them, they are no longer news! There is now a real need for fresh fundamental impetus to sustain trade direction; our view is that there is a strong pressure for fund managers to bank profits and take positions off the table as we head into quarter end. Will NASS find more corn and soybean acres as many are anticipating, we are not so sure but are not willing to bet heavily against.

• S Africa, the continent’s biggest corn producer is expected to harvest its biggest corn crop in 36 years at 14.3 million mt. This is up from a 13.9 million mt estimated in February. The last time that S Africa produced such a large corn crop was back in 1981 at 14.6 million mt. The makeup of the crop is 8.5 million of white corn and 5.8 million of yellow. The white corn will go a long ways to filling human corn needs into early 2018.

• The USDA Ag Attaché estimated the 2018 Canadian canola (rapeseed) crop at 18.5 million mt, equal to last year’s harvest. Such production would likely maintain end stocks at 1.0 million mt and it would keep canola prices firm relative to soybean oil or palmoil. We would expect that Canadian producers will plant an extra 5% to canola in 2017, which combined with a trend yield is likely to produce a crop of 19.2 million mt or more. Our feeling is that the Attaché is perhaps a little too conservative in their 2017 canola production estimate.

• New crop Black Sea wheat prices are offered at $174/mt which means that old crop is trading at a robust $16/mt premium ($.43/Bu). Russian 12.5% wheat is offered for April at $190/mt and farmers remain tight holders of stored supplies. Our bet is that new crop Black Sea wheat does not have much downside price risk below $170/mt until the 2017 crop is made. Russian fob wheat bottomed last year at $167/mt during the heart of their harvest. To become bearish fob new crop Black Sea wheat at this time is premature. One only has to look back to 2011 when Russian wheat exited dormancy in great condition, only to endure a dire drought in May/June which dramatically cut production.

• Chicago is trying to bounce from a technical oversold condition with the USDA Stocks/Seeding report due out on Friday. Historically, it is a rare year that the US or another major N Hemisphere exporter does not experience a few good weather scares during the growing season. With funds holding a record short at the end of March, our bet is that producers and traders will get new chances to sell corn, wheat and soybeans at higher prices. That said, one cannot be bullish until an actual weather concern is evident. Today, all looks good on the US and world weather front!

• Chicago markets have been mostly lower today with soybeans and wheat posting new lows on further fund selling. Macros were pressured with a lower US$ and US equities posting sharp early losses although shares and crude oil have clawed back much of their early losses.

• Chicago futures have, as we all know, declined sharply in recent weeks, and it must be somewhat nerve racking holding a net short position going into the upcoming, and unpredictable, USDA report in advance of a fresh N Hemisphere growing season where acreage and weather is still not fully known. Some have suggested that the odds of a weather issue somewhere that will upset a short grain/oilseed market are high and as a consequence now is not the time to be heavily short. We disagree with the “odds” argument but continue to caution an overly bearish stance based upon historic pricing, a heavily oversold market and the fact that there has been no significant sharp move lower so far.

• E Australian farmers have enjoyed abundant rains in Queensland and New South Wales in recent weeks. S Australia is still missing the moisture and the time is right for rains to start to drop if trend yields are to be seen. Aussie farmers are not selling old crop wheat, and are waiting for higher prices. Just like Russia farmers, producers are not anxious to sell stored wheat with the Australian dollar rising and interior prices seen as cheap. New crop seeding will start in several weeks and once farmers are focused on seeding the next crop, they won’t be interested in selling the old crop.

• Today’s label is “Macro Monday”, the US stock market is attempting to rally following eight days of decline. US grain and soybean export demand remains buoyant and we would question how wedded to their positions the fund managers truly are in advance of the USDA report scheduled for release on Friday. Chinese crush margins are showing signs of recovery and there could be fresh buying interest on the horizon as a result. Our guess would be that we could see some short covering and Chinese buying, both of which could see some price recovery although our longer term view remains that rallies will be limited.

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

Weekend summary 24 March 2017

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

Fund positions

• US weekly export data has been released as follows:

• Brussels has issued weekly wheat export certificates totalling 235,077 mt, which brings the season total to 18.8 million mt. This is 2.6 million mt (12.3%) behind last year. Barley exports for the week reached 81,641 mt, which brings the season total to 3.7 million mt.

• It has been another lower day in Chicago markets with even better than estimated US weekly exports (see above) unable to stimulate fund buying or short covering. Crude oil is a shade lower amid growing US stock levels.

• Generally, global weather forecasts remain favourable to crop planting, development and/or harvest, depending upon location and we would not anticipate any major surprise or upset in next week’s  stocks/seedings report.

• This week’s US Drought Monitor showed expansion in abnormal dryness across TX, KS, OK and pockets of the Delta/Southeast. 36% of the country is experiencing some kind of drought, vs. 32% a week ago and 35% a year ago. As such, the coming Central US pattern shift is needed, and we would fully expect drought or drought risk to shrink in the next two weeks. Climate work also continues to point towards an active pattern of moisture through the first half of April. Some planting delays are inevitable, but it would be wrong to suggest that an improved soil moisture profile is both desired and necessary.

• It is interesting that markets have continue to ease lower amid positive demand news, and this should not be overlooked. The trade appears to be focusing on next week’s stocks and seedings data and weather instead, and indeed the abundance of DDGs and other feed alternatives could force yet another lower revision to US corn/feed residual use, which is often the focal point of quarterly stocks report.

• Chicago markets have been somewhat uneventful with soybean markets finding chart based support at $9.95 basis May ’17 soybeans and remaining weak at midday. EU wheat markets have closed weaker despite a slight weakening of the €uro and we would expect global cash wheat markets to follow suit. Quite how long Russian fob offers can remain supported at $190/mt remains to be seen as all origins search for a seemingly non-existant demand. EU and Black Sea exporters will have to remain acutely aware of normal spring and summer weather conditions that appear to be on the cards.

• Other news tidbits include Egypt now rejecting a total of ten cargoes of optional origin wheat, either at ports of origin or at discharge due to insect/grass levels. They will find it more and more difficult to obtain reasonable fob offers with forthcoming tenders, which are likely to resume in bulk in late summer. Note also that the Egyptian pound has fallen to the weakest level since early February, and financing will remain an issue for Mid-East/N African importers.

• Low pathogenic bird flu has been confirmed in KY, and has now been found in a total of four US states in 2017.

• The S American weather forecast continues to add rain to C and N Brazil in the first week of April. The GFS at midday features cumulative precipitation of 1-3” across the entirety of Brazil’s safrinha corn belt, including Mato Grosso do Sul and Parana, areas that have been drier than normal in the first half of March. Climate work continues to point towards normal/near normal rainfall into May, and total S American corn production estimates, and in turn exportable surpluses, look as if they will be/should be be revised upwards.

• We maintain that price breaks lower should not be chased in the near term, with Gulf wheat by far the world’s low cost origin, and with declining soybean futures slowing down S American producer sales. However, news that has been available since mid-March, along with weather forecast updates, have been negative, and it really does take an expansive N Hemisphere weather problem to attract fund buying or short covering, which would in turn see prices higher.

• Chicago soybean oil futures followed Malaysian palm oil markets higher on Tuesday. The latest data from Malaysia shows that production is recovering from last year’s sharp decline, with February output reported at 21% over a year ago. However, stocks declined for the third consecutive month and are sitting at decade old lows. Palm oil is the world’s largest consumed vegoil, and Malaysia is the second largest producer (behind Indonesia). Production is expected to be 10% larger than a year ago, but the current tight stocks level is expected to add to world vegoil price volatility, as monthly swings in supply or demand have a greater impact on changes in stocks.

• Soybeans traded in a very broad range around unchanged through Tuesday, before ending firm. May soybeans found early support back under $10, while a burst of technical trading at midday stalled above Monday’s high. In the soy product markets, soybean oil marked strong gains while soybean meal was mixed on old crop weakness. The Brazilian soybean processors association ABIOVE, reported a membership processing rate of 2.1 million mt for the motnh of January. ABIOVE memberhsip represents about 78% of the total Brazilian crushing industry which implies a total January crush near 2.7 million mt, which is a 21% increase over last year and the largest January crush on record. That increase looks to be largely due to the early harvest and large available supplies. ABIOVE members also reported that they bought 3.3 million mt of soybeans, and end of January stocks were 2.9 million mt, both of which were record large. Chicago soybean markets are marking time ahead of the end of month USDA reports, and we doubt that much of a trend in either direction develops in the next two weeks.

• As far as corn is concerned, we have previously and recently reported the complete lack of any evidence that a hot/dry pattern lies in the offing in Brazil into the early part of April. The lack of dryness in turn promotes a rather mild temperature profile, and it is possible that the S American crop estimates are still 1-3 million mt too low. As such, the US Gulf market needs to find demand, which it is working towards, but a weak cash market does little to promote speculative interest in futures. Gulf basis for June rests at the lowest level since 2010. However, amid ongoing favourable weather in S America and a faster than expected pace of harvest in Argentina, an expansive crop problem is needed this spring/summer to sustain price rallies.

• This week’s decision by Turkey to essentially ban Russian imports may last longer than expected, but the market’s focus remains centered on the coming major weather pattern shift in the US. Indeed, should HRW yield meet or exceed trend the market will have to look for additional export demand. However, the market is likely to find additional usage in the near term. Even higher protein Gulf HRW is offered some $2-7/mt below comparable Black Sea origin into May, and Russian offers are unchanged despite the potential loss of the Turkish market. Lower protein HRW and Gulf SRW are again the world’s cheapest origins, and so a bearish outlook remains not advised. The US weather forecast is little changed. Despite a lack of moisture projected this weekend across the Western HRW Belt, several additional heavy rain events are advertised in the 7-15 day period. Snow cover is in retreat across W Canada and the US N Plains, and severe snowmelt should not be an issue for the N American spring crop.

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

Weekend summary 17 March 2017

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

Fund positions

• US weekly export data has been released as follows:

• Brussels has issued weekly wheat export certificates totalling 637,997 mt, which brings the season total to 18.8 million mt. This is 2.6 million mt (12.3%) behind last year. Barley exports for the week reached 407,630 mt, which brings the season total to 3.6 million mt.

• Egypt’s GASC tendered again for wheat with 420,000 mt being secured at a price some $2/mt below their last purchase. The price paid over the last 3½ months has trended higher, and this is the first time that trend has changed providing some welcome relief for Egypt.

• Chicago markets are minimally changed as we write this with meaningful news, once again, largely absent. Outside markets are  similarly mixed, crude is a touch lower at $0.15/barrel lower and testing recent lows and the US$ is unchanged whilst the DOW Index is 15 points lower.

• NOAA’s long-term climate outlooks this morning are little changed from February. Normal to above normal temperatures and normal to above normal precipitation are forecast in April. The forecast for the Apr-Jun period is similar, with above normal precipitation favouring the N Plains, as well as the far Southern US (TX, LA, MS). Elsewhere normal spring climate patterns are expected. NOAA’s seasonal drought outlook includes improving soil moisture through June 1 across KS, E CO and MO, with drought to persist across the TX and OK panhandles. NOAA of course cites the lack of La Niña, and expects neutral ENSO through spring. A moderate El Niño is possible by mid to late summer.

• Corn has found support amid Wednesday’s better than expected ethanol data, and renewed interest in exports from traditional buyers following the recent break. This week’s demand reports in wheat and soybeans, however, have failed to spark any meaningful buying interest, and from the midday forecast along with NOAA’s climate updates this morning, it does appear that better moisture lies in the offing for the US Plains this spring. There’s nothing yet to alter our non-bullish viewpoint.