• The Commitment of Traders report showed another week of shifting sentiment. Funds were net sellers through the week in the wheat market, selling close 18,000 contracts across all three exchanges. Funds were still net long in Kansas, and added to net short positions in Chicago and Minneapolis. Funds were big buyers in livestock, corn, and in all three of the soy markets. Across the ten key Ag markets funds were net buyers through the week of more than 105,000 contracts and were net back to net long of just over 6,400 contracts.

• Soybeans saw selling right from the morning open, but the early break found strong demand that carried the market higher into the end of the day. At the close, November soybeans were back over the 50-day moving average and marked the best close in seven weeks. The Commitment of Traders report showed that funds covered more than 14,000 contracts last week, and their net short position of just over 44,000 is now the smallest in six weeks. In soymeal, funds added 5,000 contracts to their net long position now worth 26,000 contracts. But funds largest shift was in soyoil where they covered more than 34,000 contracts. US farmers have pushed hard ahead of rains that have brought harvest to a standstill across much of the Midwest. But after an active week we look for harvest progress through Sunday to have reached 38-41% complete. Soybeans ended the week with a rally, but we look for trading to slow in the first half of next week ahead of the Oct crop report. Nov beans have resistance near $8.85.

• Dec corn ended flat, and again the market tried and failed to trade through its 50-day moving average. Price were weak at midday on chart-based selling, but recall seasonal trends and export demand remain positive. Otherwise, fresh news is lacking. Managed funds on Tuesday were short a net 57,000 contracts, fewer than expected. The trade does seem to react to fund position on Sun/Mon, but such a position is not viewed as market changing. Corn still appears cheap, and a scramble for supply is expected in the weeks ahead. Excessive US rainfall will at the least slow down the filling of the pipeline. The autumn/early winter program will be record/near record large. Even amid an Oct yield of 181-182 bushels/acre, fair value is seen between $3.70-3.90, Dec. Note that there is renewed uncertainty over Ukrainian yields. A USDA attaché report pegged Ukrainian production at 29.5 million mt, vs. USDA’s official number of 31 million. It is a small difference, but following severe loss in Russia, Black Sea corn trade could be disrupted further.

• World wheat futures again ended steady to higher, with Russian interior prices also rising across the Siberian spring wheat belt. Like corn and beans, the market is concerned about coming US rainfall, which will be most excessive across the HRW Belt. There is ample time remaining to seed winter wheat, but accumulation of 5-10” across TX, OK and E KS will halt fieldwork for at least two weeks. Elsewhere, dryness continues across Australia, Europe and the Black Sea region into the second half of October. Part of our thesis in wheat is that a substantial rise in acres and favorable weather are needed to boost major exporter supplies in 2019/20. This is now less certain given N Hemisphere weather issues. Managed funds on Tuesday were short a net 12,000 contracts in Chicago (larger than expected) and long a net 28,000 contracts in Kansas. This compares to length in Kansas of 64,000 contracts in late August, and fund length is now far from excessive. We maintain a slow but steady rally unfolds into late year. Aussie supply & demand will be key in next week’s WASDE.

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

IAG Europe Grains Update 5 October 2018

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

Fund positions disaggregated data

• World crude oil futures found new highs yesterday despite a sizeable build in US stocks. We note that US stocks are still somewhat tight and around 13% below last year. What is driving values higher currently are potential additional sanctions on Iran, and whether sanctions will act to severely depress Iranian exports. Sanctions in 2012 disrupted world oil trade flows considerably, and many are anticipating a return to $100 as sanctions loom.

• Ag markets are higher at midday amid a lack of producer selling, and to some extent amid frost this morning in the Northern US and coming excessive rainfall. Corn is leading the way on a percentage basis, and Dec oats at midday is up a massive 13 cents and is testing contract highs at $2.87. Short covering is the theme and higher closes are expected. Interestingly, the markets have shown resilience it the face of mixed input.

• Egypt’s GASC bought three cargoes of Russian wheat for Dec arrival at $234-237/mt, which compares to Egypt’s last purchase in mid-Sep at $226-228, but appears rather aggressive compared to fob quotes Wednesday evening. Egypt was offered 1 million mt of wheat, 655,000 mt of which was Russian and none of which was US origin.

• Informa raised US corn yield to 182.1 bushels/acre and bean yield to 53.0. Informa pegs US corn production at 14,890 million bu, 63 million above USDA. Informa pegs soybean production 4,677 million bu, 16 million above USDA. Based on crop ratings, steady to higher yields in next week’s report are likely, but unfortunately combine data from the Northern US won’t be available until late month.

• US weekly export sales were mixed, with wheat at the lower end of expectations, corn in the middle and soybeans well above. US corn sales through the week ending Sep 27 totalled 56 million bu, down 11 million from the prior week but well above the average needed to hit the USDA’s target. Wheat sales were a routine 16 million bu, vs. 24 million the previous week. US soybean sales totaled 56 million bu, up 24 million on the week and even 21 million above this week a year ago. Mexico was the largest buyer. 3.5 million bu of US beans were sold to Argentina last week. For their respective crop years to date, the US has sold 776 million bu of corn, up 63% from last year; 742 million bu of soybeans, down 13%; and 415 million bu of wheat, down 19%.

• The Brazilian Real is a bit weaker today, but quietly has rallied 7% in just two weeks. Brazil begins its presidential election on Sunday. Pro-business candidate Jair Bolsonaro continues to lead polls.

• The central US GFS weather forecast is drier in the 11-15 day period but is otherwise unchanged. Warmer and drier weather does lie ahead, but only after excessive rainfall and regional flooding impact the Plains and W Midwest. The GFS is still drier than its EU and Canadian counterparts, but precipitation accumulation next week of 2-3” will be widespread. Accumulation of 4-9” favors OK, KS, MO and parts of IA and IL. Gulf tropical activity also needs monitoring. The EU forecast this morning introduced a potential storm Oct 13-14. The GFS doesn’t include any landfall but does indicate Gulf activity in the extended period.

• Soaring oat futures, new multi-week highs in EU canola, and rising Egyptian tender results all suggest seasonal bottoms have been scored. New positions will be lacking ahead of next Thursday’s Oct WASDE release.

• Stratégie Grains have updated their latest UK cereal production estimates; soft wheat production is maintained at 14.04 million mt vs. 14.62 million in 2017/18. Winter barley output is estimated at 2.84 million mt vs. 2.95 million last year with spring barley at 3.97 million mt vs. 4.22 million last year. Quality for soft wheat was meeting specs based upon preliminary results, average specific weight was put at 77.7 kg/hl vs. 75.9 last year. Hagberg falling number levels were also improved on last year whilst protein at 12.4% is behind last year’s 12.8% but above the average of 12.1% (2013-17). Barley quality was also described as satisfactory with specific weight averaging 66.6 kg/hl vs. 64.5 last year. 2019/20 acreage trends were suggested to be between 2 and 4% higher compared with the 2018 harvest figure.

• It has been a mixed and somewhat dull session, with markets unsure how to digest potential slowing of Russian wheat shipments and coming Central US rainfall. Corn and wheat sit near unchanged. Nov beans are down 3. Russia through the first days of October has exported a record 12.9 million mt of wheat, vs. 9.5 million a year ago. This reflects a sizable 37% of the USDA’s forecast and over 50% of the still-discussed government cap of 25 million mt. There are more questions than answers regarding near term Russian wheat exports, but we fully expect this issue to dominate newswires in the weeks ahead.

• Should weather forecast models verify, some 14” of rain will have fallen across IA in Sep and the first half of October. This is record large, and the only year that comes close is 1941, when Sep-Oct rainfall was recorded at 13”. With soil moisture at/near capacity, flooding will be the primary issue. Time will tell if yield and quality is affected.

• Argentina’s Peso is a bit stronger today, but the forward curve has weakened noticeably. Farmer profitability is rising, but producer sales will absent over the next several weeks.

• US export sales on Thursday are expected to feature 55-65 million bu of corn, 30-35 million bu of soybeans and 18-23 million bu of wheat. FAS this morning announced that exporters had sold 260,000 mt of corn to Japan for 2018/19 delivery. Recall that US weekly corn sales need average only 34 million bu to meet the USDA’s forecast.

• World canola futures continue to rally based on EU dryness and coming Canadian snowfall.

• The central US GFS weather forecast is unchanged from the morning release. Heavy/excessive rainfall lies ahead. The greatest totals still look to favour OK, KS, MO, IA and WI. Freezing temperatures stay isolated to the far Northern US and Canadian Prairies. Relative warmth across MO, IA, WI and IL may boost disease pressure.

• Grain markets continue to hesitate to break through major moving averages amid expectations of even higher yields in next Monday’s October report. Corn export demand into late year will likely be record large, and Aussie crop potential continues to decline.

• It has been a mostly higher session this morning, with a host of raw material markets shrugging off early weakness. Spot WTI crude is flat, and well off session lows. EU milling wheat futures look to close slightly lower in old crop and slightly higher in deferred positions. Newswires have been quiet, but concern over global weather patterns persist. Pockets of New South Wales and Queensland in Eastern Australia will see rainfall of 0.75-1.50” over the next 72 hours. However, this looks to be a one-time event rather than the beginning of a pattern change. The Aussie bureau of meteorology expect a moderate El Niño to take effect by December, which along with severely short soil moisture will sustain drought there through the period. It is too late for rain to boost wheat and canola potential, but sorghum planting typically begins in October. The Aussie grain market can ill afford to lose both winter and spring crops.

• In the US, NOAA’s QPF (quantitative precipitation forecast is the expected amount of melted precipitation accumulated over a specified time period over a specified area) has fine-tuned expected rainfall totals to upwards of 5-7” into early next week across OK, KS, NE, MO, IA, MN and WI. Yet more rain is expected in the 8-15 day period. Quality issues will be watched for, and harvest/winter wheat seeding will be halted completely into the latter part of the month. Also, in Europe there is still no sign of needed rainfall into Oct 17. The primary window for winter canola seeding there has passed. EU and Canadian canola market have rallied sharply since mid-September. The time available to plant wheat is longer in duration, but early wheat seeding will be done amid near zero soil moisture.

• The only real bright spot is S America, where normal/above normal rainfall finds its way north into Mato Grosso and Goias. The pace of corn and soybean planting in Brazil will be much improved on recent years.

• Wednesday’s weekly EIA report is expected to include a modest boost in US crude stocks, but recall stocks remain some 16% below last year despite rising production. Ethanol grind will be seasonally reduced over the next 1-2 weeks. We would mention that Brazilian ethanol prices continue to rally and are quoted $.36/gallon (21%) above US Gulf origin. US ethanol exports will stay elevated.

• The central US GFS weather forecast is wetter in the Eastern Midwest Oct 12-13, and wetter in pockets of the E Plains in the near term. A steady flow of moderate to heavy rainfall begins Thurs/Fri, and persists into Oct 13. The biggest risk of flooding lies in OK, KS, NW MO and W IA. Note that soil moisture there is already abnormally high. The models have trended warmer in recent releases, with freezing temperatures to stay relegated to the Dakotas and Canada.

• The question ahead is whether coming rainfall materially affects crop quality/quantity. Grain markets are, in our opinion, forming a base amid coming demand.

• It has been a surprisingly bullish session in Chicago, with Dec corn up 9 and Nov beans up 18 at midday. Wheat has been flat, with market-specific wheat news lacking and with EU futures aiming to settle unchanged. Confirmation of USMCA (previously NAFTA) sparked this morning’s short covering effort, and recall that as of last Tuesday managed funds were short a net 113,000 contracts of corn and 59,000 contracts of beans. The United States-Mexico-Canada agreement mostly touches on auto manufacturing, intellectual property and dairy, but the deal will keep grain flow within N America intact. Crude’s rally is attracting more investment in raw materials as a whole, and commodity indexes look to recover further from mid-summer’s collapse.

• Spot WTI crude is up another $1.40/barrel to new highs. Brent crude’s premium to Malaysian palm oil has widened to $109/mt, which is historically high. The Dow, as expected, is up 200 points. The US$ is up slightly.

• US export inspections through the week ending Sep 27 included 53 million bu of corn, 22 million bu of soybeans and 14 million bu of wheat. All were within trade expectations, but the pace of US corn exports is still much better than that needed to meet the USDA’s forecast. Corn shipments over the next 48 weeks need to average just 42 million bu. For their respective crop years to date, the US has shipped 174 million bu of corn, up 47% from last year; 108 million bu of soybeans, down 26%; and 254 million bu of wheat, down 31%.

• Brazilian soybean exports have now matched the USDA’s forecast. The USDA in its Sep WASDE put Brazilian soybean end stocks 1.1 million mt. The world’s soybean surplus now rests solely in the US. Most tonnages of Argentine demand for US beans is expected as Argentine domestic stocks are replaced. There is also some measure of attention being paid to coming rainfall in the US, which looks to continue well into the middle part of October. A wide band of rainfall worth 3-6” is offered to KS, NE, IA, MN and WI next week. Corn harvest this afternoon will be pegged at 24-28% complete. Soybean harvest should have reached 22-26% finished.

• The Aussie forecast features needed rainfall of 0.25-1.00” across some of the driest areas of New South Wales late this week. It is too late to meaningfully affect wheat potential, however, and dryness resumes thereafter. There is also growing concern over winter rapeseed seeding in Europe, where near zero rain is projected in the next two weeks.

• The central US GFS weather forecast is little changed, if a bit warmer across the Great Lakes next week and beyond. Scattered showers dot the Northern Midwest over the next 24 hours. A pattern of lasting rainfall begins Thurs/Fri and continues unabated into Oct 11- 12. Snow favours the Canadian Prairies and North Dakota.

• A new North American trade agreement is noted, but we view recent market action as simply traders finding value in current prices. World cash wheat prices have bottomed, and it is tough to know just how high is high with respect to autumn/early winter US corn export demand.