Monthly Archives: October 2017

30 October 2017

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  • US crop condition data has been released as follows:

  • La Niña is budding across the equatorial Pacific with the coolness pushing southward along the eastern coastline of S America. The rapid build of La Niña argues for heat/dryness across S Brazil and N Argentina during the mid to late crop growing cycle. The odds of a S American weather scare are elevated in La Niña years. The record warmth of world oceans argues against the La Niña episode continuing into mid 2018. If there is a crop impact, it’s likely to be S America.

  • Soybeans turned down at the morning open and November finished the day 2.5 cents lower on liquidation ahead of first notice day and a more favourable Brazilian weather forecast. After the close, NASS reported that through Sunday the US soybean harvest had reached 83% complete and was just under the 5 year average of 84%. LA is the first state to be 100% complete, but most of the Corbelt states are 80- 90% complete and winding down. Late season yield reports have quickly dropped and suggesting that the US yield could be another 1-2 bushels/acre lower by the January Crop Report. January soybeans have held an approximate range of $9.70-10 since September, and we look for that range to continue.
  • Chicago corn futures ended steady to just fractionally higher, and still the market lacks direction. Work suggests that final US corn yield may be slightly understated yet, and export shipments continue to lag the pace needed to meet the USDA’s forecast. Black Sea feed wheat prices moved higher today, the pace of US harvest remains well below normal, and of course the speculative community already holds a rather sizeable net short position. We await input that would drive spot futures out of the long-established trading range. Harvest through Sunday reached 54% complete, vs. 72% on average, and progress is noticeably slow across the Dakotas, CO, IA, MN and NE, and we suspect that as more objective yield data is available, NASS will lift yield in November. Otherwise, we doubt a new bearish pattern can emerge without elevated farmer sales, which are not expected at current price levels, and we maintain a neutral outlook until S American crop enter critical growing phases.
  • US wheat futures ended lower but in the middle of the day’s range, and highlighted today are a series of very aggressive tender results. Saudi Arabia bought 484,000 mt of optional origin wheat at $222/mt, which suggests exporters were willing to discount what appear to be replacements costs today, and which underscores that steep competition for new demand will be ongoing until Black Sea logistics cap exports there during the winter months. World cash milling prices are firm, but have been unwilling to move higher in recent weeks. The season’s first crop winter wheat crop rating (see above) was pegged at 52% good/excellent, vs. 58% last year and 55% on average. Ratings in the N Plains very bad (17% good/excellent in SD), but otherwise are pretty close to average. National ratings suggest trend yield and normal abandonment are intact. Like corn, we look for minimal changes in price in the near term, but a close eye will be need to be kept on recoveries in currencies in major exporting countries amid recent strength in crude prices. A bearish outlook is not advised here. 

26 October 2017

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  • US export data has been released as follows:
  • Chicago markets have been both mixed and dull today with only better than anticipated corn and soybean exports adding support, and weak sales together with an absence of fresh news input pressuring wheat prices. A plethora of global wheat tenders announced today are likely to limit further price erosion, certainly in the short term. Those tendering include Ethiopia, Jordan, Saudi Arabia and Taiwan.
  • US export demand for corn included enlarged requirements from traditional destinations including Japan, Mexico and S Korea as well as a substantial volume for “unknown” destinations. US corn exports so far in October has exceeded expectations!
  • China’s import quotas for 2018 are unchanged from 2017, and include 7.2 million mt of corn, 9.6 million mt of wheat and 5.3 million mt of rice. Feedgrain imports in September rallied slightly amid improving margins there. China also aims to embark on a more robust ethanol blending program, with a 10% blend targeted by 2020. This would of course require elevated corn consumption (potentially elevating imports), but would also cap feed imports amid higher DDG production.
  • Also weighing on rallies is ongoing weakness in major exporting currencies. Brazil’s Real is down again to new three month lows. Australia’s dollar is inching lower, and following Canada’s decision to leave interest rates alone, the Canadian dollar has fallen 2% this week.
  • It is clear that funds are, and will be, reluctant to take new positions until winter weather patterns are better known.

23 October 2017

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  • US cash ethanol prices have fallen to multi-month lows, which has weighed on production margins but also looks to find better consumption interest. Brazilian cash ethanol prices, meanwhile, continue to rally, and even amid Brazil’s 20% tariff on imports from the US, Gulf ethanol pencils into Brazil. Higher ethanol disappearance is expected into late year.
  • Most soybean futures were up 1-2 cents after trading in a relatively narrow 6-8 cent range today. The December soymeal contract, however, slipped by just over $1 while soyoil continued its rally and added 0.4 cent to close at 34.56 cents (up nearly 8% since the beginning of the month). 97% of the soybean crop was dropping leaves as of Oct 22 while 70% of the crop had been harvested. Harvest progress was above the high end of the range of expectations, up 21 points for the week, but still lagging behind the 5 year average of 73%. China will release final details for September imports tomorrow but the total should be unchanged from the 8.11 million mt “preliminary” estimate released earlier this month. Based on exporter shipments to China in September, we expect China’s October imports to fall to 6.11 million mt. However, ship lineups so far this month suggest that November imports will jump to 9.3 million mt. We look for a broad ranging trade to unfold.
  • Corn futures rallied 6-7 cents, which relative to recent months is quite a bit, and which we attribute mostly to fund short covering. Somewhat quietly managed funds have a established a sizeable net short, which as of Sunday evening is estimated to have reached 185,000 contracts, a record for the middle part of October. Producers are harvesting, and not generally interested in adding to new sales at current prices, and so the path of least resistance today was higher. Other news is lacking. S American basis levels are stagnant and still some 5-20 cents below Gulf quotes. US harvest progress through Sunday reached 38% complete, vs. 59% on average. Interior basis levels are mostly stable, and in the C Midwest have rallied noticeably from early October’s lows. There’s still no compelling evidence to support a major lasting move in either direction. The bulk of harvest still lies ahead, but ethanol production should be maintained at lofty levels, and US Gulf ethanol is now priced at a 35% discount to Brazilian origin, and the recent break in ethanol prices should find some incremental demand moving forward.
  • Wheat futures led the way in ag markets amid short covering, and an otherwise lack of selling. Managed funds’ net short in Chicago has been growing slowly but steadily, but we also mention funds net long in Kansas has now been liquidated entirely. As of last Tuesday funds were net short 5,000 contracts in Kansas (which was slightly larger as of this morning), and so were net short Kansas for the first time since April. Russian interior wheat prices are stable in both Roubles and US$, and with replacment in Southern Russia calculated at $160-162/mt, we maintain that downside risk in world cash markets is limited. Russian fob offers are unchanged at $193/mt. German wheat rests at $196. Comparable Gulf HRW is offered at $197/mt, and so a host of origins are competiting for new business over the next 2-3 months. Winter wheat as of Sunday was 75% planted and 52% emerged, and the season’s first crop rating is due next Monday.

18 October 2017

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  • When one looks at the US interior cash corn price, it has been generally sideways since mid 2014. There have been two rallies that occurred during the N American growing season, but otherwise, corn values have held in a 40 cent range. Unfortunately, with a 2017 US corn yield near trend of 169 bushels/acre or more, the outlook for US interior corn prices is for a continuation of the sideways trading range, it is going to be tough to push December corn below $3.30 or above $3.70 into yearend. It looks to be just more of the same!
  • Overnight selling continued on Tuesday with limited fresh demand news prompting the unwinding of long soybean/short grain spreads. November soybeans closed 6.25 cents lower. Soymeal prices are holding above all major moving average, though cash basis across the Midwest continues to trade at multi year lows.  The latest vessel lineup for Brazilian soybean exports shows that October exports could be close to 3 million mt versus 1.6 million a year ago. However, Brazil is thought to be nearly sold out of old crop soybeans, with spot offers for export this week quoted 30-35 over the US through to the end of the year. Early new crop Brazilian exports are at least 3 months out, with significant volume not likely available until March. Harvest offers are quoted similar to current US offers 45-50 cents over the CBOT. Stronger US sales are needed in the to justify USDA’s record export forecast. Spot soybean prices are still 60-70 cents over the August lows, and our view is neutral. We expect farm selling to slow rallies in the coming weeks.
  • Chicago corn futures closed slightly lower in back and forth price action with the weakness in the soy complex allowing the bearish tug on Chicago grain prices. The nearby soybean/ corn ratio closed at 2.81:1. The ratio argues that US farmers should be more aggressive in selling their new soybean harvest vs. corn. Argentina fob corn is cheaper than US values into mid winter and the US corn export profile will continue to suffer as a result. Brazil will export 5.7 million mt of corn October vs. just 1.1 million last year. It is the combination of large Brazilian and Argentine corn exports that will continue to steal US corn export demand, and cap Chicago futures rallies at $3.70-3.80 basis March. A rally in Chicago corn futures will not be sustained without a rally in S American corn basis offers. The Midwest corn harvest is slowly advancing with yield reports maintaining a trend of being better than expected. The US corn harvest is only an estimated 35% completed, and it is the results from the last half of harvest that will be key. However, the yield data leans in favour of a further bump in US corn yields in the November NASS report. Chicago corn prices are seen as cheap and with funds short an estimated 170,000 contracts of futures, one has to be careful about being overly bearish.
  • US wheat futures closed mixed with Minneapolis finding some end user support, while Kansas and Chicago wheat futures closed slightly lower in thinning volume. The world wheat market could be forging an early season top with the EU and US needing to see better export demand. Rallies in US wheat futures will be based on fund short covering. 2017/18 global wheat stock/use ratios will be at their highest level in 20 years and near the all time record set back in the mid 1980’s. 128 million mt of wheat resides in China, but the point being is that there is no shortage of world supplies. We expect that world wheat production will rise to an even higher record in 2018 amid the rise in seeding in the Black Sea. The supply bear market appears to be unending without adverse weather. We believe that a “sell the rally” mentality is appropriate with world wheat prices nearing a seasonal top.

16 October 2017

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  • US crop condition data has been released as follows:
  • Soy futures were lower to start the week on improved Brazilian weather foercasts that left prices down 8-9 cents. Daily US export sales of just over 8 million bu announced, while soybean export inspections were the largest of the year at 65 million bu. Yet, US soybean exports need to ramp up to 100 million bu or more per week to match last year in October. NASS reported that as of Sunday, US soybean farmers had harvested 49% of their soy crop versus 36% last week, and the 5 year average of 60%. Heavy weekend rains will slow harvest in the first half of the week, but fortunately the forecast for the week ahead stays dry late October. US crop ratings have had diminished importance in what will be the last condition report of the year, NASS marked the crop at 61% good/excellent. November soybeans started the week with profit taking after testing a weekly downtrend line at $10 on Friday. Soybean yields have far exceeded our summer expectations. Without a Brazilian crop problem, the outlook is bearish on rallies with an initial downside price target of $9.60-9.70 as 1st notice day nears against November.
  • A more active Midwest harvest and the continued reports of better than expected yields, along with slowing US export demand pressured CBOT corn futures to a lower close. Funds ended the day as net sellers of 5,400 contracts of futures with December pinned against $3.50. US corn exports for the week ending October 12th were just 12.7 million bu, the smallest total since the week ending November 5th, 2015. The slow export pace does not bode favourably for US corn exports into early 2018. Research maintains a US corn export estimate of 1,725 million bu, down 125 million from the WASDE October forecast. Without any change to yield, such a slower US corn export pace would raise US 2017/18 corn end stocks to 2,465 million bu. NASS reported that just 28% of the US corn crop is harvested, vs 44% last year and a 47% 5 year average. 90% of the US corn crop is mature, down from 96% last year and 94% average. 65% of the US corn crop is rated good/excellent, up 1% from the prior week amid solid yield reports. Producers continue to report better than expected US corn yields across the Midwest. The better yields likely will cause NASS to raise their US corn yield estimate in the November report. It’s remarkable that the 2017 US corn yield could equal 172-173 bushels/acre. Corn lacks any bullish fundamental story amid slow US export demand and solid yields. 70% of the ‘17 US corn crop has yet to be harvested. If December corn starts to technically slide, prices could drop to $3.30 which would push funds to a net short position of close to 200,000 contracts, but, if December is unable to close below $3.45 by Friday, this would portend that much of the bearish news is digested.
  • US wheat futures failed to sustain an early rally effort and closed lower. Fund short covering ended at mid morning and selling pressure returned amid weakening global wheat prices. Australian wheat values dropped on improved weather for Southern New South Wales and Victoria, while traders turned their attention to the Algerian tender and what price French fob values would need to fall to to secure a sale. Funds ended Monday as net sellers of 2,300 contracts of wheat. The US wheat market lacks a bullish fundamental story into yearend. US wheat export inspections for the week ending October 12th were just 11.9 million bu with total crop year exports at 390 million bu, down 10.5 million or 2.5% from last year. US wheat is competitive in the world marketplace, but so far this has not translated into better export demand. The US has planted 60% of the 2018 winter wheat crop vs 71% average. New crop wheat prices are not deemed as attractive to producers. We estimate ‘18 US total wheat seeded acres to 48.5 million acres, mostly due to gains in spring, durum and white wheat seeding. In 2016, the US planted 46.0 million acres of all wheat and in 2015 the US planted 50.1 million acres. So a 48 million acre seeding total is in the middle amid the improved soil moisture profile. Argentine wheat is the cheapest in the world as dry weather has helped the crop with 12.5% pro wheat pegged $14/mt under French wheat. Russian fob wheat has started the week steady at $193/mt while most traders believe the upside is becoming limited in Russian wheat to $200/mt beyond December shipment.

16 October 2017

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  • Early Chicago made today saw some fund short covering in wheat whilst corn and soybean futures ease on the coming US harvest pressure and improving S American weather.Volumes have been well down as fund managers appear reluctant to add to existing positions. It feels as if Chicago has made something of a top on Friday, and additional allies will face new selling pressure limiting upside in the short term.
  • Australian fob wheat prices have fallen sharply to start the week on the rains that have fallen in the past ten days. The rains has stabilized the crop and in some cases, improved yield prospects.
  • Jilin, China’s top corn growing province is cutting their subsidy for farmers to plant corn in 2018 by 13%. The subsidy for soybeans is far better (than corn), but high domestic corn prices may prevent much of a shift away from corn to soybeans next spring. It is rumored that China still has more than 180 million mt of old crop corn stocks (100 million larger than the WASDE forecast) that could be available to the market. The Chinese Government continues to prod its farmers to seed crops other than corn, it is soybeans that looks to be a logical switch. Also, the Chinese Government is reporting that its grain production will hold above 600 million mt, down from last year’s 616 million.
  • US weekly soybean exports have to average closer to 100 million bu/week to reach the USDA annual forecasts into mid November. US corn and wheat exports are just abysmal. Research argues that a Chicago top was scored on Friday and that any bounce back will be a selling opportunity.

11 October 2017

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  • World fob wheat prices have been moving higher, even amid record large production and growing world stocks. Argentina is currently the cheapest wheat in the world, but it is expected that of exports of 9-10 million mt, that Brazil will take 6.5-7.5 million, leaving others to seek 1.5-2.5 million mt. Argentine wheat should score a seasonal bottom in the next three weeks, leaving Russia and the US to fight for future world wheat export demand.
  • Wednesday was an exceptionally quiet day of trading ahead of the October crop report. The October soybean yield estimate is typically much more accurate than previous reports as some actual harvest data is incorporated. Yield reports have been highly variable across the Midwest, ranging from record large to 15 bushels/acre less than a year ago. There is a yield drag on soybeans seeded after May 19. Preliminary Chinese trade data for September will be released overnight. Based on August shipments from N and S America, we estimate that imports could be record large for the month at 8-9 million mt. The US exported just over 1.3 million mt to China in August, while Brazil shipped close to 6 million. Another 1.5 plus million mt were also shipped from Argentina and other S American countries. The seasonal outlook for soybean prices is now bullish into the end of the year. We would expect strong demand to be uncovered on any post report price break under $9.60 basis January.
  • December corn is again testing its contract low, and via the trade’s average guess on US corn yield and ending stocks the market is gearing up for looser US and world balance sheets on Thursday. The trade’s guess on US corn production rests at 14,170 million bu, virtually unchanged from the USDA’s September estimate. We do acknowledge that NASS’s yield in September will likely be close to the final number, and that corn lacks a meaningful story, but funds this evening are very short. We estimate managed funds net short position this week at 155,000 contracts, which is actually a record for the week, and compares to 131,000 just ahead of the October report in 2016. The US farmer certainly is not selling cash corn at this price. Crude has recovered from early week losses, as have ethanol futures, and we note Brazilian ethanol prices are now bid $.40/gallon (27%) above US origin, which on paper offsets Brazil’s tariff on US imports. There is also talk of China importing ethanol amid rising prices and a need to fight winter smog. Fundamentally, a neutral outlook is advised.
  • US wheat futures have fallen to test chart-based support, and price action through the remainder of the week will in large part hinge upon NASS’s updated corn yield on Thursday. Otherwise, little has changed and following this break Gulf HRW is again offered fractionally below Russian origin for Nov/Dec arrival, and as such we caution against turning bearish here. World cash wheat markets this week have followed futures lower, but only slightly. We maintain that downside risk in fob offers is limited. Interior prices in Russia are steady this week amid strength in the Ruble, and the coming pattern shift to wetter weather in eastern Australia is too late to have a material impact on yield potential. The USDA’s world wheat balance sheet is expected to be near unchanged, as any hike in Russian production will be offset by losses in Australia. Like corn, funds are short an estimated 70,000 contracts this evening, and new selling requires fresh, significant bearish input. An ongoing sideways trade is expected in US wheat.