• Managed money increased their net long position in the week ended Tuesday to 296,232 contracts, a gain of 48,309 in US ag future. A year ago, funds were net short 323,000 contracts of US ag futures showing the big change in the ag market ownership. Fund managers are bullish on US ag futures on the back of dire Argentine crop loss and concern for Central US weather conditions. The large net fund ownership has us pondering the potential for Chicago grain and soy futures to score a normal seasonal high in the 1st half of May.

• Higher overnight trade in soybeans gave way to profit taking ahead of the weekend. Market news was limited and funds were not anxious to press their bull position ahead of the weekend amid geopolitical concerns. Last week traders worried over Chinese trade retaliation, and this week it is Russia/Syria. Funds ended as sellers of 5,200 contracts of soybeans. Soybean crush spreads were 3-4 cents higher on Friday, but the spot spread finished nearly $.30/bu lower for the week, and close to $.50 under last week’s high. Price movements in the crush spread have recently been greater than changes in the underlying soybean and product markets, but despite this week’s decline, the spot spread is still holding at a record seasonal level, while July and August margins are also at or near similar levels. Chicago is telling processors to keep plants running. China March soybean imports at 5.66 million mt were down 11% on last year and soybean imports are on par with 2017. Funds trimmed their soybean long by 5,000 contracts to 176,000 contracts. Soybeans appear caught in a range of $10.20-10.80 through planting. S American soy crops are going in differing positions with Brazil getting larger and Argentina smaller.

• Corn ended the day 2 cents lower, and traded in just a 7-cent range this week. Wariness over US/Chinese trade issues as well as coming S Plains rains weighed on corn today. We also note that Brazil is now offering summer delivery fob corn at levels 10-15 cents below US Gulf origin. So, for the first time in months, the global feedgrain landscape is more competitive with respect to trade. Funds on Tuesday were long a net 174,887 contracts of CBOT corn, up 35,000 on the week but, the position is not excessive and fits well with supportive fundamentals. Funds have likely sold a net 5,000 corn since Tuesday. Ongoing back-and-forth trading is expected into the USDA’s May WASDE as both the bulls and bears grapple over large old crop supplies and new crop weather. We caution against turning bearish on breaks though. Crude hit new rally highs on heightened geopolitical tensions and it is unlikely that lasting warmth is established across the heart of the US Ag Belt by May. The Ensemble weather forecasts maintain complete dryness across Brazil’s central safrinha corn belt beyond Apr 20. There is more than enough supply uncertainty to underpin breaks,July corn has support below $3.90

• US wheat futures fell another 6-12 cents as the EU and GFS weather models are in general agreement on soaking rain late next week in OK, KS and NE and as Russia’s ruble hit new 17-month low, thus raising incentive for producer sales and which will work to keep fob offers competitive, indefinitely. In Ruble terms, Russia’s domestic market has actually rallied substantially over the last month as exporters scramble for supply, but weakness in the currency there has more than offset this, and so cash fob offers in Russia are unlikely to extend their recent rally. The EU weather model in recent days has trended wetter across the Plains, but it is very important that precipitation materialises as forecast next Friday-Sunday. Even then, Jan-Apr precipitation in KS is likely to reach only 4.0-4.3”, half of last year’s total and some 35% below normal. Some measure of HRW crop improvement is certain, but follow up moisture will be needed. Also this weekend a lack of rain and elevated windspeeds will cause moisture deficits to worsen, not improve. Once again wheat wheat’s rally was unsustainable. However, following the 20- 30 cent break and amid a net fund short of 55,000 contracts in Chicago, a bearish outlook is not advised. Fair value is pegged between $4.70-5.10 July Chicago.

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

Fund positions disaggregated data

• Chicago futures are lower at midday as traders take off risk ahead of the weekend with rain slated to drop across the S Plains late next week. Kansas wheat has been leading the decline in recent days as the market extracts weather premium. The rain will be important for wheat values late next week, but the models appear to becoming confident in its arrival. The tone of the market feels heavy at midday as weather/political concern exist. The market is uncertain on the US’s reaction to Syria and what will happen in the rain forecast for the Plains and Midwest. Moreover, US/China trade issues are likely to deepen as progress in the past two weeks has been nearly nil. The research view has been sideways with extreme volatility continuing, with advice being don’t chase rallies or sell sharp breaks. Chicago floor brokers report that funds have sold; 6,000 contracts of corn, 4,600 contracts of soybeans, and 4,200 contracts of Chicago wheat. In soymeal, funds have sold 2,800 contracts of soymeal while being flat in soyoil. The funds continue to pile into a larger net long soybean/meal/corn position.

• There were no new sales announced through the USDA Daily Sales reporting system this morning. This was a surprise to some traders. Rumors continued to swirl that Argentina had purchased additional US soybeans, but US exporters have not offered such confirmation (other than the cargoes that sold late last week and Monday). One cannot pencil a profit on US soybeans into Argentina with the products to be exported. The lack of a crush profit will keep Argentine import totals of US soybeans subdued for now. This is not to say that a break in US soybeans would cause the calculation to go positive, but we doubt that Argentine crushers will take on the risk without a healthy import margin. Brazilian fob soybean basis has corrected sharply this week as US and China headlines on trade were replaced by other political issues like Russia and Syria. Brazilian fob soybean offers are at $1.30 over for July (compared to $1.95 over last Friday), while US soybean fob rose to $.92 over. The spread at $.38 over is far less than $1.00 plus from last week. EU crushers are not interested in shifting their sales to the US at such a fob vs fob spread. Note that Brazilian soybeans normally trade at a $.15-.20/bu higher value vs the US due to its higher soyoil content. Chicago corn prices have had trouble rallying this week to the surprise of the bulls as Midwest seeding is delayed. However, Brazilian fob corn has declined and is now cheaper than the US Gulf at $187.50/mt for July. US Gulf corn is priced at $194/mt, or $6.50 higher. The Brazilians are starting to aggressively offer corn and offering a cheaper alternative to US product.

• Traders are cutting their risk in a host of markets, excluding energy where this week’s close will be the best in years on Mideast political concern. This is a headline marketplace and we see no reason why that will change. This week, Brazil has become a more aggressive seller of winter corn, while soybeans were not able to poke above their winter spot high price. In wheat, its all about Plains rainfall amounts, watch this space.

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

Weekend summary 13 April 2018

• The morning has been mixed in Chicago with the summer row crops firmer while wheat futures sag on the prospect for rain across the Central Plains. The rally in corn/soybeans has been based fresh fund buying which is related to a week of strong US export sales amid the switching of non-Chinese buyer demand of Brazilian soybeans back to the US. Also, the prospect that President Trump won’t immediately target Syria with a missile strike has offered levity to the US and world financial markets. Funds have been putting risk back on in soybeans and corn, and adding a short back into wheat. We look for a mixed close with trade volume slowing into the close. Traders will be loath to take on additional risk heading into the weekend amid the ongoing political uncertainty of Syria/trade tariffs. Chicago floor brokers report that funds have bought 4,500 contracts of corn, 5,000 contracts of soybeans, while selling 5,500 contracts of wheat. In soybean products, funds have bought 2,200 contracts of soymeal and 1,200 contracts of soyoil.

• FAS reported that for the week ending April 5, the US sold 4.4 million bu of old crop wheat (and 2.5 million bu of new crop), 33.1 million bu of corn, and 55.5 million bu of soybeans. Weekly US soybean sales were above trade expectations and included 35.1 million of new crop sales. The purchases by China in a new crop position is comforting traders that China is not seeing a real trade tariff issue. We fear that such thinking is not capturing the lack of negotiation between the parties and the potential for US tariffs to come in late May/June. WASDE is forecasting a 5% decline in US 2017/18 soybean export estimates, so there is no statistical rational for WASDE to raise or lower their export estimate today. The same applies to soymeal.

• US President Trump continues to reassure US farmers that they will be taken care of if China retaliates against $50 billion of US tariffs that were promised in late March (working their way through the US 30 day Government comment period). The USDA is working hard to find an equitable platform to compensate US producers for trade related losses, should a US/China trade war erupt. The US has a Sec 301 finding against China and Tuesday’s warm talk by President Xi is not enough to halt US intellectual property protection demands. We are fearful that additional US/China trade (in the media) bantering will occur and that the odds grow with each week of non-negotiation that US tariffs will occur.
  

• It should be a risk off day on Friday as the market fears new trade rhetoric against China and a potential military strike against Syria. We estimate that funds are long around 198,000 contracts of soybeans, 130,000 contracts of corn, and 110,000 contracts of soymeal. The long side of soybeans/soymeal is loaded which makes the market vulnerable to adverse news. US soybean demand has slowed as Brazilian fob premiums have retreated to more normal levels.

• The USDA April Crop Report was bearish for soyoil/wheat, while being neutral corn/soybeans. The surprise was that WASDE lowered its Argentine soybean crop estimate by 7 million to 40 million mt, while they raised Brazil by 2 million to 115 million mt. The net decline was larger than expected which rallied Chicago soy futures. However, the industry has been talking an Argentine soy crop of 36-39 million mt for weeks, and we doubt that the soybean rally will last. We expect that Chicago will get back to focusing on weather and trade disputes. The USDA raised 2017/18 US corn end stocks by 55 million bu to 2,182 million bu. The increase in stocks was a result of a 50 million bu decrease in feed/residual use to 5,500 million bu, and a 10 million bu cut in the amount of corn used for glucose and dextrose, that was partially offset with 5 million increase in the amount of corn that is used for starch. Research would argue for another 50-75 million bu cut in US corn feed/residual use, with a like increase in US corn export estimates. This would leave 2017/18 US corn end stocks around 2,200 million bu with the average cash farm price placed at $3.35.

• 2017/18 world corn production was lowered by 6 million mt with a 2.5 million reduction to 92.0 million mt in Brazil and a 3.0 million to 33.0 million mt in Argentina. 2017/18 world corn end stocks were forecast at 198 million mt, down 1 million from March, and down 33 million mt from last year. No change was made to Chinese corn imports at 4 million mt or their 2018/19 stocks at 79.55 million mt. The world corn balance sheet was neutral and traders will be looking forward to the May WASDE which will offer their first estimate of the 2018/19 world corn estimates. US 2017/18 wheat end stocks were raised 30 million bu to 1,064 million bu via reduced feed and residual use to 70 million bu. This is an historically low US feed/residual use rate as more corn is utilised in US livestock rations. No other changes were made in the US wheat balance sheet, but we would argue that WASDE will cut its final US wheat export estimate by 10-20 million bu which will raise 2017/18 US wheat end stocks closer to 1,100 million bu by the final count. Such stocks are burdensome and reflects the tepid demand profile for US wheat with total use estimate under 2,000 million bu. World 2017/18 wheat stocks rose by 2 million to 271.2 million mt, a record high. The hefty world wheat stocks will mollify the cash rally as the market starts to worry about the sharp fall in the Russian Ruble and likely response by farmers to sell additional stored supply. Russian wheat exports were raised 1.0 million to a record large 38.5 million mt. Even amid last year’s record large 85 million mt Russian crop, their wheat carry in supplies will only be 2 million larger at 12.7 million mt. The world still has an abundance of old crop wheat to cap global prices.

• WASDE lowered their estimate of 2017/18 US soybean end stocks by 5 million bu to 550 million bu with a 10 million bu increase in the US crush estimate to 1,970 million bu and a cut in residual/seed use of 5 million bu. WASDE held its US soybean export estimate steady with March at 2,065 million bu. The sharp fall in the Argentine soybean crop will have more of an impact on 2018/19 US soybean exports (than the old crop) with the Brazilian soy crop reaching a record 115 million mt. The average farm gate price was left unchanged at $9.30. US 2018/19 soyoil stocks were raised to a 1,966 million lbs as more cornoil is used in biodiesel production. 2017/18 world soybean production was lowered to 90.8 million mt (down 3.6 million from March) as the Argentine soybean crop was cut a sharp 7 million to 40 million mt while the Brazilian soybean crop was raised 2 million to 115.0 million mt. World 2017/18 soybean production fell 6 million to 334.8 million mt. The sharp fall in WASDE Argentine soy crop estimate is rallying Chicago futures. However, such a crop has been rumoured for weeks and we doubt that the Chicago advance can be sustained. The US nor world balance sheet is surprising.

•  The USDA April report does not offer much new information for traders. The sharp drop in Argentine soybean production has been telegraphed by the Argentine Commodity Exchanges for weeks. Our bet is the Chicago goes back trading weather and politics. The sharp fall in the Russian Ruble and our doubt that the Chinese trade tensions have ended should produce a volatile sideways Chicago trade. It is early to argue that US corn, spring wheat or soybean seeding will be altered significantly with US farmers to plant 40% of their corn or soy crop in a week.

To download our report data recap as a PDF file please click on the link below:

USDA-Recap-10-April-18

To download our report contemplations as a PDF file please click on the link below:

Apr 18 USDA contemplation

• Chicago values are stronger at the start of the week with wheat leading the bullish charge amid dry weather conditions across the S Plains and the cold/snowy conditions across the Dakotas. Wheat has acted to pull up corn, with soybeans reacting to the hope that the US/China are working through their trade differences/tensions. President Trump before his weekly cabinet meeting indicated that he was hopeful on the progress scored in NAFTA and that Chinese President Xi will do the right thing. Moreover, he tried to assure US farmers that he stood with them, and would support their incomes. The news flow has been positive which along with the cold and snowy weather across the Midwest has offered a bullish tailwind for Chicago. A higher close is expected with the USDA April report to be released on Tuesday. Chicago brokers report that funds have bought 7,000 contracts of corn, 5,700 contracts of corn, and 4,800 contracts of wheat. In soy products, funds have bought 3,500 contracts of soymeal while being flat in soyoil.

• US weekly export inspections for the week ending April 5th were; 15.8 million bu of wheat, 76.2 million bu of corn, and 13.7 million bu of soybeans. The corn export total was above trade expectations while soybeans were below. The export data argues for a further 10-20 million bu cut in US wheat exports, a 25 million bu cut in US soybean exports, and 50 million bu bump in US corn exports.

• President Trump commented that if China wanted to hit the farmers (who are great patriots), we will support them. The financial support can come from either the CCC Corp funding or an obscure law known as Section 32. This law can take funds that are generated from customs duties, and use them for a wide range of things like disaster payments, or purchasing commodities for schools or other donation programs. Section 32 would let China pay for the US farmer financial support. Section 32 had been restricted from USDA using any funding for disasters or other emergencies. However, that all ended when Congress passed the US Omnibus Spending Bill for 2018, just a few weeks ago. Under reduced restrictions, The USDA Secretary must provide written notice on its expenditures to both the House and Senate at least two weeks in advance. This is the way that the US Government will support the farm community. However, deciding on the allocation is another matter that is still being discussed.

• We have learned that China did not include soymeal on its 25% tax list since meal cannot be imported into China under quarantine restriction. China added the restriction several years ago to protect its domestic soy crush industry. 

• Chicago wheat futures are rising on the Plains dryness and the lack of moisture in the forecast. The Russian fob market reached $210/mt, the highest price in three years on strong demand. Funds are covering shorts while corn and soybeans are following. We have no way of knowing how China will react to the new positive overtones from President Trump. Our bet is that China’s response may not be as “warm”. However, in this market of adding or subtracting trade risk, today is a day of addition. 

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

Weekend summary 6 April 2018

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

Fund positions disaggregated data

• Chicago markets are higher at midday, driven by a more favorable macro landscape (crude is up $.30, the DOW up 300), and ongoing weather concerns in both hemispheres. There is a better understanding by the trade that proposed tariffs from both the US and China will not be implemented for some time. The GFS overnight weather forecast trended cooler, and the midday so far maintains a lack of needed warmth across the N Plains and bulk of the Midwest. And some 95% of the Upper Midwest is blanketed by several inches of snow, which is unusual on this date. Soil temperatures in IA, MN and the Dakotas rest in the 20s & low 30s; a year ago soil temperatures there were in the 40s and 50s.

•  This week’s US Drought Monitor also showed a slight expansion in exceptional drought conditions across OK and CO, and still little to no rain is offered to the Western Plains into April 20. HRW yield concern has been well documented, but we reminds that producers in TX, KS, OK and CO intend to plant just over 9 million acres (11% of total) of corn there in 2018, as well as 5.6 million acres of soybeans

• Old and new crop US wheat export sales were disappointing at just 4 and 7 million bu, respectively. Sales of other ag production were in line with to above trade guesses, and world soy complex demand does appear to be shifting to the US and away from S America. Corn sales through the week ending last Thursday totalled 35 million bu, down from the prior week but still some 15 million above the pace needed to meet the USDA’s target. Total corn export commitments stand at 1,865 million bu, or a near record 84% of the USDA’s forecast. A 50-75 million bu hike in US corn exports is nearly certain. Bean sales through the week totalled 42 million bu, a record for this particular week (sales in late March typically range from 5-20 million). Total US bean commitments are now much better in line with the USDA’s forecast, and so perhaps no downward revision will occur in next Tuesday’s WASDE. Meal sales were a 9-week high 414,000 mt, and meal commitments also rest a near record high 81% of the USDA’s forecast, with half the crop year remaining.

• World wheat prices continue to move upwards, albeit slowly. An ongoing rail workers strike in France has pushed fob offers in France and Germany to new seasonal highs at $210-220/mt, still well below Gulf HRW offers but fundamental support is being raised to $4.80-4.90, basis July Kansas futures.

• The S America’s weather forecast remains much drier than normal across the southern half of Brazil’s safrinha corn belt through late April. It is not too concerning at present, but whether the wet season has ended there needs close watching. There are still a few weeks before the bulk of Brazil’s second corn crop begins pollinating, and a boost in soil moisture is needed in Mato Grosso do Sul and Parana, which typically produce some 45% of Brazil’s total safrinha crop.

• Attention has shifted from global trade issues to less than ideal weather in the US and Brazil, and more rain is needed in Argentina and Australia over the next 30 days ahead of wheat planting. A choppy marketplace will likely persist.

• Chicago corn and soybean futures have traded sharply lower in opening trade with fund liquidation being featured. However, end user scale down buying has been noted in wheat, soymeal and corn on the morning break. The volume In Chicago has been huge as everyone hopes that US/China negotiations can avoid a trade war. President Trump tweeted this morning that the US cannot lose with a Chinese trade deficit of $500 billion dollars. US/China negotiations on trade have already started. We would note that the proposed Chinese tariffs will not be put into place until the US implements/activates the $50 billion of proposed trade tariffs. For those tariffs to be implemented there is a process. The US Government 30 day public comment period will end on May 4, with USTR (US Trade Representative) holding a public hearing May 15 with the US Treasury deadline for China investment restrictions being May 21. Final comments are due to the USTR on May 22, with the Trump Administration likely to wait 1-3 weeks before actually announcing any activation of the tariffs. Thus, US tariffs against Chinese goods cannot become active until the closing days of May or June.

• The understanding and hope that Chinese tariffs will not become active until early summer has provided some calm to US ag futures market. Also, the hog market is rallying as traders understand that US pork processor and exporter, Smithfield Foods, won’t be impacted as it is owned by a Chinese company. China is nationalistic as a nation, and it is extremely unlikely that they would tax their own operations. We would also note that Kong Hong does not appear to be involved in the US or Chinese retaliatory tariffs. US beef exports are mostly to Hong Kong in recent months, with US beef trade to the mainland as minimal at around 10 million lbs. There is speculative selling in cattle futures this morning, but we see little tonnage impact from the Chinese tariffs.

•  Brazilian soybean cash basis has soared and is currently trading at $1.25- 1.30/bu over, which compares to the US Gulf at 76 cents over. The 70 cent premium for Brazilian soybeans to the US Gulf is pushing non-Chinese soybean demand back to the US. However, it is also possible that China could secure US soybeans off the PNW for quick shipment to China that would arrive in early to mid-May. The odds are low that these beans would be hit with tariffs. Now announced, the US has six months to actually enact its proposed tariffs. The US International Trade Commission has locked into place anti-dumping duties of Argentine and Malaysian biodiesel into the US. Total duties of up to 159% on Argentine and 341% on Indonesian biodiesel makes it almost certain that the imports of these biofuels will not occur.

• Funds are paring their net Chicago long positions to reduce risk as the US/China trade war builds. However, the actual implementation of US tariffs won’t happen until late May and June, which means that US and N Hemisphere weather will become more important with time. WASDE cannot and will not include any of this trade sabre rattling in their April report. WASDE cannot incorporate US/China trade rhetoric until there is statistical proof that it is actually impacting US exports. Our bet (and we are prepared to back this one quite strongly) is that the overnight Chicago lows are seasonal lows, and that prices whipsaw in a wide range as the market shifts back and forth from politics to weather.

• Kansas wheat has been the upside Chicago leader with double digit gains tied to historically low crop ratings and ongoing forecasts of dry S Plains weather. Corn and soybeans have followed with volume in retreat at midday. Funds have returned to the buy side of Chicago with trade worries lessened this morning as the Trump Administration is calling for an early settlement of NAFTA. Most sources have little or no knowledge of how NAFTA can be completed in just two weeks and why the rumoured location of the talks would be in Peru. There is still a lot of ground to cover on NAFTA and although hope is high that a deal can be cut, the political antics of involving the US President in negotiations could prove risky. We continue to be concerned about the US’s more protectionist trade policy and the retaliatory impact on US agriculture. China has yet to announce retaliatory measures for the proposed $50 billion of US trade tariffs (tied to China’s theft of US intellectual property). We would note that China has a history of making US retaliatory trade announcements on the weekend. The US is expected to release its Chinese product tariff list on the weekend.

• Chicago brokers report that funds have brought 4,000 contracts of corn, 6,000 contracts of soybeans, and 4,000 contracts of wheat. In Kansas wheat, funds have added to a record long position by 4,000 contracts. We note that Kansas wheat has blown above its 50 and 200 day moving average which triggered the strong fund buying. Also, funds have bought 3,400 contracts of soyoil and 2,200 contracts of meal. May soyoil has pushed above its 50-day moving average. The S American midday weather forecast offers soaking rains to portions of the Argentine ag areas that have been besieged by drought for months. Rains of .5- 2.50” are offered over the next ten days, which is likely the start to a return of a wetter pattern going forward. The rain comes too late to help summer row crops, but it would help remoisten soils ahead of winter wheat seeding. There is much discussion on delays in Midwest corn seeding due to cold/wet weather. However, it is too early to make any broad calls on either a reduction of US corn yield or planted area. Such a call for either cannot be made until early May. We would remind that US farmers have been able to plant as much as 40% of the US corn crop in a single week. One should closely watch Central US weather, but it is far too early to discuss a cut in 2018 US corn production on weather. Black Sea wheat traders are wondering what is up in Chicago as their prices seasonally slide. The US Plains drought is back in focus and the morning rally is more about fund demand as key technical resistance has been exceeded.

• The US weather forecast is little changed from the overnight run with cold fronts passing through the Central US with regularity producing moderate rains for the Delta and the Tennessee Valley, and below normal temperatures. The midday GFS forecast is slightly farther north with rain when compared to the EU model, and cooler in the 11-15 day period. There could be a few days of warmer temperatures during mid-April, but the overall trend one of below normal temps with a NW upper air flow. Any spring seeding effort will be delayed due to the chill and frequent rains east of the Mississippi River. It is too early for any undue concern for US corn and soybean seeding, but the trend of cold temperatures and dry west and wet east (Central US) is worrisome.

• It is a wheat day with futures sharply higher on chart buying. Trade concerns will cap Chicago rallies later in the week while Central US weather supports breaks. There is no meaningful rainfall offered to the Western Plains over the next two weeks.