• Chicago grain markets are mixed in slow volume with few traders wanting to add to their risk ahead of the weekend. The US stock market is in big retreat expecting that China and Asian equities will come under sizeable pressure next week. The US Dow is off 400 points on liquidation amid the Cororna virus fear.

• We look for a mixed close with everyone watching China’s return from the holiday on Monday. Questions abound on whether China will be seeking (more or less) food in coming months based on the virus outbreak.

• In 2003, China booked additional food to fill the domestic void. Traders wonder with the Phase One agreement becoming active, will China will be doing the same in 2020. China should be issuing duty free import licenses in coming weeks as the 30 days to activate the Phase One pact passes.

• Chicago brokers estimate that funds have sold 2,000 contracts of corn, 3,200 contracts of soybeans, and 2,500 contracts of wheat. In soy products, funds have sold 4,400 contracts of soyoil and 2,300 contracts of soy meal. Today marks the end of the month, funds have not a good start of 2020. Most are heading to the sidelines and liquidating length amid the fear of a worsening coronavirus outbreak next week.

• Measuring the economic impact of coronavirus is impossible to gauge today. That will depend on how long the virus persists and whether the world medical community can come up with an effect treatment method. Historically, SARS did not produce a decline in China/World food consumption, but the concern did not totally fade until spring. The big question for this novel virus is whether it will linger and cause a lengthy period of medical/economic worry. We just don’t know today, but sources in China say consumers are worried about food supplies and making sure their own stockpiles are adequate.

• US exporters reported that 134,000 mt of corn to South Korea for the 2019/20 crop year.

• US Biodiesel production fell to 127 million gallons in November, from 144 million gallons in November of 2018. The amount of soyoil used in November 2019 biodiesel production was 527 million pounds or 54% of the total. The stats were slightly bearish amid the lack of a blender’s credit. Yet, US domestic and export demand looks to underpin Chicago soyoil futures on any further break.

• US and S American farmers are shutting down their cash sales which is starting to underpin cash basis. If Chicago drops further next week, we doubt that farmers will be scared into making cash sales.

• The midday GFS weather forecast is similar to the overnight run with solid rain for much of S America. No extreme heat is offered which will help Argentine corn. The forecast leans positive for S American yields.

• China regionally will be getting back from the Lunar New Year and it will be interesting to monitor the flow of food from vessels into interior distribution hubs. Food shortfalls are noted throughout China today and the Government cannot allow the shortages to deepen amid the fear of coronavirus. Demand shocks are possible.

• Today is the end of the month with fund liquidation evident. This is no place to turn bearish unless you think that China will not adhere to Phase One US ag purchase promises. Research looks for China to keep its ag purchase pledges. Ag bottoms should be forming early next week as “risk off” runs its course. March soybeans and soyoil are near key support.

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Weekend summary 31 January 2020

• Chicago grain markets are lower as funds sell amid the general decline in a host of commodity markets tied to coronavirus and Brexit. The end of the month looms and January has not been a kind start of the year for many managers. Risk off is the theme with grains/livestock under acute selling pressure. China’s financial markets will reopen on Monday and strong selling is anticipated, following the losses in other world financial markets amid the coronavirus’s deepening drag on China’s economy.

• The Hong Kong stock market fell 3.5% while Taiwan fell 5.5% overnight. Seasonally, as China returns from its Lunar New Year, US ag futures normally rally on the anticipation of fresh China buying. The fear today is coronavirus could impact on the Phase One Deal ag purchases with the US.

• Chicago brokers estimate that funds have sold 7,000 contracts of corn, 5,400 contracts of soybeans, and 4,200 contracts of wheat. In soy products, funds have sold 4,300 contracts of soyoil and 2,900 contracts of soymeal.

• GASC secured 180,000 mt of French wheat for March 11-25 shipment. The cost of the wheat purchased was $231.10/mt basis FOB plus an estimated $15.00 for freight. This purchase was down $5.10/mt from their purchase of last week which including mostly Russian/Ukrainian wheat. GASC has now covered their import needs and the window for additional purchases before their April/May wheat harvest is closing, when Egypt normally looks to secure its own domestic crop for milling needs.

• The WHO (World Health Organization) stated that coronavirus is not a not a global health emergency. The new virus is causing acute sickness and an unfortunate death of 2.2% of those infected. The mortality rate has been in decline for the past few weeks with those perishing largely elderly or the young. The decline in the mortality rate is good news and will help calm nerves following the China’s return from the Lunar New Year on Monday.

• US export sales for the week ending Jan 23 were; 23.7 million bu of wheat, 48.6 million bu of corn, and 17.3 million bu of soybeans. For their respective crop years to date, US wheat sales are 769 million bu (up 111 million or 17%), 848 million bu of corn (down 423 million/33%) and 1,164 million bu of soybeans (up 48 million) or 4.3%.

• US soymeal sales were (again) huge at 438,800 mt with soyoil sales at 29,400 mt. US soymeal sales are above last year while soyoil sales are up 143,000 mt or 34%. The US soy product sales pace should rally US crush margins.

• The midday GFS weather forecast is like the overnight release with good rains across much of S America. No extreme heat is offered which will aid crops in both Brazil and Argentina. Research maintains that Brazil will harvest a record large soybean crop in 2020. The Argentine rainfall prospects look to improve during February.

• Chicago markets are under acute pressure on fund sales and the confirmation of the first human to human transmission of coronavirus in Illinois. The coronavirus risk is front and centre and it is a risk off day. The trading focus will shift to the February 11 WASDE report and the likelihood that China will issue duty free import licenses to restock their shelves in the coming week. This is no place to make new sales.

• Chicago ag markets are mixed with any directional passion lacking. The volume of trade is slow with uncertainty hanging heavy regarding coronavirus and what, if any, impact it will have on Chinese purchases of US ag products. We look for a mixed trade with Thursday’s weekly export sales report to underpin corn and livestock markets on the expectation for sizeable new sales.

• Wheat futures are sinking amid the likely increase in sales from Russia from mid-February onward as the spread between old and new crop prices equates to nearly $0.80/bu. There is no incentive for a Russian farmer to store wheat beyond March. Moreover, the Russian ag ministry has stated that it will offer annual export quotas for grain exports to help manage its domestic supply.

• Russia did not alter its expectations for 2019/20 Russian grain exports with wheat staying put at 36.0 million mt. Russian wheat exports have slowed dramatically since October as Russian grain prices started to rise. Research argues that 2019/20 world wheat demand was front loaded which means that Russian wheat exporters will have to become more competitive ahead of their new crop. Research argues based on pace analysis that 2019/20 Russian wheat exports could decline to 32-33 million mt.

• Chicago brokers estimate that funds have sold 2,400 contracts of Chicago wheat, 3,000 contracts of corn, and 1,900 contracts of soybeans. In soybean products, funds have sold 2,100 contracts of soyoil and 2,600 contracts of soymeal.

• US President Trump inked the new USMCA this morning. The new deal will assure US agriculture with both bordering neighbours.

• USDA Sec Purdue indicated that he had no idea whether the coronavirus would affect China’s pledge to secure US farmgate goods under the January 15 Phase One Trade agreement. We hear that China has been in touch with the US, but China has until July or August to meet its purchase pledges before USTR would call out China and ask for discussions. The point is that the debate on what China will or not do will persist. China is likely in the coming weeks to announce/release duty free import licenses so that its importers can step forward and make new US ag purchases outside of the TRQs that are already in force. China can secure US corn with TRQ import licenses already issued.

• The midday GFS weather forecast is wetter in Argentina compared to the overnight release. This puts the GFS in better alignment with the EU model’s forecast and adds to our confidence that extreme dryness will be averted across S American during February. No extreme heat is offered which will aid crops in both Brazil and Argentina. Research maintains that Brazil will harvest a record large soybean crop in 2020.

• This is no place to make new sales with Chicago lows likely scored earlier this week amid coronavirus fears. Yet, Chicago rallies won’t be sustained unless actual Chinese buying of US ag goods is confirmed.

• US President Trump appears confident in his call for US farmers to buy larger tractors and more land amid China’s expected ag purchase plans at a USMCA signing ceremony. Chicago wants to see actual China demand before reacting with any upside vigour. Research expects that China will return from its Lunar New Year holiday with concrete plans for US ag purchases.

• We expect that China will issue duty free licenses for new purchases in the coming weeks.

• Chicago ag markets are mixed, with corn higher on nearby export demand and wheat/soy a bit weaker on a lack of fresh fundamental news. Macro markets continue to stabilise despite ongoing elevated uncertainty surrounding China’s coronavirus. Spot WTI crude is $0.45/barrel at $53.60. Ethanol and gasoline futures have followed. The Dow at midday is up 200 points.

• Exporters this morning sold 124,000 mt of corn to Mexico for 2019/20 delivery. FAS’s daily reporting system since last Thursday has featured new corn sales of 522,000 mt. Weekly FAS corn sales are likely to reach/exceed 1.0 million mt in each of the next two reports.

• Argentine fob corn basis continues to firm. Fob basis this morning is quoted at $0.75-0.90/bu over Chicago futures for Feb-Mar. This compares to Gulf basis of $0.67/bu over. Argentine and US origin corn is offered near parity for Apr-May.

• Argentine corn basis typically begins its seasonal retreat once harvest reaches 30% complete (late April), but importers today see US corn as a more logical supply for winter/spring arrival. And recall managed funds are estimated to be short some 75,000 contracts of corn currently.

• However, US ethanol production margins remain negative in spot and deferred positions. The EIA’s weekly report on Wednesday will reveal further seasonal declines in US ethanol production, while a lack of export improvement will keep ethanol stocks at/above last year.

• Other news is lacking but European ag futures have turned positive at midday. Even rapeseed (and Chicago soy oil) futures have largely shrugged off incredible weakness in Malaysia’s palm oil market overnight.

• We doubt that coronavirus, with known information, will cause any lasting damage to global demand and trade flows. But we reiterate that it will take time to measure just how contagious and dangerous the illness is.

• The US forecast maintains heavy rain/snow across OK and central KS in the next 24 hours. A brief drop in US temperatures occurs beyond Feb 4, but bitterly cold readings will stay confined to the Northern Plains.

• The midday GFS weather forecast is wetter in Argentina compared to the overnight release. This puts the GFS in better alignment with the EU model’s forecast. Net draws in soil moisture will persist in Buenos Aires, but two meaningful events will impact Cordoba and Northern Argentina in the next 10 days. The arrival of this moisture will prevent a pattern of excessive heat there during the first 10 days of Feb. Normal rain continues in Central Brazil. Excessive precipitation will stay confined to Minas Gerais the fringe producing areas in eastern Brazil.

• Sideways trading looks likely to occur into late February, but like a year ago rallies will struggle into Mar-Apr as S American crops are gathered.

• Chicago corn, soybean and wheat futures remain weak at midday. US and European wheat futures have crawled off session lows, but it is clearly a risk-off day for global financial and raw material markets. The Dow opened sharply lower and at midday is down 400 points. Crude and gasoline futures have fallen to lows for the recent move, with spot RBOB trading at $1.45, near a 12-month low. The plunge in energy markets has weighed further on both ethanol production margins and the incentive to boost domestic blending.

• Today’s weakness of course centres on the spread of coronavirus in China and East Asia, including Thailand, Singapore and Japan. The Yuan has been in a weaker trend since news of the virus broke. The ongoing spread of the illness will also, on the margin, negatively impact travel and other discretionary spending in Asia. But otherwise, there is little known about how far reaching or impactful coronavirus will be in the days and weeks ahead. For now, risk exposure is being reduced.

• Research suggests that US and world wheat markets will be most supported on breaks as exporter stocks will stay relatively tight into summer. But in addition to broad commodity selling, S American weather forecasts are improving, and US export demand is hardly exciting.

• US export inspections through the week ending Jan 23 included 23 million bu of corn, vs. 16 million the prior week but against an average of 40 million bu required to meet the USDA’s forecast. Soybean inspections totalled 38 million bu, vs. 44 million the prior week. US wheat shipments were just 8 million bu, vs. 19 million the prior week. Work continues to suggest that the USDA’s US corn export forecast is 75-100 million bu too high, even assuming the arrival of Chinese buying this spring.

• Needed moisture is forecast to impact much of Europe and the Black Sea in the next 10 days. Heavy snow is due in Central Europe, Ukraine and the northern latitudes of Russia this week. Rainfall of 0.25-0.50″ will impact Southern Russia. There is still some concern over abnormal warmth in the Black Sea, but no change to bitterly cold temperatures is indicated into mid-February. The coming boost in soil moisture across France and Germany will be welcomed.

• The midday GFS weather forecast is consistent in allowing better rainfall to spread into Northern and Western Argentina beyond the next 24 hours. Light showers will dot much of Argentina at mid-week. A more potent system is advertised Feb 3-6. Cumulative totals of 1-2″ will impact Argentina’s northern crop belt in the next 10 days, while the GFS maintains below normal precipitation in Buenos Aires. Recall the EU model is more expansive with coming Argentine precipitation, and key in the next 1-2 days is how the models come to agreement. We note that the EU model remains the better performer – for now. Normal showers persist in Brazil, with excessive totals 5″ plus isolated to pockets of Goias and Minas Gerais. Soy harvest in Mato Grosso will continue normally.

• We would advise against chasing breaks amid rampant market uncertainty. Yet, the extent of any recovery in corn, soy will be a function of S American production longer term.

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Weekend summary 24 January 2020

• Chicago corn, soybean and wheat futures are mixed at mid session. It is all about US export demand potential in determining morning Chicago price action. Soybeans are weaker as China is showing no interest for nearby US soybeans while China could book US corn as it is the cheapest feedgrain in the world with TRQ import licenses outstanding and active. Wheat is rising on world values (gains in French and Russian markets). French grain markets are embroiled in a labour/transit strike while Russian farmers are tight fisted with existing old crop wheat stocks. At some point in mid to late February, we expect that Russian farmers will wake up to the hefty old vs new crop premiums of over $24/mt. Chicago has a firm feel, the risk as we see it is to the upside into the weekend.

• Chicago brokers estimate that funds have bought 4,600 contracts of wheat while selling 3,100 contracts of corn and 7,400 contracts of soybeans. In soy products, funds have sold 4,300 contracts of soyoil and 2,200 soymeal. US weekly export sales for the week ending January 17 were; 13.6 million bu of corn, 44.0 million bu of soybeans, and 16.0 million bu of wheat.

• For their respective crop years to date, the US has shipped out 371 million bu of corn (down 440 million or 54% from last year), 888 million bu of soybeans (up 170 million or 24%) and 585 million bu of wheat (70 million or 13.6%). The US corn export pace is pitiful and calls for a further 100-150 million bu in 2019/20 US corn exports. Even if China were to secure 2-3 million mt of old crop US corn, it is hard to statistically justify the USDA annual forecast.

• There is no UDSA confirmation that China booked US corn off the PNW for spot shipment last Friday. Cash sources report that they cannot rule out that a few cargoes were sold, but other than China asking for PNW and Gulf fob corn offers, nothing else appears to be occurring. China sources speculate that China could book US ag commodities before the Spring Festival holiday which starts on Saturday, but most expect that China will wait until early February before becoming more active buyers. The US/China Phase One agreement calls for China to activate US pork by no later than January 25, while the grains have 30 days, February 25. Amid a potential bullish Feb US WASDE report that includes China demand for US ag goods is expected to underpin Chicago grains.

• The midday GFS weather forecast subtracted rain from Argentina while adding it to Northern Brazil. The 10-day Brazilian rainfall forecast now includes totals as much as 5-8.00″ which will produce localised flooding. Argentina will be dry for much of the 10 and 14 day forecast as soil moisture declines. The falling soil moisture profile will introduce the potential for heat next week with highs ranging from the upper 80′s to the upper 90′s. The forecast has to be watched with the early soybean harvest underway across Mato Grosso and Goias.

• The declining soy/corn ratio has Midwest farmers talking about planting more corn. The new crop soy/corn harvest ratio stands at 2.37. The next downside price target for March beans rests at $9.00-9.05, a 61.8% retracement of the Nov-January rally. We would not advise a bearish bias below $9.00. Wheat has pushed to new rally highs and we expect that March corn will try to test $3.92 resistance this week. Until there is greater harvest pressure generated from N Brazil, Chicago has more upside potential than downside risk.