• Chicago corn, soybean and wheat futures are higher in reduced holiday volume as wheat paces the gain on concerning Black Sea weather. Black Sea wheat futures rallied to end the week with rumors that several Russian exporters have pulled their fob new crop wheat offers. Other Russian wheat exporters are offering wheat, but at $2-4/mt higher prices. Grain traders in the Black Sea are starting to sit up straight and take notice of budding adverse weather. Chicago corn and soybean prices are higher with corn following the gains in wheat, while soybeans are pushing higher on Chinese demand. China has been actively seeking US soybeans ahead of meeting between US Commerce Secretary Ross and his Chinese counterpart on trade next week. The Chinese demand for US soybeans is encouraging short covering. Rumours abound that China is offering to expand their soybean reserves to initially cut their trade deficit with the US. We look for a stronger Chicago close heading into the US Memorial Day Holiday.

• Chicago brokers report that funds have bought 3,400 contracts of wheat, 2,200 contracts of corn, and 3,100 contracts of soybeans. In soy products, funds have bought 2,900 contracts of soymeal while selling 3,000 contracts of oil.

• FAS reported an optional origin sale of 165,000 mt of soybeans to China for the delivery in the 2018/19 crop year. FAS also indicated that 312,000 mt of US soybeans sold to China in the new crop year. We expects US soybean sales to exceed 1.0 million mt of (both crop years) in the weekly report Friday.

• The Brazilian truck strike is ongoing and broadening according to our information. Brazilian President Temer called off the strike late Thursday, and few striking truckers listened. The Brazilian Congress is trying to find enough funding to subsidise a drop in the price of diesel to no avail. Jet fuel at airports is said to becoming limited, which is the first impact of the walkout. Brazilian ag exports are so far routine, but should the strike last another week, concern would be developing.

• The midday GFS Black Sea weather forecast is little changed from the overnight solution. If there are any differences, they are wetter for the spring wheat areas with several frost/freeze events possible next week. Ukraine and SW Russian winter wheat areas remains dry, but there would be a chance of rain across Moscow and northern crop areas in the 11-15 day period.

• The midday GFS N American weather pattern is forecast to form/move across the Gulf and make landfall near New Orleans late in the holiday weekend. This tropical storm will produce heat across the Plains with temperatures reaching into lower 90’s to the lower 100’s. Showers return to the N Midwest next week with totals of .25-1.00”. The EU weather model has not been projecting any moisture to help wheat following the weekend blistering heat. The extreme warmth could cause acute stress on cattle/HRW wheat. The 11-15 day forecast is cooler than the overnight solution as trough retrogrades the mean position of the ridge to the west, before amplifying north again. Our confidence in this cooler GFS solution is low amid the complex nature of the overall pattern.

• The Black Sea forecast remains arid across Ukraine/ W Russia with cool/wet weather for Russian spring wheat areas. The White House is suggesting that a summit with N Korea is back under discussion. This would help US/China trade negotiations. We see wheat at the upside Chicago leader as Black Sea yield threats and extreme Plains heat.

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

Weekend summary 25 May 2018

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

Fund positions disaggregated data

• As you can imagine, we have been spending considerable time attempting to understand the issues of trade between the world’s two largest economies, the US and China. The graphic below reflects key political occurrences between China and the world such as 1) China’s joining the WTO in 2001, 2) China’s official support of ag producers of their “Going Global Policy” in 2007, and the latest, 3) The 2013 Belt Road Security Initiative. These three programmes have had broad ramifications for world agriculture. However, as China prepares for 300-350 million people to enter the middle class in the next decade, there are real concerns within China as to their ability to continue self-security in food/fiber (beyond soybeans). This may be the reason why China is prepared to allow greater US ag imports to help balance the trade dispute.

• US weather forecast maintains heat into June with some wetness in N Plains. A high pressure Ridge aloft the Plains and Southern US will be briefly interrupted by a tropical storm this weekend. However, a warm and modestly dry outlook remains intact. Potential record breaking heat lies ahead this weekend. Highs in the low/mid-90s will be widespread across the Central US. High readings at 100-104 are probable across the S Plains during the opening days of June. This week’s Drought Monitor features improvement in TX, OK and KS, but exceptional drought remains across the far W Plains. Soil moisture loss in the next ten days will be substantial. Meaningful rains will be isolated to the Delta/Southeast early next week as a tropical storm Alberto makes its way across the Gulf. Regionally heavy rain also impacts the N Plains and Upper Midwest next Wednesday to Thursday. We are confident about the return of heat in June.

• Elsewhere, precipitation into June 1 will be limited to light/scattered events. Steep declines in soil moisture lie in the offing amid abnormal warmth. The 11-15 day forecast offers better rain chances to areas most in need of moisture, including MO, IL and IN, as high pressure ridging retreats south and west. However, confidence so far out is low, and the GFS forecast has been lacking in accuracy in recent weeks. We would caution against expecting an outright pattern change into the middle part of June. So far there  is no major crop stress aside from heading Plains winter wheat. Coming heat will accelerate summer row crop growth, and likely boost vegetation health ratings. However, when such strong high pressure Ridging has appeared in May, it is noteworthy. Below normal soil moisture across the Plains and W Midwest elevates the risk of heat and dryness in early summer. The overall pattern has to be closely monitored.

• It was a mixed day of trade in the Chicago soy markets. An early rally in soybeans had July testing $10.50 while November stopped just short of contract highs. However, news that the US/North Korea Summit would not be occurring produced profit taking. The weekly export sales report showed net soybean cancellations, which was expected following Friday’s large daily cancellation announcement. In soybean meal, weekly exports slipped to a seven week low while sales were near average. Note that while meal exports have inched lower in recent weeks, the pace is record large through May. Also, cumulative exports are 11% over last year. The USDA could raise their meal export forecast again in the June WASDE. Aside from the weekly export report, other news was minimal. The Brazilian truckers strike looks to be expanding, while Argentine harvest was estimated at 80% complete. Ahead of the long weekend, we expect a pensive trade as trader’s take stock of Central US heat and returning Chinese demand for US soybeans. Argentina will be closely monitored to see of the Government holds fast to export taxes on soy and returns a 10% tax back on grain exports.

• Corn futures fell 4 cents on the US/North Korea Summit cancelation, and that President Trump will take a harsher stance on trade. We estimates that managed funds as net long 215,000 contracts of corn, vs. 192,000 last Tuesday, and which is somewhat sizeable for late May. Amid such length, choppy trade can be expected. However, world weather patterns are far from ideal. US export sales through May 17 totaled 34 million bu, down 5 million from the prior week. However, with 15 weeks left in the 2017/18 year, exporters must average only 8 million to hit the USDA’s target, which increasingly looks 25-50 million bu too low. The EU and GFS weather models are at odds on even near term US weather. We lean towards the better performing EU model, which keeps precipitation into June 1 strictly confined to the Dakotas and Southeast. Steep declines in soil moisture continue in Brazil, Russia and Ukraine. It will not take much weather adversity to push corn futures to new highs. Traders note that record heat that is likely across the Plains over the long holiday weekend. Chicago corn will not sustain a break until a new record large US yield is confirmed. Ukraine dryness has to be closely watched.

• Chicago wheat futures ended little changed in a session generally marked by weaker raw materials as a whole. US wheat export demand was lackluster, but it is Black Sea weather that will determine future price direction on return from the Memorial Day holiday. Contacts in Russia have started to lower yield/production estimates as dryness takes a noticeable toll on winter wheat, while spring wheat is just 50% planted on ongoing cold/wet weather. US new crop export commitments through the week ending May 17 rest at 88 million bu, down 30% from the same week a year ago. The US market is not in a position to boost its share of world trade amid HRW premiums of $27-44/mt ($.70- 1.20/bu) over Russian and German origins. However, whether world cash prices sit or rally significantly will hinge upon June weather patterns in the US, Black Sea and Canada, which currently do not look very promising. Adverse weather also will force the market to demand steep wheat premiums to corn. Support rests at $5.30 basis July Chicago. June weather is critical.

• Our early morning commentary included the following:

•  “World wheat traders are starting to focus on drier than normal weather conditions across Canada, Australia, and the Black Sea. And, we now fear that Plains heat could further trim the US HRW wheat crop. The reason why traders are so acutely focusing on weather in these wheat export areas, is that using WASDE May Crop production and demand estimates for 2018/19, produces a sharp drop in the major world exporter stock/use ratio. This ratio has fallen to its lowest level in 11 years and any further crop decline could cause a demand a price rationing rally.”

• This was followed by weaker tones in soy and grain futures on Tuesday afternoon’s contrary comments from President Trump announcement that there is; “No deal with China’s ZTE and that I’m not satisfied with the US/China trade talks.” The White House emotion on China/South Korea and US/China trade should not be unexpected as the US postures ahead of additional trade meetings with China and the coming US/South Korean Summit in Singapore on June 12. President Trump is trying to lower everyone’s expectations, but we doubt that much has changed since Saturday’s joint US/China announcement on a breakthrough framework for future US/China trade negotiations. White House staffers and other DC sources confirm that Trump’s comments are focused on “expectations and the uncertainty negotiating with N Korea. If there was real concern, Chicago soybean futures would be more than 2 cents lower. However, China crushers and importers are still slow to return to the US soybean marketplace following the weekend trade announcements as their domestic soy markets are still well supplied and they are long a considerable amount of Brazilian fob premium that has imploded in the past two weeks.

• As the day progressed It has been a mostly green morning in Chicago with corn, soybeans and wheat all higher. Rumours continue to spread as to what China might be willing to secure under President Trump’s promise that China secure an additional 35% of US agricultural goods (weekend US/China trade framework agreement). US commodity groups continue to work hard to elevate their own interest as US Commerce head Ross prepares to head to China following the Memorial Day holiday. Chicago has a firm tone at midday and we are expecting a higher close. The market feels like new demand is occurring. We have been told that China’s SinoGrain has booked US soybeans off the PNW, and is asking for additional offers. Some speculate that SinoGrain is rotating their soybeans from their reserve (replacing them with US purchases). However, its far more economic to replace reserve beans with Brazilian (not the US), so cash traders are talking that some sort of early pact has been cut with the US to take their soybeans to further build their reserves. Tonnages speculated on vary broadly, but the key is that China has returned to the US market as a soybean buyer. This follows news yesterday of CIQ allowing US boats to unload.

• There is a debate emerging that the US may have asked China to follow and adhere to their WTO 2001 promises. Back when China became a WTO member they pledged to import 7.2 million mt of corn, more than 9 million mt of wheat, 5 million mt of rice, and over 900,000 mt of cotton. China would then issue the TRQ’s to state run firms or in such small parcels that they never were fulfilled. Could the US be willing to push a like framework (China has already agreed to WTO and US is calling them out for nonperformance) for US products to diminish its trade deficit. Our point is that we anticipate the discussion over what US ag products might China import to expand well beyond soybeans in coming days/weeks.

• The midday GFS N American Weather pattern forecast remains too wet with better rain potential for the northern half of the Plains (than what was advertised by the EU model) overnight. The Midwest will see normal rains with above normal temperatures, which allows summer crops to flourish. High temperatures will reach into the 90’s to lower 100’s across the Plains with mid 80’s to mid-90’s across the W Midwest. Such warmth this early in the growing season is unusual, but shows no correlation to a budding drought. This remains a complex N American weather pattern, the GFS is struggling with rain amounts, but, flooding rains are slated to drop across the Gulf States amid a tropical system. Some areas will endure 6-9” of rain in the next 5 days.

• The Black Sea forecast remains arid across the east (and Ukraine) with cool/wet weather for their western spring wheat areas for another two weeks. Crop losses are mounting. However, it will be key if July KC wheat can close above the 2017 high at $5.5675. Soybeans are rising on renewed Chinese demand amid rumors that China may be prepared to rebuild its reserves through US soy imports. July soybeans are holding the 50-day moving average. A close above $4.085 basis July corn futures sets a target of $4.15-4.20.

• Chicago values are climbing in midday trade with grains pacing the advance. Chicago and Kansas wheat futures are sharply higher on threatening weather for three wheat key producing regions, Canada, Australia and the Black Sea. Also, the EU moved their monthly wheat yield lower this morning following less than favourable weather during the past 30 days. The tightening outlook for world corn and wheat exporter balance sheets is supporting the Chicago rally. In the case of wheat, traders are starting to fear the below normal rainfall trend of May could continue during June. The world cannot accept any decline in major world wheat exporter production or the 2018/19 stock/use ratio will fall to a level that rivals 2007/08. We would note that a year ago, Chicago wheat prices rose to $6.00/bu with threatening weather for just the N Plains. Combined Australian, Canadian and Black Sea production losses could be much more important in 2018. US wheat futures fell Monday on wheat/soybean and wheat/corn spread unwinding following the rains across the S Plains on the weekend. The focus is now coming back to the world wheat market, and that China may not immediately seek large amounts of US soybeans until more is known about the details of the US/Chinese trade agreement that is being hammered out. It’s a firm Chicago close on the cards today.

• Chicago brokers report that funds have bought 6,700 contracts of wheat, 5,300 contracts of corn, and 2,500 contracts of soybeans. In soy products, funds bought 2,000 contracts of soyoil and sold 900 contracts of soymeal.

• The cash meal market in the US and Latin America remains weak with the Argentine line up to export meal nearly back to last year’s record level. There are rumors that Argentine President Macri is considering taking back some of the export tax credits on soybeans to help pay for a widening budget deficit that was accelerated based on this year’s drought. We have no word on any exact amounts that could be collected, but with the Peso knocking on the door of a record low of 25:1 vs the US$, the farmer seeing record prices (in Peso terms) is an easy target.

• The Russian ag minister reduced their 2018 total grain crop estimate to 105-110 million mt from 115 million. The lower forecast made the WASDE Russian wheat crop estimate of 72.0 million mt look very realistic. Such a wheat crop will trim 2018/19 Russian wheat exports by 2-4 million mt and shift demand to other exporters. Building dryness across the Black Sea is being closely monitored and the rainfall pattern during June will be key to final Black Sea yield determination.

• China’s CIQ is allowing US soybean vessels to unload (again) with exports starting up again from the Gulf/PNW from prior old crop purchases. New crop purchase orders are slow to arrive as Chinese traders are watching Brazilian fob basis implode on the US/China news. China is heavily long Brazilian beans

• The midday GFS N American weather pattern forecast remains too wet with better rain potential for the Central and Southern Plains (than what was advertised by the EU model) overnight. The GFS has added back some heavier rains across the Canadian Prairies. The Midwest will see normal rainfall with near to above normal temperatures to allow summer crops to flourish. This is a complex N American weather pattern. We continue to lean on the EU model based on its favourable track record of late. That forecast was drier for the Plains and the Canadian Prairies. The models agree that soaking rain is slated to drop across the Gulf States and into the Delta with totals to 6.00”. Our forecast bet is that a strong jet stream and a Ridge of high pressure across the Canadian Prairies will keep the western half of the US in an arid upper air flow with above normal temperatures.

• The risk is adverse weather for Chicago prices as the CRB index pushes higher and funds are looking for chart reasons to be long. A close above $5.47 basis spot Kansas wheat sets a target of $6.00. Wheat appears to be the upside leader on parched Black Sea weather. Soy/corn continues to gain on the hope that US/China have come to an agreement. July soybeans sold off from the 50-day moving average of $10.37. Right now it feels that any price dips present buying opportunities, do not miss them.

• It has been a sharply higher day in Chicago soybean/meal trade with the grains coming under some selling pressure due to spread unwinding. One of the most popular spreads in the past 4-5 weeks has been long of corn/wheat against short soybeans. The soy complex was used as a short leg as $50 billion of US tariffs could be placed by the US against China after May 23. The grain/soy spread is being unwound as the US/China have been able to come to a framework deal that includes 35-45% more ag trade into China and billions of US energy sales. Although specifics of which commodities will be sought is lacking, the parties (US/China) have scored enough progress for the US to withdraw the tariff threat for now. The USTR would not entirely lift the threat of tariffs as they want to make sure that China preforms on its promises, and that both parties can work out the details of the pact. We would note that it would be foolish to announce goods or services that would be purchased under the framework deal, since prices would be run up on the buyer. What commercial traders are wondering is whether China will start to make those purchases sooner than later since the ‘green light” has been given? China has just 1.020 million mt of soybean purchases made to date.

• The US products that China will likely take larger tonnages of are; soybeans, sorghum, ethanol, cotton, meat and meat products, and nuts. From a pure percentage basis, its likely to be US beef as its starting from such a low import profile (excluding Kong Hong). US President Trump tweeted that; “Under the new potential trade deal, China will purchase from our Great American farmers practically as much as they can produce”. This new demand is a lift to Chicago values and will limit downside price risk (for now).

• US exporters report that they are starting to see interest for US ag products from Chinese buyers following weeks of absence. The big question is if there is any pent-up demand that will come to the forefront. July soybeans on April 3 were trading just under $10.50 (before US tariffs threats became known) and Chicago traders peg this is the initial upside price target.

• Brazilian truckers are amassing a huge protest to their diesel prices rise of 25-30% on currency/crude prices compared to last year. Some truckers are blockading roadways, while most are just saying they will stay at home and not lose money. Like prior years, it is a question of how long the strike endures and will it slow the movement of corn/soybeans/soy products to their ports.

• Argentine farmers endured a serious quality downgrade to 2.5-3.0 million mt of soybeans due to excessive April rains. The quality degrade occurs on top of a drought reduced crop that is estimated to be no larger than 35-36 million mt. The availability of Argentine soy product exports will be constrained by the crop quality shortfall.

• US export inspections for the week ending May 17 were; 60.2 Mil Bu of corn, 32.8 Mil Bu of soybeans, and 12.5 Mil Bu of wheat. It’s been surprising that the US soybean export pace has been this strong in the absences of China.

• The midday GFS forecast N American weather pattern remains complex and the GFS forecast is likely too wet for crop areas west of the Miss River in the 8-15 day period. A strong jet stream and a ridge of high pressure across the PNW/SW Canadian Prairies will keep the western half of the US in a more arid upper air flow with above normal temperatures. Heavy rains are slated to drop over the Gulf States and northward into the Delta. The western US and the Great Plains should hold in a drought like pattern with warming temperatures into the middle of June, a concern.

• The wheat market has fallen on selling from the weekend Plains rain and wheat/soy spread unwinding. However, the forecast for the Black Sea is arid and new crop Russian bids are holding firm. Chinese demand for US soy/sorghum is returning. The market has a firm tone and a weather shock to the US corn/soybean balance sheet is unacceptable. Our view is that we will see is new rally highs.

• Chicago futures have extended the overnight rally as China’s decision to drop anti-dumping duties on US sorghum is digested. Sorghum sales have been rather weak since China’s inquiry was first announced. But a return to weekly sorghum sales of 3-6 million bu could turn out rather bullish given the lack of sorghum acreage expansion this spring. The USDA in its May WASDE already predicted a sharp decline in US sorghum exports, from 245 million bu to 165 million, and still the balance sheet is fairly tight. New crop US sorghum stocks are estimated at 27 million bu, vs. 29 million in 2017/18. Yet more pressure is being placed on trend/above trend N Hemisphere grain yields this summer.

• FAS this morning announced that unknown destinations (very likely China) cancelled 829,000 mt of previously sold old crop soybeans. These cancellations will appear in the weekly sales report in two weeks. Cancellations aren’t all that unusual in May, but this does underscore ongoing disputes between the US and China, which don’t seem to have been resolved.

• Black Sea sources also confirm drier than normal weather in important pockets of the winter wheat belt there. Simultaneously, wheat stocks have been nearly exhausted in S Russia amid this year’s record export program. This further heightens the need for better rainfall in late May/early June if there is to be any measurable break in Black Sea cash prices. New crop Russian wheat is now offered at $197/mt, vs. $199 a week ago, but we expect values to stabilise between $195-200 until more is known about crop size.

• World weather forecasts at midday are mixed. The GFS forecast is drier in Central Russia than this morning’s run. Some areas of the Black Sea wheat belt will benefit, but the concern is the spotty nature of coming rainfall. Australia remains dry save for a corner of the West. Rain improves Brazil’s crop this weekend, but the full establishment of the dry season arrives thereafter. Safras in Brazil has pegged Brazilian corn production at 79 million mt, vs. the USDA’s 87. This may be a bit too low, but significant changes are forthcoming.

• WTI crude is slightly weaker at midday, but RBOB gasoline is perched at rally highs. There is talk that even at current prices fracking operations struggle for profitability. US crude stocks will erode further over the next 10-12 weeks. Already US crude stock levels are down 17% from last year. Weather leans supportive, but the issue of weakening currencies (despite rising crude value) remains.

• Note that soybean prices in Argentina are just marginally below all-time highs. Amid weakness in the Real, and this year’s crop problems, profitability has returned to the Brazilian corn farmer. The midday GFS N American weather pattern is a shade drier in WI and IL but is otherwise unchanged. An active flow of moisture will persist into late month, with cumulative totals projected as high as 3-5” in NE, IA and N MO. It remains that Southeastern dryness will be eased further amid a rich flow of Gulf moisture. Normal/above normal temperatures will continue. Our only contention is that the EU and Canadian weather models are much drier in the Central Midwest. Model disagreement looks to be significant going home.

• Markets in recent weeks, if nothing else, have been volatile. This will likely continue through summer. It feels as if seasonal highs should be scored by early to mid-July.

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

Weekend summary 18 May 2018

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

Fund positions disaggregated data

• Chicago futures are steady at midday, but generally unwilling to move. Wheat futures have held on to their rally overnight, and midday forecasts are little changed in Australia and Canada (still dry). Spot crude oil is at new highs, but clearly the market is concerned about the lack of progress in both NAFTA and Chinese trade negotiations. Choppy price action is expected into the weekend.

• US export sales through the week ending May 10 were mixed, better than expected in corn and meal, but rather so-so in beans, wheat and oil. Corn sales through the period totaled 39 million bu, up 11 million on the week. Meal sales were 376,000 mt, a six-week high. New crop wheat sales totaled just 5 million, and total new crop US wheat export commitments rest at 75 million, down 34% from this week a year ago and the lowest since 2007. Bean sales totaled 10 million bu, down 3 million on the week. Oil sales totaled 10,000 mt, vs. 45,000 the week prior. With 16 weeks left in the crop year, weekly corn sales must average only 11 million bu to meet the USDA’s target, and meal sales now account for a near record 91% of the USDA’s forecast. As such, the USDA looks likely to raise 2017/18 meal export demand, as well as crush, in coming WASDE releases. However, there is much attention being given to the lack of Chinese purchases. New bean sales made last week were primarily to Europe and Mexico, and switches from unknown destinations are noted. Also, there is little new to report at midday regarding US trade uncertainty.

• The Brazilian weather forecast overnight has trended a bit wetter, with weekend rainfall coverage to expand into Mato Grosso and Goias, where it is desperately needed. Contacts in S America suggest Brazil’s corn crop likely stabilises at 80-82 million mt amid recent spotty showers and assuming coming rainfall materialises as predicted.

• Friday’s CFTC report is expected to reveal a managed fund long position in corn worth 190,000, vs. 212,000 last Tuesday; a long in soybeans worth 120,000, vs. 127,000 last week; and a net short in Chicago wheat of 11,000, vs. last week’s very slight net long position. Such positions lead us to believe that the market has digested and priced most available news, and it is all Northern Hemisphere weather into early/mid-July. Weather itself remains rather mixed, with less than ideal conditions noted in Australia, Canada and Kazakhstan, but with favourable conditions to persist across the Central US into late month.

• The midday GFS North American weather forecast pattern shows that an active flow of moisture will be ongoing over the next 10 days, including parts of the driest areas of KS, NE and SD. Fortunately, relative dryness will be established across MN and WI moving forward, and corn planting likely gets finished there in the next two weeks. Clearly, ten-day totals are well above normal. We also note NOAA’s drought outlook, updated this morning, includes expected improvement across the Southern Plains, and drought development is not expected in the heart of the Corn Belt through August.

• Our work maintains that neither the bulls nor the bears will find much leverage in the near term. Trade issues have of course been well documented, and early-season US crop conditions should be above long term averages come June. However,  May temperatures have been abnormally warm, and amid forecasts for tightening US and world grain stocks, the market won’t be able to push value down by any meaningful degree until mid-summer.

• Chicago values are mixed to mostly lower at midday as trader’s debate US trade negotiations of NAFTA and China, and how this might impact US export demand. The Wall Street Journal is reporting that the odds of a new NAFTA trade pact passing before yearend is in decline, and the lack of comment out of Washington on Chinese/US Trade negotiations has everyone fearing the worse. President Trump tweeted this morning; “That China is making hundreds of billions of dollars from the US for many years”. “Stay tuned!” The relative hardline stance against China along with N Korea retreating from nuclear disarment has most suspecting that little will be agreed to by the weekend, leaving the option that the US could place tariffs on $50 billion of Chinese goods. Fund managers fearing the worse are in liquidation mode. The surprise is that funds are moving length to the grains. It is going to be difficult to have a bull in either corn or wheat without soybeans. Consequently we look for a mixed close with the grain/soy spreads widening.

• Chicago brokers report that funds have sold 6,000 contracts of soybeans, while buying 4,500 contracts of corn, and 3,200 contracts of wheat.

• US ethanol production rose to 1,058 thousand barrels/day that will produce 311 million gallons of ethanol/week vs 306 million gallons last week. US ethanol stocks fell to 903 Mil gallons, down 8% from last year. US crude oil stocks were 432 million barrels, down 17% from last year which is as the US heads into the heart of the summer driving season. This will underpin spot WTI crude oil futures below $65.00. A push above $80.00 is likely if geopolitical concern increases.

• Much is being made about regional dryness that exists across the S Midwest and Plains. Yet, history reflects the lack of a correlation of mid-May dryness and US summer crop yields. A strong jet stream is passing across the Central US which will produce frequent rains over the next two weeks. For now, there is no evidence of a drought type of Central US weather pattern. The old farm adage of “plant in the dust and your bins will bust” may apply to 2018 US crop conditions in the Central US. Producers report this year’s corn/soy crop as being one of the best starts in years in the Central Midwest.

• Brazilian fob corn offers are rising while Brazilian fob soybean offers are in decline. August Brazilian fob corn is offered at $.90 over compared to Argentina at $.71 cents and the US Gulf at $.80 over. In soybeans, Brazilian cash basis has been falling almost every day for the past three weeks as China has been a diminished buyer in the world marketplace with spot offers at $.65 over compared to the US Gulf at $.70 over. Brazil is offering soybeans in abundance through September. In a known position, China has booked just 1 million mt of US new crop soybeans. They will likely book Brazil next week if US trade negotiations fail.

• The midday GFS N American weather pattern is drier across IA/MN/WI/N IL, and MI than what was offered overnight for the next ten days. The rain chances are pushed south and west to; NE, KS, MO, S IL, IN, KY, TN and the SE US. The window of drier weather should allow Lake States producers to push ahead with their spring planting, while crop areas farther south receive some needed rain. This remains an active weather pattern for the Central US with heavy rains across the Central Plains. NE/KS are favoured for 2-4.00” rain over the next two weeks, which will favor HRW wheat and the restoration of soil moisture for the summer row crops here. The midday GFS weather forecast is more favourable for crops with rain across the Plains and drier weather for the Lake States to advance corn seeding.

• Trade uncertainty is never bullish for Chicago amid sagging S American bean/meal premiums. HRW wheat looks to receive soaking rain and better rain chances exist for the Canadian Prairies in the last week of May. The surprise rise in Indian wheat production does not help wheat. USDA’s weekly export sales report will reflect slow US soybean sales. It is hard to be overly bullish anything Chicago unless adverse weather develops to cut supply.

• It has been a mixed morning in Chicago as trader’s debate whether China offered to lower tariffs on soybeans, sorghum or DDGs. The news media exclaimed that China may will be willing to lower ag tariffs based on President Trump’s ZTE conciliatory offer due to US/China jobs on Monday. However, confirmation from the Chinese is lacking, and it becomes less clear if China ever promised to not apply a 25% tariff US soybean if the US takes a hardline stance on trade this week. It is the details that matters in trade negotiations and the Chinese have been the best as getting terms that are favorable to their position. We expect that the US/China media reports will cause market jolts in each direction this week. Trying to predict or trade the trade zigs and zags each day is nearly impossible. Today the market is down amid a lack of China confirmation, but traders will look to comments coming from Washington talks to gauge price. The Chinese trade talks are important since they determine whether 2018/19 US soybean stocks are 300-400 million bu if they succeed, and 800-900 million bu if they fail. That impact on Chicago soybeans is sizeable and would have an impact on the price of grain. You can’t have a bull corn market without soybeans.

• Chicago brokers reflect that sold 6,500 contracts of soybeans, bought 2,000 contracts of Chicago wheat and 1,500 contracts of corn. In soy products, funds have sold 4,500 contracts of soymeal and bought 1,000 contracts of soyoil.

• Egypt’s GASC purchased just 60,000 mt (one cargo) of Ukraine wheat in an overnight tender. The wheat was purchased at $219.90/mt basis FOB with a freight cost of $15.05. The wheat was for June 15-25 shipment. Just four offers were made to GASC which surprised world wheat traders with the country harvesting its own large wheat crop. Russian new crop supplies are at least 4-6 weeks away.

• Informa revised their estimates of 2018 US crop plantings this morning, pegging US corn seeding at 89.0 million acres (up 950,000 acres), soybeans at 89.4 million acres (up 430,000 acres), and spring wheat seedings at 12.4 million acres (down 200,000 acres). Additionally, US cotton acres were pegged at 14.0 million acres (up 520,000 acres). The trade was surprised by larger US corn seeding. We estimate 2018 US corn seedings at 88.5 million acres (up 500,000 acres).

• The midday GFS N American weather pattern forecast remained wet and warm through the Plains and the southern 2/3’s of the Central US for the next two weeks. The GFS forecast is farther south with rain compared to the overnight EU model solution with heavier rain amounts across MO, IL, KY and TN. Some needed drying looks to occur across the Northern Lake States which should help in getting seed in the ground. Midwest/Plains storm systems will be frequent in the next ten days. Temperatures look to warm to the 70’s and 80’s which will help firm soils. The warm/wet weather looks to produce a favorable start of the 2018 growing season with high corn crop condition ratings expected in early June. If there is a concern, its S MN, WI and MI and how fast crops can get seeded there.

• It continues to be all about US/China trade headlines with news that the US hardline negotiating stance with China is unchanged. This pressured Chicago soybeans with July back down testing $10.00 support. S American soymeal premiums are also sagging, which along with funds being heavily long is pressuring Chicago meal. Finally, we note that the ten-year note (US Government Treasury Note) is trading above 3% and likely on its way to 3.5% which is rallying the US$. The Argentine Peso traded down to 25:1 this morning too.

• The soy complex is higher with corn/wheat slightly lower as traders offer optimism regarding US/China trade. July soybeans held against $10.00 support amid the ZTE olive branch held out by President Trump to Chinese President Xi. US wheat futures have fallen on funds being long of Chicago wheat with rains slated to drop across the Plains and portions of the Black Sea this week. Corn futures appear caught between the bullish tug of soybeans and the bearish pressure of wheat. The NASS May 13 corn seeding pace will determine if corn needs to add or subtract weather premium. North Central US producers report that if they cannot get corn seeded in the next 7-10 days, they will switch acres over to soybeans. WI, MN, MI and N IA farmland has been swamped with excessive rain and recent cool temperatures have limited evaporation. It will take 4- 6 days of warm/dry weather before soils firm enough to allow the planting effort to resume. We estimate that 35 million acres of US corn have yet to be planted or 40% of the 2018 crop.

• Chicago brokers estimate that funds have sold 3,400 contracts of wheat and 1,000 contracts of corn, while buying 8,200 contracts of soybeans. In soy products; funds have bought 5,400 contracts of soymeal and 1,100 contracts of soyoil.

• July soybeans have forged a technical reversal up as Friday’s high has been taken out. It is a reversal up from key $10.00 support. The next upside price target rests at $10.35-10.40/bu, last week’s high.

• The US is softening its position on trade with the ZTE announcement by the Trump Administration ahead of the arrival of the Chinese trade delegation late week. Moreover, Asian sources suggest that China may be preparing to allow US sorghum back in as a conciliatory move. No confirmation is offered by US cash traders in the Gulf, but the rumour has made the rounds. We will continue to follow the news, but until Chinese or US sources confirm a removal or relaxation of China sorghum import tariffs, we are suspicious of the rumour. Nonetheless, in the background of ZTE, the rumour is interesting.

• The midday GFS N American weather pattern remained wet and warm through the Plains and the southern 2/3’s of the Central US. The GFS is farther south with rain compared to the overnight EU model solution. Note the heavy rains across FL from a tropical feature with the SE US drought being diminished. The exact positioning of storm systems will be key to Midwest planting with any northward shift in the rain helping to worsen delays. If US corn seeding is less than 58%, any additional rains will be bullish corn. If US corn seeding is 64% or more, the rains will prove more beneficial to crops. Weather in the next ten days will be key if N Midwest and Dakota farmers shift corn acres to other crops, namely soybeans. Northern US producers are becoming anxious to get corn seed in the ground.

• A softening of US/China trade ideas has pushed bulls to own soybeans/soymeal. Wheat is lagging amid Plains rain forecasts and the slowing US old crop export pace. The dynamics of US trade negotiations/weather makes positioning in Chicago markets difficult. There remains a bull story in corn with Brazil’s winter crop in decline.