Monthly Archives: July 2017

31 July 2017

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  • Key to today’s price action has been the advent of non-threatening weather forecasts, which is a change from what we have been seeing in the last few weeks or so. US and EU weather models are in better agreement, raising confidence in their accuracy and traders are taking this to heart. Both models are showing 11-15 day rain chances as improved on previous forecasts as Gulf humidity flows move northwards. If proven correct, the dry areas of the Plains, NW Midwest and Delta regions will be shrinking.
  • The morning has been slightly lower in Chicago in modest volume trade. Weather and the upcoming August USDA reports will limit trader’s appetite for fresh new positions. The August USDA reports tend to place something of a cap on weather markets going forward, whether this will be the case in 2017 remains to be seen. We should not forget that August is the month that makes or breaks soybean crops, the soybean plant has a remarkable ability to add pods and yield as and when weather conditions are favourable.
  • Chicago markets have bounced, but we doubt that any bull run can be sustained with rain in the Central US forecast and the USDA crop report due next week. Rain seems to fall in areas around dry IA, but this is not enough dryness to alter the US yield outlook with cool temperatures. We continue to look for Chicago markets to range trade into the August USDA crop report.

28 July 2017

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  • Friday’s CoT report did not reflect the needed liquidation to suggest that the downside price risk has been curtailed in grains, soybeans or livestock. The data reflected that fund managers did not react to sliding prices and the early week prospect of improved Central US rainfall. Funds are holding their largest combined net long ago position since late 2016. We would argue that if there is liquidation prior to the August crop report, it will come in corn, soybeans and potentially hogs. Friday’s CoT data is slightly bearish to start the new week.
  • The major forecasting models are little changed from Thursday’s and this morning’s runs and still indicate that a high pressure ridge will dominate the N American pattern into the middle part of August. As of earlier this week, some 3-9” of rain was needed to ease drought in the Dakotas, NE, IA and S IL. Such rainfall certainly won’t develop in the next 8-10 days, and the lack of moisture will keep crop concern elevated. A broad NW upper air flow is forecast over the next 10 days. Cooler temperatures lie in the offing, but Gulf moisture will remain closed to remainder of the Central US, and so very little rain is expected in the near/medium term. This week’s spotty rainfall was welcomed, but a trend of rapidly declining soil moisture has returned. The GFS’s implied soil moisture change is offered.

  • This pattern looks to remain stagnant into Aug 11th as high pressure ridging again expands in the 11-15 day period. A moderate warming of temperature is indicated, but most important is that the mean position of the jet stream will stay north and east of major producing areas, keeping heavy rainfall isolated to the mid- Atlantic and New England. There’s time for soybean yield potential to recover, but as of now guidance on August precipitation suggests a continued lack of meaningful rainfall, particularly where drought is already established. We maintain that a major tropical storm is needed to change the overall US pattern, but such a storm is not projected in the next two weeks. Crop conditions, which tend to decline seasonally likely will be slightly lower in each of the next two weeks.
  • Soybeans extended late week gains to finish the week 5-6 cents higher. Weather forecasts remain warm/dry which offered early support, while court ruling against the EPA’s 2016 biofuel standards sent the soybeanoil market sharply higher. In 2016, the EPA lowered the amount of biofuels need to be blended into the US fuel supply based on consumer demand. The e court ruled that this should not be allowed. This week’s Midwest rains fell across the areas that were largely well watered, and avoided the areas that are parched. Based on the large parts of IA and the N Plains that saw limited rains, we expect another 1-2% decline in soybean good/excellent crop ratings on Monday. The GFS weather model at midday maintained limited rainfall across the Midwest in either the 5 or 10 day outlooks for the driest parts of W Midwest and Plains states. The Commitment of Traders update showed funds added 12,534 contracts to their long soybean position and are long 50,885. It is going to be a wide ranging market into the August crop report, with limited rains in the forecast to support any break.
  • September  corn ended exactly unchanged, and despite funds still holding a net long position, as of Tuesday  worth 106,815 contracts, the US forecast is simply too dry to sustain any lasting bearish trend. US corn crop conditions on Monday are expected to fall another 1-2%, and each decline in ratings suggests a further decline in yield. Recall good/excellent ratings a year ago stayed at a lofty 74-75% throughout all of August. The EPA’s court loss today implies little for future ethanol production and demand. Retroactive credits may be given to refiners for 2015 and 2016, but otherwise ethanol remains subject to market forces. We mention that amid falling US stocks of crude/gasoline, biofuel blending margins are rallying. Regardless of any appeal, the US ethanol market will remain strong, particularly as modest export demand continues. We maintain that harvest lows this autumn will stay at/above $3.50 spot futures and corn’s upside is current pegged at $4.10-4.20. The S American cash market is forming its seasonal bottom, and US yield loss will have a major impact on the major exporter balance sheet going forward.
  • Like corn, world wheat weather is just a bit too adverse to allow for a sustained bear trend to emerge. Another round of heavy showers will impact parts of Germany and Poland next week, and there is no end in sight to heat and dryness across the Canadian Prairies. Canada’s yield is still being affected. We would mention that, despite harvesting what looks to be a record winter crop, interior and fob cash markets in Russia remain firm. Domestic values this week are unchanged in both Ruble and US$ terms, and currently rest $10-12/mt above the same week in 2016. Black Sea/EU hi-protein fob offers end the week at/above $200/mt for Sep/Oct delivery, vs. comparable Gulf HRW at $198-200. Russian domestic values are expected to find a bottom in the next 2- 3 weeks, and so there is little evidence to suggest a collapse in world wheat prices lies in the offing. Funds are still net long (heavily so in Kansas), but the decline in major exporter stocks in 2017/18 suggests this position is validated.
  • Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions disaggregated data

28 July 2017

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  • The one fundamental that can change the longer outlook of the world grain market is a declining US$ (Index). The US$ has fallen nearly 9% from the end of 2016 and is now in a position to test the 2015 lows. A close below 92.00 would argue that a longer term bear market is in the making. The fall in the US$ pressures profit incentives for farmers outside the US. Longer term, this slows world acreage expansion and allows demand to catch up with production.

  • This week’s drought monitor included modest improvement in parts of SD, but the overall area in drought expanded for the 9th consecutive week. The graphic displays current conditions, as well as changes from last year. Cooler temperatures lie in the offing, but the lack of precipitation into early August will allow for further drought expansion in the near term. Note that where drought is most severe, bouts of heat will likely persist. The forecast today is little changed from prior runs and still features normal temperatures, but well below normal precipitation over the next 10 days. As previously mentioned, the strongest part of high pressure ridging moving forward will be confined to the Southwestern US, but weak high pressure will be more expansive over the next week. Heavy isolated, and welcomed, showers will impact the W KS, E OK and the TX and OK Panhandles on the weekend, but precipitation of any kind will be absent from the US Corn Belt into August 5th.

  • The EU model’s latest 10-day precipitation outlook is below, and still there is no major pattern shift indicated into the middle part of August. Dryness will also continue across a bulk of the Canadian Prairies through the period. 30-day rainfall totals across the southern half of Saskatchewan and Alberta rest at just 5-40% of normal. Confidence beyond 10 days remains low, but the EU ensemble, which has been the most accurate, indicates a few spits of rainfall across the far Southern Midwest, Delta and Southeast. The Plains and Western Midwest stay dry. Note that US rainfall in the first half of August last year totalled 1.5-3.0”, or some 100- 300% of normal in MN, IA, MO, IL, IN and OH. This does not look to be the case this year, and yield concern will rapidly shift to soybeans if the two-week forecast verifies. Western US drought concern will spread. 
  • Soybeans traded higher through Thursday, on fresh export sales announcements and a drier extended Midwest weather forecast. At the close, November soybeans were firmly back over $10.00. Weekly export sales were above expectations in old crop and at expectations in new. New crop sales remain behind last year at 5 million mt, while outstanding old crop sales are ahead of last year at 7 million mt.The combined total of 12 million is near unchanged. Old crop exports look to be gaining traction, and the USDA’s daily export reporting system showed old crop export sales of 198,000 mt and new crop sales of 66,000 mt to unknown destinations. Export demand for old crop soybeans looks strong. The market awaits the August crop report, as well as upcoming weather forecasts. The market will continue to add weather premium until there is a clear and defined rain event for the parched N Plains/W Midwest.
  • Old crop US weekly export sales were abysmal at just 3.6 million bu, a new marketing year low, as S American exporters ramp up sales and shipments. This will likely remain a theme in weekly sales reports into November. The fact that precipitation in the W Corn belt will be much below normal is well documented, but we would point out that rainfall during this critical growing stage will be just half of what it was a year ago. Along with steep yield loss in the C Plains, work suggests yields below trend in IA as well, and so we doubt the market has fully digested the potential loss of 650-800 million bu of US corn production. The corn market will closely follow the rain prospects for the N Plains and W Midwest. Dryness into mid-August could well cause corn to retest its highs.
  • Pictures of floods in Germany, and a pattern of ongoing rainfall there, continue to support high protein wheat cash markets. Fob premiums in the EU and Black Sea are again firmer, and Gulf HRW now holds a sizeable premium to comparable German origin through October, which is noteworthy. The recent break may have been warranted, but the point is at current prices the US is not losing additional export demand. This week’s spring wheat tour has pegged ND’s yield at 38.1 bushels/acre, unchanged from NASS’s July estimate and perhaps a bit below expectations. There is no doubt that yields in the Dakotas and MT will be sharply (20-25%) below trend, but, we mention that historically, the ND crop tour tends to overestimate yield. In only four years since 1995 has the tour’s yield been above NASS’s August forecast. US weekly export sales through July 20th totalled 18 million bu, in line with expectations but some 3-4 million above the pace needed to hit the USDA’s annual target. Falling major exporter production and quality argues for a range of $4.70-5.50, basis September ’17 September futures. Any weakness will very likely be short lived.

27 July 2017

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  • US export data has been released as follows:
  • Chicago markets started out with strong buying as discussion over a further fall in US crop condition resumed. Suddenly we are facing a further suggestion that 2017 corn and soybean crops are reducing once again.However, the bulls and the bears appear exhausted by the recent back and forth price action as well as the inconclusive nature of the weather forecasts. Trust in the GFS model is now lower following the failure of rain in IA. Our feeling is that we will see a further reduction in soybean and corn crop condition on Monday in the wake of heat and dryness across the N Plains and W Midwest.
  • The German and Polish grain crops are now being downgraded almost daily amid an abundance of rain. Another 1-3.00” of rain has fallen and producer sources report that mature grain crops are standing in saturated soils or ponded water. The concern for grain crop quality is reaching a fever pitch and the forecasts call for additional rain.
  • Some 32 million acres of US corn are located in the drought plagued areas of the N Plains and the NW Midwest. Dakota and Iowa crop yield potential is declining rapidly amid short to very short soil moisture. We would argue that Chicago prices need to be rising sharply to reflect the supply loss, but we understand GFS forecasting woes and why traders are reluctant  to trust it! Wheat could well now be making its seasonal low.

26 July 2017

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  • We hesitate to “buck” trends, BUT, the Dec ’17 corn market has relapsed to the lower levels of the 2017 $4.17-3.74 range, and we believe this represents an opportunity with a very favourable risk vs. reward ratio. Just a thought!
  • Nov ’17 soybeans have bounced off their 200 day moving average as fund selling pace slowed down. Corn futures initially followed with the December contract testing support levels with the wheat market mostly higher as Minneapolis made gains. Participants on the ongoing spring wheat tour are pessimistic on the actual acreage that will be harvested, and as the tour moves west it is reporting yields in single digit and low teens. This is causing the wheat market to turn higher and with the added pressure from extending drought across Canada we are becoming yet more friendly to higher wheat prices. The drought in Canada is gaining in importance from the perspective of canola (rapeseed),spring wheat and pulses. The canola balance sheet is beginning to “pep up” as Chinese demand starts to grow. Unlike the last year or so, US and world corn. soybean and wheat end stock estimates are in decline, and this will likely underpin prices and provide market support going forward, particularly when weakness is evident.
  •  Today’s back and forth trade was not unexpected as the markets attempt to repair the technical damage done by Tuesday’s wide ranging trade. The market now awaits location and amount of rain reports before deciding next direction and move.
  • The German wheat crop is going backwards fast in terms of quantity and quality due to excessive rains. Another 1-2” of rain is expected in the next few days and the world’s availability of high protein wheat is further reduced. It is becoming nearly impossible to secure German high protein wheat and those that have sold it already are pulling on old crop supplies. We are beginning to see the total EU wheat crop at 145 million mt vs. the USDA forecast at 150 million mt, and cut of another 1-2 million are in the making if the rains don’t cease soon. Cash sources have reduced their estimates of the Canadian wheat crop to 24.1-24.6  million mt due to the worsening drought. This is down nearly 4 million from the July WASDE estimate of 28.35 million mt. The Canadian canola yield is estimated to be reduced by 9% to 2.00 mt/acre for a crop of 18.9 million mt (down 2.1 million).
  • The next 12-18 hours holds the best chances for rain for the Midwest looking forward into August 6th. There could be a few afternoon pop up thunderstorms, but the GFS forecast appears to be overdoing the coverage. This is an arid weather pattern with warm (not hot) temperatures. Soil moisture will decline and the Plains and the W Midwest did not get the regional soaking that was desired. Crop stress will be returning.

25 July 2017

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  • It has been another brutal day of heat across the Central US with high temperatures ranging from the lower 90’s to the lower 100’s across the Plains and the W Midwest. Producers tell us that winds of 15-30 mph and the intense heat are taking a real toll on crops with corn and soybeans both rolling on non-irrigated acres. The promised rains cannot come soon enough and are extremely important for yield.
  • Soybean futures were sharply higher overnight and lower by the close, with November soybeans trading a wide 43.5 cent daily range, and closing 17 cents lower. The surprising 4% drop in Monday’s crop ratings offered the overnight support, while a wetter extended forecast for the W Midwest and Plains triggered selling throughout the day. The afternoon EU weather model update did not confirm the heavy/widespread rains that were projected by the midday GFS forecast, and is far drier in the 10 day outlook. Our lean is with the historically more accurate EU forecast, and we are not willing sellers under $10 November. The weather models are causing traders angst.
  • Fund liquidation continued in the corn market (official open interest on Monday was down a hefty 30,000 contracts) as the trade debates the US’s late July/early August weather pattern. The GFS model today was extreme, shifting from very dry to very wet weather in the 8-15 day period. The EU operational model is bone dry next week; the EU ensemble features limited precipitation into August 8th. Our bet is with the much more correct EU model. With July nearly finished, corn ear weight models suggests a national corn yield closer to 162-164 bushels/acre, and should the EU model forecast into early August verify, slight declines in crop ratings are most likely in the next two weeks. US ethanol production and blending margins are rising on recent corn weakness and even the decline in Brazilian ethanol prices has paused. The potential for the loss of some 550-650 million bu of US corn supply should allow technical support at $3.80 basis December ’17 futures, to hold. Weather-based volatility will continue into the August USDA report.
  • US futures ended lower, European futures ended followed, and cash market are little changed. We note that higher protein offers, in particular, are higher today as the market is better digesting ongoing rainfall in N Europe, and of course expanding/worsening drought across Canada. Standard HRW at the Gulf is now at parity with German fob and just $5/mt over comparable Russian. Egypt bought a massive 420,000 mt of Black Sea wheat at $204/mt, basis fob, unchanged from a week ago. This week’s spring wheat tour has uncovered a wide range of conditions. Conditions in eastern ND are of course better than the west and stories abound of producers simply grazing fields rather than harvesting them. The tour’s yield estimates will be available on Thursday. Funds have sold an estimated 30,000 contracts in the last two weeks, and with cash markets steady/higher and with Egypt’s buying spree ongoing, we would advise caution and argue that US wheat is becoming cheap.

24 July 2017

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  • US crop condition ratings have been released as follows:

  • Soybeans were down overnight on weather related selling on the rain across parts of the Midwest. Yet, the afternoon close was more than 10 cents over the overnight lows. After the close, NASS reported national good/excellent crop ratings were at 57% versus 61% the previous week. Excluding the 2012 drought, good/excellent ratings for this week are now the lowest since 2006!.The big surprise was an 8% drop in IL good/excellent rating to 59%. OH slipped 3%, IN was down 2%, and IA was off 1% from last week. In the Plains, ND good/excellent was up 1%, while NE and SD each lost another 4% on the widening drought. National good/excellent crop ratings were well under expectations, and will support a higher soybean trade overnight. November soybeans have held a broad range of $9.85-10.45 in the last three weeks, and we look for this range to hold into the August crop report. US soybean yield potential is quickly rolling backwards.
  • Corn futures ended lower, but well off session lows, as the Central US forecast lacks any meaningful rainfall beyond the next 72 hours, and nearby totals will be confined to parts of SD, E IA, MN and WI. Crop conditions continue to erode, and as we have mentioned previously we struggle to peg national US corn yield above 165 bushels/acre. Weather premium will be added on Tuesday. good/excellent ratings as of Sunday totalled 62%, down 2% from the previous week and compared to 76% on this week in 2016, or a 20% decline in ratings from last year. Note that conditions deteriorated in IA, NE, ND and SD despite recent rainfall there. Another slight decline is anticipated next week. Brazilian farmers are reported to no longer be profitable, and it will be interesting to see how first-crop corn acres change there, with planting to begin in September. A 159-162 bushels/acre US yield cannot be ruled out until a wetter pattern change is confirmed, which looks increasingly unlikely.
  • Wheat futures followed corn to moderate losses, and as yields reported from Russia and Ukraine have improved relative to last week. Russian wheat production may be a record 74-75 million mt, but the sum of major exporter production is trending lower amid ongoing dryness in Canada and Australia, which in the case of Canada will most likely get much worse into the first part of August. Spring wheat crop ratings continue to decline, albeit slightly, with current good/excellent (33%) a record low for this particular week. World cash prices are weaker following lower futures in the US and Europe, and as the €uro and Ruble weakened slightly. Weather, however, is little changed and very heavy rain will be ongoing in Germany and Poland in the next 2-3 days. Cumulative totals are put at 3-4” there. Canada will be warm and very dry, as a broad Ridge/Trough pattern continues across N America. Recently added long positions are being liquidated, but work suggest fair value lies between $5.00-5.50, basis spot Chicago.

21 July 2017

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  • The US Vegetation Health Index (VHI) reflects the heady crop conditions that exist across the southern half of the US, and the growing concern for crop/yields across the Plains and NW Midwest. The VHI reflects that the dire N Plains drought is moving south and east. Traders will closely be following whether that progression continues during August. The need for rain is immediate across IA, NE, SW MN and the Dakotas. Yield damage in the Dakotas is irreparable at this juncture. It is IA, MO and KS that cannot further slip on soil moisture in the next few weeks.


  • Friday was a quieter trading day that left soybean prices 4-5 cents lower, but still up more than 20 cents for the week. Meal finished slightly weaker, while December soybean yoil marked the 2nd consecutive close over the contract’s 200 day moving average. Based on where rains fell and the week’s heat, we would expect that crop ratings on Monday will be 1-2% lower. Field visits reflect extremely small sized soybean plants in IN, IL, MO and IA. It all comes down to Mother Nature for the direction of the market. Soybeans are in their reproductive phase and the impact of weather on yield enlarges.
  • We have discussed how the W Corn Belt is now “ground zero” for US corn yield changes, and overnight precipitation was a bit more widespread across C IA than expected. Additional precipitation will linger across; N IA, MN, WI and N IL in the next 24 hours, but a major N American weather pattern shift is not indicated. Model updates today in fact features additional bouts of heat across the Western Corn Belt, along with weekend temperature in the 90s/low 100s across the Plains, into the first week of August, as a high pressure ridge hangs on barring a Gulf tropical storm. It is understandable that the market adds and subtracts premium based on very near term weather, but our point is that national US corn yield potential is now lower relative to 165-167 bu/acre estimates. Expect volatility through the remainder of the growing season, but so far we are disappointed in yield estimates from even the E Corn Belt. Short term downside risk appears limited to $3.85 December with the upside pegged at $4.20-4.40 into mid August.
  • Overnight rain across pockets of the W Corn Belt triggered profit taking/new selling in US grain futures, and wheat was not immune. Harvest in Europe and the Black Sea is ongoing, and we would mention that yields reported in Ukraine have improved. Otherwise, world cash markets ending the week are little changed, mostly due to even newer highs in the €uro. Wheat will most likely follow Chicago corn into early autumn, though world cash markets tend to find their seasonal lows in the first half August. The trend thereafter is for a slow but steady rally into November/December. Interior Russian wheat markets are steady/higher on the week. Cash prices in the Volga region are sharply higher, likely due to slowed harvest progress. Too much rain (3-4.00”) will fall across Germany and Poland over the next 7 days, and Central Russia will stay in a rather wet pattern through the next several weeks.

20 July 2017

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  • It’s hot! As predicted by model forecasts last week, high temperature in the 90s have become more widespread, and readings in the low 100s have been too common this week across OK, KS and parts of the N Plains. There is still little moisture relief forecast in the Dakotas into early August, but rain will be badly needed in IA, MO and much of S IL by next week to prevent further erosion in yield potential. There are some hints of ongoing rainfall in the E Corn Belt, but price determination in the very near term will hinge upon any sign of moisture across the W Midwest.

 

  • Soybean futures traded up overnight, and continued on that course throughout the day. Only light producer has been noted and yield and crop size concerns have been cited as the reason for this as the market searches for supply. The close saw 13-14 cent gains, and we are now some 40 cents over last week’s lows. Weather forecasts continue to maintain high temperatures across the Midwest into the weekend with building head scheduled to return next week. The W Midwest and Plains have limited rain forecast and it seems the market is destined to add further weather premium until such time as the weather pattern changes.
  • The corn market’s central focus now is projected ten day rainfall in IA and S IL, and today’s updates feature ongoing dryness there into the final days of the month. Only a small pocket of IA benefited from Wednesday’s system. The very latest weather model runs keep meaningful precipitation into next week isolated to far NE IA and N IL, and so the driest areas look to get drier in the near term. This is not a demand led market, until there is more certainty about crop size we view selling breaks as a game for the brave! Yield could fall into the 162 – 168 bushels/acre range, which is very wide and the extreme could prove significant as far as price impact is concerned.
  • US wheat futures traded higher on currency news as the US$ hit ten month lows and the €uro made multi year highs, and fund profit taking appears to be towards an end. Australian prices are beginning to recognise lower yield potential and the fact that little rain is forecast into the start of August. Current world prices appear (to us at least) to represent fair value right now, and history shows that seasonal market lows are generally in place by mid-August. Now would therefore not appear the place to become bearish.

19 July 2017

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  • Wednesday saw soybean markets in Chicago extend overnight gains on weather concerns and an expectation that the next crop rating release would show a further decline. Funds were reported to be buyers in beans, meal and oil throughout the session. Brazilian soybean meal exports this season have been well under last year but this week has seen a sharp and counter seasonal jump in meal export demand. The lineups show a 1.5 million mt volume scheduled to sail in the month of July, although it would be fair to assume some of this volume would roll into August purely from a logistical perspective. Brazilian meal offers currently stand at around $35-40 below US and some $15-20 below Argentine levels. Current suggestions are that US Plains soybean crop losses stand at 1 bushels/acre off the national yield and dry/drought conditions are continuing to edge east. The crop needs ideal conditions from now if the remainder of the season is to make up losses.
  •  US corn markets are adding weather premium and shrug off the wetter GFS weather model forecast. The current GFS model has been updated and is in better agreement with the EU model, however, the GFS forecast contains a much wetter profile in IA in the next ten days yet the trade show seems to be biased towards the EU forecast based upon previous better accuracy and performance. Quite how much rain falls across the W Corn Belt in the next 72 hours will be critical and we expect Thursday’s Drought Monitor release to an expansion of above normal drought.
  • Wheat markets in Chicago ended steady with other classes lower as funds exit recently established long positions, which were record large in Kansas and Minneapolis. Fresh demand news was absent in wheat markets; we would suggest that downside in wheat is limited as problems in Canada and Australia show no sign of abating, indeed they appear to be worsening, and now we hear of frost issues in Brazil, which will potentially limit yields there too. Soil moisture levels in the Canadian Prairies continue to deteriorate. Global cash prices continue to show that sourcing higher protein wheat remains an issue.
  • Cash wheat prices in Europe are about unchanged, but Russian levels are higher as concern levels rise as far as higher protein wheat (12.5% and above) is concerned. Russian August ’17 12.5% wheat is offered at $198/mt vs. $160/mt exactly a year ago, and todays offer is cheap in relation to other origins – please draw your own conclusion! Currencies in Russia, Canada and Australia are up on the week, and we would not expect to see exporters as aggressive this summer/autumn as was the case last year.