Monthly Archives: July 2017

18 July 2017

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  • Apart from weather issues, which have dominated markets (and our updates) in recent times, one of the other major issues has been currency moves and relationships. The US$ has undergone a major correction recently and other currencies are getting somewhat stronger; including €uro, which has acted to firm up cash wheat prices. Ahead of S America’s planting season beginning mid to late September it would be wise to keep an eye on currency and its ongoing impact.
  • Soybeans were a shade higher overnight following the decline in crop ratings having been as much as 19 cents higher although closing only 4 or so cents up on the day. Canadian canola (rapeseed) made gains, more so than in soybeans, and it is canola that could well have the more bullish balance sheet. Drought stresses look to be intensifying in conditions not seen since the 2002 drought there. Weather forecasts continue to vary, but there seems little immediate prospect of improving crop condition, which works against yield and ultimately output.
  • Corn, like soybeans, ended the day a shade higher in the wake of the crop condition report, and traders are somewhat skeptical of the latest weather forecasts. The question remains, what has been, and will be, the impact of heat and dryness in July on US national corn yield. The US corn balance sheet is likely to need a revision – downwards unless we see a material improvement in precipitation.
  • Global cash wheat markets were mixed apart from spring crops, which rallied a further 14 cents/bu, and global futures prices were generally a much lower on the day. There is little in the way of market moving fresh news to stimulate direction. A fresh 12 month high in the €pro sent EU cash markets to some gains and Australian markets also jumped on further output concerns as drought conditions in W and S Australia intensify. Some are forecasting Aussie output this season just under 20 million mt vs. 35 million a year ago. Egypt secured 300,000 mt of wheat from Russia, Romania and France at prices fractionally above their last purchase earlier in the month (basis average fob). This price is the highest paid in some years, and it should not be overlooked that Egyptian purchase prices set, or are extremely influential upon, global levels. Indeed, recent prices paid correlate well with the trend in global cash levels this year.

17 July 2017

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  • Traders have the big question of what is the Central US weather going to do into the end of summer, and what impact is it going to have upon crops, yields and ultimately output. Will conditions be sufficiently threatening to trigger fund managers into a substantial net long position in corn and soybeans. Funds have returned to their largest net long position in age (corn, wheat, soybeans, lean hogs live and feeder cattle) since late spring 2016. Fund do have a tendency to trade gas from the long side, and as a consequence upside risk does lie in corn and soybean markets.
  • Monday saw soybeans finish slightly lower in mixed trade, deemed indecisive! Early strength faded as June crush data was below expectations. The lower close was well above last week’s low, a significant point. Crop condition declined, despite rains last week, with 61% of the crop rated good/excellent vs. 62% last week and 71% last year.
  • Corn ended mixed and little changed as crop condition fell as expected together with weather forecasts continuing to trend hot and dry into month end, which will likely lead to further condition deterioration. 64% of the crop was rated good/excellent vs. 76% a year ago, and is the lowest condition rating since 2012 (drought year!).
  • Wheat markets were mixed with winter crops shedding value whilst spring wheat added premium in declining condition and yield potential. US spring wheat condition fell to 34% good/excellent vs. 35% last week, and it seems NASS has not yet finished lowering HRS output estimates. Global cash wheat markets are a shade weaker amid €uro strength and profit taking in London and Paris futures markets. Russian output estimates are growing, with some forecasters on the upside of 73 million mt. Weather in Russia has been favourable although logistical issues and VAT rebate debates we would question whether this will allow their exports to grow significantly over 27 or 28 million mt, unchanged from last year. It feels very much as if global wheat trade patterns are about to change this coming year.

13 July 2017

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  • US export data has been released as follows:
  • Today’s price action in Chicago has been described as “down and dirty” with futures contracts in corn, soybeans and wheat all sharply lower today. The recent rally has inspired a “shoot now, ask later” type of mentality, which we are witnessing right now. There is a bearish overtone from the USDA’s July crop report and there have been some “tweaks” to weather models that are showing cooler and wetter conditions across the eastern Midwest in the next ten days.
  • China appears to have returned to the market as a buyer, having been absent in the recent rally, and this is an important factor because any sizeable price decline will doubtless prompt further buying, and in turn price support.
  • Weather markets are roller coasters, with scary turns and sharp price direction changes, 2017 is proving no exception and is not disappointing.
  • Today’s spec selling after a 10-12 day rally, is clearly warranted from a corrective perspective. Central US weather has turned somewhat less price supportive although the lack of rain through the Plains remains worrisome. We caution against a bearish stance, certainly until we are more certain of weather prospects going into the key second half of July and August.

12 July 2017

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  • Today’s July WASDE report was expectedly bearish on grains and supportive to soybeans. Soybeans should, therefore, gain on the grains as the market adds additional weather premium into the soybean complex as end stock forecasts decline. US spring wheat production will likely continue to declines abandonment rates grow (rapidly) into the August and September reports. Today’s HRS and durum wheat estimates are purely the start point in the production decline process; there is likely to be a further 65-85 million bu drop in output before the final counts are done.
  • Reports aside, we are now going to turn back to weather focus in the central US regions with the coming two to three weeks being key to corn and soybean yield. Volatility will doubtless ebb and flow with each and every weather forecast.
  • NASS estimated 2017 US wheat production at 1,760 million bu (down 64 million or 3.5% from the June forecast) based on a dramatic cut in US spring wheat production. NASS estimated US HRS wheat production at 385 million bu. US HRS wheat end stocks were forecast at just 122 million bu, down 113 million or 48% from last year. US HRW wheat end stocks fell 145 million bu to 448 million bu while US SRW wheat end stocks rose to 236 million bu from this year’s 215 million. WASDE cut 2017/18 US wheat exports by 25 million bu to 975 million bu and also cut feed/residual use by 20 million bu to 150 million. The cuts in export/feed use of 45 million helped balance the decline in new crop supply of 64 million bu. When the additional old crop carryover of 23 million bu is included, it raised 2017/18 US wheat end stocks to 938 million bu, which makes it difficult to sustain a rally much above $5.70-5.90 basis September Chicago wheat futures. The wheat data was bearish. We would note that 2017/18 world wheat end stocks grew to a record large 261.2 million mt up slightly from June. Russian 2017 wheat production was raised to a near record 72 million mt, whilst Australian production was trimmed by 1.5 million mt to 23.5 million. The EU wheat crop was only moderately cut by 750,000 mt to 150.0 million mt. The world still has plenty of wheat, but world major exporter supplies are in decline with a reduction expected in Canada in the August WASDE report.
  • US 2017/18 US corn end stocks rose to 2,325 million bu, up 215 million from the June forecast. The increase is based on the enlarged old crop supplies and the larger new crop seeding that was indicated in the June report. WASDE used a trend corn yield of 170.7 bushels/acre. If the yield was cut 5 bushels/acre, it would leave US 2017/18 corn end stocks of 1,900 million bu. Such stocks are adequate and it would take a yield of less than 160 bushels/acre to become bullish corn. We still see 2017/18 of US corn exports being 150 million bu lower at 1,725 million bu. US 2017/18 world corn stocks rose to 200.81 million mt, up 6.5 million from June, but still down 27 million from the current crop year. The 2017 Ukraine corn crop was left at 28.5 million mt, which many see as 3-4 million too large.
  • US 2016/17 soybean end stocks were lowered by 40 million bu based on a 50 million bu increase in exports (record large 2,100 million bu), and a 10 million bu reduction in the residual to 14 million bu. The smaller old crop stocks reduced 2017/18 US soybean end stocks to 460 million bu. It should be noted that WASDE raised China’s 2016/17 US soybean imports to 91 million mt and raised 2017/18 to 94 million mt. The rise in Chinese imports was long overdue.

10 July 2017

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  • The new week starts with Chicago markets leaping higher with the row crops of corn and soybeans making new summer rally highs. Wheat futures have followed, as have London and Paris markets and traders are closely monitoring heat and dryness which may well be damaging crop potential in Canada as well as parts of Europe. The global supply of durum and high protein wheats can ill afford further losses at this time, unless of course we are to see higher prices beginning to ration demand. Wednesday’s NASS report is expected to sharply cut US spring and durum wheat yields in their first survey of the crop year. Traders in wheat will not want to be overly bearish in a market that could well see a 2017/18 crop decline of some 40 million mt. Tonight’s crop condition report is expected to show some decline.
  • Private traders are further reducing their estimates of the 2017 Australian wheat harvest based on dryness and severe problems being reported with rodent infestations. Some analysts are now cutting their 2017 Aussie wheat crop estimate to 21-23.00 million mt, which is down substantially from last year’s 35 million mt harvest. Outside of Argentina, nearly every major world wheat producer will endure the harvest of a smaller wheat crop. It is not only soybeans, but canola (rapeseed) prices are soaring. Canola prices are at their highest levels since 2013 as the Canadian crop is being threatened by the hot and dry weather. There could be a real shortage of Canadian canola/canola oil in the next 12-13 months as supply shortages collide with strong demand, and improving import interest from China.
  • The old trading saying goes: “The trend is your friend!” That trend applies not only in trading, but also weather. Historically, it is tough to find a year when Central US weather reverses during the middle of July. A close above $10.43 would likely set a target of at least $11.00 in Nov ‘17 soybeans while Dec corn has a target of $4.30-4.50. And amid the surging summer row crop prices, wheat futures are likely to retest their highs.

6 July 2017

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  • Early data shows Chicago wheat futures surrendering to a bout of profit taking after some significant gains in recent days, which left the market in an extremely overbought technical position. The resultant losses have rubbed off into both Paris and London markets although Chicago corn is less impacted and soybeans remain in positive territory. We believe the tick lower in wheat to be a correction rather than a fundamental change of heart, and also think that season highs are yet to be made; the move lower is in our opinion technical rather than fundamental.

5 July 2017

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  • Chicago markets have been both volatile and mixed today with grains trading either side of unchanged and soybeans trading into positive territory.Volume has been sizeable as market players debate weather forecasts in the central US crop growing regions. Longer range forecasts are somewhat non-committed as far as beyond ten days is concerned and the bulls do not have a free run at further price upside, at least for now. More emphasis will be placed upon crop condition reports and yield forecasts until such time as there is better agreement in the longer range forecasts.
  • Minneapolis wheat, the bullish stalwart in this latest run up higher, has traded a wide rage ($0.94/bu) today and, perhaps more significant, is forming a bearish reversal pattern and reversal of trend, which needs closing price confirmation before anything else. This is leading to some caution in both wheat and corn pricing today.
  • US high protein wheat pricing and the current bull phase should provide a supply driven shock to prices, which should be followed by some demand rationing as prices escalate. It seems, right now, that prices have not yet reached levels that have created the latter situation Thus, our feeling is that we have not yet seen a wheat price “top” despite extreme overbought signals being quoted by all and sundry. It is more likely tat we will have to wait for autumn to begin before we see buyers digging deep into their pockets to secure supplies and driving prices to annual high levels. World cash wheat prices continue to rally as evidenced by Egypt’s latest GASC tender in which over 400,000 mt was secured. 60,000 mt was sourced from Romania and  350,000 mt from Russia, the season’s leading supplier to Egypt. The mid-August shipment slot was priced at a shade above $214/mt basis C&F.
  • Current US weather predictions look to maintain warm and dry conditions with below average precipitation into the short to mid term across much of the western US. Soil moisture levels are in decline and there appears little change on the horizon until at least late July. As such we see see more upside potential than downside.