• The USDA December Crop Report was slightly bearish corn/wheat, but neutral on soybeans. WASDE raised US 2018/19 wheat end stocks by 25 million bu and US corn stocks by 50 million bu by cutting demand. WASDE cut its US 2018/19 US corn ethanol production by 50 million bu and US wheat exports by 25 million bu based on pace analysis. WASDE made no change on US soybean exports as there has been no announcement of Chinese reserve purchases under the Argentine G20 deal. WASDE will not forecast policy changes. WASDE told the industry in November that no additional Chinese demand was included in their 2018/19 US soybean export forecast. We doubt that the impact of the December WASDE report will be long felt as traders refocus on Chinese demand for US ag products.

• The USDA raised 2018/19 US corn end stock forecasts to 1,781 million bu based on a 50 million cut in US corn ethanol production to 5,600 million bu and a 5 million cut in US corn imports. US 2018/19 corn imports are estimated at 45 million bu. The average farmgate corn price was left unchanged at $3.60/bu.

• 2018/19 world corn end stocks were raised by 1.3 million mt to 308.80 million mt. The stock increase was based on the US increase due to reduced ethanol production. WASDE left S American corn production estimates unchanged at 94.50 million mt in Brazil and 42.50 million mt in Argentina. Following last month’s sizeable Chinese stocks revisions, no changes were made. Ukraine corn production was raised to a record large 35 million mt with exports rising to 28 million mt. We note that 2018/19 world corn end stocks are down 31 million mt from last year, even with record large US, Ukraine and Chinese corn yields. A further fall in world corn stocks are projected in 2019/20 based on demand growing faster than supplies.

• US 2018/19 soybean end stocks were left at 955 million bu with no change in supplies or demand. US 2018/19 soybean exports were left at 1,900 million bu. The average cash farmgate soybean price was estimated at $8.50. World 2018/19 soybean stocks were raised to a record large 115.3 million mt based on the Brazilian soybean crop being raised to 122 million mt and the Argentine crop holding at 55.50 million. WASDE held China’s soybean imports steady at 90.0 million mt. The larger Brazilian soybean crop went right to the bottom line of stocks. We note that world total soybean demand held steady at just over 351.5 million mt.

• US 2018/19 wheat end stocks were raised 25 million bu to 974 million based on a cut in US wheat exports to 1,000 million bu based on pace analysis. US wheat exports have been slowed due to record large Russian wheat exports. WASDE raised Russian wheat exports to 36.5 million mt due to its ongoing aggressive export pace. USDA assumes that the export pace will persist with Russian wheat end stocks falling to an untenable tight 5 million mt. We doubt that Russia will export more than 34 million mt due to tightening supplies in SE Russia and the unwillingness of the Russian Government to subsidise wheat transit from Siberia.

• The midday S American weather forecast remains consistent with recent model runs with below to much below normal rainfall for N Brazil and soaking/flooding rains for portions of Argentina. Temperatures look to average near to above normal with highs ranging from the mid 80’s to the mid 90’s while cloud cover keeps Argentina cooler than normal.

• Will China keep its promise and secure large amounts of US ag goods? Our view is that Chicago values won’t be able to sustain a decline very far until China has bought US ag goods!. That demand should be close nearby. The December WASDE report held few surprises. Our view is that wheat is bottoming and soybeans are nearing a sales opportunity.

• It has been a dismal morning of trade volume with few wanting to take any new positions ahead of the USDA December Crop Report tomorrow and the ongoing uncertainty of when or if the Chinese will make cash purchases of US commodities. The US stock market is under additional pressure with the Algo traders keeping pressure on stock valuations amid the bearish position of the charts. Chicago opened lower but was unable to sustain the decline as traders debate the timing of China purchases. Algo trading is likely to push soybeans and grains to new high if Chinese cash demand is confirmed.

• Chicago brokers report that funds have sold 3,000 contracts of wheat, 1,600 contracts of soybeans, and 500 contracts of soymeal. Funds have bought 4,000 contracts of corn and 1,200 contracts of soyoil. FAS reported that Mexico purchased 1.645 million mt of US corn in a large daily sale. We have heard that it is a large Mexican corn syrup producer that likes to lock in their cost close to the end of each year. The purchase is split between 1,104,900 mt in old and 541,020 mt in the new crop corn year. FAS also reported that 125,000 mt of US soybeans were sold to an unknown destination. The US soybean sales pace has picked up considerably following the US/China trade truce in Argentina. The USDA reported that for the week ending December 6, the US exported 34.9 million bu of corn, 15.4 million bu of wheat, and 33.9 million bu of soybeans. The US corn export pace remains on pace to reach the USDA’s forecast while wheat and soybeans are lagging. EU wheat exports were revised upwards by 600,000 mt which is more in line with recent shipment data. Traders expect that additional upside adjustments will be made in coming weeks which takes EU wheat total exports near 6.8 million mt. World wheat demand is equal to last year. The EU wheat export pace argues that their domestic wheat supplies are tightening, and that demand shifts to the Americas are underway. Russian wheat offers are becoming scarce for LH January

• We understand that China has allowed a US soybean vessel to unload today which may signal a thawing in the US/China trade dispute. Chinese sources remain upbeat on their pending Government purchase of US ag and energy.

• The midday S American weather forecast remains consistent with recent model runs with below to much below normal rainfall for N Brazil and soaking/flooding rains for portions of Argentina. The model is still working out the exact details of where heavy rains should be focused in Argentina with the EU model farther south. Temperatures look to average near to above normal with highs ranging from the mid 80’s to the mid 90’s while cloud cover keeps Argentina cooler than normal. The drier than normal weather across Brazil is favourable if the rains return during the last 10 days of Dec.

• Will China keep its promise and secure large amounts of US ag goods. We doubt that the US/China can start their trade talks unless China keeps its promise on US goods. Whether China secures US grain is being debated, and our current guess is that Chicago values won’t be able to sustain a decline until China has bought US ag goods.

• US and world grain markets are higher at midday. US weekly export sales were solid across the aboard, while there’s talk that commercials are gearing up for some measure of Chinese demand, and possibly not only just US soybeans. Further details are unavailable, but short positions continue to be liquidated amid positive sentiment. We do mention that for now it is likely to be only state-owned companies in China. Private firms, however, account for the bulk of Chinese soybean imports, and until the 25% tariff on imported US beans is eliminated we caution against chasing rallies higher.

• Through the week ending November 29 US exporters sold 46 million bu of corn, down 3.5 million on the week but well above the pace needed to meet USDA’s forecast. Exporters also sold 33 million bu of soybeans, up 10 million on the week; and 26 million bu of wheat, up 12 million on the week and largest total since August. US wheat business through the week included 9 million bu of HRW, a 15-week high, and a sizeable 8 million of SRW, the largest of the marketing year so far. For their respective crop years to date, the US has committed 1,053 million bu of corn, up 17% on last year; 887 million bu of beans, down 33% on last year; and 573 million bu of wheat, down 11%. Exporters this morning also sold 224,000 mt of HRW to an unknown destination. Concern over availability of high quality wheat in Russia continues. Spot Russian fob values are up sharply this week. Interior Russian wheat continues to forge new two-year highs. Russian flour prices are also higher this week. US soybean export sales continue to lag further behind year-ago levels. It is true that the pace of demand will be steadier without China’s market in 2018/19, but quick Chinese interest is needed to validate the USDA’s forecast.

• Huawei CFO’s bail hearing will be ongoing this afternoon in Vancouver. Recent developments are largely seen in the context of broader issues between the US and China. The Dow at midday is down 350 points. Spot WTI crude is up $2.40/barrel as OPEC and Russia have agreed to cut output by 1.2 million barrels per day, a bit more than expected.

• The midday S American weather forecast into late December remains favourable. A more lasting period of dryness is forecast across Central and Northern Brazil, including the whole of Mato Grosso, in the 8-15 day period. Several rain events are offered to Argentina in the next two weeks, with cumulative totals there reaching upwards of 1.0-2.5”. Still no excessive heat is indicated.

• Wheat’s advance feels more fundamental in nature as demand begins to find the US market, and recall there is a full seven months of the international trade year yet to come.

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Weekend summary 7 December 2018

• Chicago corn, soybean and wheat futures are lower in morning trade amid the concern that US/Chinese trade has been complicated by the arrest and potential extradition of China CFO Huawei Meng Wanzhou by Canada for the US. The sharp fall in other financial markets and expectation for a strong US December Jobs report added to the early selling. The US DOW has lost more than 1,000 points in the last two trading sessions and investor concern is growing heading into yearend. Sharp losses in crude oil futures is adding to world growth concern.

• Chicago brokers report that funds have sold 4,500 contracts of corn, 3,900 contracts of soybeans, and 3,300 contracts of wheat. In soy products, funds have sold 3,100 contracts of soyoil and 1,900 contracts of soymeal.

• Egypt’s GASC received wheat offers from Russia, Ukraine and Romania. The fob offers ranged from $236.30-250/mt with freight offers ranging from $14.25-17/mt. CIF wheat values ranged from $252.20-265.89 or steady to $5.50/mt ton higher than their last tender in late November. We have heard that Egypt/GASC has started to open LC’s for late November and early December wheat shipments. Most sellers continued to load/float/transit wheat amid financial assurances that were provided by the ministry of supply yesterday. No US wheat was offered to GASC by exporters on price and tightness of GASC specified SRW supply.

• Stats Canada raised their estimate of all wheat production to 31.76 million mt, up modestly from their prior September forecast of 31.0 million. The durum crop was raised to 5.74 million mt, with the spring wheat crop pegged at 23.51 million. Canada’s canola crop was lowered to 20.3 million mt, down from 21.0 million in September, while their oat crop was forecast at 3.43 million mt vs 3.83 million in September. The Canadian wheat data was slightly bearish with the lower canola crop estimate said to be supportive.

• US weekly export sales on Friday are estimated in a range of; 400-600,000 mt wheat, 650-800,000 mt of soybeans, and 900,000-1.1 million mt of corn. US soy sales are pegged in a range of; 150-175,000 mt of soymeal and 4-9,000 soyoil.

• Ag traders are trying to find out if the US/China will be holding trade negotiations next week over IT protection/trade in Washington DC. China will be closely following the bail hearing set for Friday for the Huawei CFO. The meeting may hinge upon how the US handles the CFO extradition case in Canada. OPEC will NOT hold a press conference to gauge what Russia will do with its production. The Russians are expected to join OPEC on Friday for a decision.

• The midday S American weather forecast is little changed from what was offered overnight. An active front pulls through Argentina and S Brazil in the last half of next week to produce 0.5-2.00” of rainfall. The rain persists during the 11-15 day period with less moisture across N Brazil. No extreme heat is evident into late month.

• The DOW and crude oil have fallen sharply which has produced a negative tailwind for US ag products. However, with China buying rumours evident via the weekend G20 trade deal, traders are cautious not to make sales in the hole.

• Tweets from President Trump and US Trade Policy Czar that China was either buying or about to secure US soybeans offered support to the complex this morning. Corn and wheat futures are sagging on news that Egypt’s GASC is delaying shipments of wheat due to problems with LC (letter of credit) issuance. Corn appears to be caught in between (again) the two with the market lacking fundamental inspiration with S American weather largely favourable. The prospect of large S American crops looming is likely to cap rallies heading into the holidays.

• US President Trump tweeted that China would immediately secure US soybeans and liquified natural gas. The news rallied Chicago soybean futures around 7am CST this morning. We can confirm that China started checking US soybean fob price offers late yesterday. Although commercials are unwilling to confirm actual cash buying, they do indicate that expectations that China’s Government will secure some 5 million mt of US soybeans in an old/new crop position. We expect that China will want to book US soybeans before China returns to Washington DC during the middle of the month. Dates are still being worked on, but it is expected that a Chinese delegation will be return to Washington to start negotiations on IT/Industrial protections with USTR head Robert Lighthizer.

• US soybean cash markets should easily be able to absorb 5 million mt of old/new crop soybean demand without much difficulty amid the abundance of supply. Most US exporters are flush with soybeans and to speculate that if China were to book half of the 5 million mt in an old crop position, the 92 million bu would not substantially raise basis bids. And there is no real reason for China to book Chicago futures as cash basis bids are attractive. We cannot confirm Chinese interest in US corn, sorghum, ethanol, DDGs or meat or dairy products at this time. It is possible that China could make purchases if US/China negotiations are fruitful but making purchases ahead of a deal would cause cancellations if the negotiations turned politically sour. Our expectation is that China will wait to gauge how US/China IT protection negotiations progress before seeking other US ag/energy products.

• The midday S American GFS weather forecast is drier across SC Brazil and much of Argentina with rains of 0.25-1.00”, or about 50% drier than what was offered overnight. The confidence is the forecast is diminished based on the change from prior runs. Yet, a high-pressure ridge shows more stability that will have to be closely monitored. No extreme temperatures are noted, but as soils dry, temperatures could rise during the last week of December. Better rains are needed across Argentina and S Brazil, but so far, the dryness is not having an impact on crops via cool temperatures and adequate soil moisture.

• The odds are high that China is either buying or will soon buy US soybeans for their reserve. China’s leadership has returned home from S America along with a trade delegation from Brazil. If there is to be immediate US ag buying, now is the time. The Chinese delegation is expected to return to Washington for negotiations in 8-10 days. The delegation does not want to show up without making sure prior agreements are fulfilled.

• It has been a mixed morning, with fund short covering ongoing in row crops while wheat is a bit weaker on the lack of response from world markets. Crosscurrents persist. As we have mentioned, there are more questions than answers regarding US/Chinese trade dialogue. EU equity markets closed weaker. Energy markets anxiously await news on OPEC production levels. And more attention is being paid to a further flattening of the US interest rate curve. US three-year rates now have a premium to 5-year rates. This is by no means the most widely followed spread, but a flattening bond curve has typically foreshadowed economic weakness in the US. This is only one of many signals of future economic performance, but it is likely that the Fed takes a hiatus with respect to raising benchmark rates moving forward.

• The US$ is slightly weaker at midday, while gold has risen to a new five-month high. We believe that a lasting high was scored in the US$ in mid-November. Rising debt should allow for a steady/slightly weaker trend into the first part of 2019. Key will be whether hard assets attract additional investment. Index funds have yet to commit to raw materials. Otherwise, we also mention Ukrainian corn basis is down sharply as the market there looks for export demand. The rise in Russian wheat fob prices has stalled at $230/mt, vs. a seasonal high of $233 in mid-October. The Buenos Aires Grain Exchange’s weekly report should show another modest improvement in Argentine corn crop ratings. European drought will ease further as low pressure aloft moves into Central Europe on the weekend. Above normal precipitation is forecast into mid-December.

• EIA’s weekly energy report will be delayed until Thursday, with export sales pushed to Friday. Uncertainty over an OPEC and Russian cut in crude production continues. OPEC members meet Thursday in Vienna.

• The midday S American GFS weather forecast is unchanged from the early morning solution and remains generally favourable. Excessive rain in Brazil will be forced in the far northern fringe of the country’s ag belt. Confidence is rising with respect to better rain changes in Argentina. This morning both the EU and GFS models included this pattern shift in their respective seven-day forecasts. A much wetter trend looks to develop in Argentina no later than next Mon/Tues. Excessive heat in S America remains absent.

• US-China trade and energy markets both face elevated uncertainty in the weeks and months ahead. This continues to muddy longer term outlooks.

• The UK Government’s parliamentary vote losses today do not bode well for next week’s Brexit vote. Our concern over the UK exchange rate post-vote is growing and we would certainly be looking to take some protection ahead of the vote to protect against what looks certain to be volatility.

• Fund short covering and cash selling has been active in Chicago as corn, soybeans and wheat rise to moderate gains. The volume of trade has been huge as funds exit a portion of their positions as soybean futures score six-month highs. US and Brazilian farmers are active in selling cash soybeans/corn on the rally as cash prices push strongly upwards. The movement is large enough that we expect that cash basis levels will be in retreat later today. So far, there is no evidence that China is securing US soybeans.

• We look for a strong Chicago close amid an open chart gap with funds having additional shorts to cover. However, unless Chinese demand is seen/confirmed, we think corn/soybeans will be limited to strong Chicago rallies. China’s tariffs remain in place which prevents private Chinese soy crushers from making US purchases. We note that US pork futures are sharply lower. If China was to secure US ag commodities, US pork would be on the top of their list, ahead of the early February Lunar New Year. No private buyer of US ag goods is seeking US grain, meats or other ag products according to cash sources. Maybe this demand will develop, but a Chinese buyer will not chase a Chicago rally with just 90 days to secure/ship/land the goods. Chicago financial markets will be closed on Wednesday to honor President Bush. Chicago has decided not to close the ag markets, they will trade normally.

• Weekly Export Inspections for the week ending November 29 were; 40.8 million bu of corn, 38.3 million bu of soybeans, and 17.4 million bu of wheat. The soybean and corn export totals were on the high end of expectations. Wheat exports were just routine. US soybean exports are 353 million bu behind last year’s pace, WASDE will not change their US 2018/19 soybean export estimates due to the weekend trade truce between the US/China. Chinese trade tariffs have not been reduced, so WASDE will assume no change in US/China soy trade. WASDE would have to see actual new sales or a lowering of tariffs to make any change.

• The midday S American weather forecast is close to the overnight solution with above normal rain to fall across the northern half of Brazil with totals of 3-8.00”. Much below normal rain is expected across Argentina and S Brazil as spring planting accelerates. No extreme heat is foreseen due to persistent cloud cover across N Brazil. Highs will range from the 80’s to lower 90’s across Brazil. The dryness across Argentina and S Brazil is favourable for now, the good news is that showers return in the 11-15 day period. The rains would be ideal for crop development. The S American weather forecast is favourable except for above normal N Brazilian totals.

• Chicago traders argue that they need to taste/feel Chinese demand and a lowering of their domestic tariffs to sustain a Chicago rally. The trade truce places a peg of support under Chicago at last week’s low amid the prospect of China buying. US wheat prices can’t rally much further, or risk become noncompetitive in the world marketplace. And Chicago corn is facing headwinds on the prospect of record large Latin American production and reduced US exports beyond May.