Monthly Archives: September 2019

12 September 2019

Posted on September 12, 2019 by simon

• As expected, the September USDA Crop Report offered few changes from August with the US corn and soybean yield fractionally lower amid reductions in plant populations. NASS pegged the US corn yield at 168.2 bushels/acre (down 1.3 bushels/acre from August) with the soybean yield at 47.9 bushels/acre (down 0.6 bushels/acre from August).

• NASS used an ear weight (0.343lbs/ear) that was the lowest since 2015 with plant populations being the weakest since the 2012 drought. Ear weights can move up or down depending on late season weather. Our considered view is that ear weights will move lower as the crop runs short of nitrogen and June corn struggles to reach maturity.

• NASS forecast the 2019 US corn crop at 13.8 million bu, a decline of 102 million bu from August. This crop total was on the high end of trade expectations. WASDE forecast 2019/20 US corn end stocks at 2,190 million bu  (up 9 million from August) based on larger old crop stocks and 25 million bu cut in US ethanol production to 5,450 million bu. The US average farmgate cash corn price held at $3.60/bu. This would reflect a range for spot Chicago corn futures of $3.40-3.90.

• NASS estimated the 2019 US soybean crop at 3,633 million bu, a decline of 47 million from August. NASS lowered their soybean yield to 47.9 bushels/acre, down 0.6 bushels/acre.

• Note that NASS forecast that US soybean pod weight to be the highest in a decade at 0.35 grams/pod. This is up 0.1 gram from last year and likely too high. There are numerous reports of 3 and 4 bean pods in poorly populated plant areas. However, this pod weight looks high and a further reduction in US soybean yields is expected in October. And since 2014, note that NASS has tended to overstate soybean pod weights in Sept with the exception being 2013. We maintain our view of an Oct US soy yield closer to 47.0 bushels/acre. This would assume a normal end of the 2019 growing season. NASS made no attempt to provide information on the 6 million acres that have yet to pod. Soy yields appear to have more downside risk than corn.

• WASDE lowered 2019/20 soybean end stocks to 640 million bu, a 115 million bu drop from August. WASDE lowered old crop US soybean stocks by 65 million bu while making no adjustments to US new crop demand. The average US farmgate price was raised by 10 cents to $8.50/bu which equates to a $8.20-9.20 Chicago range.

• US wheat end stocks held steady at 1,014 million bu with the final US Small Grains Report due out later this month. WASDE did lower the 2019 Russian wheat crop to 72.50 million mt, down 500,000 mt. Russian 2019/20 wheat exports were left unchanged at 34.0 million mt. World wheat stocks were pegged at 286.5 million mt including China, and 141 million excluding China. The US and world wheat market lacks a fundamental story for either the bulls or the bears. Range trade is forecast.

• We hear that China is bidding for 1-3 million mt of us soybeans off the PNW with a total purchase package ranging from 3-5 million mt according to US exporter sources. The demand is helping to underpin Chicago. Note that this China demand will not create a new demand bull soy market. We hear no new China interest for either US corn or wheat.

• Reaction to a slightly bearish corn report will key future price direction with the timing right for a seasonal low. Early harvest results have been disappointing, a trend that should garner more trade attention during October.

11 September 2019

Posted on September 11, 2019 by simon

• Corn, soybean and wheat markets are a bit weaker at midday. Follow-through buying interest is lacking ahead of Thursday’s USDA update, in which US and world grain stocks will be presented as more than adequate. We note that it is not until combine harvesters begin to roll and NASS can more accurately assess corn and soy harvest weights that the market will have a precise handle on US production. Yield cuts are expected tomorrow, but an outright bullish report is unlikely. Very early yield checks in IL have been disappointing but it will be several weeks before a trend is established.

• Macro markets are mixed, with commodity indexes fading after testing a multi-week high on Tuesday. The trade is skeptical that a comprehensive US-Chinese deal will be scored via October’s meeting, and that soybeans and pork tariffs were not waived overnight is being digested. No new US export sales were reported this morning. Crude is down $1.60 despite another sizeable draw in US stocks.

• And world grain markets still reflect abundant near-term supplies. Russian wheat is offered at $184/mt, vs. $185 earlier in the week. This is comparable to $3.70, basis Dec KC. France’s Farm Ministry has raised French wheat production to 39.5 million mt, vs. 34 million in 2018/19 and the second largest crop on record. The EU and Black Sea grain markets continue to probe for demand. It will be difficult to sustain rallies in world corn markets amid the abundance of available N Hemisphere wheat.

• Malaysian palm oil futures have struggled on rallies despite palm oil stocks in August falling below the previous year, for the first time since June 2017.

• US ethanol production through the week ending 301 million gallons, vs. 298 million the prior week and on par with the same week a year ago. US ethanol stocks fell sharply to 945 million gallons, vs. 1,000 million the week before. Rather quickly the ethanol market has found balance. We also note that the spot futures-based ethanol production margin has rallied to $0.40/gallon, vs. $0.02/gallon in early August. End user demand will be found on breaks, and work maintains that seasonal bottoms in Chicago markets are being formed .

• The S American weather forecast remains arid into Sep 25, with high temperatures in Brazil to be consistently in the 90s, or some 4-8 degrees above normal. S American dryness will grab much more market attention if extended range forecasts fail to offer a pattern change in the next two weeks. We would mention the most immediate concern is Argentine wheat development.

• Argentina’s wheat crop is expected to reach 10-12% heading this week. Soil moisture deficits in Argentina will widen during critical growth stages.

• The midday GFS weather forecast is consistent with the morning run and maintains a pattern of well above normal temperatures into Sep 20. Maximum highs in the 80s will be widespread next week. A moderation in warmth is forecast in the 10-15 day period, but there is still no sign of frost into the very latter part of the month. We would also mention that model guidance is trending wetter, with light/moderate rain to expand into the E Plains and Western Corn Belt Sep19-22. NE, IA, MN, WI and IL will be favoured.

• The markets will again briefly re-set following the release of updated NASS yields Thursday. However, it is the Oct report that will better define US production and end stocks. Abundant and cheap nearby world supplies will work against lasting Chicago price rallies.

10 September 2019

Posted on September 10, 2019 by simon

• Corn, soybean and wheat futures are higher in mid-session trade with selling absent ahead of Thursday’s USDA Sept Crop Report. The volume of trade has been light to moderate with short covering featured amid a lack of aggressive selling.

• Research argues that seasonal lows are being formed. We note that the 2018 USDA September Crop Report was bearish, but that a seasonal bottom was forged just three days after, which ended up being the seasonal/annual low.

• We see no reason why 2019 corn, soybeans and wheat cannot forge their seasonal lows either right before (Monday) or right after the USDA September report. Once farmers start their harvest, we would expect that cash sales will be modest, and that there will be a basis pull to get grain away from the farmer.

• And the US 2019 harvest is going be a long drawn out affair with wide swings in crop quality amid the latent spring seeding dates. We doubt that December corn will fall much below $3.50 or November soybeans too far below $8.40. In the case of wheat, spot KC futures at $3.62 should have forged the bottom.

• Chicago brokers estimate that funds have bought 3,500 contracts of corn, 2,300 contracts of wheat, and 4,500 contracts of soybeans. In soy products, funds have bought 2,400 contracts of soymeal and are flat of soyoil.

• Further research argues that the NASS soybean yield estimate could hold a bullish surprise on Thursday. For the 10 million acres that were not podding as of September 1 (6.1 million acres still not podding as of September 8), NASS is likely to use a low-ball yield to reflect the high risk of a sharp drop in yield before the end of the growing season. It takes 54-60 days to go from pod to a soybean seed for harvest, that puts these non-podded Midwest soybeans into late October or early November. The chance that non podded soybeans will produce more than 5-12 bushels/acre of soybeans is rather low.

• There are suggestions that Brazilian dryness could persist into at least mid-October. The drying trend could persist longer, but amid the cool ocean waters off each side of Brazil and the Lack of El Niño, the weather risk for Brazilian crops is elevated. on Sept 10 it is premature to become overly worried, but it is a weather trend worth highlighting with early Brazilian soy seeding needed to fulfill China demand in January/February, and for the timely planting of the winter corn crop.

• There are reports that China is expected to agree to secure more US ag goods in the hope of a better trade deal with the US. The headline rallied Chicago. The headline argues that China is expected to secure US soybeans and meat products. US pork/beef are the products that China needs most. CME Livestock futures have rallied strongly on the news with rumours that China is back checking prices and making some initial purchases.

• The midday GFS weather forecast is slightly wetter than the overnight run, but the forecast is basically consistent with the overall pattern; high-pressure ridge across the Central US with a zonally flowing jet stream produces warm temperatures and wet weather conditions across the N Plains and the Upper Midwest. There is no evidence of any frost/freeze into Sept 26. A hurricane is forecast to track across the far W Atlantic. This storm shifts the ridge west to the Rockies and draws cooler temperatures south. The temperatures are not cool enough for a freeze.

• Growing concern about premature death of the US corn crop due to disease/lack of nitrogen, along with the potential for progress in US/China trade is producing a Chicago seasonal low. The USDA report looms, but even if the report is bearish, we doubt that any break will be sustained.

9 September 2019

Posted on September 10, 2019 by simon

• Chicago values fell in early active trading with values recovering into midday with wheat being the upside leader. The market fell into end user support with the recovery occurring on reduced volume. The wheat rally appears to be largely technical as KC wheat fell to multiyear lows but did not fall below last week’s low.

• Traders are debating what NASS/USDA will say in Thursday’s September Crop Report. NASS will have difficulty measuring yield amid the immaturity of this year’s crop. The industry fears that NASS will overstate yield once again.

• Traders are really wanting harvest data to make a more accurate assessment of yield. We would maintain that this year’s corn and soy crops are so variable that it will require the US corn/soybean harvest to push beyond 60% to have real ability to measure crop size. And although there are reports of scattered corn fields that are being cut in the Southern Midwest this week, most of the Midwest harvest will wait until October and November. The one certainty of the 2019 harvest is that it will be a long drawn out affair with some farmers cutting corn and soybeans until the snow falls in December. We are looking for a slightly higher close with weekly lows likely scored this morning.

• The USDA indicated this morning that US farmers in disaster areas will be eligible for additional Government payments as outlined in spring disaster legislation. Some $3 billion of additional monies will be available to farmers impacted by natural disasters in 2018 and 2019, including late winter and spring flooding and Hurricane Dorian. This will include additional 10% PP payment (indemnity) to producers that were unable to plant a crop. If a producer was enrolled in the Harvest Price Option (HPO) there could be an additional 5% on top of the 10%, for a total of 15%. Producers need to enroll for the additional payments, and if a producer is not in a disaster area, he/she can petition the FSA State Committee to be included. The additional monies will further slow the sale of cash corn/soybeans as producers see additional revenue from the Government and store their crops in the hope of higher prices.

• US weekly export inspections for the week ending September 5 were; 23.3 million bu of corn, 33.3million bu of soybeans, and 14.8 million bu of wheat. For their respective crop years to date, the US has exported 17.7 million bu of corn (down 9 million from last year or 33%), 18.5 million bu of soybeans (down12.2 million or 40%), and 257.2 million bu of wheat (up 48 million or 23%). The US corn and soybean export pace is expected to fall further behind last year amid China’s absence as a soybean buyer/importer (as of today via the trade war) and cheaper fob price offers from Argentina, Brazil and Ukraine in corn.

• Brazilian farmers are starting to prepare to seed their 2020 corn and soybean crops as September 15 is the date that seeds can emerge. The acute dryness across N Brazil will limit early seeding progress with producers hoping for seed germinating rains later this month or by early October. The ridge of high pressure across Brazil looks to be stable and needs to be closely watched for any early spring dryness.

• The midday GFS weather forecast is consistent with the overnight and prior day solutions. A high-pressure ridge across the Central US with a zonally flowing jet stream produces warm temperatures and wet weather conditions across the N Plains and the Upper Midwest. There is no evidence of any frost/freeze into Sept 25. A hurricane is forecast to track across the far W Atlantic. This storm shifts the ridge westward to the Rockies and draws cooler temperatures south. The temperatures are not cool enough to produce a frost.

• Chicago corn is within 3-4 cents of testing a weekly trend line basis spot Chicago corn at $3.375 while KC wheat is bouncing off multiyear lows. Soybeans are holding better amid the yield uncertainty with plants just podding. We look for steady or 1% gain in US corn/soy good/excellent conditions. Our view is that the Chicago is in a bottoming phase in corn, wheat and soybeans.

5 September 2019

Posted on September 5, 2019 by simon

• Chicago corn and wheat are higher at midday as support has been found at major chart-based support in corn. Open interest in Chicago wheat on Wednesday was up 4,600 contracts, which suggests funds and end users are willing to bet on a seasonal low being formed. Soybeans are down 12-14 on falling ClF Gulf basis levels, with spot basis down $.06/bu to just $0.14 over.

• CNBC is reporting that Chinese insiders hint that high-level US/Chinese trade talks in early October may be more substantial than prior meetings. The coming meeting marks the 13th round of negotiations between the two sides, and there is something to be gained ahead of an election year and following unrest in Hong Kong there is speculation that new developments will arise. The Dow has extended its recovery and at midday is up 430 points.

• Weekly EIA ethanol data leans bearish. Through the week ending August 30, US ethanol production totalled 298 million gallons, down 7 million on the prior week and the lowest since March. Using official NASS corn used for ethanol data through July along with EIA weekly data for August, we put final old crop corn ethanol consumption at 5,400 million bu, vs. USDA’s 5,425 million.

• Weekly US ethanol stocks totalled 1.0 billion gallons vs. 965 million a week ago. The US ethanol market is well supplied. Future corn consumption remains a concern unless solid US ethanol exports can be sustained. Note that Brazil has raised its tariff-free quota on ethanol imports to 198 million gallons, vs. 160 million previously. New destinations for US ethanol are desired though.

• US crude stocks, less reserves, as of Aug 30 fell to 423 million barrels, a new 2019 low. Spot crude has rallied $1/barrel to $57.20. US crude stocks are likely to decline further into late year as US rig counts decline.

• Newly released EU model climate guidance features normal to slightly below normal Central temperatures for the month of September, but warmer than normal temperatures during Oct and Nov. Confidence so far out is low, but forward-looking models lack evidence to suggest a major frost/freeze event lies in the offing. Near term forecasts have trended warmer since Tuesday. Patchy frost is possible in parts of Ontario, but otherwise major North American Ag areas will stay frost-free into Sep 20.

• EU model forecasts also feature lingering dryness in Brazil and Central Argentina into late October. A more normal pattern is forecast in November and beyond. Neutral ENSO conditions into late year argue against lasting S American drought during key corn/soy growing stages. Soil moisture available to Argentina’s wheat crop is a concern.

• The GFS weather forecast at midday is cooler across the Dakotas and MN in the 6-10-day period as a weak frontal system brings cooler and wetter air to the Northern US Sep 13-15. Lows across the Dakotas, MN and WI are again projected to drop into the mid/upper 40s late next week. We view the midday GFS as being too cool, but a close eye will be kept on whether the evening run of the EU model follows this trend. Other climate scientists hint at ongoing Central US warmth into final week of September. Broadly, the upper air flow is expected to stay rather progressive, which is the wrong setup for a mid-Sep frost event. Moderate to heavy rainfall worth 0.25-2.00″ impacts the Dakotas and NW Midwest Sun-Tues.

• Ag markets look likely to chop into next Thursday’s Sep WASDE. The bulls and bears will struggle for leverage amid weak global cash grain markets, but already sizeable net short positions in Chicago.

4 September 2019

Posted on September 4, 2019 by simon

• It has been a mixed session in Chicago, with row crops down slightly on the lack of near-term frost risks and with wheat higher on a weakening US$. US wheat futures on Tuesday reached deeply oversold technical levels and a bounce was due.

• The Dow has maintained a rally of 200 points at midday, with spot crude up a sizable $2.25/barrel. It is a session of raw material consolidation following recent weakness. Follow through commodity buying will be a function of whether the US and China can meet in September. Otherwise, the bet is that the trade war lingers into the 2020 US Presidential election. In other political news, the UK Parliament has blocked a no-deal Brexit, which is currently scheduled for Oct 31. The threat of a UK general election now hangs heavy in the air. This has triggered minor selling of the US$.

• Official Census US ag exports in July were near expectations. Corn shipments in July totaled 114 million bu, vs. 121 million in June. Soybean exports totaled 135 million bu, vs. 117 million the prior month.

• Using weekly FGIS data for August, calculated final 2018/19 US corn exports stand at 2,030 million bu, vs. the USDA’s 2,100 million. Final US soybean exports are pegged at 1,695 million, very close to the USDA’s 1,700 million bu forecast.

• Also of note, the value of ag imports exceeded the value of US ag exports for a third month in 2019. July’s ag trade deficit was $115 million, which follows trade deficits in April and May of $865 and $251 million, respectively. Access to export markets is what is needed in the US looking forward.

• President Trump this morning stated the Administration’s updated biofuel policy would be submitted and approved within the next two weeks. Still no details are available, but like grains and oilseeds, lasting US ethanol exports are desired as domestic US gasoline consumption will grow only slightly.

• Current futures-based ethanol production margins have rallied to $.40/gallon following the break in corn value. Spot ethanol margins in mid-August were just $0.02-0.07/gallon. The corn market is working to boost domestic consumption prior to the USDA’s Sep WASDE.

• Brokerage firm Allendale released its survey-based production estimate, with corn production pegged at 13.76 billion bu, vs. NASS’s 13.90 billion. Soybean production is estimated at 3.50 billion bu, vs. NASS’s 3.68 billion. Allendale’s corn number leans a bit negative. Yield risk is shifting to soybeans amid slowed crop growth.

• The midday GFS weather forecast is cooler in the 11-15 day period, but confidence in GFS forecast details so far out is low. The GFS advertises overnight lows very close to freezing across the far upper portions of MN and across much of Ontario Sep 17-18. Lows in the 40s are offered to ND, MN and parts of northern WI beyond Sep 15. Whether the EU ensemble models follow this temperature pattern will be watched closely this afternoon.

• Otherwise, the primary Corn Belt will stay frost-free into Sep 20. High pressure ridging expands through the balance of the week. Maximum highs on Thurs-Fri will reach into the mid/upper 80s across the Central Plains, IA and MO. The next chance for soaking rainfall occurs Sun-Thurs. Totals in excess of 1″ will favour the N Plains and NW Corn Belt. Dryness in N IA will be eased.

• The market still lacks clarity over 2019 US production potential. The world cash markets show no signs of global supply tightness.

3 September 2019

Posted on September 3, 2019 by simon

• World wheat prices are pacing the Chicago decline this morning with Black Sea values offered $3-4/mt below where they closed out last week. Russian 12.5% wheat is being offered at $186/mt down $3/mt which has pressured EU and US wheat values to start the week.

• Chicago corn/soybeans are following wheat lower with funds adding to their net short positions as December corn futures score a fresh contract low. The weakness in wheat is too much for corn to overlook and a bottom must be forged in this grain before corn will uncover any bullish heart.

• The midday GFS weather forecast has no indication of a Central US frost/ freeze into September16. Amid improved Midwest weather since mid-August, traders are betting that US corn/soybeans are adding to their yield potential. A further bump in US corn/soybean crop conditions is expected this afternoon.

• The tone in Chicago is heavy with the charts arguing for additional fund selling in the new month. The new contract lows in corn argues that should a recovery occur, December corn will struggle at the $3.88-3.9275 gap.

• Chicago brokers estimate that funds have sold 5,200 contracts of wheat and 12,6700 contracts of corn. Funds have also sold 3,200 contracts of soybeans along with 2,000 contracts of soyoil, while being flat in soymeal.

• US export inspections for the week ending August 29 were; 14.0 million bu of corn, 19.3 million bu of wheat and 47.0 million bu of soybeans. For their respective crop years to date, the US has shipped out 1,857 million bu of corn (down 416 million or 18%), 240.7 million of wheat (up 47.3 million or 24%), and 1,680 million bu of soybeans (down 388 million or 19%). The US weekly corn export pace of just 14 million bu was bearish as S America and the Ukraine continue to fill the world’s feedgrain needs.

• Brazil exported a record 7.6 million mt (298 million bu) of corn during August vs 2.825 million mt (110.7 million bu) last year. Including soybeans, Brazil exported 13 million mt of both grains or nearly 500 million bu which will put to rest concern over Brazilian export logistics/capacity. Brazil is on a pace to easily export record tonnages of corn. Brazil, Argentina and the Ukraine are likely to capture much of the world’s feedgrain demand into February of 2020.

• China’s Vice Premier Liu He stated that China is looking to resolve the trade differences on basis of equality and mutual respect, both sides must seek common ground and that China firmly opposes the trade war as it is not good for China, the US and the world. On the other side of the table, US President Trump stated that the US is doing very well in negotiations with China. Who is right? For both sides, there seems to be a divide related to trust.

• The midday GFS weather forecast has hurricane Dorian following the same path as the overnight runs and the consistency is increasing confidence in that Dorian will stay just offshore before making landfall along the SC/NC border, and then heading back out to sea. This will limit the storm surge, but strong winds will batter the Eastern US Coastline.

• Showers/storms are pulling through the Midwest with most rainfall accumulations to be less than 0.50″. The Delta and S Plains will stay dry for the next 10-12 days. There are hints of additional tropical storms in the extended range that take aim on the SE Coastline once again. There is no indication of a Central US frost/freeze into September 19.

• The new contract lows in corn is causing funds to add to their growing short position with the next downside target being $3.435 Sept, the lows in May. And Sept KC wheat reached the lowest level in 14 years (2005) at $3.66. This is no place to turn bearish with an important USDA crop report due out on Sept 12.