• The US$ this week has hit new lows for the move, while the €uro rests at multi-year highs. This is an important development, longer term, for seeding in 2018 and beyond, and currencies, along with flat price, are now offering much less inventive to expand acreage in S America, among other places. A close below 91 point is viewed as further bearish, and currency action in the next few weeks needs close watching. 

•  September corn has reached $3.30/bu while December corn futures have fallen near $3.45. November soybeans are trying to test support at $9.30 while wheat is holding near unchanged. The market maintains a bearish feel with the charts technically oversold, but still heading lower. Bottom pickers have not been rewarded, and the market may have to get beyond first notice day to spark a recovery. US elevators report that farmers are still existing stale cash basis contracts in corn and soybeans. The selling from these elevators and ethanol groups should be completed by Thursday. A portion of the decline is based on fund selling and the ongoing liquation of long cash connected contracts.

• Stats Canada will release its August crop report Thursday morning. We expect Stats Can to reveal Canadian wheat production at 24-25 million mt, with canola production estimated at 17.8-18.5 million mt. USDA pegs Canada’s wheat and canola harvests at 26.5 and 20.5 million mt, respectively. Canola futures this week have followed the soybean market to very marginal losses, but canola maintains a premium of $55/mt to soybeans, vs. a slight discount on this week a year ago. EU wheat farmers are voting with their actions to curtail cash related selling. Although the spring grain harvest is underway in Russia, cash sales here are also declining amid low prices. A trend of reduced farmer sales is a theme that likely to persist into October. Producers are unwilling to take a loss and sell cash grain/oilseeds at these depressed levels.

• A new tropical storm has formed in the Atlantic and it is named Irma. The storm is expected to take a westerly route and then turn west southwest on Friday. The exact storm path thereafter is up for debate with many of the computer taking the storm in different directions. Following on the heels of Harvey, we are sure that the media will be paying close attention to Irma next week. Delta farmers are at risk from heavy rains with crops ready for harvest. The Delta corn harvest has been accelerating while soybeans are close behind. Gulf exporters are counting on the Delta soybean harvest for nearby supply.
  

• Cash connected and fund selling is keeping pressure on Chicago at midday. A year ago, Chicago markets bottomed on Aug 31st as basis contract selling ended for old crop. Field surveys argue for smaller US corn and soybean yields from NASS.

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

Weekend summary 25 August 2017

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

Fund positions disaggregated data

• It’s tough to be a Brazilian corn farmer right now. Recent information  indicates that the winter corn crop is being sold at cash corn prices not seen in years. Notice from the chart below that interior Mato Grosso prices are $1.66/bu which is producing substantial losses. The negative margins will very likely restrict Brazilian corn planting in 2017/18 as farmers will be unlikely to plant a crop that does not offer a profit. Tough times due to the rising Brazilian Real and sliding Chicago futures prices. 

• It was a mixed trade across the soy complex today, with soybeans trading on both sides of unchanged before ending firm. In the product markets, soybean oil was sharply higher, leaving a gap on the daily chart, while soybean meal slumped to new lows on spreads against bean oil. Last week’s Commitment of Traders report showed that funds had been big sellers in the soybean oil market, liquidating 29% of their position in just one week. However, fund buying in soybean oil has been unrelenting in the last week on anticipation of the biodiesel announcement. Funds have been estimated buyers in the last six consecutive days of 24,000 contracts. If correct, our guess is that funds are now holding a long position of 70,000 soybean oil contracts, or the largest since late January. The question now is whether hedgers use the rally to add to sales, or will they hold onto supply in anticipation of much stronger cash demand. Markets in the last half of the week will be focused on the crop tour yield results, which will offer insight into potential figures from NASS in September. The big debate remains on yield, but pod counts from the PF Tour are currently disappointing.

• The results of the Farm Tour are far from clear, but NE’s yield (165, vs. a 5-year average of 163) was better than anticipated, and so far the newswires are void of any big disasters. We maintain that the market is probing for a bottom, and ethanol use remains something of a bright spot for the market. S American basis is stronger again today. Weekly US ethanol production last week totalled 309 million gallons, down 2 million from the previous week but well above the same week a year ago. Plants have responded to the surge in production margins, and ethanol stocks are down slightly amid improved export demand. US crude stocks fell for an 11th consecutive week and are now 6% below last year. There is talk of more US ethanol production capacity being invested in to come on line in 2018.

• US futures ended near unchanged, while EU futures ended modestly higher. Along with strength in the €uro today, EU cash markets rallied $1-2/mt, further boosting their premiums to Black Sea and US origin. Algeria closes a tender for optional origin wheat on Thursday, and it is probable that US HRW will be included. Note that Algerian purchases of US wheat are extremely rare. Certainly, Gulf wheat is priced to boost US exports by 75-125 million bu. Black Sea cash prices are slightly weaker yet again, but on the margin the decline has slowed this week. HRW is offered at parity with similar quality Black Sea origin, while US 10.5-protein HRW is the world’s cheapest. Global wheat stocks excluding China are below last year. Research suggests that the US’s share of world wheat trade will rise as the EU, Australia and Canadian wheat exports suffer. While the post-WASDE break has exceeded all our expectations (and by some way), seasonal weakness will have run its course by September, and we continue to advise patience. More of the trade is beginning to acknowledge Russia’s infrastructure issues and inability to export more than 30-32 MMTs of wheat.

• US wheat prices have collapsed in the past four weeks and are now sitting at values that are below where the rally started in April. US wheat was the most expensive in the world at the start of July, is now it’s the cheapest by a wide margin. Russian, Argentine, and EU wheat offers have been slower in their decline while Aussie wheat prices are well above all other exporters on declining new crop supplies. Also notice from the chat below that all fob world wheat offers are well above last year. In fact, Russian farmers are not selling even with prices $30/mt higher and a record large crop. 

• Soybeans were on both sides of unchanged in Wednesday’s trading, and steady to marginally higher at the close. The soy market is very oversold and news that a Chinese delegation of importers had signed agreements to purchase 3.8 million mt of new crop soybeans offered support. However, this is an annual event, and (somewhat cynically) we feels this is more a statement of intent rather than a formal commitment. Soybean oil marked the best close for the day with December bouncing off both an uptrend line and the contract’s 100-day moving average. Last week’s Commitment of Traders report showed that funds had started to unwind their soybean oil position, which was the largest since February. We estimate that since last Tuesday, funds have sold 11-12,000 futures contracts, but still hold a significant long soybean oil position. We question the need for soybean prices to fall much under $9.20 basis November ’17 futures, with a drier extended weather forecast and the skepticism that surrounds the USDA’s August yield estimate. Our opinion is that a short term bottom is forming ahead of the Pro Farm Tour that starts Tuesday.

• Corn futures fell to new 11-month lows, but selling slowed as the GFS and EU weather models project a lengthy period of dryness in late August. US ethanol production last week was also much higher than expected. End user demand will emerge on any further break; yield checks suggest NASS is too high with its IL yield. US ethanol production for the week ending August 11th totalled 311 million gallons, up a full million from the previous week and just 0.5 million shy of the all-time record posted in late January. Cumulative ethanol exports in 2017 remain record large. The highlight in energy markets is still the ongoing decline in US crude stocks, which as of last Friday are down 4.9% from the previous year. Crude will have ample support at $45/barrel, and as such biofuel margins will stay profitable. Argentine fob basis for Sep delivery has rallied every day this week, and this evening is quoted at $.30/bu over. This is up some $.40/bu in just a few weeks. Brazilian corn is now offered at a premium to US origin. The market is probing for a lasting bottom, which we would expect to be found at $3.55-3.65 basis Dec ’17 futures. The S American market has bottomed, and major exporter supplies will be down some 45 million mt from last year. The US farmer will need to plant additional corn acres in 2018.

• Egypt managed to buy a hefty 355,000 mt of Black Sea origin wheat at $194/mt, or roughly $12/mt below what it paid in its last tender. Some 1 million mt of Russian wheat was offered, and the Black Sea cash market is noticeably weaker. Work indicates that the market is in the process of forming a lasting bottom, but we await interior Russian cash market price action for confirmation. Australia’s longer term climate outlook is trending wetter following updated ENSO guidance. Very little rain will fall in Australia in the next ten days, and so vegetation health is expected to erode further, but thereafter there is evidence to support an improved pattern of rainfall in the Sep-Nov period. Aussie wheat is still rather expensive, but fob prices there have lost some $30/mt (12%) in the last four weeks. Larger than expected Russian production, more aggressive Russian sales this week, and a shift in Oceania climate outlooks have weighed rather heavy on values in August. Rallies in the near term will hard fought. However, we estimate managed funds position in Chicago today to be net short 50,000 contracts, and very quickly funds’ position has undergone a 100,000 contract swing, from long to short. The decline has been dramatic, but it is not the time to turn bearish with seasonal trends in both corn and wheat pointing upwards beyond late Aug/early Sep. Producer revenues in most exporting countries are lower than last year, and Russia’s logistical constraints will cap its share of world trade. Gulf wheat is very cheap and futures are undervalued.