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Weekend summary 29 September 2017

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Fund positions disaggregated data

• Following lower trade overnight, selling continued in the soy markets through Monday. The soymeal market paced last week’s late rally, and also led the way lower on Monday’s correction. Early week news was limited to export inspections that were at expectations, but still above a year ago at 38 million bu. After the close NASS reported national harvest progress had advanced to 10% complete through Sunday vs. the 5 year average of 12%. The Delta states are all well ahead of normal with LA at 75%, MS at 50%, and AR at 35%. Harvest across the Cornbelt states is just getting underway, and generally in line with average. The hot/dry weather in the last week has advance crop maturity, and harvest will accelerate into October. Near term support was established last week under $9.60 and resistance this week above $9.80, which looks to contain the soybean market into Friday’s quarterly Grain Stocks report. Old crop stocks are already expected well over a year ago, and it will be the October Crop Report yield that will have “significance”.
  

• Corn futures ended marginally higher, as both the bulls and bears lack leverage. Crude hit new 5-month highs. Next week’s arrival of moisture in Brazil will more directly impact Brazil’s soybean balance sheet, while NASS’s Stocks report on Friday won’t include any statistical fireworks for corn. Overall, the market lacks direction, and will likely trade sideways until more is known about S American weather patterns in November/December. The US corn harvest through Sunday reached 11%, vs. 14% last year and 17% on average. Maturity continues to lag year-ago levels, particularly across the N Plains & Upper Midwest, maturity is some 18-25% behind normal in SD, ND, MN and WI. Key USDA data lies ahead, but more important than US balance sheet changes in the next three weeks is strength in other feed grain markets. A range of $3.30-3.80 December is projected through early winter without major surprises in combine yield data in the next few weeks.
  

• Wheat futures at all US exchanges ended higher, led by spring wheat in Minneapolis ahead of NASS’s Small Grains Summary on Friday. We also note how drought in the C and E Midwest has yet to be solved, and in fact looks to worsen over the next 10 days, and there is concern about early SRW establishment. US winter wheat planting through the week ending Sunday reached 24%, vs. 28% last year. Unlike corn, a supply-driven story is developing in wheat, one that looks to further shuffle the world trade matrix. The Australian forecast has again trended drier in NSW and Queensland, and this week we have opted to reduce our estimate of Australia’s 2017/18 crop to 18 million mt. Compared to last year, this suggests that some 9-10 million mt of demand will shift from Australia to other origins, which amid current price relationships look to favuor US HRW longer term. Russian fob offers are up another $1/Mmt to $191/mt, a 6-week high, and we look for a test of $196-198/mt in Russia by December.  This in turn suggests a seasonal top in December Kansas/Chicago futures at $4.75- 4.90.
  

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Weekend summary 22 September 2017

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Fund positions disaggregated data

• NOAA’s updated climate forecasts today included ongoing normal/above normal temperatures through December, and mostly dry weather across the Central US over the next 45 days. The odds of La Niña developing in late autumn/winter were boosted noticeably (62%, vs. just 26% last month), and overall drought is expected to persist/expand across the Plains. The US drought monitor this week featured class reductions in MT, ND and MN, but an expansion in abnormal dryness in MO, IA, IL, IN and MI, which provides evidence that NASS’s yield estimates are overstated. Heavy rains lie in the offing Sunday to Tuesday across the Plains, but no precipitation of note is forecast east of the MS River. Temperatures into the weekend will reach as high as the upper 80s and 90s. The return of a broad NW upper air flow will allow dry weather to return to the whole of the Central US Sep 28-Oct 5, accelerating crop maturity and harvesting.

• Soybeans closed firm on Thursday while soy products were sharply mixed. Soymeal led the Chicago soybean markets higher and finished back above both the 50 and 100 day moving averages, supporting the soybean trade while soybean oil marked the lowest close in nearly a month. US soybean export sales were well above expectations at just over 2.3 million mt, the largest since last October. Soybean oil sales remained light in both old and new crop positions. The soybean oil market bottomed in early June and has trended higher since, as the market anticipated that the government would intervene to slow foreign biodiesel imports, and export sales have slowed since the Commerce Dept’s announcement in August. New crop sales sit at a decade long low, while outstanding old crop sales are the lowest since 2012/13. With domestic biofuel demand to increase nearly 1billion lbs (16%) to 7 billion lbs in the year ahead, US exports are seen sliding to a three year low. Firm trade is expected ahead of the weekend, with a close over $9.80 to spark a round of technical buying.

• Chicago corn futures again did very little, and enthusiasm is lacking with the harvest quickening. Soaking rains will impact a majority of the Plains and NW Midwest early next week, but otherwise the 30-day outlook features warm/dry weather. A flood of combine data is becoming available. Early yield data has been highly variable. US export sales through the week ending Sep 14th totalled 21 million bu and featured moderate sales to Japan and Mexico, but no other surprising destinations. Total 2017/18 commitments rest at 434 million, and an average weekly pace of 28 million bu is needed to hit the USDA’s annual target. Export demand certainly won’t be a major factor into early 2018, and work suggests the USDA’s forecast is 50-100 million bu too high. Otherwise, fresh news is lacking. Whether December can find support above $3.55 will be important in the near term. There is fundamental support in wheat (rising world cash markets, less than ideal weather) and in soybeans (demand/Midwest yield), but corn lacks much excitement. Brazil remains abnormally dry, but it’s far too early to be too pessimistic on the first crop.

• US wheat futures rallied slightly for a third consecutive session, and December Chicago settled above major technical resistance at $4.52, albeit very slightly. Russian fob offers are unchanged, EU offers are noticeably higher though, and with managed funds still short an estimated 85,000 contracts in Chicago, downside risk requires an improvement in world weather. Western Australia will benefit from moderate rainfall in the next ten days, but elsewhere only spotty precipitation is forecast into early October, certainly not enough to reverse the trend of declining soil moisture. There is also more attention being paid to recent and upcoming dryness in E Ukraine and Russia, assuming the current two-week outlook verifies, September rainfall in the Black Sea will rest at just 20-70% of normal, and large pockets of Ukraine and S Russia will see just 20-30% of normal rain in September. US weekly export sales were a meagre 11 million bu, unchanged from last week and some two million shy of what is needed to meet the USDA’s annual forecast. The US’s share of world trade is suffering as record shipments leave Russia, but US exporters have much better export opportunities beyond Nov/Dec.

• Following firm trading overnight, soybeans extended gains on improved export demand. Ahead of the morning open, the USDA announced old crop export sales totaling 132,000 mt to China and another 960,000 mt to unknown, with another 120,000 mt of new crop soybeans also to unknown. Note that announcements have accelerated since Aug 1, with a total of 27 transactions for new crops soybeans, totalling 4.75 million mt. Tuesday’s combined total of 1.21 million mt was the largest since July, which was directly following a Chinese (ceremonial?) frame contract signing ceremony in Des Moines. World demand remains strong, with summer demand figures up 10% over last year. We caution against turning bearish amid US yield uncertainty and the drier start to the S American planting season.

• December corn traded in another 4-cent range, ended modestly higher, and whether the contract can trade through $3.55, and thus break through its 20-day moving average for the first time mid-July, will be watched closely. We note that both chart-based support and resistance levels continue to narrow. Otherwise, the weekly ethanol report was in line with analyst estimates, though amid further losses in US gasoline stocks crude rallied $1/barrel, settling above $50 for the first time in four months. US ethanol production and blending margins remain elevated. Ethanol production last week totalled 304 million gallons, down slightly on the week, but up a hefty 15 million from this week a year ago. More importantly, non-domestic disappearance continues at a record level, in spite of Brazil’s recently passed tariff on imports. Official exports in July totalled 117 million gallons, the second largest on record. What little Midwest harvest data is available has been mixed, the real yield story seems to be in disappointing beans, and moving forward our focus is on rising milling/feed wheat prices and this year’s rather late start to Brazil’s wet season.

• US wheat futures rallied 4-7 cents, with December Chicago posting newer multi-week highs. Limited fresh news is available, but Australia’s crop potential continues to decline and the Black Sea cash market continues to move higher (record demand is found here). Australia’s share of world trade is in retreat, which will bode well for the US market over time. Literally zero rain has fallen across much of New South Wales, Queensland and even pockets of W Australia so far in September. Spotty showers are possible in NSW next week, but needed soaking rain is not indicated over the next two weeks, and a final Aussie crop of 19-20 million mt (vs. the USDA’s 22.5) is most likely. US export sales on Thursday are expected in an uneventful range of 300-450,000 mt, but we maintain that the USDA is too low with its forecast. Gulf wheat is only just more expensive than Russian origin, and Black Sea prices are expected to inch higher into Nov/Dec. Also note that managed funds this evening in Chicago are net short an estimated 86,000 contracts.

• Early selling in November soybeans found support at the 100 day moving average that pared back losses and left November 2.25 lower for the day, but 7 over the early morning low. Soybean oil had support under the 50 day moving average, and meal was lower on meal/oil spreading. Early Brazilian soybean planting is now underway, though producers across the country will likely wait for better rains to develop over the next several weeks. The question for this year is the extent that Brazilian producers will expand soybean acreage. Soybean area has increased every year for the last decade, and the USDA estimates another 2% expansion this year. In US$ Chicago is 1% higher, but 2% lower in Reais. CONAB’s initial estimate for soybean area is still a month away, but at the start of the year, producers are facing below normal soil moisture and lower prices.

• December corn fell another 3 cents as ongoing Central US warmth should accelerate crop maturity, and as there are signs of better rain chances in Southern and Central Brazil beyond the next 10 days. We view the recent break as mostly chart-driven, and major technical support and resistance lies at $3.45 and $3.55, respectively. The EIA’s weekly energy report, due Wednesday morning, should include steady (and record large for the week) ethanol production, but key will be the pace of non-domestic ethanol disappearance. So far, non-domestic use has shown no signs of slowing despite Brazil’s approved tariff on imports from the US. Brazil’s ethanol market continues to rally, and US production and blending margins remain elevated. S America’s cash corn market has been stale in recent weeks. Argentina is still the world’s low cost origin,  and by $.20/bu. However, feed wheat does not look to displace as much total corn demand this year. It may be premature to lower US corn exports below the USDA’s projected 1,850 million bu. We would note that downside risk in S American corn, and world feed/milling wheat prices, is limited.

• Wheat futures worldwide did very little today, but cash markets are noticeably firmer following Egypt’s latest tender result. Egypt secured 175,000 mt of wheat from Russia, which is not surprising, but at an average fob price of $197/mt, a full $10/mt higher than its last purchase in late August. The Russian market continues to find demand, and amid limited export capacity fob prices there continue to rise. Russian wheat, again, the world’s driver of price in August to November, is still offered well below comparable EU origin, and so a collapse in value is not imminent, and Russian wheat is competitive up to $196-198/mt, vs. quotes this evening of $188 (note that Egypt again is paying a steep premium amid phytosanitary issues). The point is we doubt much downside risk exists in even US futures. Rain is needed in Australia, E Ukraine and S Russia.