• Defra’s first official UK Supply and Demand estimates for this season, released earlier today, suggest tighter domestic wheat supplies for the second consecutive season. The balance between availability of wheat and domestic consumption is forecast at 2.648 million mt in 2017/18, 18% lower year on year. This is 118,000 mt lower than the wheat balance forecast in the AHDB Early Balance Sheet in October and reflects the very latest information available. Total availability of wheat, at 18.530 million mt, is slightly higher (50,000 mt) than the amount forecast by AHDB in October, due to an upward revision in imports. However, this is offset by higher forecast domestic demand. Wheat consumption in animal feed is estimated at 7.396 million mt, 217,000 mt higher than the AHDB forecast last month.

• GB animal feed statistics for September 2017, released by Defra earlier this month, showed higher usage of wheat in compound feed year on year, as well as compared to July and August this season. Furthermore, poultry data published last week revealed record number of UK broiler and layer chick placings in October, which bodes well for wheat demand in feed. As a result, Defra forecast wheat demand in animal feed to increase by 1% (88,000 mt) this year compared with 2016/17. After taking into account the operating stocks requirement of 1.6 million mt, the estimated surplus of wheat available for export or free stock in 2017/18 is 1.048 million mt, down 35% year on year. Looking back, the current forecast is the lowest since 2013/14.

• There is a contrasting situation for domestic barley supplies, compared with wheat. Defra forecast the 2017/18 surplus of barley available for free stock or export at 1.713 million mt, 21% higher year on year. This is slightly lower (68Kt) than AHDB’s forecast in October.

• Fund managers have been right to bet on long soybeans vs. corn (or wheat). The soybean/corn chart below  reflects that soybeans have outperformed corn since late summer. Record large world soybean demand along with aggressive Argentine corn sales has helped the soy/corn ratio. In addition, if there is a La Niña weather problem in S American this winter, soy will continue to gain on corn with the ratio potentially reaching above 3:1. Plainly stated, US corn lacks a demand story in coming months. It is all about S America going forward. 

• January soybeans traded in just a 7.25 cent range for the day, and finished down half a cent. While soybeans were quiet, more active trade was noted in soy product markets and spreads. January soyoil had support above the 200 day moving average, but could not get above the 50 day moving average. Funds were estimated sellers of 500 soybean and 1,000 soyoil contracts, while buying 3,500 contracts of meal. While US soybean exports have slowed dramatically in the last several weeks, and are starting to cast doubt on the potential for annual exports, China continues to process beans at a record pace. Last week’s soybean crush was estimated at just under 2 million mt, which was the largest weekly figure of the year. The cumulative crush rate is now estimated at 16 million mt, and the current pace is right on track to reach the USDA’s annual forecast of 94 million. US exports have been slowed by late season S American exports. Brazil has exported nearly 2 million mt in November with 1.4 million scheduled for December. World soy demand is record large; January soybeans have held in a broad range since September, which looks to continue into late in the year. S American weather and crop size will determine prices into year end. Our view is that there will more than likely be a number of strong weather rallies.
  

• Corn futures rebounded ahead of first notice day on Thursday. Fundamentally, what news is available is modestly supportive. Argentine cash basis levels continue to rally, the pace of US ethanol production is record large, and there is evidence that this winter’s La Niña could be stronger than initially forecast (much more attention will be paid to Argentina rainfall during December). Also, funds still hold a record net short corn position. US ethanol production through the week ending Nov 24 totalled 313 million gallons, down just slightly from record production in the previous week. Cumulative US ethanol production is 4% above last year, vs. the USDA’s projected 1% increase. US ethanol export interest continues as world energy markets remain firm. Parts of Argentina will benefit from good rainfall in the next 24 hours, but many key parts of the Corn Belt will miss out. We have previously highlighted that even sub-trend yield there won’t materially affect its exportable surplus, but no doubt weather premium will be added if dryness persists during December.

• US and European wheat futures ended higher, and in the US pre-first notice day liquidation has ended. Black Sea cash prices are unchanged, but European values are higher, and still there is talk that Northern Europe’s hi-pro exportable surplus is dwindling fast. On paper, Gulf HRW is more competitive than it was just weeks ago. There is just not a lot of input available to trigger any meaningful selling below $4.10, basis spot Chicago futures. Otherwise, it was a pretty slow news day but more attention will be paid to Plains dryness in the months ahead. The EU and GFS weather models have eliminated the chance of rainfall across the Plains next week. The equatorial Pacific has also cooled dramatically, and some models predict a rather strong La Niña through Jan/Feb, which historically correlates with warmth and dryness across the Southern HRW Belt. Plains soil moisture surpluses are eroding. Like corn, farmers will not be willing sellers at current prices, and a 15-20 cent rally is anticipated.

• Tuesday was another mixed day of trade, with markets reversing Monday’s trends. Soyoil recouped losses as the palm oil market stabilised, which took meal lower on spreads, while soybeans settled down, but well above the early morning lows. Soybean crush spreads ended lightly mixed, with January trading over $1/bu at the high and closing down a quarter of cent at $.9925/bu. Funds ended the day as estimated sellers of; 3,000 soybean and 4,500 soymeal contracts, and buyers of 4,500 in soyoil. The new crop soybean/corn ratio ratio this week is slightly less than it was a year ago, at 2.6:1, but still well above the long term average of 2.3:1. With harvest wrapped up, producers are turning attention to crop production plans for next year. The question going forward is whether the current new crop price ratio is enough to pull in additional soybean acres. Major moving averages sit just under the market around $9.85, while strong rallies above $10 will offer the next selling opportunity.

• Corn futures fell another 2 cents amid a lack of news, a higher US$, weaker crude, and as the USDA’s long term projections lack any bullish fodder. Assuming normal weather trend corn yields will reach 190 bushels/acre by 2027, and even despite a lack of acreage growth US end stocks will stay near 2.5 billion bu. Finding world market share is the goal, and this of course requires a major change in world currency relationships or adverse S American weather. In the near term, however, we maintain that neither the bulls nor bears will have much lasting momentum. Argentine cash basis levels continue to rise, and have rallied rather quickly, and on paper the US Gulf market is becoming more competitive. The EIA’s report on Wednesday is again expected to include near record ethanol production and ongoing export interest, Brazilian ethanol is now quoted at an 8-month high $2.15/gallon, vs. US Gulf ethanol at $1.50.

• Another round of Egyptian wheat business has come and gone with yet lower prices, and as such Black Sea offers through March are down slightly. Egypt bought two cargoes of (once again) Russian wheat at an average fob price of $193/mt, down $1.50 from its last tender in mid-November, and it remains clear that world cash wheat prices continue to decline from highs posted in late summer. However, the US market very quickly is priced to sell, SRW is quoted at a multi-year low $177/mt. Lower protein HRW is priced at parity with comparable German and Baltic supplies. It is likely that managed funds early this morning were short a net 125,000 contracts, and as interior US basis strengthens, a bearish outlook can not be advised at current prices. US wheat is competitive in a range of $4.25-4.40, basis March Chicago, and N Hemisphere crop establishment is now key. We would note that the USDA’s baseline numbers show a steady contraction in US wheat end stocks into 2020 amid a lack of acreage/yield growth.

• Total area of crops continues to expand across Argentina due to profitable margins and tax promises. On January 1st, the Marci Government has promised to reduce their soybean export tax by 0.5% in each month going forward. The Argentine Peso sits a near record low vs. the US$. The combination of lower taxes and a weak currency has been a potent stimulus for Argentine farmers to expand their seeded area. The extra acres could reduce some of the yield drag amid regional dryness.
  

• It was a mixed day of trade in Chicago that left January soybeans 2.75 cents higher at the close. Chicago soyoil prices followed Malaysian palm oil futures to losses, while oil share spread unwinding lifted soymeal prices back to the best prices in more than a month. Commodity fund traders were estimated buyers of; 4,500 soybean and 5,200 soymeal contracts, while selling 6,000 soyoil futures. The US weekly export inspections report was delayed, and the results were disappointing. Soybean inspections were at the low end of estimates at 58 million bu, or the lowest since early October. The previous week’s inspection total was revised up by 5.3 million bu, while cumulative inspections of 768 million bu are now 120 million (14%) behind a year ago. The USDA will release US 10 year Baseline projections on Tuesday, which will feature preliminary estimates for new crop acreage, while the EPA is expected to release its 2018 biofuel mandate before Friday. Record large December 1 US soybean stocks look to cap rallies above $10.00 while the unknowns in the coming S American growing season looks to support breaks to $9.50.

• Chicago corn fell 3-4 cents as December’s first notice day is just ahead, and as the major weather forecasting models are in general agreement that needed rainfall will impact Argentina in the next 5-7 days. Recall very early planted corn begins pollinating in Argentina in mid/late December, and weather is becoming more important to yield determination. More rain will be needed (a majority of the crop will pollinated in February), but concern over lasting dryness is being eased. Otherwise, the market lacks a spark to drive funds out of what is still a massive short position. As of last Tuesday managed funds were short a net 210,000 contracts, down 20,000 from the prior week, but still historically large. Cumulative US corn export inspections at 285 million bu (through to mid November) are down 40% from this week a year ago. The US corn export pace is slow amid keen S American competition. Argentine rain is noted, and simply put, until there are hints of major US/world balance sheet changes the market will remain stuck between $3.30-3.60 basis spot futures. No change to the EPA’s ethanol US blending mandate is expected.

• Climate outlooks through to late December suggest a more normal pattern of precipitation may lie in the offing across the drier areas of the US Plains. With favourable weather ongoing in the Black Sea, there are just not many threats to the newly planting N Hemisphere winter wheat crop. World cash markets are slightly higher and contacts suggest hi-pro milling supplies are getting rather tight in Northern Europe. A host of tenders worth upwards of 1 million mt will close on Tuesday. In that sense today’s lukewarm reaction in the cash markets is somewhat disappointing. However, we look for a bottom in the wheat to be scored in early December. Interior US HRW basis continues to narrow, significantly so in some locations, and as German/Baltic prices rise the US is much more competitive for Jan-March exports. Winter wheat ratings fell for a third consecutive week (50% good/excellent, vs. 52% last week), which highlights that rain is needed across the whole of the Western US, good/excellent ratings are at/below 40% in MT, OK, SD and TX. Funds as of last Tuesday were short a net 109,000 contracts, unchanged on the week.

• The morning has been mixed in Chicago with soybeans trading to a new rally high while the grains trade either side of unchanged. The strong seasonal price trends for the day ahead of Thanksgiving appear to be working. Funds have been active in buying soybeans/soymeal and selling of the grains. The oil share traders have been unwinding their long soyoil and short soymeal spreads which is adding to the upside vigour in the marketplace Producer selling is lax from the US, but stepping up in S America with the Brazilian real priced at 3.245:1 vs the US$. The wheat market is giving back a portion of Tuesday’s Russian radiation gains based on the lack of impact on world grain production going forward. Our inclination is for a mixed Chicago close heading into the holiday.

• Brazil is offering soybeans, soymeal and soyoil for export during December and January. Seasonally, Brazil is normally sold out in this position, but last year’s record large soy crop harvest is helping to keep Brazilian soy products flowing. We would note that Brazil is offering fob meal at $26 under Chicago with the US Gulf at $9 under. Brazilian soymeal is $17-18.00/mt cheaper than the US Gulf. And Brazil is offering soyoil at $32/mt discount. Brazilian soybeans are offered at a $6/mt premium, but Chinese crushers prefer the higher quality Brazilian soybeans and there is a freight advantage vs. the US Gulf. Brazil looks to export some 2.7 million mt of soybeans during December according to the freight line-up.

• Chicago brokers estimate that funds have bought 6,000 contracts of soybeans and 2,000 contracts of corn, while being flat in wheat. In soy products, funds have bought 5,400 contracts of meal and sold 2,100 contracts of oil. It is all about chart based buying today, December options expire on Friday and short holders are also securing futures to cover their risk.

• Tuesday was another dull day of trade in Chicago soy markets, with January holding in just a 5 cent range through the day, and ending only marginally lower. Soymeal was $1-2 weaker as soyoil bounced back on a recovery in palm oil stabilised. The palm oil market had been trending lower through November and fell sharply on Monday as India announced plans to double the palm oil import tax. At Tuesday’s low, December and January palm oil were down nearly 10% from the late October high. India is the world’s largest palm oil importer, with the latest USDA estimates showing India to import 9.5 million mt or 14% of total world production. October imports reported on Monday were slightly better than a year ago near 750,000 mt. Early estimates are for imports to fall 10-15% under last year over the next several months. The break in palm oil this week has pushed the spot soy/palm oils spread near multi year highs with US soyoil near a 6¢/lb spot premium. The US soyoil premium is based on biodiesel demand which is outstanding. US soybean weekly export sales data will be released on Friday. Chinese demand is only so-so, and US 2017/18 soybean export estimates are at least 100 million bu too large. January soybeans should trade a $9.50-10.0 range.

• Corn futures found support on the third (and perhaps last) day of fund short covering. Another week of strong ethanol production is expected in Wednesday’s EIA report and liquidation of December futures will continue ahead of 1st notice. Whilst US ethanol prices are in retreat, Brazilian origin ethanol continues its rally. This week Brazilian ethanol is quoted at $2.11/gal, a 9-month high and also a 43% premium to US Gulf ethanol, which more than offsets Brazil’s newly established tariff on imports from the US. A counter-seasonal decline in US ethanol stocks is possible in the weeks ahead. However, it should be noted that the EU and GFS weather models include enough rainfall in Argentina for early crop establishment, and precipitation and temperatures are not overly important until early/mid-December. Also, competition for world market share will be ongoing unless drought strikes Brazil again in in the April to June period. Corn values look to be range bound into 2018.

• The highlight of the wheat market day was of course widespread media coverage of Russia confirming that a radioactive leak originated there in late September. The trade is scrambling to know what this means for supply and demand, particularly with many well versed on catastrophes at Chernobyl and Fukushima. However, cash markets only barely moved, and in the meantime the goal for all major exporters is to find market share. The key is that this does not seem to be a power plant melt down! Any future impact will likely be modest. Russian fob offers are higher this afternoon, but only by $.50/mt. Paris milling wheat rebounded from 3-month lows, and overall the world cash wheat market has been inching lower, with exporters in France, Germany, Russia and the Baltics offering wheat at $190-194/mt. Notice that comparable Gulf HRW is not priced competitively. Dryness in the US Plains, Spain, France and North Africa will of course be watched, but we see nothing that will alter the long-established sideways trend in the near term.
  

• Index funds have shown a propensity to be buyers on breaks in ag commodities. They were buyers late last year, again in June/July and during late August and September. Fund managers report that they see opportunity in raw material prices based on the strengthening world economic outlook. Brazil, China, India and Africa all look to be expanding their industrial base which should power metal/energy futures upwards during early 2018. Ag commodities will likely follow, but managers will not chase rallies and they are buyers on breaks.
  

• It was a slow day of trading to start the holiday shortened week, and it left soybeans near steady at the close. Support in the soybean and meal markets was uncovered against major moving averages, while the soyoil market followed Malaysian palm oil prices sharply lower. India, who is the world’s largest importer of edible vegoils, announced on Monday that it would double the import tax on palm oil. The announcement put palm oil futures down more than 3% to a 14 week low. Commodity funds were estimated buyers of; 3,000 soybean and 2,000 soymeal, and sold 6,000 soyoil. Soybean export inspections were within expectations and counted at 78 million bu, while the previous week’s figure was revised up by 3.6 million bu. The inspections rate has turned disappointing since early October, and looks to be confirming an early seasonal top. Year to date inspections total 705 million bu versus 806 million a year ago. The further decline versus a year ago makes it increasingly more difficult to reach the USDA forecast, without a short Brazilian crop. It is a range bound market until more is known of the S American growing season/crop potential. Near term support in January is noted at $9.80-9.85.

• Open interest in corn on Friday fell from a multi-year high as the spec community begins to pare down its record net short position. Recent price actions confirms the market is stuck within its long-established trading range, and until S American crops enter reproductive stages, there will be little available to drive March futures outside of the $3.50-3.65 range. Work suggests that even Argentine weather correlates poorly with yield until December. A close eye will be kept on a potential pattern shift to wetter weather in Central Argentina beginning Dec 2-3, but otherwise the market will lack fresh input. First notice day lies ahead, and interior basis across the Plains and far W Midwest remains for the most part 25-40 cents below December corn. Elsewhere cash basis has followed seasonal trends rather more closely, suggesting a near term top may have been scored last week. Export shipments remain lacklustre, and aside from ongoing record ethanol production corn’s demand pull is lacking.
  

• Unlike corn, managed funds’ net wheat position is not record large, and with global cash markets still inching lower, there was no spark today to drive any meaningful short covering. The Australian forecast, while still wet through early December, no longer includes any risk of widespread flooding, and for now the market’s chore is to boost domestic use and world trade. Russian wheat offers are unchanged at $191/mt, but French and German quotes rest at multi-week lows at $190 and $193/mt, respectively. However, a turnaround on Tuesday is likely. Some sources do suggest that recent and upcomign rainfall will keep Australia’s harvest slowed in New South Wales, and the domestic market there is strong. Winter wheat crop conditions fell another 2% to 52% good/excellent, driven by further downgrades in the Southern Plains amid developing dryness there. Also, the 10-day forecast is completely lacking moisture in TX, OK, KS, CO and NE. We anticipate additional back and forth trading into December, and note that only major currency changes can trigger a new price trend until more is known about S America’s corn harvest.

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Weekend summary 17 November 2017

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Fund positions disaggregated data