• Funds are short a record (by far) amount of corn, wheat and soybeans combined for the middle of March. This week’s CFTC data was mostly in line with expectations, except for corn. Funds’ net short in corn on March 12 was a record 258,000 contracts, up a massive 81,000 on the prior week. The lack of any natural seller could trigger quick and rapid covering, particularly amid any hint of N Hemisphere weather adversity. A rather important growing season lies ahead, and already we’re concerned about US spring planting.

• Following a steady start to the morning Chicago soybean futures quickly rallied to new highs for the week, and were 10-11 cents higher at the close. China’s new intellectual property laws are viewed as favourable for trade negotiations, and the rally in CME hog futures has grain traders wary of staying overly bearish. The Commitment of Traders report showed that at the close of business on Tuesday, funds held a larger than expected net short position worth 90,000 contracts, a more than 40,000 contract increase from the previous week. Hedgers, on the other hand, used last week’s break to extend coverage and held a rare net long position worth 28,000 contracts. The last time that hedgers were this long the soybean market, it took a $1 rally to get them sold out. Chicago grain trade has been reluctant to show any optimism for a US/China trade deal. However, the CME livestock markets are far more certain. Our view is hopeful that a deal for China to greatly expand their US ag commodity buying can be announced in the coming weeks.

• May corn rallied another 3 cents on the return of heavy US rainfall in the 11-15 day period and as the trade begins to digest the potential of US-Chinese trade deal. However, the real highlight today was the CFTC’s commitment release. Managed funds on Tuesday were short a net 258,000 contracts, an all-time record and up 80,000 on the prior week. Any hint of Chinese demand or adverse N Hemisphere yield threats sends these shorts to the exit door rather quickly. Most important is that such extreme fund positions rarely last beyond several weeks. Recent weather-driven rallies have triggered a transfer in fund position worth 400,000 contracts, which would be a big deal. Otherwise, the EU and GFS weather models are consistent in forecasting additional rain and snow across the Plains and Midwest March 26-30. Reports of flooding and potential dam failures are getting more attention. Above trend N Hemisphere yields are needed to justify funds’ current net position.

• Wheat futures ended 2-10 cents higher, again led by CME contracts. Wheat’s premium to corn has fallen to an 11-month low, and so is close to working into feed rations across the Plains. Whether this makes sense or not will hinge upon weather in April and May, but as we discussed Thursday there’s very little room for SRW feed use. A correction in the spot wheat-corn spread lies ahead during the growing season. Temperatures across Europe and Black Sea have already been well above normal. A heavier burden lies upon EU/Black Sea rainfall over the next 60-70 days. Funds on Tuesday short a net 72,000 contracts (unchanged on the week) in Chicago and short a net 49,000 contracts (a new record and up 4,000 on the week) in KC. It remains that there is more upside than downside risk until trend/above trend yields can be confirmed.

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Weekend summary 15 March 2019

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Fund positions disaggregated data

• Chicago grain futures were mixed on the opening but have rallied at midday on speculative buying. The inability of Chicago to decline after the opening helped put ”bullish heart” into grain values. Traders are aware of the large net short positions of funds and with farmers holding back on any additional marketing, Chicago is running out of new sellers. And in the background was US President Trump indicating that US/China trade talks are advancing, but he is unwilling to call the deal done. Chicago has a firm feel in the grains, but soybeans are lacking fresh US export demand. There has been no indication that China is going to secure the rest of their promised 7.5-8. 0 million mt of US soybeans this morning. Rumours persist of Chinese demand under the US cash market on weakness in a new crop position. We look for a mixed settlement awaiting fresh US/China Trade Deal news.

• Chicago traders estimate that funds have bought 5,500 contracts of wheat, 6,000 contracts of corn, and 4,100 contracts of soybeans. In soy products, funds have bought 2,000 contracts of soymeal while selling 900 soyoil.

• FAS US export sales for the week ending March 7 were; 9.7 million bu of wheat, 14.6 million bu of US corn, and 70.2 million bu of soybeans. Crop year to date sales stand at 839.4 million bu of US wheat (up 24 million or 2.9%), 1,610 million bu of corn (down 107 million or 6%), and 1,513 million bu of soybeans (down 297 million or 17%). The US confirmed the sale of 1.7 million mt of US soybeans to China for the 2018/19 crop year. This helps ink in that China booked 2.0 million mt of US old crop soybeans last Thursday. This leaves 8 million mt of their 10 million purchase pledge.

• We note that China booked 23,800 mt of US pork last week helping to fuel speculation that the recent strong rally in China cash meat prices has pushed the Government into importing US pork to cool building food inflation. It is not only pork prices in China, their poultry/beef prices are also rallying strongly on the diminished Chinese pork supply due to African Swine Fever. US hog futures have rallied sharply this week on the emerging Chinese import demand. Cow/Calf producers in the Plains are reporting a sharp increase in calf mortality from extreme wind, snow and cold. Some producers are fearing the loss of upwards of 50% of their February/March calf crop. Wheat producers in TX and Ok report blowout of wheat following winds of 60-80 mph. The system is now pushing through portions of the W Midwest with wind gusts to 50-60 mph.

• A massive storm system is located over the W Midwest which will push eastward through the Lake States into Friday. The storm will produce blizzard conditions and excessive rainfall from across the N Plains and W Midwest. Strong winds and another pull of arctic air follows. As the storm exits Friday, a 7-8 day period of mild/sunny weather will evolve. However, several new storm systems are offered during the 11-15 day period which looks to return the Central US to a cool/wet profile.

• The market’s confidence in a US/China trade deal is increasing. Traders expect that as China Parliamentary Meetings end on Friday, Government Leaders there will be able to devote more time to finishing the US/China trade deal. We remain hopeful that both sides can announce a signing date in the next few weeks. The deal will completely change the outlook for US ag goods pricing if China pledges to secure $50 billion of US ag goods. NOPA is expected to release their February crush report on Friday with the CFTC likely to reflect a further build in managed money net short positions.

• Chicago futures are higher at midday on positive comments from USTR Ambassador Lighthizer that the US/China are in the final weeks of having an agreement, but there are still issues that must be resolved. Lighthizer went further than the US/China have scored real progress and that the final document is running as long as 120 pages. Today’s testimony from Lighthizer was far different from his late February briefing which was more hawkish on US/China trade negotiation progress. Chicago immediately added premium to price with funds buying wheat, corn and soybeans at mid morning. The tone for midday is more positive today that it has been in weeks. Wheat has already scored a technical reversal with soybeans and corn scorning new lows, but not taking out the prior days high. The bears are asking about the timing of when the US/China could announce a signing ceremony. The large net fund short position appears to be shifting the risk back to the bulls.

• Chicago floor brokers estimate that funds have bought 5,400 contracts of wheat, 3,200 contracts of corn, and 4,300 of soybeans. In soy products, funds have bought 2,300 contracts of soyoil and 1,200 contracts of soymeal.

• IEG Vantage (formally Informa) estimated 2019 US corn seeding at 91.77 million acres with soybeans at 85.5 million acres. The corn estimate was up slightly from their February forecast with soybeans slightly lower. Their other spring US wheat seeding forecast was 13.6 million acres, also little changed from February.

• CONAB estimated the 2019 Brazilian soybean crop at 113.5 million mt with corn at 92.8 million mt. The soybean crop forecast was less than expected while corn was in line. Research does not see the Brazilian soybean crop falling too far below 113 million mt.

• EPA Head Wheeler stated that he would sign a bill in the next 36 hours allowing for EIS to be used this summer. We calculate that the EPA decision would allow for an additional 200-300 million bu of corn to be used during the summer driving season. It is not a panacea for a new bull, but it may allow WASDE to bump up their corn use for ethanol by 25-50 million bu following the signing of the order.

• USTR Lighthizer stated that a US/China trade deal would open “a lot of US ag sales for US farmers” and that the agreement would address non-tariff barriers such as GM and GM approval. This comment bumped US ag futures higher.

• Media has the US$ amount of US ag goods that China would secure annually at $30 billion on top of pre-trade war levels, which using the 2017 crop year would produce annual buying of $50 billion, a monstrous total.

• A storm system is forming in the SW US in the next 24 hours which will grow in intensity across the Plains/W Midwest late Tuesday and Wednesday. The storm will produce blizzard conditions and excessive rainfall from NE into MN. Strong winds and another pull of arctic air follows. As the storm exits on the weekend, a 5-day period of mild/sunny weather will evolve with any cold temperatures holding across the NC Midwest. We do not see this as a pattern change with another system brewing in the Pacific and likely to pull eastward across the Central US after Mar 22.

• Aggressive fund selling pushed Chicago prices lower than should have been expected if a US/China trade deal is in the works. However, trade deals are binary and funds were betting against a successful negotiation. Our vote is for a US/China signing announcement in the next two weeks.

• Soybean futures were higher overnight and then lower through the day on Monday. Short term technical momentum is down, and funds continue to add to their net short soybean position amid limited news from Chinese trade negotiations. The latest tranche of Chinese purchases is filtering into the market. The USDA announced old crop soybean sales totalling 926,000 mt on Monday, which combined with last Friday’s announcement pushes the two-day sales total to China to 1.59 million mt. Additional new sales are expected in coming days. Soybean export inspections remained below recent averages through last week, totalling 32 million bu. 14 million bu (44%) of the weekly total were loaded for Chinese destinations. Cumulative inspections for one year now total of 986 million bu, 32% behind last year. Funds are bearish on technical considerations, and the lack of news from Chinese trade negotiations is fuelling the bearish sentiment. We expect long term support for spot Chicago soybeans at $8.50-8.75 and remain optimistic for a US/China trade pact.

• May corn fell another 2 cents, with harvest lows being tested. There is limited fundamental news available. Argentine basis remains $.20/bu below the US but has found stability at $.40 over futures. CONAB will update its Brazilian corn production estimate Tuesday morning and a slight hike (0.5-1.0 million mt) is expected following improvement in rainfall across C Brazil in Feb and early March. US corn export inspections through the week ending 30 million bu, down 4 million from the previous week and below the pace needed to meet the USDA’s targets. Logistical woes continue, particularly excessive river levels near the Gulf have weighed on loading and shipping. But the same issues are being watched closely as planting windows have opened across the far Southern US. Assuming the two-week forecast verifies, LA’s average temperature in March is pegged at 57 degrees, vs. 60 on average. Soil temperatures there in the last 24 hours have averaged just 50 degrees. The market awaits news on Chinese trade, but futures are undervalued amid anything less than ideal Apr-May weather.

• US wheat futures continue to reel from heavy fund selling and a lack of push back. Spot KC is now testing the levels of late 2017, when major exporter stocks/use was a seven-year high 18% (vs. 14.5% today). We estimate that managed funds this evening are net short a combined 120,000 contracts in KC and Chicago. New crop Russian offers are steady at $195/mt, and we continue to believe additional downside risk is absent until much more is known about Black Sea crop potential. 30-day rainfall in Ukraine and Russia has been mixed but generally adequate. 70-160% of normal rain has been recorded across key areas of S Russia. Crops there will exit dormancy, and a close eye will be kept on soil moisture over the next 60 days. Climate work hints of potential dryness in late March/early April. Adverse weather or a concrete US/China trade deal is needed to spark short covering the near term. Funds won’t be able to exit fast enough should lasting heat/dryness develop in major exporting country.

• Through Tuesday, managed money is short -179,000 of ag futures, vs -85,000 contracts last week and vs a net long of 430,000 contracts last year. Funds are short a hefty 177,000 contracts of corn, 73,000 contracts of Chicago wheat, 45,000 contracts of KC wheat, and 51,000 contracts of soybeans. Funds are also short 42,000 contracts of soymeal, while long 20,000 contracts of soyoil. We estimate that funds have sold another 24,000 contracts of corn and 15,000 contracts of Chicago wheat, and 19,000 contracts of soybeans since Tuesday. This is no place to sell Chicago in our opinion

•  The USDA March Crop report was slightly bearish to the grains and supportive to soybeans. However, by Monday, none of the data will hold much meaning.

• WASDE added of 100 million bu to 2018/19 US corn to end stocks and 45 million bu to US wheat stocks, while cutting 10 million bu of US soybean stocks. In mt terms, the USDA stocks find amounted to 3.6 million mt, which heading into a new growing season is not a lot. Mother Nature will soon have her say on 2018.

• Moreover, Chicago has already been in a sharp price decline based on the on and off again discussion of US/China trade and concern and selling over the weakness of the world economy. Macro­economic funds have been huge sellers across Chicago (and a host of other commodity markets) due to their forecast of a slowing world economic outlook. This selling has pushed the grains well below fair value and that selling is setting up a seasonal purchase opportunity. Funds can add another 50-75,000 contracts of net short, but a seasonal bottom should be formed before the March Stocks/Seeding Report. DO NOT be short if the US/China reach a trade deal. Air pockets above the market would develop amid an exodus from large fund shorts.

•  The USDA’s US corn balance sheet updates leaned bearish, mostly as expected. US corn exports were cut 75 million bu amid Argentina’s looming harvest, which will be record large. Ethanol’s demand draw was lowered another 25 million bu as the pace of weekly production has failed to match year-ago levels. This 100 million bu cut in demand made its way directly to end stocks. We view the USDA’s export revision as a bit aggressive. The pace of export sales has slowed, but pace analysis suggests a number of 2,400 million bu is reasonable. However, we are in general agreement that USDA’s prior total projected disappearance was a bit too high and that end stocks will range between 1.85-1.90 billion bu if Brazil’s wet season is extended into May. S American production was left untouched. World corn stocks were lower 1.3 million mt on yet another hike in global use.

•  World feed use was raised 1 million mt in Europe and 3 million mt in China. This allows world corn stocks less China to rise 2 million mt. However, the market still appears too cheap when isolating supply and demand. 2018/19 stocks/use less China sits at the lowest level since 2012 yet the price is little changed. This implies the market assumes normal weather in Brazil and a reduction in world demand, which we see as unlikely. We mention the anomaly in this relationship as now funds this evening hold a net short position of 195,000 plus contracts, the largest since early 2018. There appears far more fundamental upside than downside risk at current prices, with North Central US snow cover unlikely to begin melting until after March 20th And there is likely Chinese demand once a trade deal is reached. Corn appears too cheap heading into spring.

• The March WASDE report is typically uneventful for the Chicago soy markets, and the 2019 report was no different. The market’s anticipation was less than in February, but overall the USDA’s balance sheet estimates did not offer any significant changes. Crush was increased by 10 million bu to a record large 2,100. However, the USDA did not increase its soymeal production figure but did increase the soyoil production estimate. The soymeal export forecast was also held unchanged at 13,750 million short tons. The only real surprise was that USDA did not make any changes to the export estimate holding it unchanged at 1,875 million bu, despite the latest announcement from China to secure another 10 million mt of US soybeans. The larger crush figure came lowered stocks by 10 million bu to 900 million bu. The USDA’ s season average price projection of $8.10-9.10 (mid $8.60), was unchanged from February.

• In the soy product balance sheets, soymeal production was unchanged despite the larger soybean crush, as the USDA lowered their estimate for the soymeal yield. Soymeal imports were increased by 100,000 mt and were folded into domestic use, and both exports and stocks forecasts were unchanged. The soyoil yield estimate was unchanged at 11. 7 lbs/bu, and production increased by 115 million lbs. The big change in the soyoil balance sheet was a 200 million lb increase in biodiesel demand. The last EIA Biodiesel report had shown a surprisingly large usage rate for the month of December, and the USDA’s forecast was adjusted to reflect better biodiesel demand. To reach the new forecast, Jan-Sep biodiesel use needs to average 670 million lbs/month, a 12% increase over last year.

• In the world balance sheet estimates, the USDA lowered the forecast for Chinese soybean crush by 1 million mt to 88 million, down from last year’s record-large 90 million mt crush total. The USDA made no changes to China’s soybean import total that is forecast at 88 million mt. In S America, production in both Brazil and Paraguay were lowered by 500,000 mt each. The Brazilian soybean crop at 116.5 million mt is down 4.3 million from last year’s record large crop, but is also the second largest on record. Brazil’s CONAB will release their March crop report next week, but no major changes are expected. The USDA made some minor changes to export estimates from other S American countries, but in total, S America is forecast to export a record large 93.3 million mt in the Oct­Sep marketing year, a 7.7 million mt increase over last year. Despite recent US sales to China, the USDA is reluctant to adjust their world soybean matrix. The world soybean market continues to wait for confirmation of US/China trade deal.

• US wheat stocks were raised further as exports were cut and imports were lifted 5 million bu. The issue is the lack of time available to physically ship wheat between now and the end of May. HRW and SRW exports were left alone. HRS exports were lowered 25 million bu and white wheat lowered 10 million bu. We have lowered our US export forecast to 985 million bu, but much will depend on sales and shipments in the next 10 weeks. Amid Gulf wheat’s sizeable discount to all origins, a solid pace for both classes is expected. But, US wheat ending stocks will rest at/above 1.0 billion bu. It was the world market that reacted most to the sharp decline in major exporter production in 2018/19. The trade’s focus now shifts to new crop supply and demand, with favourable soil moisture noted across much of Europe and the Black Sea. Whether recent shorts pay off will be a function of Apr-Jun weather. Ideal conditions are needed.

• The world wheat balance sheet also loosened slightly. World wheat stocks were raised 3 million mt amid a downward revision in Indian consumption, which in turn was based on Indian government stocks data. World wheat stocks less China were raised to 130.5 million mt, vs. 127.5 in Feb but vs. 148.4 million mt a year ago.

• Relative tightness remains in world wheat supply and demand. There is no need to ration but unlike in 2016 and 2017 there is also no need to clear stocks through sharply lower prices. The wheat market remains undervalued ahead of a growing season. Severe drought is ongoing in Australia. Little to no rain is offered to N Africa into late March. And spring wheat seedings in N America will be in jeopardy if lasting warmth fails to develop in the next 30-45 days.

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Weekend summary 8 March 2019

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

Fund positions disaggregated data

• Chicago futures are mixed to lower at midday, with heavy fund selling ongoing in corn and wheat. Soybeans have found support amid Chinese demand, which sources suggest is sizeable this morning. The dollar has soared to a new 12-week high, which has aided fund selling in grain futures. China this morning has likely source another 3.5 million mt of US beans from both the Gulf and PNW. We hear that 2.0-2.5 million will be marked for summer delivery from the Gulf, with the remainder scheduled for autumn from the PNW. This in turn suggests that China’s recent pledge to buy another 10 million mt of beans will be split roughly evenly between old and new crop positions. Chinese interest in corn and wheat remains lacking. Gulf corn basis continues at lofty levels amid weather and transportation issues, which won’t be solved in the near term.

• US export sales through the week ending Feb 28 were supportive for corn/wheat and disappointing for soybeans. Corn sales through the period totalled 38 million bu. This is down 9 million from above the pace needed to meet the USDA’s forecast. Wheat sales totalled 23 million bu, up 5 million from the prior week and near double the required pace. Bean sales totalled a meagre 11 million bu, vs. 81 million the previous week. China during the week secured 5 million bu, but cancelations worth 6 million were reported by unknown destinations. Of note, white and spring wheat sales are beginning to lag, while SRW and HRW sales have been excellent. HRW sales totalled just over 10 million, and so now only 2 million per week is needed to meet the USDA’s annual HRW forecast.

• For their respective crop years to date, the US has sold 1,595 million bu of corn, down 1% from last year; 1,443 million bu of soybeans, down 18%; and 830 million bu of wheat, up 3% from a year ago. Wheat sales of 20-25 million will be common in the next several weeks.

• The US’s 2018-19 winter (Dec-Feb) was the wettest on record. There is still no indication that cold/wet weather ends prior the very last week of March. The CFS model’s longer term guidance shows a potential pattern change to  warm/wet weather in April, but already we wonder if corn and spring wheat can be seeded across the North prior to May. The process of snow melt, evaporation and warming soil temperatures will be lengthy.

• The EU/Black Sea forecast remains benign. Well above normal weather will continue there into late month, while temperatures averages some 8-12 degrees above normal in Ukraine and Russia. Very little rain, however, is offered to the whole of North Africa. Steep soil moisture deficits persist in Australia.

• The GFS S American weather forecast is drier in pockets of Central and Northern Brazil, but otherwise the model lacks any major crop threat. Recall the EU model remains much drier in Brazil, and we doubt the two come  into agreement before the weekend. Argentina’s forecast is favourable, with soaking rains due on the weekend. Complete dryness and cool-ish temperatures follow.

• Bearish momentum continues in corn/wheat. We only add that current fund positions are only prepared for ideal Northern Hemisphere weather and the absence of Chinese demand in 2019. Expect a volatile spring and summer, as it remains that there is little room for yield error in the US and elsewhere.

• Chicago futures have come under renewed selling as the recent rally stalled and funds returned to selling via bearish chart patterns. Wheat is back near its prior lows with corn/soy futures following. There is talk that China is bidding under the US soybean market for a portion of its 10 million mt of purchases with the demand noted from late summer through harvest. This is underpinning soybeans while the wheat is testing last week’s low. We doubt that bearish price trends will be able carry through amid positive news on US/China trade and threatening cold/wet Central US weather. Amid reduced volume and interest, our bet is that short covering will evolve following the USDA March crop report with traders wanting to be long of corn heading into the March 29 NASS Seeding/Stocks report. The trade will try to be long of grain and short of soybeans as they bet that US farmers seed less grain and more oilseeds. The cold/wet early spring hints at this trend also.

• Chicago brokers report that funds have sold 5,500 contracts of corn, 3,200 contracts of wheat, and 3,400 contracts of soybeans. In soy products, funds have sold 2,900 contracts of soymeal and are flat of soyoil. Volume is low and there are air-pockets in price and it does not take much volume to push the market.

• We are told that 200-300,000 mt of US wheat was sold to Iraq this morning on the break. The demand shows the discount of US values relative to other suppliers for HRW. The Baltic was pretty well cleaned out by the recent Saudi tender while Romania is at the bottom of supply with quality issues. Current US wheat prices are at levels that are attracting world demand.

• US weekly ethanol production was 1,024,000 barrels/day vs 1,028,000 last week. This produced 301 million gallons of ethanol vs 302 million last week, and 311 million last year. US ethanol stocks were up 5% on the year to 1,019 million gallons. We  note that US crude oil stocks were 453 million barrels, up 6 million barrels from last year, but well below the average of the last five years. US ethanol production margins are $0.24/gallon, the best since late last summer.

• China at their National Congress announced that it will make forced technology transfers illegal as Beijing tries to woo world investors. The new law will appease President Trump and USTR as steps continue to be taken to reach a trade deal, including the protection of intellectual property. Chicago markets will see an announcement of a Trump/Xi meeting in FL as a big deal as it produces high odds that a deal has been reached. The bulls have not heard much US/China trade news in recent days and are losing patience. The back and forth of Chicago prices reflects US/China trade deal uncertainty.

• The S American weather forecast does not offer much change at midday. The GFS model is somewhat drier with less rain in Parana, Mato Grosso Du Sol, and Buenos Aries, but is otherwise unchanged. The soybean harvest will advance with enough moisture for winter Brazilian corn. The forecast is non-threatening for S American crops.

• The US/ China trade deficit reached $419 billion in 2018, a new record. The deficit places more pressure on China to reach a deal. Chicago is vacillating back-and-forth in a range with the market awaiting fresh US/China deal news. Funds are adding to their net short position which is growing heading into the spring growing season across the N Hemisphere. The low volume break does not engender a strong bearish opinion. We suspect that last week’s corn/wheat low will hold.

• Mixed has been the morning in Chicago, with grains higher and beans a bit weaker. There is little fresh news to discuss but world grain markets are consolidating following the recent plunge, and as funds now hold sizable net short positions. Wheat futures worldwide remain deeply oversold. Russia’s Ag Min has put 2019 wheat production at 75-78  (higher if weather is favourable), vs. 72.5 million mt this year. However, this isn’t overly insightful. Using trend yield, Russian wheat crop this year will likely reach 75-76 million mt. Black Sea weather has been rather benign during the winter months, but it is conditions during Apr-Jun that make or break yield. Heavy rain is due in W Europe into the weekend. Soil moisture in France and parts of Germany will stay well above last year.

• Chicago brokers report that funds have bought 2,500 contracts of corn, 3,000 contracts of wheat have sold 1,000-1,500 contracts of soybeans. Using daily counts, we estimate that managed funds today are net short 130,000 contracts of corn, 80,000 contracts of Chicago wheat, 55,000 contracts of soybeans and a record 43,000 contracts of KC wheat. We doubt this short position in KC wheat can be sustained as US stocks contract and as the Gulf HRW market is still in a position to boost exports between now and early summer. Otherwise, we look for EIA’s weekly report on Wednesday to feature steady US ethanol production (302-304 million gallons). Weather has caused headaches, but production and blending margins have recovered swiftly and noticeably. US gasoline stocks erode seasonally into summer while the crude market seems to be digesting another draw in US stocks.

• The midday GFS weather  forecast is little changed with its Central US snow forecast. In the near term accumulation of 3-9” will impact the Dakotas, IA and MN. Additional heavy snow, upwards of 15”, will be spread across the whole of the Central Plains. And of note, the EU model’s weekly climate forecast updated late Wednesday keeps below normal temperatures intact into the end of March. Extreme US winter conditions will attract more attention if they continue beyond the next two weeks. It is the ongoing cold and lack of snow melt that’s beginning to raise concern.

• The S American GFS weather forecast is also unchanged from the morning release in S America, and so we expect EU-GFS model disagreement to continue. The GFS maintains normal/above normal rainfall across the majority of Brazil’s Ag Belt into March 19. If realised, this bodes well for safrinha corn. Corn’s moisture demands will begin rising in late March. We do note that regional floods are causing logistical issues in Brazil, with truck movement in key parts of Northern Brazil. These issues won’t be resolved for another 8-10 days. Below normal temperatures and above normal precipitation is offered to Argentina.

• World grain markets have found sellers at current prices, which validates the break. However, a very important growing season lies ahead amid the lack of exporter buffer stocks, particularly in Russia and Europe. Still no rain is offered to the driest areas of Australia in the next two weeks, with wheat planting there to begin in April. Caution is warranted following a full 12 months of extreme world weather patterns.

• Chicago corn, soybean and KC wheat futures have been higher in opening week trade on US/China trade optimism, and the likely lowering of Chinese tariffs for US ag goods. Although naysayers remain, the US/China trade negotiations are in the final stages and traders are starting to ponder the impact of $50 billion of US ag demand annually. When China does end their ag import tariffs, we are certain that private Chinese buyers would be lining up for a host of US ag goods including grains, meats, dairy products and nuts. The $50 billion of US ag export demand ·from China would create the next “demand driver” for a US ag bull market. It has been a long time since a big buyer of US wheat, corn or livestock products has emerged which is likely to produce greater upside market volatility. The shorts will start to feel uncomfortable amid the uncertainty of knowing when a China buyer could secure US ag goods.

• Chicago brokers report that funds have bought 4,300 contracts of corn, 1,200 contracts of wheat, and 4,800 contacts of soybeans. Funds have also bought 3,100 contracts of soymeal while being flat in soyoil. The funds are heavily short in Chicago. Traders will be looking to this week’s CoT data for the sheer size of their short holdings heading into spring across the N Hemisphere.

• For the week ending February 28, the US exported 34.0 million bu of corn, 31.0 million bu of soybeans, and 16.2 million bu of wheat. For their respective crop years to date, the US has exported 1,015 billion bu of corn (up 268 million or 36%), 953.6 million bu of soybeans (down 471 million or 33%), and 623 million bu of wheat (down 49 million). China shipped out 12.3 million bu of US soybeans last week.

• Saudi Arabia secured 625,000 mt of wheat in a weekend tender at an average price of $248.16/mt. Europe is likely to supply most of the tender with Germany and the Baltic likely to be the suppliers between April and June. We note that rumours abound that private importers in Egypt secured two cargoes of US HRW wheat on the weekend. The wheat was cheaper than Russian fob offers which likely helps confirm that US wheat futures formed a seasonal low last Friday. There is still a long in the Russian cash wheat export market, but the supply offered is marginal. When this wheat is sold, we expect Russian fob wheat prices will again begin to rise reflecting tight domestic stocks and the higher interior prices.

• The midday GFS S American weather forecast is little changed from the overnight run. The forecast offers near to below normal rainfall for Brazil with near normal totals for Argentina. A ridge of high pressure will build eastward from the Atlantic into NC Brazil late next week. We do not see any S American crop concern today, but April is the big month for Brazilian rainfall for winter corn. Amid a building El Niño, our bet is for drier conditions in late March and April. The extremely heavy rains that were offered last Friday for Argentina have been reduced and the Argentine weather pattern appears favourable during the first half of March.

• A US/China trade deal is nearing the finish line and the big winners are US ags and energy. $30 billion of new US ag demand on top of pre-trade war totals ($50 billion of annual demand) will push for US ag exports to a record large total. And when China drops their ag tariffs in coming weeks, private buyers will turn to US grains, DDGs, meats and dairy for immediate purchases. Private Chinese buyers are starting to position to buy US ag goods. Our market bias is to the upside on China demand and wintry Midwest.

• The end of week Commitment of Traders update confirmed massive selling across Ag markets for the week ending Feb 19. Funds covered small amounts of their net short positions in hogs and feeder cattle and added 4,500 contracts to their sizable live cattle position. Funds sold 72,000 contracts of corn, 33,000 in soybeans, and a combined 33,000 contracts of wheat in Chicago and KS. Across the ten principle Ag markets, funds sold 125,000 contracts and were net short for the first time since November, of 125,000 contracts.

• Soybeans fell sharply from the morning open on Friday, marking a three month low at midday and then rallying back to close 1-2 cents higher. In the product markets, soymeal fell to new contract lows and then rallied back to close higher, and soyoil was barely lower. Market news remained limited at the end of the week, but funds were early sellers on technical considerations and limited news from Chinese trade talks. After the close, the USDA confirmed a record large January soybean crush rate of 183 million bu.

• The Commitment of Traders report showed that for the week ending Feb 19, funds were net short 43,000 soybean contracts (33,000), were net short 40,000 soymeal contracts (-10,000) and were net long 30,000 contracts in soyoil (-5,000). Much of the short soybean position was established from $9.20-9.30. A push back into this area is likely to trigger fund short covering and technical buying, Chicago soybeans are caught in a waiting game, waiting on news from China. The Mar WASDE will be released next Friday with Perspective Plantings at the end of the month.

• The May corn contract closed up 2 cents after setting a new 5-month low. Funds increased their net short position by 70,500 contracts as of the week ending Feb 19. Funds were net short 116,000 contracts. There were nearly 2,000 contracts delivered against the Mar contract. Weather has generally been favourable for the developing S American crops and new lows in wheat have weighed on corn.

• Yesterday, USDA reported that US old-crop export sales rose nearly 50 million bu, above the high end of the range of expectations. As of late February, US corn export commitments were 1,583 million bu, 9 million more than a year ago. To date, commitments have accounted for 65% of the USDA’s projection of a record 2,450 million bu. On average, as of this date, commitments account for 69% of annual exports. The chart plots commitments as of late February against annual exports. This year’s commitments have fallen short of the average expected pace needed to meet the USDA’s projection. However, there is still another 6 months left in the marketing year and global import demand is record large. Finally, there’s the possibility that China may buy US corn as part of trade agreement.

• Chicago May wheat lost 2 cents and set a new contract low at $4.47. On the continuation chart, CME futures fell to a 55-week low. However, the KC May contract rose a cent, but Minneapolis settled down 2 cents. The Matif May contract lost the equivalent of 7 cents and closed at a new 7-month low. Specs increased their net short position in CME wheat by nearly 31,000 contracts as of the week ending Feb 19. Funds were net short nearly 75,000 CME contracts and short 35,000 KC contracts. There were 577 contracts delivered against the CME contract (vs. 400 yesterday), but there were no deliveries against the KC or Minneapolis contracts.

• In a search for reasons to explain why wheat has fallen so sharply, several articles have cited “ample” exportable supplies. While it is true that some exporters have wheat in store (most notably the US), the projected ending stocks of all major exporters are at a historic low. Based on USDA’s Feb WASDE, exporters stocks (expressed as a percent of global trade) is 34.5% down sharply from last year’s 42.7%. We believe that consumers need to be buyers below $4.60 basis May Chicago; today’s close was $4.57!

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Weekend summary 1 March 2019