Monthly Archives: December 2019

4 December 2019

Posted on December 4, 2019 by simon

• Chicago Ag markets are sharply mixed at midday. Soybeans have been the upside leaders on deeply oversold technical conditions and last week’s larger than expected fund net short position and have been up as much as 7-8 cents. Corn futures have drifted lower on the overall lack of export demand, while Chicago wheat has been caught in the middle and is lightly mixed at midday.

• Funds have been active buying soybeans and selling corn, and light soybean/wheat spreading has also been noted this morning.

• Chicago brokers estimate that funds have been net sellers of 4,000 contracts of corn, buyers of 3,500 contracts of soybeans, and have bought 1,500 contracts of Chicago wheat. In the soy product markets, funds have bought 1,500 contracts of soybean meal and have bought 1,000 contracts of soybean oil.

• S American Farmers have been aggressive sellers over the last two weeks as Brazilian and Argentine currencies have weakened, which has more than offset Chicago declines. Chicago brokers this week suggest that S American hedge pressure has been reduced this week as Brazilian and Argentine selling has been completed, at least for now. This, along with reduced US farmer selling, has limited orders above the market.

• At the same time, the drop in Chicago soy values has uncovered good Chinese demand for new crop Brazilian supply. Chinese buyers have reportedly been active booking Brazilian soybeans for late first and second quarter shipments.

• Soybean oil futures are modestly higher at midday, with support coming from continued strength in Malaysian palm oil futures and a USDA export sales announcement. Ahead of the morning open, FAS announced an export sale of 20,000 mt of old crop soybean oil to Morocco. Soybean oil export sales announcements are rare, but the US is expected to see increased export demand in the year ahead as global vegetable oil supplies tighten.

• Spot palm oil futures have rallied more than 40% from the summer lows to the highest level since November 2017. At the same time, Chicago soybean oil peaked in early November and has declined since. This, along with a strong US$, has narrowed the spot soybean oil/palm oil futures spread to just 1cent/lb today, the narrowest that the spread has been since February 2017.

• The midday S America GFS weather model update maintains good rains across nearly the entirety of the key Brazilian growing regions. This will aid growing crops and help producers finish up planting the final acres. The key soybean producing areas of Argentina look to remain concerningly dry into next week. The GFS shows rains in the 6-10 day forecast ranging from 0.25-1″, with the heaviest totals to fall in the Northern Argentine soybean belt. The Argentine forecast will be watched closely.

• Monday’s Crop Progress report showed that there was still an estimated 1.4 billion bu of corn unharvested, with an estimated 135 million bu of soybeans to cut. The trade is already expecting modest yield declines in January. Chicago traders are burned out on the back and forth China news, and yet the headlines continue to move prices. The market focus remains on trade negotiations with China and the upcoming Dec 15 tariff deadline.

3 December 2019

Posted on December 3, 2019 by simon

• Chicago values recovered from early political selling related to US President Trump’s comment that he could live without a US/China trade deal until after the 2020 US election. The potential for another year of an escalating US/China trade war produced broad selling across the US equity and commodity markets.

• And US Commerce Sec Ross indicated that the US would place new tariffs on $156 billion on Chinese goods if nothing changed. Ross left open the chance for a push forward of those tariffs, if there was progress in negotiations, but it all depends on what happens in the next 12 days.

• No deputy level meetings are planned between the US/China, but both countries are in contact. The uncertainty of a Phase One US/China deal has pushed non-fund related traders to the sidelines once again. Guessing on whether a Phase One Deal gets done is something that no trader has an edge on. Traders are reducing risk amid the unforecastable US/China trade war.

• Chicago brokers estimate that funds have bought 2,600 contracts of corn and 2,100 contracts of wheat while being flat in soybeans. Funds are sellers of 1,500 contracts of soyoil while buying 900 contracts of soymeal.

• Argentine President Elect Fernandez will take office on December 6. Rumours are flying that ag export taxes will soon be raised to 35% in soybeans (26% today), 20% on wheat (7% today), and 15% on corn (7% today). The tax increase would raise $2 billion annually and help repay the IMF loan.

• We note that the Peso has fallen far more than the tax hike which mutes the long-term impact. Should the tax rumours prove correct, Argentine farmers will see diminished profitability and will have to decide how to best juggle crop mixtures in future years. Chicago will see the Argentine tax hike as slightly bullish on 2021 and beyond. Farmers have largely moved ahead with planned cropping intentions this year.

• China has turned back to Brazil in the past few days with purchases of at least 6-8 cargoes of soybeans for late January/February. China is working additional cargoes at midday for late February/ March.

• Russia sold 295,000 mt of wheat to Egypt’s GASC in an overnight tender at fob prices ranging from $221.49-222.00 for late January, (average price of $235.94/mt basis C&F). The sale follows the poor Russian November export pace indicating that Russia has wheat to sell. EU prices fell on the news with Chicago coming under pressure. The need of Russia and Europe to export more wheat in 2020 should be capping the world wheat rally.

• The Brazilian weather forecast is favourable with moderate to heavy rainfall of 2-4.50″ for 85% of their summer row crop areas. Other than far southern Rio Grande Du Sol, the dryness will not be an issue for Brazilian crops. High temperatures are forecast to be seasonal 80′s/90′s.

• The Argentine forecast is dry with warming temperatures. The midday solution is warmer than what was offered overnight with light rains offered in the 11-15 day period. The coming warm/dry Argentine weather will accelerate soil moisture decline and increase crop stress. Argentine high temperatures look to range from the 80′s to the mid 90′s in the far western crop areas.

• Wheat did not like the return of Russia as a more aggressive seller. US wheat futures looking like they have forged a seasonal top. Chicago corn /soy futures are trying to hold in the green amid the Trump comments of “No Deal” until after the 2020 US election. Chicago traders were hoping for a Phase One Pact that would end the back-and-forth on US/ China trade. Argentine weather is becoming worrisome and must be watched. We see Chicago markets as stuck in a range awaiting fresh US/China trade news.

2 December 2019

Posted on December 2, 2019 by simon

• Chicago values are mixed at midday with corn futures higher while soybeans/wheat sag in moderate trading volume. A fund put on a package of long corn and short soybean spreads on right after the 8:30 am CST reopen that pushed March corn futures above its 20-day moving average. This sparked some additional short covering in corn before soybeans sank to new lows on US/China trade pessimism.

• Traders are doubtful that the US/China can reach the finish line on trade talks before December15 and are bracing for new tariffs on $157 billion of US goods. China has utilised most of their 10 million mt of duty-free US soybean import licenses. New soybean sales are now stalled with Brazilian fob offers cheaper beyond mid-February. Chicago has a heavy feel and a mixed close is expected.

• Fund managers are now deciding on whether to go short soybeans. The grains should be supported on tight-fisted US farmer holding and firm domestic cash markets. However, end users will not chase Chicago grain rallies which caps gains.

• Chicago brokers estimate that funds have bought 3,600 contracts of corn and 1,200 contracts of wheat.  Funds are sellers of 3,100 contracts of soybeans, 3,900 contracts of soyoil and 1,200 contracts of soymeal.

• US weekly export inspections for the week ending November 28 were; 16.9 million bu of corn, 56.9 million bu of soybeans and just 9.0 million bu of US wheat. The wheat and corn sales were under trade expectations and disappointing. China shipped out 32.8 million bu of US soybeans last week accounting for 58% of the total.

• For their respective crop years to date, the US has exported 238 million bu of corn (down 322 million or 57% from last year), 585.7 million bu of soybeans (up 99 million or 20%) with wheat exports at 463.5 million bu  (up 74.7 million or 19%). The difference in US soybean exports to date this year vs last is all about US/China trade and the politics of China’s pledge to first secure 5 million mt (late summer) and then 10 million mt in October. This demand was not evident in 2018, but modelling does not call for USDA/WASDE to raise their 2019/20 US soybean export forecast in December. US 2019/20 corn exports will be lowered by at least another 50 million bu, potentially as much as 100 million.

• US President Trump indicated that he is going to place steel/aluminium tariffs on Brazil/Argentina as both countries have presided over massive currency devaluations, which is not good for US farmers. The Brazilian Central Bank will allow its lending rate to fall to 4.5% later this month vs 14% last year, which is the reason for the Brazilian Real devaluation. The Trump imposition of Brazil/Argentine tariffs on a country’s manufactured product is a first, a warning sign, to other countries that have allowed their currencies to decline to boost their raw material competitive advantage.

• US President Trump indicated that China wants a US trade deal, but that the US Hong Kong Democracy Bill doesn’t make it better, but we will have to see what happens. The US/China are talking, but whether a deal can be struck will likely have to wait until the last minute on December 14 when new tariffs are threatened.

• The Brazilian weather forecast is favourable with moderate to heavy rainfall. And the midday model offers improved rain for Argentina in the 10-15 day period that would stave off any real crop concern. Confidence in the extended outlook is not high, but the forecast is wetter than what was offered overnight.

• Either a US/China Phase One Deal or a S American weather problem is needed to sustain a lasting Chicago recovery. Otherwise, it appears that Friday’s rally was nothing more than a short covering bounce. We should all monitor the 10-15 day Argentine forecast for verification. We anticipate the Argentine President will raise taxes on corn, wheat and soybeans by the end of the week. This news should be taken as supportive to Chicago prices. Argentine farmers continue to aggressively sell both old and new crop before the tax increase.