• Mixed in diminished volume are Chicago values at midday with corn/wheat slightly lower while soy futures trade into the green. Few traders have any conviction on being bullish or bearish amid uncertain trade details between the US and China. And the weekly NASS Crop Progress/Condition report is likely to reflect limited harvest progress and a decline in ratings following last week’s wet weather and snows across the Dakotas. Traders want to see enlarged Chinese demand to have comfort in Trump’s promise that US farmers would see China scale up to $40-50 billion of ag purchases in several years.

• Chicago traders estimate that funds have sold 1,100 contracts of Chicago wheat and 4,600 contracts of corn, while buying 3,100 contracts of soybeans. In soy products, funds have bought 4,200 contracts of soyoil while selling 1,900 contracts of meal. Soyoil futures have pushed to their best levels since March on rumours of new US export demand amid rising tropical oil values.

• US weekly export inspections for the week ending October 10 were 18.5 million bu of corn, 35.1 million bu of soybeans, and 17.0 million bu of wheat.

• For their respective crop years to date, the US has shipped out 347.7 million bu of wheat (up 59.9 million or 21%), 98.3 million bu of corn (down 174 million or 64%), while US soybean exports at 189.6 million bu are up 13.1 million or 7%. China shipped out 5 million bu of US soybeans accounting for 28% of the weekly US total. We believe that WASDE is likely to reduce their 2019/20 corn export estimate by another 100-150 million bu based on the sales/export pace to date.

• The International Research Institute forecast that S American will see spotty dryness for NE Brazil with temperatures above normal throughout most of Brazil and Argentina during the October-November-December time frame. Any above normal precipitation is forecast to occur across Central Argentina. The point is that if there is a place to monitor for weather problems, it is NE Brazil!

• Multi-National exporters report that they are seeing Chinese buying interest but we cannot confirm any actual new US sales, but at least the ‘phone has been ringing. Based on existing Chinese tariff levels, it is the primary state buyers of Sino/Cofco which must be securing US commodities. There has been no indication that China is ready to drop their retaliatory tariffs (as the US won’t drop theirs) which is needed to allow private Chinese importers to fully return. The USDA announced another sale of soybeans to an unknown destination, rumoured to be China for 142,579 mt.

• Argentine corn bids for November/December are trading at a sharp discounts to the US Gulf. Nov Argentine corn is offered at -$0.10 with Dec at -$0.03. This compares the US Gulf at $0.52 over and December at $0.58 over. Argentine corn is $0.62/bu cheaper for November and $0.61 for December, how does the US compete until late January. US corn export estimates continue to retreat.

• The midday GFS weather forecast is drier for the entire Midwest with no additional snow into November. Temperatures will be variable with a frost likely for the E Midwest by the closing days of October. Dryness is noted through Friday with rains on the weekend followed by dryness during the 9-15 day period. The rains on the weekend look to range from 0.15-0.85”. The US corn and soybean harvest will gain speed in the coming weeks.

• Traders want evidence of Chinese demand before making new Chicago purchases. Pork, cotton and soybeans will be in the top of their shopping list. Beyond the political trade, US/S American weather is improving with US Gulf corn prices too high to stir any export demand. US demand rationing is domestic.

• Chicago futures are sharply higher at midday with the US DOW soaring over 400 points on hope that the US/China will sign a truce that includes US agricultural purchases. The corn market has recovered all of Thursday’s losses with November soybeans and Chicago wheat pushing to new seasonal highs. Funds are active on the buy side of the marketplace in the grains as they cover shorts. Rumours abound that China could secure US corn/wheat/ethanol in a mini trade pact, but as with other recent US/China rumours, it is either they secure everything or nothing. Neither view is right, and this is not a final deal, just a side step for China to avoid higher tariffs on Tuesday (October 15).

• We look for a sharply higher close with all eyes on what Trump/He offer in terms of a truce in their (post Chicago close) press briefing in the White House Oval Office. Traders are hopeful of large US purchases of US soybeans and pork, with the potential of including US grain. We would note that CME pork futures are NOT rising sharply, which theoretically should be the most bullish commodity.

• Chicago floor brokers report that funds are net buyers of 10,400 contracts of wheat, 23,000 contracts of corn, and 5,600 contracts of soybeans. In soy products, funds have bought 3,500 contracts of soymeal and are flat in soyoil. The biggest fund buying is in commodities where they are short, corn and wheat. In soybeans, it is estimated that funds are long 23-27,00 contracts including their buying of recent days.

• Brazilian farmers have been big sellers of the Chicago soybean rally as new crop prices reach levels not seen in years. The combination of the fall in the value of the Real (Brazilian currency) and Chicago recovery is enticing Brazilian farmers to step up their 2020 seeding amid fat margins. Brazilian farmers are pricing an increasing percentage of their crop worried that the US/China could do a mini deal that could cause their fob soybean premiums to fall. In the wake of a deal, we look for Brazilian farmers to be active soybean sellers.

• Brazil has confirmed a case of swine fever (not African) that will cause regional problems for their domestic pork production. The move does change their export opportunities to China or to other world importers.

• Snows are falling across the Dakotas with rains slowing harvest elsewhere. The Midwest farmer will concentrate their harvest efforts on soybeans and then pivot to corn. This tells us that cash corn basis will stay strong for the remainder of October, and potentially into early November. We do not see the strong cash basis as telling anything about the 2019 US corn crop size.

• There is no correlation (as far as we can establish) between the amount of crop harvested (ears pulled or pods weighed) for the October NASS report and November or final yield totals in corn or soybeans.

• The midday GFS weather forecast is slightly drier with less snow for the Northern Plains. Snows have been accumulating in the Dakotas with totals of 4-12” so far. Additional totals look to range from 2-8” with the winds helping to lodge crops through the weekend. The cold has ended the growing season in the N Plains and the NW Midwest.

• The S American forecast continues to add rain for Brazil and Argentina over the next two weeks. All signs point to improved S American weather going forward.

• Making sales ahead of a US/China Oval Office Meeting is difficult but we fear the market may well be disappointed by the mini deal. This is about a trade truce, not a completed final US/China deal. If the Chicago rally that continues into early next week, we would see it as a selling opportunity. S American weather forecasts offer better rains, and that is what is important longer term. Don’t chase the Chicago rally would be our advice.

• US President Trump and Chinese Vice Premier He announced a Phase 1 Deal on US/China trade that included a verbal agreement for China would ramp up US ag purchases to $40-50 billion in the next two years. The deal is agreed to in principle and has not been written down/signed. This is to be worked out over the next 4-6 weeks and potentially signed by Trump/Xi in the APEC meeting in Chile. We suspect that this is the first US major trade deal that has been announced in some totality, but not written down/signed. There was no breakdown of what US ag goods that China would secure and when. Moreover, if China has 2 years to reach $40-50 bilion of US ag purchases. And no one knows when the US/China start reducing their existing tariffs. The US will not raise tariffs in October, but the December hike is still on the table.

• The $40-50 billion of Chinese demand in 2 years could be great news for American Agriculture. But this is a President to President agreement and not a US/China trade treaty. What would happen when either Trump or Xi is no longer President. The US ag markets will watch for “deal confirmation” from China on the weekend and when their retaliatory tariffs on US ag goods will be dropped. A higher ag opening is expected on Sunday, but deal confirmation then the key.

• Soybean futures rallied to end the week on fund buying/short covering on hopes that the US and China could reach a trade truce. Other news was limited for the day, but harvest remains slow as an early winter blizzard moves across the N Plains and Midwest states, while rain has limited progress across other parts of the Midwest. The Commitment of Traders report showed that for the week ending Oct 8, funds were net long soybeans. Managed Money long positions totalled 101,103 (+10,489), short positions were at 94,602 (-4,742), for a net position of long 6,504 contracts (+15,231). Harvest progress will again be limited over the weekend, but a drier forecast is offered for next week. We anticipate harvest progress through Sunday to reach 19-21% complete. News of a China trade deal is viewed as supportive of US soy prices. Ultimately it is record large stocks and large S American production that looks to cap Chicago soybean prices. A S American drought is needed to support spot futures over $9.50.

• Chicago corn futures ended sharply higher with Dec rallying 18 cents. Details surrounding US-China ag purchases are absent, but US Sec of Treasury said that China would ramp up US ag purchases to $40-50 billion in 2 years after a Phase 1 Deal is signed. There will be 4-6 weeks of US/China ag negotiations before the deal can be written and signed. There are no assurances today of when China will secure US corn. Chicago could rally early next week, but no one will want to chase the market until actual commodity purchases are realised. This is a de-escalation of US/China trade tensions. Managed funds as of Tuesday were short a net 91,000 contracts. Funds were active in buying corn on Friday with purchases pegged at over 25,000 contracts. Dec corn above $4.10 will slow US export/ethanol demand further. More important longer term is the arrival of rainfall to Argentina and much-improved forecast in Central Brazil beginning October 19. Don’t chase this rally would be our advice.

• US wheat futures rallied 13-18 cents led by KC. There is no wheat-specific news available, but European wheat futures followed. Managed funds on Tuesday were short 19,000 contracts of wheat in Chicago and a more sizeable 35,000 in KC. This KC position is logical as HRW stocks rise and exports lag. Yet, without knowing details of the partial US-Chinese deal, shorts are being covered. Future wheat export potential remains bleak. EU futures today rallied $.09/bu, and so Gulf HRW’s premium to other origins will widen further. Yield-stabilising rain falls across Cordoba, northern Buenos Aires and Santa Fe in Argentina this weekend. Additional short covering is possible early next week, but until major exporter balance sheets tighten significantly, spot Chicago is overvalued above $5.10. If China secures US wheat in the next year, it likely would be HRW wheat, not SRW. China has 2 years to ramp up purchases to $40-50 billion. No immediate purchases are foreseen.

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Weekend summary 11 October 2019

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

Fund positions disaggregated data

• NASS surprised Chicago traders with a 2019 US October corn yield above September. Traders/farmers were anticipating that objective yield analysis would reflect a 2-4 bushels/acre decline. The net result is that US 2019 corn production held steady (with September) at 13,779 million bu due to a modest fall in harvested acres due to new and updated FSA data.

• The NASS October soybean yield/stocks data was supportive with diminished production, but it is always corn that rules the day with many (including us) suspecting that WASDE is at least 5-7 million mt too high with China 2019/20 soybean imports due to the ongoing expansion of ASF within their pig herd.

• The battle between supply bulls and the demand bears has been won by the bears. US corn, soybean and wheat export forecasts are likely to fall even further with time. We had been hopeful for a positive NASS report.

• Longer term, if the nearly 20 million acres of corn/soybeans (prevent plant) were seeded equally to each crop, US farmers would have produced another 2.2 billion bu of crops. This is the problem for US ag markets longer term. The return of 19.4 million acres to Midwest production and trendline yields would substantially add to US stocks without additional export demand.

• The October USDA report confirmed what now seems to be a secondary top in corn. The soybean market may still have 10-25 cents of upside price potential, but a US/China ag trade deal or dire S American weather is needed to alter directional bearish Chicago price trends.

• USDA corn data is bearish relative to Dec Chicago at $3.95. Yield was pegged at 168.4 bushels/acre, up marginally from September and 1.5 bu above the market’s expectation. Even accounting for the loss of old crop carry-in supplies, new crop US corn stocks were put at 1,929 million bu. Total 2019/20 US corn disappearance was lowered 90 million bu. Exports were lowered 150 million, with ethanol’s demand draw down 50 million. This was partially offset by higher projected feed use.

• We currently see a US corn yield of 166 bushels/acre, with just 29% of NASS samples rated as mature. This compares to 80% a year ago in Oct. Additional ear weight loss is expected across the E Corn Belt. However, USDA’s ethanol and export forecasts remain overstated in our opinion. US corn export commitments through early Oct are down 52% from last year, with the USDA’s Ukrainian production forecast still 2 million mt too low. Enlarged export competition persists into early 2020.

• Following tight US corn stocks estimates early in the summer, a relative loosening of the US balance thereafter and now a drop in final 2018 end stocks, major exporter corn stocks/use is unchanged on the year. Note that Ukrainian yields are up 1% from last year with 40% of the crop gathered. The USDA projects Ukrainian corn yield to decline 6% year-over-year. A drop in US yield of 1 bushels/acre in Nov will be offset completely by higher Black Sea production. Projected world corn trade in 2019/20 was 166.6 million mt and now sits 11 million below last year. With world wheat stocks record large, there is no shortage of global grain supply. Only widespread adverse S American weather can change the oversupply.

• Our primary concern for the US market is sheer lack of US export demand, even from W Hemisphere countries. Dec Chicago is fairly priced between $3.65-3.95.

• The October Crop Production and WASDE reports were viewed as supportive for Chicago soy markets as balance sheets tightened.

• In the 2018/19 balance sheet, production was reduced to match NASS’s estimate from the September Grain Stocks Report. Imports were lowered to match Census Bureau trade data, and the net result was a 119 million bu decline in total supply. Crush increased by 7 million bu to 2,092 million, and exports were increased by 3 million bu to 1,748 million bu. Last year’s US carryout was lowered to 913 million bu.

• In the new crop balance sheet, NASS lowered planted/harvested acres by 240,000 acres. Yield declined 1 bu to 46.9 bushels/acre.

• US production fell by 83 million bu, and total supply dropped by 175 million bu. Exports were raised 5 million, and end stocks were projected 180 million bu less at 460 million. The average farm-gate price forecast was raised $.50 to $9.00/bu.

• Yields were lower in 18 of the 29 states that NASS estimates. In the Midwest States, the largest decline of 2 bushels/acre was in IL, MO, and NE. All other states were lowered by 1 bushels/acre, except MI, which was increased 1 bushels/acre. The largest yield declines were in Delta and Southern states, where the GA and SC yields were down 5 bushels/acre, while AL and KY yields were lowered 4 bushels/acre.

• In objective yield data, the 7-state pod count increased 3% from the September report. Despite the modest increase in the October count, it is still the second largest year-over-year decline in counts, behind the 2012 drought and the lowest pod population since 2013. NASS’s yield estimates implied a 5% decline in pod weights, but the implied figure is still 9% more than a year ago and record large.

• NASS’s yield estimates assume normal weather which would not account for the N Plains and N Midwest blizzard. Yields in those states will decline, but losses will not be fully accounted until after harvest (January report).

• In the global balance sheet, the 2019/20 world soybean production forecast declined by 2 million mt from September and remained at a 4-year low of 341 million mt. Nearly all the decline in global production was due to the smaller US soybean crop estimate.

• Argentine production was unchanged at 53 million mt, and Brazilian production held steady at 123 million mt. Ahead of the USDA forecast, Brazil’s crop forecast agency CONAB estimated a soybean crop of 120.4 million mt. The USDA is expected to maintain its larger crop production forecast later in the year when more is known about early season weather.

• Typically, the USDA begins following CONAB’s guidance in the December and January reports.

• The October reports did not hold a bearish surprise and were generally supportive. However, it was the bearish corn estimates that pulled soybeans down.

• Our long-held price targets of $9.30 were reached this week and we are generally bearish of any post report rallies. A China trade deal is needed to support a trade over $9.50 November.

• The USDA raised US wheat ending stocks 29 million bu to 1,046 million. WASDE adopted NASS’s final production as well as disappointing implied Jun-Aug feed disappearance. USDA also lowered 2019/20 exports 25 million bu amid ongoing US premiums to other comparable origins and another reduction in total world wheat trade. Note that US HRW stocks were raised to 491 million bu, vs 462 million in Sep. Steep KC discounts to other markets will continue.

• Wheat lacks a fundamental story. Seasonal trends in world cash values have turned positive, yet EU and Black Sea origins are offered at levels equivalent to $3.95, basis Dec KC. Note that US 2020 end stocks will stay above 950 million bu even assuming another 400,000-acre cut in seedings. Supply fear will remain lacking amid lofty end stocks. Any lasting rally in wheat will be tied to potential corn supply losses in S America should a dire summer drought develop. Wheat looks to be range bound.

• And the world wheat balance sheet continues to loosen. Total world end stocks were raised 1.3 million mt to 287.8, a record high, on a minor revision to domestic use and another 1.1 million mt cut to world trade. World trade wheat trade is now pegged at 179.7 million mt, vs. 185.4 million in June.

• Australian production was lowered 1 million mt to 18 million. This was offset by larger EU production. And we would still anticipate a 3-4 million mt hike in Russian production within the USDA’s Nov release. Major exporter stocks/use is pegged at 16.1%, vs. 15.6% in September. Major exporter stocks are not overly bearish, but it is clear that steep competition for export demand persists from Europe and the Black Sea.

• World wheat stocks will rise another 8-10 million mt in 2020 with normal weather. It is the trend of ever-higher world stocks that will cap price rallies as world wheat trade stagnates.

• Chicago trade is mixed at midday with corn futures lower while soybeans are higher with wheat caught in between. The volume of trade has been moderate to active as traders adjust positions ahead of the USDA October Crop Report and US/China trade negotiations that will start on Thursday. And traders await details of China’s offer to secure US ag goods and the response of the Trump Administration. Few, if any, have confidence on what President Trump will do.

• The uncertainty of Trump and USDA is causing traders to reduce trade risk and get to the sidelines. We agree with this risk reduction thinking but hope for a post report rally. Beyond S American weather woes, it is difficult to see how Chicago can sustain a recovery beyond the current fund short covering. US corn and wheat are not competitive in world markets and US 2019/20 exports need to be adjusted downwards. We see little or no evidence of a new demand driver that would create a bullish trend outside of loss of S American crop supplies due to weather.

• Chicago brokers estimate that funds have bought 6,300 contracts of soybeans, 3,200 contracts of corn and 1,200 contracts of wheat. In soy products, funds have bought 1,400 soymeal and sold 3,100 contracts of soyoil. If there is a supply worry over N Midwest cold weather, soyoil would be rising amid the reduced oil content and number of green beans in the crush mix. The overall loss of supply is due to Dakota snows, not the ending of the growing season that appears to be the driving fundamental force in recent days.

• Private estimates surrounding the coming cold/snowy weather has a crop loss range of; 10-25 million bu soybeans and 75-240 million bu of corn. The difficult aspect of assessing the N Plains and NW Midwest crop losses is will the extended growing season in the Central and E Midwest make up for some of the N Plains US yield reduction. No one will ever know, but the point is that the coming cold will not reduce the US crop enough to ignite a new bullish trend.  And the loss estimates depend on the longevity of the snows and when combines can get back to harvesting.

• US weekly ethanol production was 963,000 barrels per day or 283 million gallons for the week. This compares to 282 million gallons for last week. The production is the lowest of the past 3 years and below WASDE average needed for the first 5 weeks of the crop year. However, US ethanol stocks fell 891 million gallons vs 975 million gallons in the week prior, down 12%. The data is viewed as mixed, but we are concerned by the overall meagre grind rate for US ethanol producers.

• The midday GFS weather forecast is like the morning run but has lowered projected snowfall in ND and parts of SD to over 4-18”. Based on ground temperatures when the snows fall, we suspect that totals will be even less. A strong cold frontal pass will drop temperatures to 28-34 degrees across much of the Northern Plains and the NW Midwest. The growing season will end here, but unless temperatures decline to 24 degrees or below, crops will keep maturing for another 6-10 days. A drying and warmer weather pattern follows in the 8-15 day period that should allow for snowmelt and the harvest to resume. The rest of the Midwest will be frost free into October 18.

• This would not appear to be a point at which to turn bullish of corn and soybeans. We would see any post report rally as selling opportunities.  December corn will struggle on rallies to $4.00-4.10 while November soybeans struggle on rallies above $9.40.  If one wants to be more bullish it must be based on a S American drought in November or December. We see this Chicago rally as corrective.

• Green has been the colour in Chicago this morning as new buying emerged at the traditional 9:30 start time. We suspect overnight snow forecasts are the catalyst, but Monday’s Crop Progress report did lean positive amid upcoming challenging Central US weather. A close above $3.92, basis Dec 19 corn, will reflect a new 20-day high. This in turn likely attracts additional buying/short covering ahead of Thursday’s USDA reports.

• The midday US weather forecast is in line with morning output in that snow accumulation of 15-25″ will be widespread across the Dakotas. Regional accumulation upwards of 30-40″ are possible in eastern ND. The sheer amount of snow, and all within a 4-day time period, will cause massive logistical issues as well as widespread lodging and quality loss. Cooler temperatures next week will delay row crop harvesting in SD, ND and far western MN until late October. Interior US cash basis levels will stay supported at multi-year highs.

• It is estimated that managed funds this morning were short a net 112,000 contracts of corn, vs. 106,000 last Tuesday. Funds are also estimated to have been short 24,000 contracts of Chicago wheat, vs. 21,500 last Tuesday, and 9,000 contracts of beans, vs. 8,700 a week ago. Funds are covering as the 2019 US growing season will be challenged from start to finish.

• Egypt’s GASC has secured 295,000 mt of Russian and Ukrainian wheat for mid-November arrival. No other details are available yet, but the cheapest offer made this morning was Ukrainian origin at $201.90/mt, which compares to an average purchase price last week of $199.10.

• The midday S American forecast contains a much more normal pattern of rainfall across the whole of Argentina. Cumulative totals of 1-3″ will be widespread across Cordoba, Buenos Aires and Santa Fe over the next 12-14 days. These three provinces combine 70% of Argentine row crop production. However, dryness resumes across Central Brazil beyond the weekend. There is no sign that widespread rain returns to Central Brazil into Oct 23. It is tough to establish drought in Brazil during the winter months, but longer-term climate forecasts suggest a meaningful pattern change will be delayed until early November. Further cuts to US soy production will raise the burden on trend/above trend Brazilian soy yield.

• The midday GFS weather forecast is similar to the morning run but has raised projected snowfall in ND and parts of SD to over 30″. Otherwise, the frontal system along with heavy snow cover will funnel much cooler temperatures into the Central US. Overnight lows near/ below freezing will be widespread this weekend across the Plains and Upper Midwest, including IA and WI. Corn in IA as of Sunday had reached 52% mature, with WI at just 30%. A much drier pattern is projected Oct 13-20, but drying will be slowed amid cooler than normal temperatures. US harvest stays well behind average.

• Supply premium is being added amid blizzard conditions in the North and as more rain is needed in Brazil by early November. Additional net premium should be added into NASS’s Oct report. Next resistance lies at $4.01, Dec corn, $5.05, Dec Chicago wheat, and $9.25,Nov beans.

• It has been a mostly firm session to start the week, though meaningful interest in trade ahead of this week’s USDA reports is lacking. The end of the row crop growing season is due later this week via heavy snow across the Northern Plains and Upper Midwest, including pockets of northern IA. The arrival of snow cover will usher in a cooler temperature profile across the whole of the Central US thereafter. Yet, the market expects only modest downward revisions to US corn and soy production. Russian wheat production will likely be raised 1-2 million mt. Black Sea corn yields also remain well above last year.

• We note that rising non-US production estimates will keep export demand potential limited into early 2020. It is surprising that S American corn is offered at discounts of $0.10-0.30/bu to US Gulf corn into February. Whether Brazil’s 2018/19 corn crop is being understated is unknown, but it is clear the world cash markets continue to signal adequate global supply.

• We would also mention that a Russian wheat production hike of 2 million mt will nearly offset projected further losses in Argentina and Australia. Total wheat supply in the Southern Hemisphere will be up slightly on last year amid lofty Argentine carry-in stocks of 1.9 million mt, vs. just 539,000 mt the prior year. The message remains that new supply-driven fear is needed to sustain rallies beyond the Oct 10 US crop report.

• Weekly US export inspections through the week ending Oct 3 included 18.4 million bu of corn, vs. 16.6 million the prior week; 14.2 million bu of wheat, vs. 18.5 million the prior week; and 38.2 million bu beans, vs. 36 million the prior week. Note that an average weekly corn shipment pace of 38 million bu is needed to meet the USDA’s forecast, and we remain concerned over US corn export potential longer term with normal S American weather.

• For their respective crop years to date, the US has shipped just 79 million bu of corn, down 66% from a yeara go; 327 million bu of wheat, up 21%; and 154 million bu of soybeans, up 17% from this week a year ago.

• FAS this morning announced that 198,000 mt of US beans were sold to China for 2019/20 delivery, with another240,000 mt sold to unknown destinations. Recent Chinese purchases have helped the pace of shipments, but this week’s US-Chinese trade talks are critical if US beans are to compete into China beyond Jan/Feb. On a known basis, China as of today has secured 4.65 million mt of US soy. This is nearing private estimates of 5 million mt.

• The midday S American forecast is similar to morning model output. Additional rain will fall across key areas of Mato Grosso, Goias and Minas Gerais in Central Brazil over the next 72 hours. A drier pattern returns thereafter into Oct 20. Nov-Dec rain is critical to soy yield determination, but this year’s slow transition to the wet season is being watched closely.

• The midday GFS weather forecast includes heavy snowfall worth 9-15″ that will impact the Dakotas, NE and MN Thurs-Sun. Lesser totals of 2-3″ will reach into northern IA and northern KS. Cooler than normal temperatures will then expand across the entirety of the Midwest Oct 12-18. Low readings in the 30s and 40s will be common next week. A much drier pattern is projected beyond this weekend, but slowed evaporation rates will keep soils saturated. Harvest into late Oct will remain challenged.

• The supply bulls await bullish NASS/harvest data. The demand bears highlight rather weak ethanol production to date and aggressive non-US cash prices into the end of winter 2020. This leaves Chicago choppy into harvest. Longer term S American climate forecasts feature a much more normal pattern of rainfall in November.

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

Weekend summary 4 October 2019

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

Fund positions disaggregated data

• Ag futures at midday have traded both sides of unchanged in mediocre volume. Macro markets are stabilising following Wednesday’s lashing, while concern over US yields and S American precipitation in October have kept new meaningful selling limited. Choppy trade lies into NASS’s Oct 10 report, as neither the supply bulls nor the demand bears will hold leverage to move the market significantly. Actual corn harvest won’t reach 50% complete until the first of November. Precise US supply estimates await NASS’s Nov report.

• US export sales through the week ending Sep 26 were disappointing for corn and wheat but better than expected in soybeans. Corn sales through the period totalled 22 million bu, vs. 19 million the prior week. A pace of 34 million bu/week is needed to meet the USDA’s forecast. Wheat sales totalled 12 million, vs. 10 million the prior week. Net durum sales cancellations of 2.3 million bu were recorded.

• US soybean sales totalled a sizeable 76 million bu, vs. 38 million the prior week. Sales made to China totalled 57 million bu. FAS this morning also announced new soybean sales to China worth 225,000 mt.

• For their respective crop years to date, the US has sold 382 million bu of corn, down 51% from last year, 525 million bu of soybeans, down 29%, and 474 million bu of wheat, up 14% from late Sep 2018. Corn exports will struggle with non-US origin offered measurably cheaper than the US into early 2020. Soybean exports need more than just goodwill Chinese purchases, or adverse S American weather. US wheat sales are on track to meet the USDA’s 975 million bu forecast.

• Another 10 days of complete dryness is offered to most of Australia’s wheat belt. Any pattern shift hereafter will have a limited impact on wheat yield potential. 60-day rainfall in New South Wales and Queensland, which combine for 35% of total Aussie wheat production, sits at 5-30% of normal. Aussie crop estimates are drifting closer to last year’s 17.3 million mt, vs. USDA’s projected 19.0 million. Aussie wheat futures in US$ have rallied 10% since late August.

• The midday GFS weather forecast maintains needed soaking rainfall across wheat areas of Buenos Aires Oct 10-12 but has trended drier in Central Brazil. High pressure ridging is forecast to return to C Brazil beyond the middle of next week. A pattern of Brazilian dryness resumes Oct 11-17. Long range climate guidance maintains below normal precipitation in Central Brazil into the end of October. Soaking rain will be needed soon thereafter.

• The midday GFS weather forecast has added rainfall to IA, MN, WI and IL Oct 11-12. The GFS also keeps intact a blast of cold air late next week. Overnight low temperatures will fall into low/mid-30s across the Dakotas and NW Corn Belt, including parts of N IA. Damage to national yields will be minimal, but the recent rush to maturity will be slowed moving forward. Harvest into mid-month will be challenged by wet soils.

• Macro-driven weakness was short lived amid US production concerns and what has been a rather slow transition to the wet season in S America. Breaks into the Oct 10 crop report will be brief/shallow. Black Sea corn yields remain solid. US grain export potential remains weak.

• Red has been the morning in Chicago as macro markets plunge on weak US manufacturing data. Ag fundamentals remain mixed, with the battle between the demand bears and supply bulls to rage on into the release of the USDA’s October reports. Note that the Central US weather forecast maintains a favourable shift to drier Midwest weather beyond the weekend. Additional soaking rainfall is not indicated into the second half of October.

• This month’s ISM manufacturing index fell to 47.8%, the lowest since June of 2009 and down another 1.3 points from the prior month. The US manufacturing sector has contracted for two consecutive months, and financial markets are concerned over ongoing trade barriers and slow global economic expansion. The Dow at midday is down 490 points. Spot WTI crude is down $1.25. Ag markets have been forced to follow.

• And the EIA’s weekly energy report failed to offer any bullish corn/ethanol input. US ethanol production through the week ending Sep 27 totalled 282 million gallons. This is up 5 million on the previous week but down 17 million (6%) from the same week in 2018. Ethanol stocks still managed to rise 30 million gallons to a lofty 975 million gallons. The US ethanol market is well supplied despite weak production.

• US crude stocks, less reserves, were up 5.5 million barrels on the week and remain 5% above year-ago levels.

• FAS announced a sale of US beans to China worth 464,000 mt. This brings China’s total purchase since mid-September to 2.1 million mt. Additional sales will be announced in coming days, yet Chinese demand for beans will likely be capped at 4-5 million mt without trade deal progress.

• Egypt secured just 60,000 mt of French wheat for early Nov shipment at $199/mt on a fob basis. The rally in Russia’s market has allowed EU origin to better compete for nearby market share. German and French wheat is offered slightly below Russian for Nov shipment, and a lasting rally in world cash wheat markets will be tempered by ongoing competition for demand. Argentine corn basis has fallen to even money with Chicago futures, vs. US Gulf basis at $0.42/bu over. We continue to caution against chasing USDA driven rallies as US demand potential has failed to improve.

• Weekly US export sales on Thursday are expected to include 400-550,000 mt of corn, 300-400,000 mt of wheat and 1.2-1.5 million mt of beans. Year-over-year lags on corn and bean export commitments remain sizeable.

• The midday GFS weather forecast is cooler in the upper Midwest beyond Oct 10, with overnight low temperatures at or near freezing offered to ND, MN, WI and Ml Oct 11-12. Relative warmth returns thereafter, but close attention will be paid to whether the afternoon EU model follows this cooler trend. Otherwise, active showers continue across the E Plains and W Midwest into Friday. A much drier pattern evolves across the whole Central US beginning Sunday, which lasts through all of next week.

• Today’s break is mostly macro driven. Yet, fundamentally, rallies above $3.90, Dec corn, $5.00, Dec Chicago wheat, and $9.20, Nov beans, will struggle amid weak US export potential and a lack of growth in biofuel production.