• Chicago has lacked volume as traders try to understand the demand risk of China’s coronavirus against its pledge to open its markets and secure US ag goods as early as next week.

• Macro financial markets have recovered from overnight selling as the depth and length of China’s coronavirus outbreak is debated. WHO stated that cases outside of China have not been rising while the Trump Administration suggests that their confidence in China’s reporting of cases/deaths is low.

• World Central Banks could embark on another spree of lowering interest rates to battle slowing SE Asian economic growth. This is underpinning world equity valuations. The hope is that coronavirus will be like SARs with a peak in cases due either in late winter or early spring.

• Chicago traders estimate that funds have sold; 3,000 contracts of wheat/corn (each) while buying 4,500 contracts of soybeans. In soy products, funds have bought 2,200 contracts of soymeal while being flat in soyoil.

• US weekly export sales for the week ending February 6 were; 23.6 million bu of wheat, 38.1 million bu of corn and 23.7 million bu of soybeans. The wheat and corn sales were better than expected and supportive.

• Crop year sales to date stand at; 805 million bu of wheat (up 147 million or 22%), 935 million bu of corn (down 336 million or 26%), and soybeans at 1,211 million bu (up 95 million or 8.5%). Research argues that WASDE could reduce US corn exports by another 25-50 million bu in the April report.

• US merchandisers report that getting Midwest farmers to part with stored cash trade is difficult, unless the corn has a quality issue. Basis levels are firming on the lack of cash movement from the farmer for both corn and soybeans. We note that farmer confidence in their future is at a recent 5 year high based on the US/China Phase One agreement. It is likely that farmers are waiting for China purchases to make additional cash sales.

• CIF Gulf soybean bids are walking upwards in recent days which has some speculating that China is lurking with new purchases for March. Brazil has sold a record number of soybean cargoes for March to world importers, which could force demand back to the US as the Brazilian harvest garners speed.

• The midday GFS weather forecast is slightly drier in Argentina in the 10-day forecast, which looks to persist into the closing days of February. Above normal rain looks to drop across Central and Northern Brazil which will cause some harvest delays but maintain favourable soil moisture. Soil moisture will be abundant for newly planted safrinha corn, but whether the crop can be completely planted prior to March 10 will be important. Rainfall returns to Argentina next Monday-Tuesday. S American crop potential is likely to be record large.

• Traders are trying to position for the opening of China’s ag markets next week by being long of soybeans/pork/beef. China is expected to open their markets by issuing duty free import licenses or reducing tariffs. China has dire foodstuff shortages amid the coronavirus. China needs food not feed. S American crops are record large and the US will return prevent plant acres back into production. The world is oversupplied with grain/soybeans.

• Chicago ag futures are up slightly at midday. Chicago wheat futures have recovered as major chart-based support was neared as the market began to flirt with oversold territory. But it is macro market strength that is leading the charge as the trade expects the impact and spread of coronavirus to peak shortly. Spot WTI crude is up $1.45/barrel at midday, despite another build in US crude stocks, with the Dow up 200 points.

• The number of new coronavirus cases has been on the margin slowing, with Chinese state officials urging food processing industries to resume normal workflows. Chinese soy crushers are beginning to return to pre-virus levels of activity after operating at just half-capacity last week.

• There is a dire need to boost near-term food supplies within China. Medical officials are suspecting the virus outbreak may end entirely by April. It is difficult to be precise and prior calls for peak virus incidences were a bit premature. But the slowing of new cases will likely boost sentiment and consumer spending in East Asia moving forward. Calls within China to alter Phase One commitments persist, but longer term, coronavirus looks to lose its impact on global financial markets by mid/late spring.

• US ethanol production through the week ending Feb 7 totalled 304 million gallons, a sharp, but seasonal, drop from the prior week’s 318 million gallons. Cumulative weekly US ethanol production sits at 6.97 billion gallons, down a modest 28 million from early Feb a year ago. Recall the USDA raised ethanol’s corn demand draw to 5,425 million bu, 49 million above last year. Monthly ethanol yields will be watched carefully moving forward.

• Ethanol stocks last Friday were up 37 million gallons to 1,023 million gallons. This is a record level for early Feb and is the fourth largest figure for any week on record. Improved ethanol export demand is needed.

• Other news is lacking. Key nearby will be weekly Brazilian soy harvest and safrinha seedings data. But we doubt a new trend will be established ahead of the USDA’s 2020 Outlook Forum balance sheets, due next Thursday. This will give more insight into the USDA’s expectation of US export demand following the signing of Phase One.

• The midday GFS weather forecast is slightly drier in Central Brazil in the next 10 days, though normal/above normal precipitation will return to the region beyond early next week. It remains that the jet stream moves southward in the 8-15 day period. High pressure ridging will exit Brazil. This will allow for daily shower activity to be established into the very end of the month. Soil moisture will be abundant for newly planted safrinha corn, but whether the crop can be completely planted prior to the first week of March is most important. Rainfall returns to Argentina next Mon-Tues. Argentine crop production potential is rising.

• Chasing breaks and rallies is unwise, and not until US and Brazilian weather in March-April is better known will a clear trend develop. The spark needed to be outright bullish will be lacking amid tepid world GDP growth and strength in the US$, which is nearing a 4-month high.

• The USDA February Crop Report held few surprises with US 2019/20 corn end stocks holding steady while US 2019/20 wheat and soybean stocks declined. The report was supportive to soybeans, while being neutral to the grains. It is the February USDA Outlook new crop S&D’s that will more fully reflect China demand based on the Phase One US/China deal. We do not see today’s WASDE report as changing prevailing choppy Chicago price trends.

• WASDE raised China’s 2019/20 world soybean imports by 3 million mt to 88 million. They also raised China’s 2019/20 wheat imports by 800,000 mt to 4.00 million mt. WASDE held steady their estimate of corn imports at 7.2 million mt which fully reflects their TRQ requirement under the WTO. China cotton imports were also unchanged.

• In world crop production, WASDE raised their estimate of the 2020 Brazilian soybean crop to a record large 125.0 million mt with their corn crop at 101.0 million mt. The 2020 Argentine soybean crop held steady at 53.0 million mt and corn at 50.0 million mt. The Brazilian soybean crop was record large at 125.0 million mt with its exports were hiked to a record 77.0 million mt.

• US corn 2019/20 end stocks held steady at 1,892 million bu. WASDE raised us ethanol demand by 50 million bu to 5,525 million while reducing exports a like amount to 1,725 million bu. The annual average farmgate price held steady at $3.85. We note that WASDE chose not to indicate that China would not secure US old crop corn.

• US soybean 2019/20 end stocks fell 50 million bu to 425 million with WASDE hiking US soybean exports by 50 million bu to 1,825 million. WASDE estimated that of China’s increase imports of 3.0 million mt to 88 million, the US would receive about half the business. WASDE cut their estimate of the annual farmgate price to $8.75, even with the Phase One Deal signed and US soybean stocks declining.

• US soyoil end stocks rose 69 million pounds to 1,515 million pounds with domestic use cut 400 million pounds while exports were raised 200 million pounds. Production was also adjusted downward leaving stocks that are still historically tight.

• US 2019/20 wheat end stocks fell 25 million bu based on a like hike in exports to 1,000 million bu. The average farmgate price held at $4.55/bu.

• WASDE took a conservative view of how much China demand will be forthcoming in an old crop position for corn, wheat and soybeans under the Phase One Agreement. WASDE did adjust US pork exports upwards to a record, but like traders, WASDE wants to see/measure/taste Chinese purchases of US ag commodities before raising estimates and making a bold US export statement. Farmers/traders are disappointed, but it is the arrival of real China demand that will spark a Chicago rally. February 15 is only a few days away for the commencement of the 2020 annual China purchase program.

• Chicago is stuck in a price trend that we have been reflecting on for much of the past 10 days. S American crops are huge which will weigh on Chicago prices when US summer row crops are planting in April/May. However, the bears must be careful not to press their luck too much with China demand potentially lurking in the last half of February. Patience is required, but we expect that China will step forward with initial purchases that spark a Chicago rally. It is all about timing.

• Chicago grain markets are mixed at mid session with soybeans firm, while the grains sag with corn giving back all of Friday’s gain. The large fund short in soybeans is spurring the bounce along with rumours that 2-3 cargoes of US soybeans sold to China in a new crop position.

• The China sale is modest but combined with the near record short position in soybeans by funds, it has spurred short covering ahead of Tuesday’s USDA February crop report. Chicago bulls remain hopeful that China issues duty free import licenses around Feb 1. Hints of demand for US sorghum and the morning US soybean sale to China have rekindled hope regarding Phase One Deal compliance. We look for a mixed close and choppiness into the February USDA report. The bulls have a window from now into the USDA Outlook Meeting to make a stand.

• Chicago brokers estimate that funds have sold 3,500 contracts of wheat, 2,100 contracts of soyoil and 2,600 contracts of corn. Funds have bought 5,400 contracts of soybeans and 4,400 contracts of soymeal. We are not seeing any meal/oil spread unwinding, just outright short covering in soymeal futures.

• Algeria is rumoured to have bought 500,000 mt of French wheat at a CIF price that was like their last tender. The FOB price of French wheat was up, but the freight costs were down which allowed for Algeria to pay a landed price that was like their last tender of January 20. Algeria has now covered their wheat import needs into spring.

• US weekly export inspections for the week ending February 6 were; 30.3 million bu of corn, 19.2 million bu of US wheat, and 22.2 million bu of soybeans. Wheat exports were on the high end of expectations while US soybean shipments were disappointing.

• For their respective crop year’s to date, the US has exported 425 million bu of corn (down 463 million or 51%), 1,000 million bu of soybeans (up 165 million or 20%) and 631 million bu of wheat (up 66 million or 8%). We expect that WASDE will trim its US corn export estimate on Tuesday. There is no way of knowing how much if any US corn that China will secure in an old crop position.

• The Brazilian Real is priced at 4.31:1 US$ and the Argentine Peso at 61:1 as key ag export currencies continue their decline.

• The Brazilian Central Bank lowered their borrowing rate to a record low 4.25% last week with Argentina negotiating with the IMF this week over debt payments. We expect the Real, Peso, Ruble and Ukraine Hryvnia will all stay depressed adding to the profitability of non-US farmers. Brazil has dropped its Central Bank lending rate by nearly 9% over the past year, a big deal!

• The midday GFS weather forecast is wetter for Argentina with similar rains for Brazil. Temperatures are a few degrees cooler for Argentina than the overnight run. We see no crop problems for either Argentina or Brazil. The initial crop harvest is well underway across much of Brazil and winter corn is being seeded normally. The recent and upcoming rains are raising Argentine corn/soy yield potential.

• China’s inflation rate soared to 20.6% in January with pork prices up 116%. Amid coronavirus, China must do something to pressure domestic meat and consumer prices. USDA’s February WASDE report aside, traders are hopeful that China could soon issue duty free import licenses.

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

Weekend summary 7 February 2020

• Chicago grain markets are firm at midsession on diminished selling as the US DOW index rallies 500 points as the fear of coronavirus is in retreat. The volume of Chicago morning grain trade has been modest. Aggressive sellers that were present late last week are no longer evident. Traders are leery about being overly bearish following the 2-day injection of $1.6 trillion yuan into the Chinese economy. Such massive economic stimulus can produce pent up commodity demand when virus worries wane.

• We find it somewhat premature to suggest that the worst of coronavirus has passed, but following recent sharp commodity losses, a bounce was due. Traders will be closely assessing the medical progress in fighting coronavirus going forward. Any drug or mixture of drugs that fights coronavirus will cause short covering.

• Chicago brokers estimate that funds have bought 3,000 contracts of wheat, 4,000 contacts of corn, and a net 800 contracts of soybeans. In soy products, funds have bought 2,000 contracts of soyoil while selling 2,000 contracts of meal.

• US White House Economist Kudlow stated that the export boom from the US/China Phase One Deal could be delayed, but that the economic impact would be minimal. The US/China Phase One Deal is a multiyear commitment. We note that China’s commerce minister stated overnight that China would be looking to world ag imports to stem the developing foodstuff shortfalls. China may ask for deferrals on energy commitments, but in terms of food needs, coronavirus has created a more acute need for imported meat and other US food ready products.

• We doubt that the Trump Administration will alter any Phase One China purchase commitments with the yearlong agreement not even started. Rumours persist that China could release duty free import licenses for US ag goods in coming weeks.

• Brazilian soybean exporters report that China has been more active in securing 5-7 cargoes of soybean cargoes for April. Brazilian soybean cargoes are selling below the US Gulf for April.

• Thailand is reporting that that it is seeing a benefit of mixing a cocktail of drugs in treating coronavirus. However, it is too early to declare any gold standard mixture for treatment. It is hoped that the medical community will uncover treatment mixtures/methods that becomes effective for critical to serious patients. It is all about further lowering the mortality rate.

• The midday GFS weather forecast is too wet for Northern and Central Brazil with rainfall totals raised from the overnight solution to 5-10.00″. Such rains will slow the harvest and cause concern for the winter corn seeding. This will become more of a market topic if the wet trend persists. We note that the 11-15 day forecast maintains the wet trend into February 20. Optimal seeding dates for winter corn run from early February into mid-March. Corn seeded after mid-March struggles with the dry season that often starts in late April and May.

• Chicago values are bouncing with Monday’s losers being today’s winners. We remain confident that China will adhere to its Phase One Purchase Agreement and start releasing duty free import licenses in coming weeks. The real struggle for Chicago is not coronavirus, but the tug-and-pull from the world’s oversupply of grain/oilseeds and China’s sporadic US buying to occur under the duty-free licensing system. Research awaits China demand to finish 2019 sales and work into a larger short position for 2020 crops. S American crop sizes are too large to sustain a China purchase rally.