• Ocean freight indexes have plunged in recent weeks, breaking a longer term uptrend line that has been established since early 2016. Changes in ocean freight values are nuanced, but we suspect lower than expected Chinese growth and ongoing world trade barriers have softened demand for vessels. The global economy needs a boost.

• Chicago grain/soy prices continue their choppy action without a lasting trend. Traders are frustrated as politics battle fundamentals. US and Brazilian farmers are not willing to sell a break amid low cash basis bids and no one wants to buy a Chicago rally without knowing that the US/China have cut a deal for a specific dollar amount for US agriculture goods. Add in the uncertainty of Presidential tweets and you end up with Chicago markets that jump around in a range. Little of the range trade forecastable and all that end users can do is secure sharp breaks while farmers can sell sharp rallies (which is what keeps the Chicago in a range, with lots of noise in between).

• Chicago traders estimate that funds have sold 2,100 contracts of wheat and 6,000 contracts of corn, while buying 2,400 contracts of soybeans. In soy products, funds have bought 2,200 contracts of meal while being flat in oil.

• US weekly export sales for the week ending Dec 20 were; 19.3 million bu of US wheat, 66.9 million bu of US corn, and 87.9 million bu of US soybeans. For their respective crop years to date, the US has sold 632 million bu of US wheat (down 79 million or 11%), 1,233 million bu of corn (up 187 million or 18%), and 1,100 million bu of US soybeans (down 384 million or 26%). The sales were better than expected.

• China booked 1.466 million mt of soybeans (53.8 million bu) in the week ending Dec 20 with crop year sales expanding to 3.5 million mt. This helps confirm that the Government purchases of early January of 2.0 million mt helped push China above the 5.0 million mt of total US soybean purchases for their reserve. China had 500,000 mt of purchases on the books before the December G20 Argentine agreement.

• Egypt showed up as securing two cargoes of US HRW wheat with another cargo to an unknown destination (rumoured to be Egyptian privates). The sales confirm that US HRW wheat is working into North Africa as the Russian market continued its rally. US wheat should be working into many other world destinations. US soymeal sales were a large 427,400 mt with sales to Columbia, the Philippines and Mexico. President Trump wants to meet with Chinese President Xi in late February. The meeting is expected to finish hashing out the hard details of an IP deal. We hear that progress is being scored but getting all of the details of trade/IP protection adherence will take more work.

• The midday GFS S American weather forecast is little changed from the morning run with better rains across N and E Brazil. Mato Gross Do Sul and Paraguay remain in need of rain, but the area of concern is shrinking farther north. Better rain falls across key areas of Mato Grosso, Goias and Minas Gerais (45-50% of soy production) in the 7-15 day period. The soy harvest across the north is advancing quickly and weather will be of reduced concern after Feb 10. Argentine weather is improved and trend plus yield prospects persist. No extreme Argentine heat is foreseen, and the crop prospects here are vastly improved from last year.

• China will be asked to secure US ag and manufactured products on the back of the Washington Trade Talks. Debate rages on as to what ag products will be included. Our bet is that it will be grains as China pledged in 2001 as a new WTO member to secure 9.6 million mt of wheat and 7.20 million mt under TRQ from the world. China never made these purchases. It is time that China adhere to its promises and act like the world’s second largest economy. Hope remains for US/China trade progress.

• Continued currency volatility amid Brexit uncertainty has been a key feature; a voting on a raft of amendments to the Brexit deal occurred last night, currency was again volatile. During voting last night the pound lost 1% of its value relative to the €uro. However, by midday, some of the loss had been recovered as currency markets continue to view the probability of a hard Brexit as unlikely. £Stg’s recovery in value today has led UK wheat futures (May-19) £172.00/mt at midday, up £0.10/mt on yesterday’s close, as the recovery in sterling has been offsetting the gains seen in Paris milling wheat futures.

• Markets reacted differently to the results of the Egyptian tender from GASC yesterday. Paris milling wheat futures (May 2019) reacted bullishly to the news that France and Romania secured the shipment of 360,000 mt of wheat to Egypt. Paris milling wheat futures (May 2019) gained €0.50m/t yesterday to close at €206.75/mt. Conversely, although the US had the lowest offered price basis FOB, freight rates proved too high to be competitive against European offers. As a result the value of Chicago wheat futures (May 2019) fell, dropping $2.21/t on the day to $190.86/t. The drop in Chicago wheat futures likely capped gains made by the increased demand for EU wheat. The purchase of French wheat by GASC was the first since July 2017 and indicates that European wheat is once again competitive on the global stage. The increased EU demand was a positive indication for UK feed wheat, with May 2019 futures rising marginally yesterday. The extent to which UK futures gained on the back of positive EU demand was capped by movements in currency .

• It has been a mostly firm session in reduced volume. Neither the bulls nor bears have much to sink their teeth into, particularly with tomorrow’s export sales report only featuring demand through the week ending Dec 20. Large grain sales are expected, but whether USDA forecasts need changing won’t be known until mid-February. And whether USDA will have access to up-to-date export data prior to the release of the Feb WASDE report is unknown.

• US-Chinese negotiations will be ongoing into late week. So far, no real information or sentiment is available.

• This week’s EIA report is mixed but generally bearish. Ethanol production through last Friday totalled 298 million gallons, down 6 million from the prior week. US ethanol production was below the previous year for a third consecutive week. Ethanol’s corn demand draw can be changed along with production margins over the next 6-7 months, but work suggests USDA will cut corn-ethanol use 50 million bu in next week’s report. And US ethanol stocks last week increased 20 million gallons to a 15-week high. Ethanol supplies are ample. Crude stocks, less reserves, were also up slightly on the week, though energy markets at midday are stronger across the board.

• Black Sea sources now peg wheat replacement costs in Russia at roughly $242/mt near export terminals. This compares to spot fob offers this morning of $254/mt. Even at four-year high fob prices, Russian exporter margins remain thin at best not to mention livestock/milling margins. Interior Black Sea grain prices are fully expected to rally further in the next 3-4 weeks. Missing Egypt’s tender Tuesday was disappointing for the bulls, but there’s still a sizeable amount of world trade yet to be executed.

• The Central US forecast is consistent with prior runs in allowing extreme cold to return to the N Plains and Upper Midwest mid/late next week. Following a brief warm-up this weekend, low temperatures return to sub-zero levels across the Dakotas, MN, WI and IA next Tues-Fri. Along with additional snow early next week, logistical snarls will remain in the next 10 days. Winterkill remains an issue in KS and NE. A lack of snow cover in Southern Russia is also being monitored.

• The midday GFS S American weather forecast is little changed from the morning run, and so the GFS and EU models look to end the day at odds on precipitation totals and coverage in Central Brazil. Draws in soil moisture continue into the weekend. Much better rain falls across key areas of Mato Grosso, Goias and Minas Gerais (45-50% of soy production) in the 6-15 day period. At issue will be whether this pattern expands into Mato Grosso do Sul and Parana. We view the forecast as mixed. A pattern shift does lie ahead, but not all areas will benefit. Yield stabilisation is the primary theme.

• Soybeans appear overvalued without a deal with China in the near term. Wheat is undervalued as substantial demand will be increasingly funnelled to the US. Corn is caught in between, and overall choppy trade persist amid political uncertainty, which has acted as a weight since summer.

• Lower has been the Chicago theme this morning. Corn/wheat failed to sustain overnight gains while the soy complex tries to push lower without conviction. Private Brazilian soy crop estimates are in decline and hedge fund managers argue that if the US/China can continue to make progress on trade and IP/IT issues, that China’s Government could return for the purchase of US soybeans. We argue that it would be US grains/other ag products that would be on top of China’s shopping list. The key here is that the US/China need to score enough progress to keep the talks going beyond March 1. It is the US/China trade talks and hope for progress that will determine late week Chicago prices.

• Chicago brokers report that funds have sold 4,900 contracts of wheat, 7,200 contracts of corn and 3,000 contracts of soybeans. In soy products, funds have sold 1,300 contracts of soyoil and 600 contracts of soymeal.

• Bitter cold across the Central US and minimum temperatures of 0 to -15 degrees will produce winterkill risks for HRW/SWR wheat in the southern half of the Midwest, the eastern half of Nebraska and NE Kansas. The dramatic cold followed by and equally dramatic warm-up this the weekend, and secondary cold surge in early February looks to stress US winter wheat. Amid US winter wheat seedings at a 110 year low with crop condition ratings well under average heading into dormancy, the outlook for US 2019 winter wheat yield is questioned.

• Jordan finally booked 120,000 mt of optional HRW wheat for April at a price of $271.50/mt. The price allows for US HRW wheat to be a source of supply, while rising Russian wheat prices makes their wheat doubtful. Russian fob price offers are tough to uncover beyond March, but April offers range between $255-258/mt. Russian forward offers takes themout of the world market and makes their export estimates of 36-37 million mt doubtful.

• Argentine fob corn offers have fallen below the US through June which is likely to end the US’s hold on world corn trade. US June FOB corn is offered at $170/mt with the US Gulf at $176/mt. On a spot basis, Argentine corn is offered $1/mt cheaper at $173.00. The Argentine export competition will make it difficult for WASDE to raise 2018/19 US corn exports.

• Egypt’s GASC purchased a combination of Romanian and French wheat in their latest tender for March shipment. The Romanian sale would seem to clear up their old crop offers. Freight offers to GASC were down sharply from their last tender which masked the gain in fob price offers. The world wheat market keeps rising while Chicago has held unchanged or is lower. The rising world wheat market limits the downside price risk in US futures, the morning break is a wheat bear trap.

• The midday GFS S American weather forecast is wetter than the overnight run. The pattern of a high-pressure ridge across NC Brazil and a low-pressure vortex across Argentina persists this week. However, a weakening and eastward progression of the ridge offers a pattern change on the weekend. The jet stream lifts northward and confidence in normal N Brazilian rainfall and less Argentine rain is growing. This drier trend for Argentine weather is welcomed.

• Russian interior and export wheat offers keep rising which has pulled this key supplier out of world trade. Corn is a follower while improving S American weather looks to cap soybean rallies.

• The reopening of the US Government has NOT sparked a big bounce in Chicago or in other financial markets. It was hoped that getting back to normal in terms of Government data/statistics would be a boost for Chicago market confidence. But, the threat that the US Government will close in three weeks (again) and the weakening Chinese economy has taken away some of that thunder. Opening Chicago selling has traders attributing to the sharp losses in energy/ equity valuations. Funds were aggressive early sellers of soybeans, which dragged the grains lower. The selling ebbed at mid-morning. We look for a slightly lower Chicago close as the weakness in crude oil caps a recovery effort.

• Chicago brokers estimate that funds have sold; 4,100 contracts of wheat, 5,300 contracts of corn, and 3,700 contracts of soybeans. In soy products, funds have sold 1,500 contracts of soymeal while being flat in soyoil.

• US weekly exports for the week ending January 24 were; 35.1 million bu of corn, 34.1 million bu of soybeans, and 13.3 million bu of wheat. For their respective crop years to date, the US has shipped out 846 million bu of corn (up 303 million or 56%), 751.8 million bu of soybeans (down 475 million or 39%), while US wheat exports rest at 528 million bu (down 67 million or 11%). The USDA 2018/19 US soybean export estimate appears to be overstated by at least 150 million bu. Some sort of downward adjustment is expected in the February WASDE report.

• Traders hope that FAS will release four weeks of US grain sales data on Thursday. However, there has been no confirmation that FAS will be able to tally a month of sales data that fast. Confirmation of what will be included in Thursday’s weekly sales report is being closely monitored by traders. The CFTC will also release Chicago/CME positions as of Tuesday. We hope that the CFTC will just release positions as of January 29, without going backwards and trying to piece together industry positioning.

• Russian fob grain prices are tough to uncover this morning. Few fob offers exist beyond March, and most exporters really do not want to discuss the Russian grain market. Interior Russian wheat prices keep rising and the trucker’s strike shows no sign of ending. No one knows what the Government will do next. As an aside, we note that the soft export licensing program that started in November does not appear to be working very well.

• The midday GFS S American weather forecast is slightly wetter than the overnight run. The pattern of a high-pressure ridge across NC Brazil and a low-pressure vortex across Argentina persists this week. However, a weakening and eastward progression of the ridge does offer for a pattern change in early February. The jet stream lifts northward and confidence in better N Brazilian rainfall and less Argentine rain is growing beyond Feb 5. The forecast shows that better rains seep into Mato Grosso Du Sol/Parana beyond the next six days. Soil moisture here has been diminished as replenishment will take at least 3-4 weeks. The drier trend favours Argentine corn and soybean crops.

• The morning Chicago break is being tied to the sharp fall in crude oil and US equity prices. US and world cash wheat prices are stout this morning with Russian interior prices rising (again). The rise in world wheat prices limits the downside in US/European wheat futures. March corn has support below $3.75. Soy futures should struggle above $9.25 March amid slowing US export demand and the advancing Brazilian harvest.

• The US$ declined on the week which was a surprise! Traders expected that an ending of the US Government partial shutdown would rally the greenback, yet the opposite occurred. The Russian Ruble and Brazilian Real have been two world ag currencies that have been garnering the most attention/investment. Note that the Ruble is close to turning upwards and forging a double bottom. Record large US debt and chaotic politics is likely to pressure the US$ in 2019. A US$ decline would be supportive to world commodity valuations.

• Early selling in the soybean market uncovered good demand as Brazilian dryness remains a supply feature. Late morning news that a temporary resolution to the government funding impasse had been reached left soybeans near the highs of the day at the close. Soyoil has quietly led the Chicago soy markets higher this week. March soybeans closed at the highest level since October and finished the week above the 200-day moving average for the first time in two years. On a spot basis, the soyoil market closed back through key resistance that was just under $.30/lb. Palm oil has led both Chicago/DCE soyoil markets higher and both end the week 6.8% over the December open. The spread to soyoil has narrowed, but Chicago soyoil is now working to regain premiums. With the USDA heading back to work, traders will be anxious to hear when the delayed USDA data will be released. Outside of another 2 million mt of US soybeans to China, the US soy sales data will be disappointing as non-China demand has shifted to S America. Dryness across E Brazil is causing soy crop losses. But weather becomes less important after February 10 as the crop matures.

• Corn futures rallied 3 cents and ended the week near unchanged. Argentine premiums have firmed $.05/bu as some 400,000 hectares remain unplanted in northeastern crop areas. Gulf corn maintains its discount to all other origins for delivery into March. The US government will reopen Monday. USDA will offer an update when the export sales and the January USDA crop reports will be available. Dalian corn futures rallied sharply overnight, reversing a short-term downtrend. Cash prices in China were little affected by reserve sales in 2018, and many wonder just how much high-quality corn remains in the country. Spot futures continue to follow a normal seasonal trend, which puts March at $3.90-3.95 prior to expiration. We look for a modest decline in final 2019 US corn yield, robust export demand and confirmation of US 2018/19 corn end stocks of 1,650-1,700 million bu, vs. USDA’s current 1,781. Corn’s slow but steady rally should continue.

• US wheat futures held near unchanged on Friday. Funds have established a net flat position in Chicago/KC and official US exports since mid-December are awaited next week. We are unsure when the export data will be released as the government re-opens. However, the fundamental wheat input remains bullish. Russian interior prices have soared following Rosstat stocks data on Wednesday. Prices near export terminals are just 300 Rubles/mt ($.12/bu) shy of their record, with five full months left in Russia’s crop year. Pressure on Russia’s government is building as mill and livestock margins get squeezed. And a trucker’s strike is broadening. We look for new rally high in Russian fob offers next week. Massive tonnages of wheat import demand will be shifted to the US, Argentina and to a lesser extent Europe in the months ahead. Russian fob quotes this evening are equivalent to $5.50-5.60, basis March KC.

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Weekend summary 25 January 2019

• It has been a mixed morning in Chicago with corn, soy and wheat futures trading either side of unchanged. The volume of trade has been abysmal as the market searches for lasting direction. Traders are starting to understand that the market needs data/news to sustain a trend. This is not occurring with the US Government closed. Otherwise, direction is based in cash market trends. Chicago soybeans started lower but were unable to break on the comment from US Commerce Secretary Ross that the US/China are “miles apart” on any trade agreement. The US Government naysayers/China hawks have been out in force since late last week as everyone knows that the “art of the deal” often involves throwing out adverse/chaotic news ahead of any negotiation. That is occurring, but in the end, it is the President of the US that will make the final decision on a deal or no deal on trade with China. Amid the complexity of the issues of IT/IP, our bet is that US/China negotiations will be extended.

• Secretary Ross suggested it is too early to say whether the Administration would push negotiations beyond the March 2 deadline, but economically it is in the best interest of the US/China to keep talking. And like the G20 Argentina meeting, the US will demand that China buy additional ag or energy to prevent the US from raising tariff rates. For China, spending on something is better than spending on elevated tariffs. Our bet is that China will secure grains and likely LNG (liquified natural gas) if the trade talks are extended.

• Brazil’s Parana State estimated their soy crop down at 16.8 million mt vs 19.1 million mt in early December. The loss of 2.3 million mt of production or 12% of yield was based on adverse hot/dry weather. The loss helps confirm a Brazilian 2019 soybean harvest south of 117.0 million mt.

• Chicago brokers estimate that funds have sold 2,100 contracts of corn, 1,400 soybeans, and 1,500 contracts of Chi wheat. In soy products, funds have sold 1,000 contracts of soymeal while buying 2,100 contracts of soyoil.

• Political polarisation has many doubt that the US Government will reopen this month. This means that key reports for cattle will likely not be assembled, such as the annual stocks report as the survey was not sent out. The USDA Outlook forum is also in jeopardy. US TSA workers could collectively walk out for nonpayment, but it is the lack of funding for the US food stamp program in early March for over 42 million people which would likely finally force a political compromise. The US Government cannot hold political hostage forever.

• The midday GFS S American weather forecast is wetter for E Brazil vs. the overnight run. The long-held pattern of a high-pressure ridge across Brazil and a low-pressure vortex across Argentina persists. However, the ridge is weaker allowing several weak cold frontal passes late next week. Confirmation from the midday EU weather model is demanded, but the GFS is featuring better rain chances in the 7-10 day period for parched E Brazil. Argentine rainfall is also heavier as the jet stream is displaced southward. Heavy rains of 4-10” will drop across Central Argentina causing localised flooding (if the forecast is correct). The overnight forecast featured less rain and more uncertainty. The excessive Argentine rains need to be followed with crops in their reproductive phase.

• Chicago traders lack data/direction. World wheat cash prices rising amid a sliding S American soybean basis. March corn has support below $3.75 while the 200-day moving average offers support for KC Mar wheat at $5.09. We look for a continued mixed Chicago trade heading into the weekend with US/China trade and S American weather forecasts featured next week.

• Rosstat, Russia’s Federal Stats Service, released Dec 31 on-farm wheat stocks overnight. These numbers made clear that Russian wheat supplies are smaller than previously thought, particularly near export terminals. On-farm Dec 1 wheat stocks in S Russia were down 42-45% from last year. Stocks were down nationwide, but any real surplus now exists only in the far north Ural and Siberian regions. Exporters will be forced to pay even higher costs to fill export orders moving forward with harsh winter weather adding to their woes. Assuming domestic use is stable and with July-January wheat exports largely known, we estimate Feb 1 total Russian wheat stocks at 31.1 million mt, down over 30% from last year. Feb 1 wheat stock/use is the lowest since 2007/08 and sits barely above 2007/08.

• This is bullish for Black Sea grain prices. We have previously highlighted that interior Russian wheat and flour prices have been moving higher, and rapidly so. The USDA forecasts Russian stocks to reflect just 28 days of use in 2018/19. This suggests interior prices there will hit a peak of 12,400-12,600 Ruble/mt (a new record), vs. current prices of 12,000 in S Russia. Assuming current costs, this puts replacement at $245-250/mt which is above spot fob export offers. Exporter margins have been erased entirely. The only way to relax wheat prices is to boost implied days of use. At this point, this can only be accomplished by dramatically slowing exports, perhaps to 32-33 million mt vs. USDA’s 36.5. this will leave only 7-8 million mt to ship between now and July vs. 17 million last year. And it would be costly to move the wheat from Siberia via rail or truck to the port areas of SE Russia.

• We also again need to highlight the effect of tight Russian wheat stocks on next year’s balance sheet. Beginning stocks in 2019 will be cut in half. Assuming even record area and trend yield, total Russian wheat supplies in 2019/20 are pegged at 82.5 million mt, up a modest 1.1 million on the current year. Perfect weather is needed to keep Russian exports next year at 35 million mt. And notice that days of use rises, but only moderately. 36 days of use is a far cry from 2016/2017. Our point is that the wheat market has found a long-term price plateau between $4.75- 5.75 basis spot CME/KC futures. This price range is expected even amid normal N Hemisphere spring/ summer weather. Black Sea fob prices are not expected to drop below $215/mt anytime soon. Recall in 2016/2017 Black Sea fob prices ranged from $175-185/mt. Our upside in spot futures is; $5.50-5.70 vs spot KC wheat futures. Any new China demand would produce outright bullish US wheat futures into mid-year.

• Chicago futures have traded mixed in low volume morning trade. Wheat futures have leapt above key moving averages/chart resistance while soybeans/corn have held in the red. The market lacks new inspiration with no one wanting to be too bearish of corn/soybeans with the US/China trade talks resuming next week while 25% of the US Government remains closed amid a budgetary dispute. Other than weekly US export inspections, the markets are “flying in the dark” on demand. We look for a mixed Chicago close with the market’s focus remaining on a US/China trade resolution and S American weather forecasts. We would continue to advise against a bearish stance in the grains or a bullish stance on soybeans.

• Chicago brokers estimate that funds have sold 4,300 contracts of corn and 1,200 contracts of soybeans, while buying 2,800 contracts of wheat. In soy products, funds have sold 900 contracts of meal and bought 2,400 soyoil.

•  US weekly export inspections for the week ending January 17 were; 43.6 million bu of corn, 40.8 million bu of soybeans and 18.9 million bu of wheat. All were above trade expectations. For their respective crop years to date, the US has exported 514.5 million bu of wheat (down 60 million or 10%), 810 million bu of corn (up 307 million or 61%), and 717 million bu of soybeans (down 469 million or 40%). The odds of the US making up the soybean export differential is fading with Brazil now offering new crop soybeans below the US on a similar quality basis. In 2-3 weeks, Brazilian weather will be of decreased importance for their soy and of increased importance for corn yields. The 2019 Brazilian soybean harvest has advanced to 11% completed through Sunday with many more fields reaching maturity in the next 20 days. If the NC Brazilian drought is to keep having an adverse impact on production, it will have to be in this timeframe. Farmers are planting their winter corn crop right after soybeans and concern is building about the lack of soil moisture. Initially, the corn crop has enough moisture for germination, it is the vegetative growing stage that when improved soil moisture will be demanded during the last half of February. The corn market will pay close attention to the Brazilian weather pattern beyond Valentine’s Day.

• Russian interior wheat prices are rising almost every day as exporters and millers fight for remaining supply. Some domestic millers complain that Russia has overstated production/stocks which will maintain price rises into spring.

• The midday GFS S American weather forecast is drier in Brazil and wetter in Argentina than the morning run. The long-held pattern persists with a high-pressure ridge across Brazil and a low pressure vortex across Argentina. This is the same pattern that has existed since November. The jet stream is displaced southward and heavy rains dropping across Central Argentina. This is farther south from the saturated Northern Argentine crop area. The heavy Argentine rains need to be followed, so that rain does not fall across the same area for weeks. The key going forward is to see of the overall S American weather pattern shifts to the north or south.

• The world wheat cash market is pushing to a new four year high on tightening supplies in the Black Sea and Europe. World wheat demand is being pushed to the sharply discounted US marketplace. US soy prices are down on sliding export demand with Brazil highly competitive. Corn will likely follow soybeans until its clear there is a winter corn weather problem in Brazil. Everyone hopes for a US Government reopening before month end to gauge US January export demand.

• Chicago futures are largely unchanged from the overnight session though beans have extended their rally to the tune of 7-9 cents. Macro markets are lending a hand, with US factory growth in December 1.1% higher on the year, the biggest jump since February of 2017. The Dow is up 280 points. Crude is up $1.60 at $56.70 and gasoline and ethanol prices are following.

• European grain futures look to end up very slightly today, and near unchanged on the week. EU wheat futures have reacted modestly to rising potential export demand as Black Sea fob offers reach new seasonal highs this week. We have previously mentioned that Russian hi-pro wheat is now one of the most expensive origins in the world.

• Fresh news regarding US-China talks and the US Government shutdown is lacking. All indications point towards each side of the US government hardening their stances. The breaking point doesn’t likely come until core services, namely food aid programs, run out of funding. It has been reported that SNAP is only guaranteed through the end of February. This implies something needs to be done before then, but not until then.

• Record breaking heat has been recorded each day this week in key parts of Australia. Temperatures peaked at 117-119 in New South Wales, and highs at 107-110 have been widespread across the sorghum belt. This pattern will continue for another 10 days before some measure of moderation occurs. The Aussie feed market has very little room for future yield error. Four meaningful snow events offered to the US into Feb 2. The heaviest totals stay north of major livestock areas, but logistics will be an issue.

• Prices likely close mixed ahead of the weekend. It is tough to be overly bullish in the near term as politics remain front and center on whether corn, wheat and soybean stocks/use is rising or falling relative to expectations. Work suggests grain export demand is robust. Corn off the PNW is offered at or slightly below Argentine origin through March, which is noteworthy. However, final yields will stay unknown. It is equally tough to be bearish for the same reasons. We doubt funds move to push their net position too far in either direction over the next 1-2 weeks.

• The midday GFS S American weather forecast is drier in Brazil and wetter in Argentina than the morning run. The long-held pattern breaks down only briefly this weekend and parts of next week. Otherwise, expansive high pressure ridging continues to dominate S American weather over the next 12-14 days. Complete dryness returns to Central Brazil in the 10-16 day period. Heat will accompany ongoing soil moisture loss. It is possible another 3-8” falls across North/Northeast Argentina Jan 26-Feb 1.

• Known fundamentals support a strategy of buying grain futures on price breaks whilst political uncertainty keeps beans un-tradable, though robust Chinese demand is needed 2019 to sustain rallies.

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Weekend summary 18 January 2019

• Chicago futures have largely maintained overnight strength. There is little fresh to report other than a modestly supportive weekly EIA energy report. The GFS weather forecast maintains spotty showers in Brazil over the next 6-7 days, but projected accumulation will not keep pace with evaporative losses. And recall the EU solution this morning keeps Brazilian rainfall rather limited in the next 10 days. The EU’s afternoon solution is awaited. Through the week ending Jan 11 the US produced 309 million gallons of ethanol, up 15 million on the week and near unchanged from mid-January last year. Ethanol stocks were up a modest 4 million gallons, with weekly stocks/use slightly above average. Futures-based ethanol production margins have neared breakeven, while actual cash margins have turned positive in parts of the Midwest.

• US crude stocks, less reserves, were down 2.6 million barrels and since mid-November crude stocks have declined 13.4 million barrels. The worst of energy data is in the past. A more neutral price trend is expected into spring. WTI crude at midday is down $.30/barrel at $51.80.

• Brazil’s soybean harvest is underway, with progress reaching 10% complete in Parana and nearly 6% complete in Mato Grosso. Harvest will inch along through the week ahead, aided by hot/dry weather, and will accelerate rapidly in late Jan/early Feb. Vegetation health maps continue to erode. There is an otherwise lack of fresh input.

• The midday GFS weather forecast has maintained a relatively warmer pattern in the US. Sustained bitter cold t temperatures will be confined to the N Plains and Canada. A more seasonal temperature pattern unfolds elsewhere beginning this weekend, but readings in the teens and below are not expected across the primary winter wheat belt. Model uncertainty continues with respect to accumulated snowfall between now and late Jan. A few storms are certain, but the intensity of these events will only become clearer in the next few days.

• European grain markets are firm. Matif corn futures have again found support at €180/mt ($5.20/bu). Ukrainian corn basis has rallied some $.40/bu following harvest. Europe’s corn needs are massive.

• The midday GFS S American weather forecast is little changed from prior runs. 10-day totals across the primary crop belt will range from 0.75-2.50”, with heavier regional totals possible. Any rain is welcomed, but such totals won’t reverse the trend in soil moisture declines. Even assuming the GFS’s outlook, Jan 1-30 rainfall will total 40-60% of normal. High temperatures in Brazil over the 48 hours will reach into the mid-90s, a few degrees above normal for mid-Jan. Soaking rains continue across the northern fringe of Argentina’s ag belt.

• Several fundamental models suggest corn and wheat are undervalued while beans are overvalued. Much depends on US-China trade negotiations in late Jan.

• Chicago futures are all in the red at midday. We have mentioned previously that, without USDA data, the market’s focus will be centered on S American weather and ongoing US-Chinese trade discussion. Much of the weather community doubts a needed lasting pattern shift will occur in S America prior to early February. But news is spilling out regarding a lack of progress between US and Chinese negotiators over the last week. IT, IP and company data are (still) the issues at hand. And there is still no concrete evidence of China buying US ag goods on top of the 5 million mt of beans already purchased. US Trade Representative Lighthizer this morning has bemoaned the lack of structural progress made on core issues. The next meeting between US and Chinese officials in late January is awaited.

• We do mention China now aims to cut taxes further and boost financing to small businesses to prevent further economic slowing. US trade representatives are still optimistic that a deal can be reached amid China’s recent economic struggles. A host of world ag markets are being hit today. Spot Canadian canola futures have found new contract lows. EU milling wheat futures in Paris look to settle €.75-1.00/MT ($.02-.03/bu) lower.

• NOPA-member crush in December totaled 171.8 million bu, roughly 2 million above expectations and record large for the month. Soy oil stocks at the end of Dec totaled 1,498 million lbs, well below expectations, and NOPA’s Jan report is viewed as supportive. Soy oil consumption remains enlarged amid decent biofuel margins.

• Gulf wheat’s discount to EU and Russia origin this evening will expand to $12-13/mt for Feb arrival. Black Sea corn basis continues to move upwards despite this year’s record production. We suspect the EU feedgrain market will absorb much of Ukraine’s enlarged surplus. The point is that fob price spreads, which do contribute to US export demand over time, favour the US as a major exporter into S America’s harvest. The US forecast is colder, and for a longer period of time. EU weekly guidance sustains well below normal temperatures into the first half of Feb. A major snow storm is scheduled Sat-Mon. Snow of 12+” will favour MO, IL, IN and OH.

• The midday GFS S American weather forecast is wetter in Central Brazil next week, but much drier thereafter. Confidence beyond the next week is low, but the GFS operational this morning suggests that a major and lasting pattern shift is unlikely. The long-established pattern returns in the 10-15 day period. Near complete dryness is offered to the bulk of Brazil’s soy belt, while yet more excessive rain impacts North/Northeast Argentina. Nearby, heat and dryness persists across Brazil into the weekend. Better rain chances move northwards into Mato Grosso and Goias next week, with accumulation there pegged at 1-3”. Heat and dryness returns Jan 26-31.

• The market lacks fuel amid the absence of export sales reporting. Traders clearly are highly sensitive to the evolution of US/China trade policies. We remain concerned about S America’s Jan/early Feb climate pattern.