• The disappointing reaction to USDA’s Crop report amid ongoing US Trade tensions has pressured Chicago corn, soybeans and wheat at midday. Mexico’s comment that it won’t be rushed into a bad NAFTA deal has pressured US grains. And China’s trade delegation that will be heading to Washington next week is not expected to reach any conclusion. The best that is hoped for from the China is that enough progress is scored on several trade issues that kicks the timing of US trade tariffs against China down the road. Funds mangers are liquidating Chicago length amid uncertain US/China and US/NAFTA negotiations. We look for a lower close, but there could be a bounce going home.

• Chicago brokers estimate that funds have sold 14,700 contracts of corn, 10,400 contracts of soybeans, and 3,700 contracts of Chicago wheat. In soy products, funds have sold 6,800 contracts of soymeal while being flat in soyoil.

• We have previously stated that trading politics is difficult, and the uncertainty over what back room negotiations brings is impossible to forecast and has thrown bearish blanket on Chicago rallies.

• We note that next week’s US/China negotiations in Washington are expected to produce a softening of trade positions. This could be market supportive if the US is willing to hold back on its $50 billion tariff threat to keep talking.

• Thursday’s Chicago price performance was disappointing in that open interest rose in corn, soybeans and wheat, which likely trapped new longs into losing positions. Yesterday’s post USDA report buyers are today’s sellers as key chart support is breached. Chicago weekly charts will look bearish with a July corn close under $3.99, July Chicago wheat under $5.00 or July soybeans below $10.00.

• Besides US/China and US/NAFTA trade tensions, there are other concerns for Chicago wheat and corn. New crop fob Russian wheat is priced at some $0.80 below the US Gulf for comparable 12.5% HRW wheat. World buyers will take Russian fob wheat, not the US, amid such a wide spread. And March Chicago corn futures was pegged at $4.30/Bu yesterday, not a cheap price in recent years. It is tough to be overly bullish of $4.30 March corn futures for early 2019 without a Midwest weather problem/yield issue.

• We estimate that US corn planting through Sunday will reach 60-63%, just behind last year’s 65% pace. Spring planting progress is lagging across the Lake States of MN, WI and MI. US soybean seeding is expected to reach 23-35% done, which is close to last year. Amid the warm/wet weather, the US corn crop is expected to be rated above last year sometime in early June

• The midday GFS N American weather forecast is similar to the overnight run as the model lays down heavy rain across the fat areas of the Central US as frequent storm systems run across a dividing line of humid air to the south and lingering cold across the north. The forecast argues that there is a chance of rain in almost any portion of the Plains, Midwest and Delta for the next 14 days. Some regions may endure too much rain, but temperatures look warmer for the last half of next week. The GFS forecast blankets much of the Central Plains with rain helping to diminish its drought, while the Dakota’s receive enough of a drier spate of weather to seed crops. A deep trough of low pressure is noted in the SW US that ejects storm systems eastward with regularity. This is an active and wet period for the Midwest, which assuming that crops are planted, bodes favorably for yield/production.

• Funds came out the box as sellers as they liquidate a portion of their length. We would not be surprised by some sort of rally next week as China and US negotiators return to the bargaining table. This is no place to turn bearish with an entire N Hemisphere growing season ahead.

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

Weekend summary 11 May 2018

• Today is USDA Report Day!

• 2018/19 world corn, soybean and wheat stocks are projected to decline nearly 48 million mt (from 2017/18) with the biggest individual crop decline occurring in corn at 36 million mt. The projected world wheat stock fall was forecast at 6 million mt with soybeans at 5.5 million. World corn stocks are getting closer to their heydays of five years ago amid growing demand. However, in a general sense there remains an abundance of wheat/soybeans with adverse weather needed to sustain rallies amid growing US trade tensions with NAFTA and China. We expect that corn will be the stalwart of Chicago with corn gaining on soybeans, and corn gaining on wheat, with any breaks being shallow/brief. However, it is also difficult to justify July corn much above $4.20-4.30 resistance or July soybeans much above $10.50, or July wheat above $5.40 without adverse US/world weather. We would not be buying the morning Chicago price bulge amid worsening US trade tensions and improving US and world weather. NASS projected the 2018 US wheat crop at 1,821 million bu or 80 million bu above last year. The US all wheat yield was pegged at 38.9 bushels/acre with the Kansas wheat crop estimate at 270 million bu vs 334 million bu last year. US 2018 HRW wheat production was pegged at 647 million bu, SRW at 315 million bu with SWW at 229 million bu.

• US 2018/19 US wheat end stocks are forecast at 955 million bu, a four-year low. The stocks estimate is based on trendline spring wheat yields and their keeping 2018/19 US wheat export estimate at 925 million bu. Should the Black Sea wheat crop estimate enlarge with the heart of the growing season ahead, the US 2018/19 wheat export estimate could slide to 850 million bu with US 2018/19 wheat end stocks back above 1,000 million bu. US new crop wheat end stocks do not argue for a bull market unless a significant weather problem occurs overseas.

• World 2018/19 wheat end stocks are forecast to decline to 264 million mt, down 7 million from this year’s record at 271 million mt. WASDE estimated the 2018 Russian wheat crop at 72.0 million mt, which is well below last year’s 85.0 million mt harvest. The Ukraine wheat crop is forecast to be down nearly 500,000 mt at 26.5 million mt while the India crop was pegged at 95.0 million mt. There is room for world wheat production to rise from the WASDE forecast with normal weather. The Russian, Chinese, Indian, and European crops could rise, while Argentina and Australian crops could decline. The point is that world wheat production is large and likely to grow further with normal weather. Russian FOB new crop wheat price offers at $205/mt are unlikely to rise much more.

• US 2018/19 corn production at is forecast at 14,040 million bu with a yield of 174 bushels/acre. US corn planted and harvested acres were left at 88.0 million and 80.7 million acres, respectfully. WASDE raised their estimate of 2018/19 corn exports to 2,100 million with end stocks forecast at 1,682 million bu. Such stocks argue for a range of $3.80-4.20 basis spot Chicago futures.

• 2018/19 world corn end stocks at 159 million mt were down 36 million mt with a 20 million stocks decline in China. We note that China’s corn crop was estimated to be up 10 million mt (at 225 million) with demand rising to 249 million mt (24 million more than supply) which keeps pulling China’s corn stocks/use ratio lower. Next year, WASDE is in a “box” of either having to forecast that China will import corn, or cutting their domestic demand like that which occurred in 2004. The trade is untrusting of the world corn end stock total amid China’s likely larger supply.

• US 2018/19 soybean end stocks were forecast by WASDE at 415 million bu, down 114 million bu from the current crop year. WASDE used trendline yield of 48.5 bushels/acre with 2018 US production estimated at 4,280 million bu, down 112 million bu from last year. USDA estimated 2018/19 US soybean exports at 2,290 million bu, down 10 million from their prior February forecast. We would argue that WASDE needs to cut its 2017/18 US soybean export amid the 4.2-4.5 million mt of soybeans that are sold, but not shipped to China in the old crop position. The problem that US soybean traders have to work through is estimating US soybean export estimates amid the growing trade tensions between the US/China. World 2018/19 soybean stocks are forecast 86.7 million mt with a 2019 Brazilian soybean crop of 117 million mt and an Argentine crop of 56 million mt. The larger S American harvest will cut into US soy export opportunities beyond January. We note that China is forecast to import a record 103 million mt of all origin supply. Where China secures those soybeans will be key to Chicago price direction. The market demands a supply loss to justify a July Chicago rally above $10.50.

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

USDA-Recap-10-May-18

• Chicago markets are mostly lower at midday with corn, soybean and wheat futures weaker in pre-report USDA crop report trade. US weekly export sales data, Brazilian updated corn and soybean crop forecasts (from CONAB) along with the USDA May Crop Report will be available Thursday morning. The large data dump for ag traders will cause heightened market volatility on Thursday, and likely into the end of the week. Traders are squaring their positions and risk ahead of the May USDA Crop Report. Our bet is for a lower/mixed close.

• Chicago traders estimate that funds have sold 1,900 contracts of corn, 2,500 contracts of soybeans, and 2,500 contracts of wheat. In soybean products, funds have sold 1,200 contracts of meal and bought 4,200 contracts of soyoil.

• Russia is mostly out on holiday today, however, Black Sea offers for new crop wheat in July/August ex Novo are at $205/mt or $5.58/bu. This compares to US HRW wheat in the same position at $255/mt or $6.95/bu. The difference between new crop Gulf fob HRW 12.5% wheat and 12.5% Russian Novo wheat is $1.40/bu. This hefty premium does not help US wheat exports and suggests that US futures are too high without a deepening US Plains or a Black Sea drought.

• US weekly ethanol production increased to 1,040 thousand barrels/day from 1,032 thousand last week. US ethanol stocks fell to 923 million gallons which is down 5% from last year. US ethanol imports to Brazil are no longer profitable and will slow going forward. Brazil’s large and cheap sugar crop is pressuring domestic Brazilian ethanol prices. US crude oil stocks fell 2.2 million barrels. The crude oil report is bullish, ethanol is neutral.

• The midday GFS weather forecast maintained favorable rain chances for the vast majority of the Black Sea crop area for the next two weeks. The rains have already started across SW Russia and these rains will expand north and west with time. There is no evidence of a return to the hot/dry weather of last week.

• The May WASDE report is expected to be bullish of corn, bearish of wheat and neutral for soybeans. We doubt that any trend can be sustained. Following the report, the market is expected to get back to trading world/US weather and pending trade issues. The US/China remain apart on trade and the fear over the installation of US tariffs could become real later this month, in addition NAFTA talks will have to score some real progress to be finished by next week.

• The midday GFS weather model update shows heavy rains across the expanse of the Central US from the Plains east into the Ohio Valley. The rains have been shifted farther north (from the overnight run), but still include dry crop areas such as; KS, MO and S IN. The rains miss the N Plains and are reduced across the Northern Lake States to allow spring seeding. Mostly dry weather persists across the southern third of the US which will be closely watched heading into late May. However, the fat portions of the Central US will be well watered with storms due nearly daily over the next ten days. The extended range also offers another potent storm system with near to above normal rainfall. There is no evidence of any lasting dryness that would pose a yield threat. 2018 Midwest spring crops are off to a favourable start.

• Long liquidation persists in the complex amid ongoing US/China trade tensions. US wheat futures are lower amid improved weather for the Black Sea and Central US Plains. US/world corn has a bullish story, but can corn values rise against the bearish background of soybeans. Our market stance is shifting from buying breaks to selling rallies amid the lack of a dire Midwest drought into late May.

• News that President Trump was to speak to China President Xi today and China saying that China Vice Premier Liu would visit the US next week sparked some modest Chicago short covering this morning. The US and China appear to be in dialogue, but there does not appear to be any change in the hardline stance that were taken last Friday in Beijing. Talk is good, but action is better and there is no indication that China nor the US have softened their stances. President Trump has tweeted that good things will happen for US trade, but what that exactly means is uncertain. China continues to play a hard line on some US ag products. Whether the product is meats, soybeans, fruits or vegetables, China is holding these US commodities at port with CIQ asking for long and arduous inspection processes that is costing US exporters. This “inspection hold” is happening while products from other countries are sailing into China without any lengthy CIQ inspection demand. Since US product specs have not changed prior to when the trade dispute started, the CIQ product inspection hold appears to be related to deepening US/China trade tensions. However, trying to predict the next speck of news/rumor is impossible which produces great uncertainty and risk for any trader.

• Chicago brokers reflect that funds have bought 3,400 contracts of corn, 2,300 contracts of soybeans, while being flat in wheat. In soy products, funds have sold 2,100 contracts of soyoil while buying 900 contracts of soymeal.

• There are conflicting reports as to what the Trump Administration will announce on Iran’s nuclear program, and pending any sanctions. One report suggested that President Trump had decided to approve the program without sanctions. This caused a sharp drop in crude oil futures. Others say that such a rumor is incorrect. The marketplace should await an exact announcement before reacting (amid rumors that cannot be confirmed). The corn market has been willing to look past the rise and fall in crude oil in recent days.

• The IMF has opened talks with Argentina for a line of credit. Last week, Argentina raised its lending rate to 40% to stabilize its Peso, which had slumped to a record low at 22:1 late last week. The Argentine Government is in dire need of funding with a 40% lending rate that is substantially hurting its economic growth rate. Argentina’s outlook depends on external financing and its options are drying up.

• The Black Sea midday GFS weather forecast has maintained solid rains for the winter wheat areas of SW Russia and Ukraine over the next 14 days. The rains have already started and the outlook for winter grain crops is improved. The long-range forecast shows a ridge of high pressure shifting northeast to the Scandinavian countries, and holding there into late May.

• The midday GFS weather forecast update is wetter across the Plains and SW Midwest as each forecast run is adding rain chances beyond the next 6-7 days. The jet stream sags southward with rain increasing in frequency beginning the middle of next week. WI/MN are drier than was suggested in prior runs which would help advance planting. We anticipate that most of the remainder of the Plains will be able to substantially advance plantings this week with the rains proving to be beneficial. The moisture for the Plains is needed by HRW wheat as the crop enters the reproductive stage. US producers report that they are making solid progress on their spring seeding program. The 11-15 day forecast offers additional Plains/ Delta/S Midwest rain chances with areas of the Plains receiving 1-3.00” of rain.

• We doubt that Chicago rallies can be sustained without favourable news on pending US trade tensions with China and NAFTA amid the better rain chances for the Plains and Midwest. USDA’s May WASDE will be released on Thursday with the trade positioning long corn/wheat amid the expectations of declining 2018/19 stocks. Weather problems are needed for the bulls.

• US/China trade tensions are pressing Chicago soybean, corn and wheat futures this morning. Spot Chicago soybeans appear to be dropping to test nearby support at $9.90-10.00 with spot soymeal likely to fall to $380/ton and return to the prior breakout point. We note that soymeal futures have gapped lower for the day/week with fund liquidation occurring. A record long fund soymeal position is vulnerable heading into the USDA May WASDE report. The lack of Chinese demand for US soybeans is reverberating throughout the Chicago marketplace. Although no trade war has developed, last week’s Beijing meeting failure raised the stakes that the US could place tariffs on $50 billion of Chinese goods in late May or June. Therefore, Chicago soybeans are in decline with an estimated 4-4.5 million mt of old crop US soybean sales at risk. Chicago corn/wheat have followed the soy complex losses with US wheat noncompetitive in the world marketplace. US HRW fob wheat is priced at $40- 44/mt above comparable offers in the Black Sea or more than $1.10/bu in a new crop position. At some point, even with sharp HRW wheat losses, the US will have to again become competitive in world wheat trade.

• If the US does slap tariffs on China, Chicago will likely lose a good portion of its hedge/pricing ability for China and S American farmers. For instance, if China wants to secure new crop soybeans from Brazil for January/ February, and the US/China are embroiled in a trade war with 25% import tariffs on US soybeans, does Chicago have much influence on the pricing decision. The premium for both the Chinese buyer and Brazilian seller would be up for negotiation and that premium would be difficult/impossible to hedge via Chicago futures/options contracts. Managing premium risk for the Chinese buyer and the Brazilian seller becomes difficult. Note the sharp recent break as Chinese buyers pulled back from the US and Brazilian marketplace via large domestic soy stocks. Maybe Chicago needs to offer a futures contract of trading fob Brazilian basis. Key to Chicago price action will be the US corn/spring wheat seeding pace.

• We are raising our US corn seeding estimate to 37-40% with spring wheat at 39- 43%. Any seeding total above 45% would be bearish for Chicago prices on Tuesday. The midday GFS weather forecast update is slightly drier than the overnight run for the remainder of the week. A weak front will push across the NW Midwest on Tuesday/Wednesday producing .2-1.00” of rain with a few locally heavier totals across E South Dakota. MN/WI are drier with .1-.85”. Dry and warm weather then follows into the weekend with the next system pushed back to late Friday/Saturday with rains of .4-1.50” across the Dakotas and N Midwest. The best rains are offered for the Lake States. A southern branch storm system produces rain across the Plains, Delta and S Midwest in the week following. Near to above normal temperatures produce generally favourable growing conditions. The midday GFS forecast offers better rain chances for the Plains beyond the coming weekend.

• US/China trade tensions along with heavily long funds is causing liquidation ahead of the May WASDE report. The question is does Chicago need to send a dire price message to Washington. There is so much US trade uncertainty.

• Mixed with diminished volume has been Chicago trade. Midday values have soybeans/wheat weaker with corn trying to hold modest gains. Traders do not want to take on large new positions with the US Trade delegation expected to return from Beijing Friday evening. This means that some sort of “how did the talks go” announcement could be forthcoming overnight. Moreover, traders are trying to measure whether enough progress has been scored with NAFTA to get some sort of deal worked out before mid-May to get approval from the current Congress. Recent local elections have hinted that Democrats are likely to do well in the midterm US elections in November with either the House or Senate leadership shifting over. It is trade concern and improved US weather which is acting to cap Chicago rallies. The longer it takes US/Chinese trade negotiations to be resolved, the longer that China will take in avoiding US soybeans. We note that China cancelled old crop US soybeans in the US weekly export sales report, but did purchase two new crop cargoes.

• We look for a mixed close today with many traders focusing on the length of funds in Friday’s CoT report. Funds have been large buyers of corn this week with open interest expanding as July reached above key resistance at $4.00. The favourite of funds this week has been Chicago corn.

• Chicago brokers report that funds have been net buyers of 4,300 contracts of corn and 1,200 contracts of wheat, while selling 3,400 contracts of soybeans. In soy products, funds have sold 2,900 contracts of soyoil and 3,700 contracts of soymeal.

• The midday Black Sea weather forecast is generally dry/warm through the weekend with showers/cooler temperatures next week. The rain will be focused on Ukraine/SW Russia with much of the northern crop areas staying drier. No stress is being reported to Russian or Ukraine wheat, but such stress is possible if rains do not fall in late May.

• The midday GFS weather forecast model update shows no changes from the overnight run for the next ten days. Additional rain of .25-1.50” looks to fall with a slow moving frontal system over the next 36 hours. These rains end late Friday in the E Midwest with lingering showers through the N Delta. Temperatures cool for a day or two, before turning warm next week under abundant sunshine. The next chance of Midwest rain is indicated for Wednesday/Thursday with a frontal pass to produce .25-1.25” (with locally heavier amounts). A third system is noted for the weekend following that produces additional rain through the Midwest/Delta with totals of .2-1.25”. The W Plains are missed. The midday weather forecast is wetter/cooler in the extended range compared to prior runs.

• Chicago is worried that the US/China talks will not be able to bridge their trade differences. This has soy lower. Wheat is higher on the expectation of a low KS crop estimate from the Crop Quality Tour. Corn is following wheat higher. Friday and next week’s Chicago trade will be about US/China and NAFTA Trade progress (or the lack thereof). US spring crops are off to a great start amid a good mixture of rain and sunshine. Trade politics are impossible to forecast; we would suggest not chasing the morning rally.

• Mixed with reduced enthusiasm has been the morning trade in Chicago with corn/wheat trading both sides of unchanged, while soybeans endure selling pressure tied to the fear that the US and China won’t be able to achieve much progress in two day talks in Beijing. Option volulme rates have been steady to weak this morning and the bulls are talking that US weekly export sales could be disappointing on Thursday. However, it is NAFTA and China/US trade deals that are acting to cap Chicago rallies ahead of next week’s Thursday May Crop Report. We look for some additional index fund money to be put to work late day which will act to underpin values ahead of the close.

• Chicago brokers report that funds have been net buyers of 2,100 contracts of corn, while selling 1,200 contracts of Chicago wheat and 2,500 contracts of soybeans. In soy products, funds have bought 2,900 contracts of soyoil and sold 900 contracts of soymeal. Traders are lamenting the big fund purchases of Tuesday in corn has left the market feeling over on price.

• E Midwest farmers continue to rush seed into the ground with several IL farmers reporting that they are at 75-95% with intended seeded acres.

• There has been a report that Brazilian exports for April were down (below last year). This report is in error. The actual April loadout data will be out later today and a record large total is anticipated. Brazil has been active in selling/loading out the just harvested soybean crop, a trend that we expect will continue into mid-summer. The weekly vessel loadout data argues for an April Brazilian soybean export estimate of 11.2-11.6 million mt.

• Chinese demand for US soybeans continues to be lax as few are willing to secure new or old crop US soybeans with tax implications unknown. Kicking the negotiating can down the road is not expected to help in new US purchases.

• The midday Black Sea weather forecast is generally dry/warm this week with showers/cooler temperatures next week. The rain will be focused on Ukraine/SW Russia.

• The midday GFS weather model forecast is similar to the overnight run with rain totals of .5-1.50” with a frontal pass across the E Plains and Midwest in the next 36 hours. W Kansas and much of the S Plains will see just a few spits of moisture from this system. A few days of dry/mild weather follows on the weekend with the next chance of rain being mid next week. This system looks to produce .25-1.00” of rainfall with the coverage of rain being better across the Western Plains. The 11-15 day forecast offers another Central US storm system, and our confidence in this rain is increasing. The overall 10-14 day forecast offers a good mixture for US crops.

• The US wheat market keeps rising on fund short covering while summer row crops are caught in a range amid active Midwest planting and the rapid warming of soil temperatures. The US Central Bank will be out with their interest rate policy today, and no change in rates is expected. However, the US$ looks to strengthen as US interest rates rise and inflationary concern returns. Chicago wheat futures are overbought, but any setback in corn/wheat will be modest. Soyoil appears to be bottoming on strong US demand trends.

• Chicago corn and wheat futures are higher at midday, while the soy complex trades on both sides of unchanged. Option volatility continues to expand in corn, wheat and soybeans amid the prospect of lower world supplies and next week’s key USDA May WASDE report. Weather woes in Australia, the US Central Plains, S America and the budding dryness in the key export area of the Black Sea are all underpinning valuations. Goldman Sachs reported that commodities were the best performer so far in 2018. This will help push additional investment into the raw material space as the world returns from the May Day Holiday. A higher Chicago close is expected paced by the grains.

• Chicago brokers report that funds have bought 7-10,000 contracts of Chicago wheat, 10-12,000 contracts of corn, and 3-4,000 contracts of soybeans. In soy products, funds have bought 3,100 contracts of meal while selling another 3,400 contracts of soyoil. Funds continue to pile into a larger net long corn and meal position, while covering Chicago wheat and nearing their biggest short in soyoil in several years.

• For now, Chicago lacks a “natural seller” as the US farmer is busy planting the 2018 crop, with adverse weather threatening crop production in S America, Australia, the Black Sea, and the US Plains. Any Chicago selling is based on profit taking by speculators. US, Russian, Brazilian and Argentine merchandisers are reported to be having difficulty securing cash grain from the farmer, which begs the question, “have they become bullish on weather and/or their local currency.”

• S American winter corn crop losses are growing with extremely limited rains for key production areas like Parana. Producers in Parana report that some fields will be “zeroed out” amid the drought that extends back to mid- March. We would estimate 2018 Brazilian corn production at 79-82 million mt, which combined with crop losses of 10-12 million mt in Argentina due to their dire drought, lowers S American corn supplies by 24-28 million mt. Low corn supplies has Brazilian livestock feeders looking to import feedstuffs in the world marketplace.

• US wheat futures are streaking to new 2018 highs as US and world production losses come into focus. Chicago wheat has exceeded the March high at $5.06 with the next upside price target being $5.53, the 2017 high set on July 5. Australian, Argentine, and US wheat production forecasts are being lowered via adverse weather. However, it is the emerging dryness in the Black Sea that is gathering importer attention. Russia has produced record large wheat harvests for consecutive years, and upon their return from the May Day Holidays, their ongoing dry weather forecast is likely to raise supply concern.

• The midday GFS weather model forecast is similar to the overnight run with rain totals of .5-1.50” with a frontal pass due from late today into Friday across the E Plains and Midwest. W Kansas and much of the S Plains will see just a few spits of moisture from this system with windy/warm weather. A few days of dry/cool weather follows on the weekend with the next chance of rain being mid next week. This system looks to produce .25-1.00” of rainfall with the coverage of rain being better across the W Plains. The 11-15 day forecast offers another moderate storm system, but our confidence that far out is low. We would anticipate some 32-36% of the US corn crop to be planted as of Sunday, below the historical average of around 50%

• Corn and wheat are confirming bullish trends amid fund demand and declining world stocks. Soybeans are a political marketplace which is worried by Chinese/US Trade negotiations. New money should be pushed at Chicago markets on Wednesday which limits any correction. We remain bullish of grain with soybeans to trade in a broad range. Black Sea weather forecasts will likely drive Chicago wheat valuations.