• November soybeans had selling against the 20 day moving average overnight, which set the tone for the rest of Wednesday’s trading. Similar selling was uncovered in December meal at the 50-day moving average, which led Chicago soy trade lower.

• NOPA reported an end of July soyoil stocks figure of 1.764 billion lbs. Even with a larger than expected production total, the soyoil stocks figure was still below expectations and nearly unchanged from June. This is suggesting that strong biofuel demand continues, and NASS is expected to report a similar change to national soyoil stocks at the end of the month. NOPA soymeal exports were down slightly from June, but still 24% larger than a year ago and the largest July NOPA meal export rate on record.

• The last half of the week will be directed towards weekly export sales and Midwest weather. Traders are also watching some much-needed rains develop across some of the driest parts of Cornbelt, to gauge crop benefit. Initial support for Nov soybeans is just under $8.60.

• CBOT corn futures impressively shrugged off collapsing crude and metals markets. Dec corn traded in just a 4.5 cent range, and recall on Tuesday we mentioned seasonal trends are very neutral in Aug-Sep. The market has now digested yield potential of 178-179 bushels/acre. Validation is needed via Pro Farmer’s tour next week, as well as early combine data, which may appear as soon as early September.

• FAS this morning reported a sale to unknown destinations worth 115,000 mt, of which 55,000 mt is for old crop delivery. Gulf corn maintains a modest discount to Argentine origin into Asia through Sep. Otherwise, there’s just not much competition for export demand into the early part of winter. Export sales on Thursday are estimated in a range of 45-55 million bu, both old and new crop years combined.

• Look for ongoing narrow ranges and a lack of corn-specific news. Rallies will be capped by finishing rains due in the C and E Corn Belt this week. Breaks will be supported by ongoing export interest and lofty ethanol blend margins. A secondary low will likely be scored prior to the Sep crop report. Confirmation of NASS’s Aug yield is needed for the spec community to sustain its net short position. The world feedgrain balance sheet remains tight.

• World wheat futures ended mixed, with US contracts down 9-12 cents and EU/Black Sea futures down fractionally. The US market continues to rid itself of market length, but fundamentals haven’t changed much at all. We highlight that Russian cash prices especially have moved very little since the release of the USDA’s Aug WASDE. Spot Russian prices are down $2/mt this week; Gulf HRW is down $11/mt. Most importantly, note that HRW, German and Russian are offered at parity for November arrival. It’s true that Russian exporters are rushing out supply in an effort to beat any potential government intervention. But this will speed the process of exhausting Russia’s exportable surplus. US export sales on Thursday will be a rather routine 12-16 million bu. But the US market is slowly positioning itself to grab a greater share of world trade in autumn/winter.

• Dec KC’s 100-day moving average rests just below today’s settlement. A secondary low is seen between $5.50-5.60. NOAA’s Sep-Nov climate forecast is out tomorrow morning. Southern Plains rainfall potential ahead of planting warrants attention.

• Chicago soybean and meal markets were lower overnight and higher at Monday’s close. The soymeal market has found good demand on the recent break and led Monday’s trade higher, which lifted crush spreads for the fourth consecutive day and put December back at $1.70/bu.

• After the close, NASS reported another 1% decline in national good/excellent crop condition ratings to 66%. Good/excellent ratings fell in 13 of the 18 states reported, with the largest weekly decline of 11% occurring in ND. Ratings fell by 3% or more in 4 states, while good/excellent ratings in MO were down another 2% to just 32%. Mother nature is quickly taking yield potential away from the crop, and the market now awaits the results of the Pro Farmer Crop Tour next week, to better gauge crop potential. Much of the US soy crop is need of a good rain, which will continue to trim yield prospects. Record yields are now priced in, and we expect broad ranging trade to unfold into harvest.

• Dec corn settled one cent lower, but well off session lows, as the rest of the world had a chance to digest the USDA’s Aug report. Aug yield estimates offers little guidance to changes in September. There’s little doubt yield will be high, but just how high is still unknown. Coming rainfall will help. Crop ratings fell another 1% to 70% good/excellent.

• Our thesis remains centered on high yields but also enlarged demand. Drought in Europe shows no sign of easing into late August. Crop finishing weather in Ukraine and Southern Russia will also be warmer/drier than desired. Export inspections continue to match the pace needed to hit the USDA’s old crop target. And Gulf corn this evening is the world’s cheapest feedgrain. Argentine corn is competitive, but Argi offers are absent beyond October.

• Downside risk in crude is limited below $67, basis spot, which will act to sustain rather lofty ethanol blend margins. Demand will likely be strong, and the effect of this season’s heat (73% of the crop is in dent, vs. 56% on average) will be known only at harvest.

• World wheat futures ended lower as the European market was allowed to react to the US

• We view the USDA’s wheat data as neutral relative to current prices, but futures in Europe were well overbought. World production wasn’t cut as much as expected, and a correction ensued. The week’s lows were likely posted today.

• We note that interior Russian prices have soared in the last two weeks. This is especially evident at areas near ports. There is still concern over eventual controls on Russian exports, which actually pushes exporters to maximise shipments in the very near term. However, this suggests that beyond mid-autumn, world trade will be forced to other origins.

• NSW in E Australia will stay completely dry. Near record temperatures were recorded in Canada over the weekend. There is just not much to support a break below $5.60, basis Dec KC. Egypt is seeking wheat for late Sep arrival. The results of the tender (price, especially) will be highly anticipated.

• Russia’s grain exports have started to show the first signs of a slowdown since quality concerns over this year’s crop pushed prices to five-year highs, data from the agriculture ministry showed Monday. Weekly grain exports dropped from over 1.4 million mt last week to 914,000 mt in the week to August 13, according to agriculture ministry data. While the quick pace of exports at the start of the marketing year has meant volumes remain 55% higher than where they were 12 months ago, the gap with previous years continues to narrow. Total grain exports now stand at 5.65 million mt.

• Hot, dry weather during the wheat crop’s development cut yields back significantly, while rains during the later stages of development affected its quality and left much of it unsuited to human consumption. Wheat exports showed the biggest fall in volume terms over the week, with exports down a third from last week to 832,000 mt. Total wheat exports now stand at 4.63 million mt, which is 92% higher than at the same stage last year, although this has dropped back from 222% just a fortnight ago.

• Line up data from Russian ports has shown the number of vessels loading or waiting to be loaded in Black Sea ports has shrunk since the start of the marketing year. Tight milling wheat supply has left counterparts washing out previously agreed deals because they cannot secure enough wheat from the domestic market, while the number of new trades in the cash market has slowed to a trickle. And it is not just wheat that has shown signs of slowing down, with this year’s barley crop suffering similarly to wheat.

• Barley, which has also seen prices spike since the start of the marketing year, had exports fall by two-thirds week-on-week to just 42,000 mt– one of the lowest weekly totals in more than a year. Total barley exports since July 1 now stand at 683,000 mt, which is 12% lower than at the same stage last year.

• Corn exports, which are yet to kick off properly before harvest gets underway in the coming weeks, were up 31,000 mt last week to leave total exports at 288,000 mt – 35% lower than at this stage last year.

Brgds
Simon

• Just imagine that your small grain or oilseed farm received just 0.35-2.00” of rainfall since April 1. Such rain is historically low and follows a year of drought. This is the second year of drought across Australia and our hearts go out to those farmers, livestock and wildlife that are impacted. The drought is so bad that many cash connected grain sources doubt that Australia will harvest a wheat crop larger than 15-16.00 million mt vs. the USDA’s estimate of 22 million. It is the second year of a drought that normally holds the biggest adverse impact on yield. Rain is desperately needed by the first week of September.

• Chicago prices are slightly higher with corn, soybean and wheat futures pushing to the upside amid rising Chinese meal prices and the coming USDA report. The trade expects that NASS will be conservative with its US yield estimates and that US export outlook will be lifted via falling world production. The August report holds as much interest in world crops, as it does US production. We look for a slightly higher Chicago close as concern over the warm/drying trend across the N Plains, Canadian Prairies and Australia offers support, and domestic Chinese sellers are retracting meal offers.

• Chicago floor brokers report that funds have bought 3,900 contracts of corn, 2,100 contracts of wheat, and 2,000 contracts of soybeans. In the products, funds have bought 2,800 contracts of soymeal while selling 900 soyoil. Funds appear to be getting smaller in their net short soybean position. China retaliated against tariffs on $16 billion of US goods this morning including crude oil. China is already applying tariffs across a host of US ag goods and so the broadening of the US/China trade war is not impacting ag pricing besides the emotional selling that comes with the announcement. The key question is does this broadening trade dispute help or hinder negotiations.

• The recent decline in Chinese soybean imports is tightening domestic soymeal supplies. There are rumours that some sellers are pulling offers from the market on the expectation of reduced Chinese soybean imports going forward. Traders are speculating on whether China could secure Argentine soymeal to help avoid a shortage. Argentina has an estimated 7-8 million mt of soymeal left to sell, which is just a third of what they offered last year.

• Rumours abound that Russia at some point could place an tax or restrictions on wheat exports. In Russia, where there are rumours there is often action, but the timing of an announcement is uncertain. The Russian Government is worried about rising bread/feedstuff inflation, and budding shortages of world wheat supplies. Russian exporters hearing the export tax or trade restriction rumours are trying to push as much wheat out of the country as possible. Farmers there are fretting about whether to hold or sell cash stored supplies. Germany cut its wheat crop estimate to 19.2 million mt, down 20% from last year. Speculation persists that the EU wheat crop will be in a range of 128-135 million mt. The bet is now one of an EU all wheat crop of less than 135 million.

• The central US GFS weather forecast is similar to the overnight EU model with drier than normal weather across the N Plains and the NW Midwest. The Canadian Prairies area also in a drier profile. Some light showers are possible after August 16, but amounts look to be below 0.75”. No extreme heat is noted with above normal readings in the N Plains and the W Midwest with more seasonal levels in the E Midwest and Delta. Our confidence is building in the 10-15 day period which offers a return to better rainfall chances. Nearby, the big concern are those fields that missed the rains in the past 48 hours where soil moisture is in fast retreat. We estimate that some 20-25% of the US corn and soybean crops are under this dry profile.

• Positioning ahead of the August USDA crop report continues to be the feature in Chicago. EU wheat futures closed slightly lower which has pulled US futures off their highs. As world price keep rising, we just don’t see much downside price risk. Key resistance arrives in November soybeans above $9.25. China is showing no willingness to secure US soybeans. Our stance remains bullish of wheat, positive of corn and bearish of soybeans.

• It has been a mixed morning with funds coming out of short soy/long grain positions. The volume of trade has been below average as traders prepare for the USDA August crop report. Traders are trimming their long positions in wheat/corn and their short positions in soybeans/soyoil. Our bet is a lower close with new buying returning to wheat near the close. French and world wheat prices are still rising and the fall in US wheat futures looks to be corrective. The rationing of world wheat demand is not occurring at sub $6.00 prices and we doubt that a top will be formed until the 1st quarter of 2019. Wheat is a bullish supply market today that is likely to morph into a bullish US wheat export demand story once the EU, Russia and Australia have exported their exportable supplies. It’s tough to drop US wheat too much unless world wheat prices declines.

• Chicago floor brokers report that funds have sold 4,900 contracts of corn and 2,600 contracts of wheat, while buying 5,300 contracts of soybeans. In the products, funds have bought 3,000 contracts of soyoil and 2,100 contracts of meal. There has been limited farm selling of cash soybeans on the rally as November reaches back near resistance at $9.25.

• The Russian Government is considering the sale of 500,000 mt of wheat from the state intervention fund, which is in addition to the 500,000 mt that is already provided. Of the 500,000 mt that was offered, 360,000 has already been sold. The Government draft decree would provide additional grain to the domestic and international markets with nearly all sides expecting that total sales from intervention to reach 1.5 million mt by the end of the 2018/19 crop year.

• We expect that Russia will keep selling/exporting wheat until their stores run dry. The pace of Russian wheat exports from August to November will determine when exportable Russian supplies are exhausted. Our bet is that it will be in December or January. The average trade estimate for Friday’s report is a US corn yield of 176.2 bushels/acre and soybean yield of 49.6 bushels/acre. The US HRS wheat crop is not expected to decline very much with an average guess of 658 million bu. We would see the US HRS wheat total closer 324 million bu based on the variable early yield data. A year ago, NASS estimated the US corn yield at 169.5 bushels/acre with the record high yield occurring in 2016 at 175.0 bushels/acre. A 2018 yield of 176.2 bushels/acre would set an all-time record for US corn, which may be a tad aggressive for NASS. World 2018/19 world wheat stocks are estimated to decline only 4.5 million mt from the July forecast of 260.9 million. The wheat production decline in the EU wheat should be as much as 10 million mt with further reductions in Australian and Canadian crops. We see world wheat stocks falling below 250 million mt.

• Some needed rain has fallen across portions of Central and Eastern IA with totals of 0.5-2.50”. Rain is also falling across the southern half of IL with totals of 0.25-1.25”. The rains were badly needed. The central US GFS weather forecast is wetter across TX/OK and drier across IA, Northern IL, and the N Plains. The forecast is slightly warmer next week. Our confidence in the GFS model is low due to big run-to-run changes. Our bet is that limited rains will fall through the N Plains and the NW Midwest over the next 5-7 days amid seasonal temperatures. The rains are aiding the yield outlook for US soybeans.

• Spread unwinding of grain/soy and needed rains across portions of the Midwest has produced something of a turnaround Tuesday. Moreover, corn and wheat were unable to score new rally highs which has produced technical selling ahead of Friday’s USDA report. Research argues that world wheat values are a long way from scoring their annual highs, while the upside is limited to 15-25 cents in soybeans without a trade agreement with China.

• It has been a widely mixed Chicago start of the week with wheat running to the upside while soybeans sag under a worsening US/China dialogue. Corn is caught as it cannot seem to decide if it should be following wheat or soybeans. And uncertainty reigns on the importance of May-July 15 heat amid the warmest weekend this summer across the Midwest and how it might be impacting US corn yield. NASS will be weighing in on the US corn yield debate on Friday. Last year’s cool Midwest temperatures was the primary reason why the US corn yield did not fall as much as traders expected in the August report, and rose thereafter. Will this be the year that corn yield does not rise as much as expected due to heat, that starch accumulation is less and kernels don’t have as much depth. Heat’s impact on US corn yield is something that shows up in the September/October reports when ear weights can be measured. The August report offers an initial reference point. Our bet is for a mixed Chicago close, but we would comment that the rhetoric can’t get much worse in terms of the US/China trade war. We would be surprised if there is not an effort put forth on talks prior to the activation of another $265 million of tariffs in early September. It is in the economic and the US’s best political interest to see where middle ground is on trade.

• Strong Russian export pace is now slowing on quality as 12.5% protein wheat is becoming difficult to find or secure from the farmer. Aussie weather is getting more attention as the wheat crop starts to head across Queensland and far NSW next week. Winter wheat never enters dormancy in Australia and warm/dry weather has pushed crop maturity. Aussie wheat heads from mid-August through September with harvest starting in early October. It is weather from mid-August into mid-September that will be the most important to heading wheat with the winter being either the fourth or fifth driest on record. Most see the Aussie wheat crop in a range of 13.0-18.50 million mt depending on rainfall. WASDE is carrying the 2018 Aussie crop at 22 million mt, which is far too high.

• Australia can only import wheat/feedgrain from the UK via phytosanitary standards. In 2003/04, Australia imported 250,000 mt of UK feed wheat. Otherwise, the Aussies may have to import WA wheat into Queensland/NSW to feed cattle/sheep. At an 18 million mt Aussie wheat crop, its exports will be cut from 16 to 12 million mt, assuming no wheat is transshipped from WA to the impacted East.

• The central US GFS weather forecast is wetter across the Central Plains and drier across IA, the southern half of IL, and through the Delta. The forecast is also cooler next week, but confidence in the GFS model is low due to big run-to-run changes. Our bet is that limited rains will fall through the N Plains and the W Midwest over the next 7-8 days with near to above normal temperatures.

• It was a new rally high close for French Dec wheat at €214.75 as EU/Black Sea offers rise. A running measuring chart gap projects Dec French wheat to €235-240/mt if last week’s high is exceeded. We look for a modest 1-2% decline in corn/soy good/excellent ratings this afternoon. The Chicago spot wheat/corn spread is trading above $2.00/bu, with an upside target of $3.40-3.60 premium. Soymeal spreads are starting to firm as Argentine meal supplies tighten.

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

IAG Europe Grains Update 3 August 2018

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

Fund positions disaggregated data

• The US soil moisture loss continues; the US forecast is cooler into mid-August than prior runs, but a lack of meaningful rainfall will allow net declines in soil moisture to be ongoing. The better performing EU model keep rainfall into Aug 10 confined to IA, MN and WI. No longer is excessive heat forecast, but temperatures next week will range in the 80s and 90s across much of the Plains and Midwest. The mean position of high pressure ridging moves eastward on the weekend. The flow of moisture will be forced into the far N Plains and Great Lakes next week. Summer-like temperatures will be sustained into the middle part of August. This ridge returns to the Inter-mountain West in the 11-15 day period, but the lack of upper level humidity will prevent a wetter pattern from being established through Aug 15-16.

• Australian moisture deficits widen further; the Australian forecast features some rain chances across the western wheat areas (WA), but ongoing complete dryness in the East. Aussie dryness so far has been something to watch closely. Now crop-critical weather lies in the offing. Aussie wheat, canola and barley yields are determined by weather from August to October. El Niño is on track to be established by September. This very likely sustains dryness in E Australia through the autumn months. NSW, which is currently very dry, accounts for a third of wheat total Aussie wheat production. Rainfall there since Jan 1 rests at 6.3”, just 40% of normal. Some 10” or rain is needed in the next 60 days to erase moisture deficits entirely. Contacts suggests wheat production of even 20 million mt (vs. USDA’s 22) is optimistic.

• News of worse than expected European wheat yields continues almost daily. Russian wheat yields suggest the USDA’s 67 million mt production estimate is close to accurate, but there is potential for modest downgrades depending on spring wheat yield data. All told, we estimate the EU’s total wheat crop at 135 million mt. Russian production is pegged at 66 million mt. Combined EU-Russian wheat production for 2018/19 is estimated at 201 million mt. This is down 11 million mt from the USDA’s estimate in July and down a hefty 36 million from last year. This is also the lowest since 2013. Meanwhile, world trade has been fairly robust since 2016. Global trade data through June suggests the USDA’s old crop world wheat trade figure is accurate. And there is no reason to believe trade will contract in 2018. Certainly there has been no sign of demand rationing at current prices.

• We also suggests the USDA is too low with its Russian end stocks forecast at just 4.8 million mt. This reflects just 24 days of use at the end of the crop year on May 31. We highly doubt end users will allow stocks to get so tight across 11 time zones. USDA pegs EU wheat end stocks at just 10 million mt, which reflects only 25 days of use. Rationing will have to come from reduced exports. We estimate combined EU-Russian wheat exports in 2018/19 at 46.5 million mt, down 18 million from last year and down a sizable 15 million from the USDA’s July forecast. This demand will be forced to the US/Argentina. Some demand may be eliminated altogether via political action. Note that EU-Russian exports in 2016/17 were just 55 million mt, and US exports reached a multi-year high 1,051 million bu. US wheat exports will likely reach above 1.2 billion this year.

• Most importantly, world wheat cash prices do not yet reflect the dramatic contraction in major exporter stocks. The average price of wheat in Russia and France today rests at $240/mt, basis spot. This compares to an average of $192/mt in Sep-Nov last year. We fully expect EU and Black Sea fob prices to average $275-295/mt this year. As such, the US Gulf market will boost its share of world trade even at $6.25-7.00 basis Dec KC. Ultimately, the US wheat market should score its 2018 high at $6.75-7.25 basis Dec KC. Even higher prices lie ahead if Australia’s crop fails to exceed 20 million mt. Breaks in wheat will be very short lived into early 2019 as short bought end users extend their coverage.

• US and world wheat prices have pushed to sharply higher levels with September KC wheat nearing the psychological $6.00 mark amid rumors that the Ukraine is considering placing an export tax or ban on its wheat exports. The sharp fall in Russian/EU wheat production is causing panic on future wheat availability for world importers. Some cite 2017/18 EU wheat exports below 10 million mt on a total crop of 135 million mt vs the July WASE forecast of 27.5 million. The dire drought of the EU is causing panic buying of exportable wheat and barley, and importable tonnages of feed grains. US corn can work into Spain, but the rest of the EU cannot take US corn on GMO issues. The point is that world stock/use ratios of wheat/corn are at record lows, and there is no end to the dire EU drought. The bull story in world wheat is just unfolding. The outlook for US corn could become equally as bullish with a yield at 175 bushels/acre or below next Friday. Soybeans remain a political marketplace.

• Chicago brokers report that funds have bought 6,000 contracts of wheat and 5,400 contracts of corn, while selling 4,500 contracts of soybeans. In soy products, funds have sold 4,300 contracts of soyoil and 2,100 contracts of meal.

• The US corn export sales pace justifies the USDA July forecast of 2,400 million bu. We believe that latest harvest yield projects a 2018 EU wheat crop of 135 million mt or less. This all wheat EU crop estimate includes 6.7 million mt of durum. The EU corn crop is also in decline with private forecasts now looking for a harvest of 56.5 million mt, down 5 million from July. This would raise EU corn imports to 19-21 million mt or nearly all of the Ukraine’s available corn exports. Amid a decline of 9-11 million mt in Latin American corn exports, the rest of the world feedgrain demand will most likely be shifting to the US. A 2018/19 US corn export estimate of 2,500-2,600 million bu has become realistic. US gulf corn exports will be record large beyond September. A $6.00 price on spot Chicago wheat will not even start the demand rationing process. Wheat is a food grain and it is all but impossible to understand what price is needed to ration consumer demand. Our point is that it is highly unlikely that US/world wheat is close to their final rationing price high.

• The midday central US GFS weather forecast is much drier across the heart of the Midwest compared to the overnight run. Any widely scattered rains will occur for the E Midwest with reduced amounts heading west. However, the rains from MO into PA have been reduced by over 1.00” in the 10 day period. This is more like the EU model calling for an arid rainfall profile with near to above normal temperatures. The forecast looks for temperatures to average in the 80’s to lower 90’s next week. Coolness will prevail for the next few days. There is no sign of any intense Midwest heat. The best rain chances are with a frontal pass early next week. Thereafter, rains will be light and widely scattered. Midwest soil moisture levels are in fast retreat.

• The wheat market has fallen off its early rally highs on profit taking. However, the wheat bull story is far from being digested and any break to $5.60-5.70 Sept KC looks very much like a buying opportunity right now. GASC booked 240,000 mt of Romanian wheat at $235-238/mt or some $16/mt higher than its last tender. Including freight, Egypt is now paying the equivalent of $6.80/bu for its wheat imports. World corn has a bull story developing that similar to wheat as world production declines, and demand is solely focused on the US.

• Watch this space carefully!