• Ag markets are trading moderately higher, led by wheat, amid a sharp 4 million mt cut to France’s crop. Black Sea wheat futures have been stable. Following reduced French wheat production, the trade will begin questioning the EU crop as a whole amid less than ideal weather in Germany and Poland (among others). Markets have fallen from session highs as NASS Stocks and Seedings data leans a bit bearish, fundamentally. Stocks were slightly higher than expected across the board, and some 2.5 million acres of major crop seeding was added from March intentions. June 1 corn stocks totalled 5,306 million bu, 30 million above our estimate in mid-June. Mar-May Feed use is pegged at 957 million bu, vs. 981 million a year ago. Sep-May feed/residual rests at 4,710 million, down 2% from last year. USDA may cut 25-50 million from its annual forecast in the July WASDE. Jun 1 soy stocks totalled a record 1,203 million bu, and 20 million above expectations. Mar-May residual is pegged at -32 million, vs. -35 last year.

• June 1 Stocks

    —————— million bu ———-———-

                   2016        2017         2018

Corn          4,711        5,229        5,306

Soybeans  872           966           1,222

All Wheat   976          1,183         1,100

• USDA in July may cut soybean residual as well, but only slightly. Final 2017/18 wheat end stocks totalled 1,100 million bu, marginally higher than expected, but overall quarterly stocks were not market moving/changing. Pace analysis suggests the USDA’s corn ethanol and export numbers are a bit too low. This will offset any downward revisions to feed use. Corn acres were set at 89.1 million, vs. 88 in March. Bean acres totalled 89.6, vs. 89 million in March. All wheat acres totalled 47.8, up 500,000 from previously via expansion in spring wheat seedings. Winter acres were left unchanged. Durum acres fell slightly.

US Planted Acres

———————-million acres —————————

                                                       March      June

                       2016        2017        2018         2018

Corn               94.0         90.2         88.0          89.1

Soybeans       83.4         90.1         89.0          89.6

All wheat        50.1         46.0         47.3          47.8

Cotton           10.1         12.6         13.5          13.5

Sorghum        6.7          5.6            5.9            6.0

Barley            3.1           2.5            2.3            2.5

Total             247.4        247.0        246.0        248.5

• Assuming no changes to yield, new crop corn end stocks will be raised to 1.65-1.7 billion bu, vs. 1.57 in June. New crop wheat stocks will be raised to 965-975 million, vs. 946 in June. New crop soy stocks will be lifted 40-45 million bu to 425-430 million. Balance sheets in Jul will loosen, but even acreage changes are in line with history on an absolute basis.

• The central US midday GFS weather forecast is slightly cooler and wetter in the 11-15 day period, as its committed to shifting the mean position of high pressure aloft westward beyond the next 9-10 days. The EU model this morning kept the ridge a bit more centrally located. This will be a crucial battle between the models, particularly in next week’s runs. Expansive ridging in the near term will limit rainfall to northern and eastern growing areas. High temperatures in the low/mid-90s will be common across the Midwest. Highs in the 100s will impact the S and C Plains throughout the next 10-12 days. Note also that overnight lows next week will range in the low/mid-70s. This will continue to accelerate crop growth. The GFS breaks the ridge pattern with a cool front July 9-11. Near normal temperatures and scattered showers will return by mid-July if correct. It is a pre-USDA positioning day. Our preference is to stay out of the market amid elevated trade and weather risks. Extreme heat in early July and simultaneously the possibility of US tariffs placed on China will boost volatility.

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Weekend summary 29 June 2018

• Ag markets are mixed but very little changed at midday. The market is unwilling to put on new positions ahead of Friday’s Stocks and Seedings data. We do not expect any real statistical fireworks tomorrow morning. How Sep-May corn/bean residual use compares to the USDA’s annual forecasts will be most interesting. As for acreage, we didn’t see much need/incentive for major shifts during the spring. We look for acreage to change by 200-500,000, a rounding error. Otherwise, crude has shrugged off early losses and has found yet newer rally highs. US crude export demand is impressive (a record last week), and further declines in stocks are due through the balance of summer. Ethanol futures have followed. The US$ is marginally weaker, major exporting currencies are steady to higher. Weekly US export sales were generally in line with expectations, if a bit better in corn. Through the week ending June 21, US exporters sold a net 33 million bu of corn, vs. 7 million the week prior; 13 million bu of soybeans, vs. 11 million the week before; and 21 million bu of wheat, vs. 17 million. Meal sales totalled a respectable 146,000 mt, up 30,000 from the previous week.

• The US’s July 6 tariff deadline is just a week in the offing. The immediate 25% premium placed on US beans will trigger more pronounced cancellations. The US’s tone towards China appears to have softened as the administration doesn’t aim to target Chinese investment in US commodities. China today says it is planning to lift its cap on foreign investments in a host of sectors. More clarity is no doubt needed prior to next Friday. Actually solving US-Chinese trade issues will be a longer term phenomenon.
  

• The GFS’s midday weather forecast run again fails to feature any meaningful pattern shift in the Black Sea. Western Ukraine and far northern corn areas in Russia will benefit from near term rainfall. Expansive dryness resumes across the Black Sea grain belt late next week. The region’s primary corn belt will remain arid and rather warm through the first half of July.

• The central US midday GFS weather forecast is slightly cooler and wetter in the 11-15 day period, as it is committed to shifting the mean position of high pressure aloft westward beyond the next 9-10 days. Recall the EU model this morning kept the ridge a bit more centrally located. This will be a crucial battle between the models, particularly in next week’s runs. Expansive ridging in the near term will limit rainfall to northern and eastern growing areas. High temperatures in the low/mid-90s will be common across the Midwest. Highs in the 100s will impact the S and C Plains throughout the next 10-12 days. Note also that overnight lows next week will range in the low/mid-70s. This will continue to accelerate crop growth. The GFS forecast breaks the ridge pattern with a cool front July 9-11. Near normal temperatures and scattered showers will return by mid-July if correct.

• It is a pre-USDA positioning day. We would choose to stay out of the market amid elevated trade and weather risks. Extreme heat in early July and simultaneously the possibility of US tariffs placed on China will boost volatility.

• Markets are mixed at midday, with corn and beans steady and with KC wheat posting new lows for the move. Harvest will continue to roll along smoothly into the middle part of July. Quality is excellent, offering relief to millers following a string of sub-par quality crops in recent years. Egypt bought two cargoes of wheat from Russia for mid-August arrival. This was expected. Egypt paid $202/mt, basis fob, which is more or less in line with cash offers quoted Monday evening. This still seems cheap relative to Black Sea dryness, and also as Russian wheat holds a $12-30/mt discount to all other origins, there just doesn’t seem to be a need for such aggressive offers. Sources suggest that Russian wheat will be priced to move at/just after harvest (no surprise there), but Russia’s grain balance sheet continues to tighten. Either the market rallies in mid/late summer, or Russia’s exportable wheat surplus will be exhausted by late year. Very early harvest wheat harvest results in Russia feature low test weights, not a surprise. Better yield info will be available in the next ten days or so. Note that Russia’s primary Ag Belt will stay arid over the next two weeks.
  

• Macro markets are in full Turnaround Tuesday mode following trade czar Navarro’s comments this morning regarding Chinese investment in US companies. The DOW is up 70 points. Crude has screamed to gains of $2.20/barrel, with spot WTI again slightly above $70. RBOB gasoline and ethanol have followed. Questions remain as to the full extent of OPEC’s production hike, and whether spare production capacity will be adequate moving forward. Wednesday’s EIA report is expected to feature another draw in US crude stocks. South Korea and Canada have resolved a dispute over potential GMO wheat found in a cargo of recently purchased supply. A temporary ban placed on Canadian origin wheat last week has been lifted. The Australian weather forecast is a bit drier than previous runs. Some soil moisture improvement still lies ahead for the driest areas of New South Wales and Queensland, but now this looks to be just an interruption in an otherwise long term dry trend. El Niño is forecast to arrive by Aug/Sep. This historically bodes poorly for rainfall in Australia during wheat’s critical growth stages. Of course, the arrival of El Niño will substantially lower the odds of another Argentine drought in the following months. Other news is lacking. Above-trend yield potential is being digested, while we mention at least temporary heat and dryness lies in the offing.

• The central US midday GFS weather forecast is mixed, and confidence beyond 7-10 days remains low. Scattered showers will dot the Midwest into the weekend. Potentially heavy totals are offered to central IA. MN and WI. The GFS is more intense with high pressure ridging next week, with upper level high pressure to dominate the whole of the Central US throughout the 6-11 day period. High temperatures in the low 100s will be a bit more widespread across the Plains. The heart of the Corn Belt will be largely spared from oppressive heat. The GFS forecast then quickly moves high pressure south and west, allowing for normal conditions to return beyond July 11. If realised, this is positive for yields. This afternoon’s EU model is awaited for confirmation.

• It is tough to find any major issue with US weather, should next week’s heat eases by mid-July. We do note that domestic margins (crush, ethanol, biodiesel) have surged on this break. We maintain that there is solid potential for US exports in 2018/19 if trade barriers can be prevented.

• Overnight losses have been extended after digesting worsening rhetoric regarding US-world trade, and ahead of this evening’s crop progress report. Ratings tend to decline seasonally beyond mid-June, but following recent widespread precipitation and cooler temperatures, declines in good/excellent condition in the next 1-2 weeks will be limited to 1-2%. Crop condition-based yield models will maintain record yield potential into the opening week of July. We would note that July weather’s impact on corn yields rises exponentially, but so far so good.

• Exporters this morning sold 186,000 mt of old crop beans to an unknown destination. Gulf beans today are offered at a $32/mt discount to S American origin for immediate arrival. S America’s premium has widened $7/mt in just the last week. It is also likely that Gulf HRW will be offered this evening just $15-18/mt over comparable EU origin, vs. $40/mt two weeks ago.

• The trade’s average guess on corn acreage in Friday’s report rests at 88.5 million, up 500,000 from March. Bean acres are estimated at 89.7, up 700,000. All wheat acres are put at 47.1 million, down 200,000 from USDA’s current estimate. We see no reason, neither price nor weather, why the acreage matrix will change much. Reports from the Central US indicate very few changes from intentions occurred.

• Grain movement in Brazil remains slow. Following last month’s trucker strike, freight costs have surged. The government recently imposed a nation-wide minimum freight price, but this does not account for differences in regional supply and demand, and has not worked to satisfy the industry. The government’s minimum freight price has since moved to the country’s Supreme Court, which should issue a ruling on its validity in the next few days. This has exacerbated the rise in Brazilian soy/corn basis.

• The Black Sea weather forecast at midday features better rain chances across the far northern edge of Russia’s corn belt, and far western edge of Ukraine. We put coverage at 30-35% of the total Black Sea corn producing areas. This is welcomed, but a bulk of the region will stay dry.

• On Friday Russia’s Ag Ministry pegged Russia’s total grain crop (including minor grains and pulses) at 100 million mt. We calculate the USDA’s total Russian grain crop forecast at 110 million mt. Cuts to Russian spring crop production lie ahead without normal rainfall by mid-July. The central US midday GFS weather forecast is slightly wetter in the Central Midwest in the 11-15 day period. The overall pattern is still drier and warmer beginning mid-week. High pressure aloft expands, but the GFS forecasts a more transitory ridge, which moves into the southwestern US July 8-9. If realised, this will allow for near normal precipitation across the heart of the Corn Belt. In the meantime, active rain continues in the next 48 hours. Precipitation will be lacking June 29-Jul 7. Above normal temperatures will be widespread.

• Trade issues continue to dominate. Better wheat harvest weather and ongoing lofty US crop ratings are also noted. We are hopeful recent trade rhetoric is being used to spark negotiations with China prior to July 6.

• It has been a mixed and slow morning in Chicago, with beans up 10-11 and corn and wheat little changed. Positioning ahead of potential weekend trade news, as well as this afternoon’s CFTC report, is noted. Limited activity is expected into the close. US exporters sold 218,000 mt of new crop corn to Panama and Mexico, and 30,000 of old crop to Mexico. Gulf corn is the world’s cheapest for summer delivery following rallies in S American basis over the last week. We note that Brazilian weather has failed to improve in June outside of pockets of Parana in the South. Additional cuts to Brazil’s exportable surplus are likely forthcoming.
  

• OPEC confirmed a hike in production worth 1 million barrels/day. The actual total will be closer to 700-800,000 barrels, however, as certain countries will fail to meet proposed quotas. Crude is up sharply at midday ($3/bbl, basis spot) amid a lack of clarity on how global stocks will be impacted. Potential tariffs on US crude will allow stocks to build. But amid the US’s new-found position as a crude exporter, foreign market will be left with shortages.

• Ethanol production margins have recovered from the lows of early May. The spot futures-based blend margin has again exceed $.06/gallon. Additional draws in US ethanol stocks lie ahead. There is also talk that the EPA will raise the total RFS mandated volume to 19.9 billion gallons, up 3% from its prior target. This proposal is not expected to include reallocation of biofuel volumes under its waiver program.
  

• The midday GFS weather forecast is drier in Ukraine over the next two weeks. Temperatures will be variable, but net declines in soil moisture will persist into the early part of July. Southern Russia will stay rather hot, with high temperatures this weekend pegged in the mid/upper 90s. Much above normal precipitation will be needed in the Black Sea and Eastern Europe to maximise corn and oilseed yield potential. Old crop corn offers out of Ukraine have evaporated. The midday forecast does offer better rain chances to parts of New South Wales in Australia, which is desperately needed. 1-2” is projected across Southeast Australia in the next 10 days. The remainder of the country will stay dry. Aussie producers in NSW hope the rain will materialise as projected. Other ag-specific news is lacking. It seems clear traders are reluctant to take new positions following the emotional decline, and amid silence regarding next steps in US-China trade relations.

• The central US midday GFS weather forecast is cooler next week across the bulk of the Midwest. Key moving forward will be the amplitude and duration of high pressure aloft. The GFS allows a weak front to keep the ridge a bit farther south than previously indicated, and this will allow temperatures to moderate July 1-5. It remains that meaningful rainfall beyond early next week will be confined to Northern and far Eastern growing areas. The midday forecast leans slightly market negative based on the lack of sustained excessive heat. The afternoon EU model release will be watched closely for confirmation of this.

• Next week’s Stocks and Seedings report should not hold many surprises, but rather it is the July 6 deadline for US tariff implementation that will weigh on rallies in the near term. It is tough to be bearish corn/wheat amid adverse Black Sea weather, and as heat/dryness expand into Europe. Any news over US-China negotiations is desired.

• It has been a mixed morning in Chicago with the grains firmer, while the soy complex continues to sag on expanding trade sanctions. The rally in wheat is due to declining crop prospects in the EU and Black Sea, while soybeans are sagging on the ongoing absence of Chinese demand for US soybeans. Chicago volume is much less than prior days as the industry takes a pause on US trade rhetoric. Trade fears today are a war of words, the question going forward is whether parties can talk and move ahead with negotiations before the tariffs start. Chicago is trying to gauge the timing of the next round of trade negotiations. Right now, such negotiations are not foreseen as neither the US or China appear ready to pick up the phone and chat trade.

• Chicago brokers report that funds have bought 3,400 contracts of wheat and 2,000 contracts of corn, while selling 4,100 contracts of soybeans. In soy products, funds have sold 1,700 contracts of soymeal and 2,600 contracts of soyoil. Funds appear to be willing to dive into larger short in the soy complex, while cash markets start to firm offering pause for new sellers. We look for a mixed close in continued modest volume.

• US weekly export sales for the week ending June 14 were; 17.0 million bu of wheat, 6.5 million bu of old crop corn and 13.4 million bu of new crop, and 11.1 million bu of old crop soybeans and 8.5 million bu of new crop soybeans. The corn sales were less than expected, while wheat and soybeans were in line with trade expectations. China canceled 66,000 mt and there were net unknown switches/cancellations of 204,000 mt of old crop soybeans. China has shown no interest in securing new crop US soybeans since US trade tariffs were announced. China has bought just 1.5 million mt of new crop soybeans so far. There are 1.3 million mt of known old crop purchases with another 2.0 million likely held in an unknown destination classification. There is a risk that all 3.0 million mt of old crop US soybean sales to China/Unknown will be cancelled or pushed forward to new crop. We would note that last week China ended any phytosanitary restrictions on grain products that could be substituted in feed rations for soymeal. Included in the list was wheat bran, imported soymeal, DDGs, rapeseed and cottonseed hulls. The Chinese appear to be positioning for reduced soybean/soymeal imports from the US and are seeking other products for its livestock feeders. We also note that China has a huge store of old crop wheat that can also be fed, which would add to feed protein levels. China holds an abundance of feedgrain stocks.

• The central US midday GFS weather forecast is similar to the overnight run with an abundance of Midwest rain for the next 7-8 days. However, as has been stated, this is a complex pattern and we should be prepared for sizeable day to day changes. A static front is sagging across the Central US with an abundance of upper air humidity that will produce widespread rains of 1-4.00” in the next 7-8 days. Compared to the prior GFS model, the rains are farther north that prior runs as a high pressure ridge forms over the Central and Eastern US. The forecast models continue to reflect a developing ridge of high pressure for the Central US during the closing days of June and early July. This ridge looks to produce new rounds of extreme heat for Central US crops.
  

• The forecast holds an abundance of rain for the Central US. This rain will keep crops well-watered heading into July. The market has digested the politics surrounding a hardened US trade stance. Hope persists that the US/China can get back to the negotiation table before tariffs start to take effect on July 6. Sideways Chicago trade is expected with the grains to gain on soy on export demand and world weather risks.

• Dryness issues are really starting to build across the Black Sea with Russian/Ukraine and Eastern European crops being adversely impacted. Since April 1, SW Russian rainfall has been mostly less than 50% of normal with temperatures running 3-4 degrees above normal. The combination has lowered soil moisture to drought type levels. This has impacted winter wheat and is now stunting their corn crop. If not for the US/Chinese trade dispute, the ongoing Black Sea dryness would be front page news.

• At the close, soybeans were mixed, soymeal was $1-3/ton lower, while soybean oil marked the best close for the day on fund short covering. Argentine soymeal exports in April were the lowest in 10 years, and have remained below last year through May and June. Private shipping estimates show May exports at 2.4 million mt, with 2.7 million that are scheduled to sail for the month of June. This would put first quarter exports near 7 million mt, which would be the slowest in five years. Reduced Argentine exports have pushed business to the US, where exports since March have been 48% larger than a year ago, which is a record. Quarterly stocks and acreage reports are just over a week away and Chicago soybeans have (indirectly) priced in bearish reports. Outside of trade resolution, we expect markets to move sideways into the USDA reports. At some point, the US and China will return to the negotiation table and in an effort to hammer out a deal.

• Chicago corn futures found light buying interest amid oversold technical conditions and a growing net fund short. Estimates show that funds this evening are net short 67,000 contracts. This compares to a net short of 54,000 in mid-June last year. Notice that only three times since records began have funds been short ahead a growing season. Short covering followed in early July of 2017 amid brief heat and dryness. Actual US/world corn demand remains strong. US weekly ethanol production totalled 313 million bu, a 17-week high, up 7% from last year. US ethanol stocks fell. Blend demand is solid, and ethanol exports are ongoing. Note that Brazilian ethanol prices are rising seasonally. Heat/dryness is offered to the Black Sea through late June. Maximum highs in Ukraine/S Russia will reach the low/mid-90s. Gulf corn remains the world’s cheapest into Asia for delivery in July-August. US corn is priced to sell. Sideways trade is expected into next week’s USDA report. Focus thereafter will be on the extent/duration of US high pressure ridging in July. Any below trend yield pushes corn back to $4.00.

• The wheat market is looking for a bottom and may have found one. Russian crop estimates continue to be drawn down. Spring wheat planting there has ended, and final spring acreage will be a record low 12 million ha. Another rally in Russia’s domestic market is expected once new seeding data is revealed on Friday. Russian wheat is by far the world’s cheapest at $198/mt for August. Similar quality Gulf HRW is offered this evening at $227. However, note that Argentine and Aussie origin are higher still at $250-270/mt. We view Russian wheat prices as too cheap, and the market is expected to rally sharply following the harvest. And Aussie’s domestic market will get tight come August/September. Wheat often bottoms first following dramatic breaks. Heavy rain will benefit corn across the Plains, but will plague harvest in KS and NE. Note also that world import demand returns in bulk beginning in mid-summer. The US approving NAFTA will provide an immediate spark.

• Tuesday was an emotionally charged day of trading in the soy markets, following a late Monday announcement of additional US tariffs on Chinese imports. The announcement highlighted the still wide difference between the US and China, and sent Chicago soy markets sharply lower. July soybeans fell sharply in overnight and early morning trade, but ended nearly $0.48 over the early low. The break in soymeal was met with end user demand that lifted July meal to within $1 of Monday’s close and rallied crush spreads. The July crush was $.09/bu higher at $1.64 versus $.89 a year ago. Note that strong crush margins continue into both the end of the year, and well into next year. Politics and trade disputes have made the soy markets near impossible analyse, and the volatility has pushed traders away from the market. A resolution announcement would rally soy prices sharply, but the hard lined stance of both sides has offered little confidence to the market. Without a solution to trade differences, our market outlook has shifted to selling rallies.

• Corn futures plunged to losses of 17 cents in early trading, but settled just 2 cents lower. Funds sold another 33,000 contracts (are now short an estimated net 60,000), and the bulk of trade concern has been digested. Supply and demand remains supportive. Most importantly, Gulf corn is again the world’s cheapest feedgrain. Argentina’s cash market likely bottomed last week as harvest surpassed 45% complete. US yield models point to a 180-183 bu/acre yield should crop conditions be unchanged into late July. Widespread rainfall this week will boost soil moisture in some of the driest areas of the Plains. Our only concern is that the major models have been consistent in returning heat/dryness to the Plains and Midwest by late month. And Black Sea dryness goes on unabated. No pattern change is indicated in the next two weeks. Adverse weather has kept Black Sea basis elevated. Brazilian cash offers are rising amid falling crop size. Following global production losses, US corn is valuable. We would be reluctant to sell this market.
  

• Long liquidation continues in US wheat markets. Note that managed funds last Tuesday were long a net 61,000 contracts in KC. We estimate half of this length has been shed. However, HRW basis remains firm amid the need for high protein supply, which will be exacerbated if 5-day forecasts verify. NOAA’s latest outlook features rainfall of 3-4” in central KS, NE and SD into next week. US trade rhetoric has failed to improved. US exports to Mexico and China have ranged from 120-210 million bu in recent years (15-20% of total). Mexico secured 73 million bu of HRW in 2017/18. Mexico’s stance is not yet as rigid as China’s but general concern persists. Otherwise, GASC secured 240,000 mt of wheat for August from Romania at $204/mt. This compares to an Egyptian tender executed at $194 in June of 2017. World markets have followed the US lower, but to a lesser degree. We cannot advise shorting this market with Black Sea crops getting smaller, and with Black Sea/EU corn crops to be affected by expanding dryness.

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

Weekend summary 15 June 2018

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

Fund positions disaggregated data