• It’s USDA report day, and there is a little something for everyone. At face value this morning’s data is bearish soybeans and wheat, and bullish corn, but all markets at midday at trading fairly steadily. In fact, beans are up 4-6, corn is up 1-2, and wheat is down 5-7, but has crawled off its lows. USDA cut US soybean exports another 60 million bu and raised end stocks by a like amount. No other changes were made, but so far the downward adjustment is fair given the pace analysis of sales and shipments. US corn exports were raised a hefty 125 million bu, more than expected, and cut end stocks by 125 million to 2,352 million. US corn stocks/use at 16% is now very little changed from last year, and further hikes in exports are possible if Argentine weather fails to improve in the next 15-20 days.

• CONAB also lowered its forecast for safrinha corn acreage this morning, thus lowering total crop size, and without near perfect weather in Brazil, and amid rather cheap corn offers at the US Gulf, the market is well positioned to boost its share of world trade even more. US wheat exports were lowered 25 to 950 million, which like beans is a function of pace analysis. The rally in wheat is also working to slow potential export demand rather noticeably, and we’ve mentioned this week the wheat market is not at all being driven by demand. However, this week’s drought monitor showed yet further expansion in extreme conditions across the S Plains, and the major forecasting models are not in agreement on the potential for isolated showers in OK and KS in late February.

• World crop ending stocks were lowered across the board. As expected, USDA cut Argentine corn production 3 million mt to 39 million mt, and additional cuts lie in the offing. Brazilian corn production was left alone. Brazilian bean production was raised 2 million mt, which is completely offset by a 2 million reduction in Argentina. Chinese imports are unchanged at 97 million mt, vs. 93.5 last year. Total S American production is pegged at 166 million mt, vs. 172 last year.

• Price action today makes clear the market is more concerned about La Niña-based drought in the US, Argentina and S Brazil, and that safrinha corn seedings this morning was lowered 700,000 hectares places more burden on Apr-May rainfall in Central Brazil. We maintain that price breaks are buying opportunities amid less than ideal world weather patterns, and as the macro landscape is relatively improved compared to recent years. We estimate that managed funds this afternoon are still short 95,000 contracts of corn, 97,000 contracts of wheat and 30,000 contracts of soybeans.

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

Feb 18 USDA contemplation

• The DOW opened lower and recovered strongly in the morning hours as investors saw the break as a new buying opportunity. The DOW is back above 25,200, and this has offered a peg of support to raw material markets. We would also note that Goldman continues to push commodities as a buy based on their opinion on an expanding world economic (GDP) outlook. We agree with this view, but it’s not the kind of fundamental that causes commodities to rally each and every day. Whether new index fund investment shows up on the roll today will be closely monitored. We look for a mixed Chicago close with traders positioning short soybeans against long grains.

• CONAB will be out Thursday morning with their Brazilian corn and soybean crop estimates. We expect that they will raise their Brazilian soy crop by 1.5- 2.0 million mt and their corn crop by 500,000-1.0 million mt. We peg the soybean crop at 111.6 million mt and the corn crop at 93.0 million mt.

• Chicago brokers report that funds have bought 1,700 contracts of soybeans, 3,500 contracts of corn, and 2,200 contracts of Chicago wheat. In soy products, funds have bought 2,500 contracts of soymeal and sold 3,700 contracts of soyoil. Fund managers are back to spreading long meal against short soyoil.

• There have been rattling’s that China may target US soybeans for tariffs if the current trade environment does not improve. We suspect that it’s just tough talk (as of today), but ag interests are worried following the unexpected US sorghum anti-dumping announcement on Sunday. Trade uncertainty leaves Chicago vulnerable to a sharp price declines on rumors. We hope and doubt that China will act against US soybeans, unless the Trump Administration takes a sharper aim against China’s manufactured goods.

• Funds are pushing the wheat market higher on short covering ahead of the USDA February crop report. Corn is trying to follow, with traders expecting a bearish USDA soybean report, which is capping rallies. The weekend rains for Argentina are a big deal as crops there are in need of immediate moisture.

• The sharp DOW recovery amid drier Argentine weather forecasts offered early Chicago support with corn, soybeans and wheat trading in the green. The volume of trade is active and a higher close is expected. The USDA Crop report is Thursday and some covering ahead of the report is occurring. Historically, the February report does not offer much excitement. Traders will be focused on changes in S American crop sizes and the amount of increase in the 2017/18 US soybean balance sheet due to a decline of 50 million bu of US soybean exports and a 25 million bu bump in the crush rate. US domestic meal and DDG demand is very strong, with rising basis levels, even amid the record large US soybean crush pace. Research expects a modest reaction to the USDA report with trader’s then returning their focus on S American weather and the potential for US competition in the months ahead.

• Chicago brokers report that funds have bought 3,700 contracts of soybeans, 6,500 contracts of corn, and 3,200 contracts of Chicago wheat. In soy products, funds have bought 3,800 contracts of soymeal and 1,700 contracts of soyoil.

• IMEA raised their estimate of the Mato Grosso soybean crop to 30.98 million mt vs 30.6 million in November. The increase was less than expected. CONAB will be out later this week and we are expecting a 1-1.50 million mt increase in soy production to 110.5-111.4 million mt. Such production is just below last year’s record at 114 million mt. CONAB will be reluctant to forecast a record large Brazilian crop until more harvest data is available. We see the Brazilian soybean crop at 111.7 million mt. There is no evidence of moisture for the parched Central Plains for 2 weeks.

• It has been a day of short covering ahead of the USDA February report on Thursday with the forecasts offering less Argentine rain following the weekend. Meal and corn should be the upside leaders on declining Argentine crop yields. The US equity market has stabilised, for now, but we doubt any rally can be sustained.

• Chicago contracts remain in the red at midday, but corn, wheat and soybeans have rebounded from overnight lows. Confidence is increasing with respect to some amount of rainfall benefiting Central and Northern Argentina late this week, but whether follow up rainfall returns in mid-Feb is critical, as is the actual performance of the coming precipitation event. Amid a lingering La Niña we doubt that a lasting pattern shift lies in the offing, and so cumulative rainfall there this growing season looks to stay at some 40-60% of normal.

• Stats Canada released its periodic major crop stocks report this morning, and the data was met with little fanfare. Stocks of major crops in Canada as of Dec 31 were generally in line with expectations, and major changes to Canada’s annual balance sheets are not anticipated. Dec 31 Canadian wheat stocks totalled 23.6 million mt, vs. 24.1 million a year ago.  Canadian canola (rapeseed) stocks totalled 14.1 million mt, vs. 13.4 a year ago and an expectation of 14.3. Combined barley and oat stocks on Dec 31 totalled 8.9 million mt, unchanged from last year and compared to an expected 8.6 million mt. Canada’s grain and oilseed surplus is more than adequate.

• The US forecast at midday is wetter in the far E Plains next week but maintains complete dryness and wildly variable temps across TX, OK, W KS & CO. The issue, longer term, is that ENSO forecasts are reluctant to end La Niña. La Niña looks to stay weak, but its duration is now being pushed into the N Hemisphere summer. It is impossible to say much about the summer growing season, but La Niña does look to maintain its influence on weather in Argentina and the US Plains over the next several weeks.

• The USDA’s pending Feb WASDE report will again confirm ample stocks of grain/oilseeds in the US and elsewhere. We maintain that breaks are buying opportunities amid the risk of further drought expansion in the US this spring.
  

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

Weekend summary 2 February 2018

• Red persists in Chicago this morning with the only green showing in soyoil on meal/oil spread unwinding. Marketing year low US soybean sales and marketing year high US soymeal/soyoil sales have traders debating future US soy crush rates. US domestic biodiesel demand is expected to accelerate amid the warming of temperatures this spring and a strong case can be made for raising US soybean crush rates by 25 million bu and cutting US soybean export estimates by 50 million bu. The USDA February WASDE report is due out a week from today and traders have started debating world crop production and US balance sheet changes. Otherwise, fresh news is rather limited and traders will take their cues from S American weather forecasts going home.

• Chicago floor brokers estimate that funds have sold 8,600 contracts of soybeans, 6,000 contracts of corn, and 4,700 contracts of Chicago wheat. In soy products, funds have sold 4,200 contracts of soymeal and 900 soyoil.

• Technically, March soybeans fell below the 50 day moving average at $9.84 which triggered a slew of sell stops which pushed the market down to the 200 moving average at $9.80. This level also failed to hold, which sparked another layer of selling. End user pricing was uncovered on the break and the market is trying to stabilise. Corn and wheat have followed the complex lower.
  

• The FAS weekly export sales report showed US wheat sales of 10.6 million bu, US corn sales of 72.9 million bu and soybean sales of 13.2 million bu. The US soybean and wheat sales were disappointing, while the corn sales were better than expected. For their respective crop years to date, cumulative US wheat sales stand at 750 million bu (down 11% or 91 million), US soybean sales at 1,602 million bu (down 249 million or 13%) with US corn sales being 1,270 million bu (down 313 million or 20%). We note that the US sold 9.5 million bu of sorghum with crop year sales at 204 million bu, 76 million or 59% better than last year on strong Chinese demand. US cumulative soymeal sales are the second largest on record.

• The weekly US Drought Monitor indicated a worsening drought outlook for the Central US with the GFS weather forecast calling for an ongoing dry weather trend for at least the next three weeks. The drying trend will raise drought worries starting in March with US winter wheat condition ratings in retreat. The S American weather forecast is little changed from the overnight run.
  

• This is the kind of market that you get when you trade changeable and low confidence extended range weather forecasts. It had better rain across Argentina and S Brazil in mid-February or Chicago will quickly add considerable weather premium in price. Amid a weakening US$, we look for new money coming into commodities in the new month. Don’t sell Chicago breaks amid an expanding drought across the Central US and Argentina is the best advice we can offer at this time.