• It has been a mixed and dull session (again) in Chicago and elsewhere. All markets are near unchanged at midday, with European wheat eyeing a similar settlement. US-Chinese negotiations will be ongoing this week, and comments from Treasury Secretary Mnuchin indicate that so far things are going well. USDA Deputy Secretary Censky commented that Presidents Trump and Xi are expected to meet in March. It remains tough to be overly short ag futures ahead potential large-scale Chinese buying.

• Other news this morning is mostly positive. US ethanol production through the week ending last Friday totalked 303 million gallons, up a solid 18 million from the prior week and even above the previous year’s level for the first time since early November. US ethanol stocks last week totalled 985 million gallons, down 20 million from the prior week. Weekly ethanol stocks/use fell sharply. Crude at midday is up $1.15/barrel to $54.25. Gasoline and ethanol prices are in tow, with spot RBOB testing recent highs. No new export sales were announced this morning, but there has been more discussion over the recent plunge in ocean freight. This favours Argentine origin corn into Asia beginning in late spring, but will also help US wheat find non-traditional markets, including North Africa. Weekly export sales on Thursday are expected to include 30-35 million bu of corn, 38-45 million bu of soybeans and 22-27 million bu of wheat, the lion’s share of which should be HRW. Corn sales tend to stay seasonally slow during the Christmas and New Year holidays. Note too that FAS plans to be fully caught up with its sales reporting in next Friday’s release. There is no sign that the US weather pattern will change by the end of February. Additional heavy snow will impact the PNW and Midwest into early next week. Temperatures lean cool, with frigid readings to persist across the N Plains and Upper Midwest. We also mention that Australia is entering its third year of extreme drought. 30-day Aussie precipitation ranges from 0-40% of normal in the West and Northeast crop belts. Little/no rain is forecast in the next two weeks.

• The S American weather forecast is wetter in Central Brazil next week and hints of needed rainfall in Central Argentina beyond February 22. The GFS’s outlook is rather favourable in Brazil, with widespread soil moisture improvement expected during and just after safrinha corn seeding ends. Weather watchers are eyeing developing dryness in Argentina, and recall later planted corn pollinates in late Feb and March. Whether the EU model follows this wetter outlook will be watched closely.

• Ag future are caught in long established ranges, and the waiting game will continue. Several weeks of US export demand will be released next Friday. The USDA’s Outlook Conference is scheduled for Feb 21-22. This will be followed by US-Chinese talks and a potential extension in the trade truce. Grains remain fundamentally supported, but too many crosscurrents will keep the spec community from establishing large positions. We estimate that managed fund length in corn has been pared down to near zero.

• The morning has been mixed in Chicago in diminished volume. Corn, soybeans and wheat prices tested the lower end of their recent range yesterday and bounced. But, today’s recovery lacks conviction. Traders are focusing on the prospect of a US/China trade deal and waiting to hear if US President Trump will accept a budget proposal from the Congress that prevents a second Government closure this Friday. There is optimism that the US/China can reach a trade deal, but fresh news is absent and won’t be available until the high-level ministerial meetings begin on Thursday. President Trump and President XI both need a political win, and our bet is that new and more substantial progress will be scored that allows for some sort of Presidential Trade Summit in March. The potential for US/China trade progress should place a bid under Chicago values.

• Chicago brokers estimate that funds have sold 1,600 contracts of wheat, while buying 2,500 contracts of corn and 2,300 contracts of soybeans. In soy products, funds have bought 1,200 contracts of meal while being flat in soyoil

• FAS reported that the US sold 122,376 mt of US corn to an unknown destination in its daily sales report. The EPA made additional comments this morning that it is working at a very expeditious pace on drafting E15 rules to expand the use of E15 to year-round. The ethanol marketplace is excited by the new domestic demand increase.

• Following the CONAB report, Brazil’s ag policy secretary estimated that Brazil’s soybean crop would continue to decline based on adverse late January and early February weather. Most in the trade now see the 2019 Brazilian soybean crop at 113-115 million mt. No further declines in the crop are expected as the weather pattern has improved and stabilised the crop.

• Jordan passed on its wheat tender for 120,000 mt. A re-tender is expected amid the slide in world wheat prices of recent days. Russian fob March wheat finished at $248-249/mt, which is down from last week’s $253/mt. European River levels are at their lowest levels in years amid the disappointing moisture that has fallen so far this winter. The forecast calls for largely dry weather with warming temperatures over the next 10-14 days.

• The S American weather forecast has reduced rainfall for Argentina in its 10-day forecast with limited totals outside of a narrow swathe of Buenos Aries. No extreme heat is noted, but soil moisture levels are in fast decline which will mandate that better rains fall in March. The Brazilian weather forecast offers near to above normal rain which should help replenish soil moisture. The Brazilian rains are adequate for winter corn and late planted soybeans. The Brazilian forecast is like the overnight forecast which raises confidence in its correctness.

• It is a waiting game for the results of US/China trade negotiations in Beijing. If the US can reach a deal on reducing China’s trade deficit with the US, it will include sizeable purchase pledges of US ag and energy goods. One does not want to be short of the Chicago markets when those pledges are announced and agreed to. Seasonal lows tend to occur in late January or by mid-February. The cash markets are firm and new crop Northern Hemisphere weather will become more closely monitored in several weeks.

• March soybeans turned down overnight after testing resistance at the 200-day moving average. Fund selling continued on through the day. The USDA made a rare soymeal export sales announcement of old/new crop meal sold to Ecuador. The business was seen as routine and had no impact on Monday’s trade. Funds were estimated sellers of 9,000 soybean contracts to start of the week. US soybean export inspections for last week were near unchanged from the previous week and totaled 39 million bu. There were 18 million bu loaded for China with more than half of it loaded out of the Gulf. Cumulative inspections, are slowly catching up to last year. However, the cumulative total of 831 million bu is still 37% or nearly 500 million bu behind last year. Next support for March soybeans is near $9.00, where both the 100-day moving average and a longer-term uptrend line cross. Major USDA reports have passed and the market remains focused on negotiations with China.

• March corn fell to strong chart-based support at $3.71 before recovering slightly into the close. Managed funds ahead of last Fridays’ report were estimated to be net long 75,000 contracts. Fund length peaked in mid-Dec and has since been pared down. The February WASDE lacked much insight into world grain price direction. Fob basis in Argentina has fallen $.20/bu this month as the harvest looms and production estimates are record large. Argentine corn exports won’t begin in bulk until June, but the market is positioning itself to boost its share of world trade, particularly relative to last year. The US’s stranglehold on corn exports will be loosened beyond spring. World barley prices are also a bit weaker. However, $3.70, spot, is expected to hold. Bitterly cold temperatures and tight/expensive hay supplies will sustain solid feed disappearance through the balance of winter. Much improved rain lies ahead in Central Brazil, but soil moisture is very short in Parana and Mato Grosso do Sul. A lasting period of normal rain is needed. Range bound corn trade continues.

• World wheat prices ended mixed in the first full session following the USDA’s Feb WASDE release. European futures closed lower amid lagging exports. Black Sea cash prices lost another $2/mt after hitting new multi-year highs in early February. The Russian market may have peaked, with seasonal trends neutral into spring. The Russian Government maintains an export forecast of 37 million mt, on par with USDA, and likely won’t move to control exports until at least March. US exporters sold wheat to Nigeria and Egypt. Russian and German fob offers are equivalent to $5.20-5.40, basis March KC. And May Chicago’s premium to March has fallen to just 2 cents. July Chicago premium to May is also just 2 cents. The Feb WASDE lacked the bullish spark needed to produce massive short covering, but it remains that US wheat is cheap at current prices. Downside risk in world cash values is limited amid ongoing strong domestic demand and record domestic wheat/ flour prices in Russia. Large US export sales are anticipated in coming weeks. Favourable N Hemisphere spring weather is still required to turn bearish beyond the current US market correction.

To download our WASDE contemplations as a PDF file please click on the link below:

Feb 19 USDA contemplation

• The February report will not alter prevailing range bound price trends in Chicago with traders turning their attention to the coming US/China trade negotiations. We see the report as positive for corn and soybeans, and neutral to wheat.

• Corn: NASS lowered their US corn production by 206 million bu due to a reduction in yield to 176.4 bushels/acre (down 2.5 bushels/acre) and a fractional reduction in harvested area. 2018 US corn production ended up at 14.420 million bu. 2018/19 world corn production held steady (from December) at 1,099 million mt, with Argentina’s crop raised 3.5 million mt to 46 million mt while Brazil’s held steady at 94.50 million mt. US corn production was reduced 5 million mt, while the FSU corn crop was raised by 0.5 million mt. 2018/19 world corn end stocks were pegged at 209.8 million mt, up 1 million mt from Dec.

• US 2018/19 corn end stocks were forecast at 1,735 million bu, down 46 million bu from December. WASDE cut feed/residual use by 125 million bu via the smaller US crop and corn use to produce ethanol by 25 million bu. Total US 2018/19 US corn demand is pegged at 14,865 million bu, or some 445 million bu more than production. First quarter US corn feed use was estimated at 2,289 million bu with Dec 1 stocks at 11,952 million bu, down 604 million bu from last year. These stocks were the lowest in years and raises the need for the 2019 US corn crop to exceed 15,000 million bu. The corn market has no room in its supply profile for China to secure 8-12 million mt of US corn if a trade deal is agreed to. Corn holds the most bullish fundamental and the market demands an additional 2-3 Mil of new crop seedings. US December 1 wheat stocks at 1,999 million bu were up 126 million bu from last year. Second quarter feed use is forecast at 76 million bu which is 20 million bu more than last year. US wheat stocks were some 40 million bu larger than what analysts were forecasting and considered slightly bearish. US 2019 Winter wheat seeding was a 110 year low at 31.3 million acres, down 4% or 1,200 million acres from last year. HRW wheat seedings totaled 22.2 million acres which was down 4%, while 5.66 million SRW wheat was seeded which is down 7%, and soft white was down 3% at 3.44 million acres. The wheat seedings data confirms above trendline yields are needed to prevent an important drop in 2019/20 US wheat end stocks. Condition ratings heading into dormancy were below the 5 year average suggesting the need for favourable spring weather.

• 2018 US soybean production fell 56 million bu based on a decline of 200,000 of harvested acres and a 0.5 bushels/acre fall in yield. The 2018 US soybean crop was 4,544 million bu, some 132 million bu larger than last year. US 2018/19 soybean end stocks were lowered to 910 million bu with crush being elevated by 10 million bu to 2,090 million bu while exports were reduced by 25 million bu to 1,875 million bu. We question the increase in US crush amid a much larger Argentine harvest and we estimate another 75 million bu cut in US soybean exports. Our estimate of 2018/19 soybean end stocks are closer to 1,000 million bu. The first quarter US soybean residual was a surprising large 234 million bu. This is just below the record set in 2014/15 at 247 million bu. WASDE went back and revised S American soybean stocks for numerous years due to Brazil’s large 2018/19 exports and the 2018 Argentine drought. The Brazilian 2019 crop was cut 5 million mt to 117 million mt while Argentina was dropped 500,000 mt to 55 million mt. 2018/19 world soybean end stocks fell 8.6 million mt to 106.7 million mt. China 2018/19 soybean imports were cut 2 million mt to 88 million mt.

• There is nothing in the USDA February report that will dramatically alter prevailing trends. We argue that new cuts are demanded in China’s 2018/19 soybean imports. However, it is spot Chicago corn that holds a bullish story below $3.70, while spot soybeans are a sale above $9.25 while Chicago wheat should hold $5.00 heading into spring. The Chicago markets are political and await new trade developments with China.

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

Weekend summary 8 February 2019

• Fund short covering has been the theme of recent days as Chicago values bumped up against the top end of a range. However, fund liquidation is pressuring values this morning as the bulls adjust their positions (down) ahead of Friday’s USDA February Crop Report. Funds/small traders are long of corn, Chicago wheat and soyoil. Selling in wheat/corn paced the decline with soybeans in tow. FAS did not announce any new US soybean sales to China, suggesting that China has finished pricing 5.0 million mt of US soybeans. This leaves the Chicago nervously bearish with traders doubting that the USDA February crop report would start a new bull phase. More important to the marketplace is the US/China trade negotiations and whether China is willing to drop their retaliatory 25% tariffs on US ag goods this winter or spring. A structural change in US/China ag trade is the biggest fundamental that will sustain a lasting Chicago price trend into spring.

• About US/China trade, Trump Economic Advisor Kudlow indicated that the US/China had a sizeable distance to go to reach a deal. This tough talk was different from late last week and suggests that a considerable amount of work yet needs to be completed. Yet, we would caution about reading too much into US Administration comments, which are (generally speaking) always hawkish heading into each new round of US/China negotiations. China is commenting that it is unlikely that US President Trump and Chinese President Xi will meet before March 1. This does not mean that US tariffs will double, just that the best that the market can expect is a continuation of the 25% tariffs that both sides are currently charging.

• Chicago brokers estimate that funds have sold 4,400 contracts of soybeans, 3,500 contracts of corn and 4,000 contracts of wheat. In soy products, funds have bought 1,900 contracts soyoil while selling 2,200 contracts of soymeal.

• US weekly export sales for the week ending Dec 27 were; 21.8 million bu of wheat, 19.8 million bu of corn, and 38.6 million bu of soybeans. Roughly half of the US wheat sales were HRW, with HRS and SWW accounting for the remainder. US SRW wheat sales were just 900,000 bushels. US soymeal sales were just 40,600 mt with soyoil sales of 16,000 mt. The meal sales were a marketing year low, down 91% from the week prior, and disappointing with S America starting to ramp up its new crop crush. Brazil and Argentina is offering fob soymeal $13-20/mt below the US Gulf through June, the US soy crush rate should decline.

• Private Argentine corn crop estimates are rising with producer sources arguing that this year’s harvest could be like Ukraine during 2018. WASDE pegged the Argentine crop at 42.5 million mt in their December report, with private sources putting the crop today at 45-47 million mt. With normal weather, some hint that the 2019 Argentine corn crop could reach 49 million mt. Last year, Argentina cut a drought reduced corn crop of just 32.0 million mt.

• The midday GFS S American weather forecast is little changed from the overnight run. Northern Brazil has 10-day rain totals of 3-7.00”. The solid rains will finish off the soy crop and aid winter corn establishment. A slightly wetter forecast is offered for Argentina which is helpful to soybeans. Argentine corn is filling and the sunny/cool weather aids yield. The overall forecast is favourable and leans bearish in the marketplace.

• US/China trade remains the big fundamental for Chicago prices and negative comments from political leaders is pressuring Chicago prices at midday. Delays in a US/China trade deal would allow S America to pick increasing amounts of world soy/corn demand as 25% tariffs against US goods remain. The USDA report is 24 hours off.

• Dull has been the morning with the summer row crops slightly lower while wheat futures are firm on tightening cash supplies. Morning trading volume is low and the ranges are tight as few want to position ahead of Friday’s volatile USDA Crop Report. We note that the trade is positioned for bullish corn/wheat reports, and while expecting slightly bearish data on soybeans. The big surprise in the report would be a US corn yield that does not drop more than 2 bushels/acre. Remember that WASDE is expected to cut US corn use to produce ethanol by 100 million bu and feed/residual by 50 million bu which mandates that US corn yield must decline by more than 2 bushels/acre for the report to be bullish. The difficult aspect for WASDE analysts is their void of current US corn, soy and wheat sales data. USDA analysts are aware that China has secured 10 million mt of US soybeans, but they (like the trade) are in the dark in terms of demand from other non-Chinese buyers and whether US wheat sales have recovered.

• Chicago brokers estimate that funds have bought 2,100 contracts of soybeans, 1,100 contracts of corn and 3,500 contracts of wheat. In soy products, funds have bought 4,700 contracts soyoil while selling 500 contracts of soymeal.

• USDA reported that China secured another 786,000 mt of US soybeans. The sales were split between 586,000 mt to China and 182,000 mt to an unknown destination (widely rumoured to be China). Known Chinese soy purchases amount to 4.6-4.7 million mt. Pricing in the Chicago has been dramatically diminished from prior trading sessions. Now that 5 million mt of China pricing is completed, US traders are starting to wonder who is going to be the next substantial buyer of US soybeans until China removes their 25% retaliatory tariffs. This tariff reduction is not expected to occur until a US/China trade deal is signed.

• The average trade estimate for Friday’s report is looking for a US corn yield of 177.8 bushels/acre (down 1.1 bushels/acre from November), a soybean yield of 51.7 bushels/acre (down 0.4 bushels/acre from November) with US all winter wheat seeding at 31.97 million acres (down 600,000 acres). Listening to traders, we get the impression that their US corn yield estimate is even lower than published expectations.

• 967,000 barrels of US ethanol were produced in the week ending Feb 1, down 45,000 barrels from the prior week. US ethanol stocks fell slightly to 23.9 million barrels. The use of US corn to produce ethanol is holding in a bearish trend based on marginal margins. We look for WASDE to cut its US 2018/19 corn use for ethanol by 75-100 million bu on Friday.

• The midday GFS S American weather forecast is drier with diminished rain chances for the southern third of Brazil. Northern Brazil has solid rain chances with 10-day totals of 3-7.00”. The rains will finish off the crop and aid winter corn crop establishment. A slightly wetter forecast is offered for Argentina which is helpful to crops. No heat is expected across Argentina which will help preserve soil moisture. The Argentine corn crop is filling, and soybeans are blooming. The S American weather forecast is favourable for the next several weeks.

• Friday’s USDA crop report is highly important to short term Chicago price direction. However, we doubt that any strong rally can be sustained as US/S American farmers currently sell any 8-15 cent rally in corn and soybeans. US/China trade negotiations are far more important to long term Chicago price determination with March 1 just a few weeks away. Brazilian soy yields are variable and not a disaster with CONAB expected to come out around 116-117 million mt soy crop estimate on Friday.

• Confirmation that China has secured 2.6 million mt of US soybeans with another 274,000 mt going to an unknown destination caused profit taking on Chicago longs amid “sell the fact” trading. The bulls wanted to trim their market risk ahead of Friday’s USDA Crop report. Including Monday’s USDA sales announcement that China bought 612,000 mt, total China soybean purchases in recent days are pegged at 3.6 million mt. Commercial sources argue that another 500-750,000 mt will be announced on Wednesday which means that China has virtually completed its 5 million mt purchase program that was offered as negotiation plum to President Trump. Amid limited news and light volume, the grains followed the soybean market lower without any conviction. The market has clawed back some of its losses on the expectation of reduced US corn/soybean yields in Friday’s USDA report. Old vs. new crop wheat spreads are gaining on tightening world supplies and rising fob values. US cash basis bids for SRW/HRW are firm.

• Chicago brokers estimate that funds have sold; 2,400 contracts of soybeans, 3,200 contracts of corn and 2,100 contracts of wheat. In soy products, funds have sold 1,400 contracts of soymeal and bought 1,900 contracts of soyoil.

• The Brazilian soybean export line up is record large for early February. However, most export sources argue that it is based on the early maturation of the Brazilian crop. Yet, cash basis bids are weak and likely to weaken farther as the harvest advances. For most Brazilian farmers it is tough to find a good cash bid for spot shipment. This is likely due to US soybeans being pushed into China which is reducing demand in Brazil. Brazil is anxious to get more sales on the books amid steep Argentine discounts for LH March/April. Argentine soybeans for April are offered $.36/bu cheaper than the US Gulf, and $.50/bu cheaper than Brazil.

• Dryness questions are starting to redevelop for portions of Eastern Europe and Western Russia. Winter crops are uncovered as prior snows have melted which raises the risk of winterkill. However, the crop is still in dormancy, but the forecasts offer continued dry weather through February, which will make March rainfall/snows important. Remember that the 2019 winter wheat crop did not properly get established due to a lingering drought.

• Canada Dec 31 canola (rapeseed) stocks were 14.6 million mt, up 5% from last year with wheat stocks equal to last year at 23.2 million mt. Oat stocks were down 20% at 2.9 million mt. The December 31 oat data was bullish with canola slightly bearish.

• The midday GFS S American weather forecast is a tad drier with diminished rain chances across the southern third of Brazil. Northern Brazil has solid rain chances with 10-day totals of 3-7.00”. The rains should help finish off the soy crop and aid winter corn crop establishment. A drier forecast is offered for Argentina which is initially helpful to crops. No heat is expected across Argentina which will help preserve soil moisture. The Argentine corn crop is filling, and soybeans are blooming. We look for the Brazilian soybean harvest to reach 25-28% through the weekend. The S American weather forecast is favourable for the next two weeks.

• Friday’s USDA Crop report will produce considerable market volatility with the focus on US corn/soybean yield, and 2019 winter wheat seeding. We look for a positive report with the US corn yield being down 2-3 bushels/acre and soybeans down 0.4-0.6 bushels/acre, while US winter wheat seeding is at a 110-year low, down 600-900,000 acres from 2018. The State of the Union address from President Trump will feature US Trade progress and a call for a new US infrastructure program. Good for raw material prices.