Monthly Archives: May 2020

13 May 2020

Posted on May 13, 2020 by simon

• Chicago ag futures are weaker by varying degrees at midday. Of note is that WTI crude futures failed to garner much upside momentum despite a modest but surprising draw in weekly US crude stocks. Short-covering in corn has paused as forward ethanol margins remain negative and Central US weather looks broadly favourable into the opening week of June. US and world wheat futures are down sharply on a lack of fresh news, an aggressive sale to Algeria, and as additional moisture boosts lie in the offing across E TX, OK and E KS.

• The market’s reaction Tuesday to the USDA’s May WASDE was limited. US and world corn stocks were lower than expected. But the data was by no means bullish and until there’s a major change in the perception of grain oversupply, rallies will remain brief and uneventful.

• This week’s weekly EIA release featured another decent improvement in US gasoline consumption. It should be noted that restaurant traffic has improved in areas where lockdown restrictions have been relaxed. Markets will continue to monitor infection rates in those regions, but US economic activity has risen from the lulls of early April.

• US gasoline consumption through the week ending May 5 totalled 7.4 million barrels/day, vs. 6.7 million the previous week and vs. 5.1 million during the first week of April. This is still down 19% from the same week in 2019, but the rise in miles driven is drawing down US petroleum stocks. US crude stocks, less reserves, on May 5 totalled 531.5 million barrels, vs. 532.2 million the prior week. Ethanol stocks last week were down 60 million gallons to 1,015 million. US ethanol stocks have fallen a massive 147 million barrels in the last three weeks.

• However, gains in weekly ethanol production have been muted as plants stay closed and profitability remains absent. Ethanol production last week totalled 181 million gallons, up 6 million from the previous week but still down 41% from last year. It is estimated that weekly production of 275 million gallons will be needed throughout the summer months to validate the USDA’s forecast. Spot futures-based margins are fractionally in the black but deferred margins remain negative.

• FAS this morning confirmed that China secured another 396,000 tons of US soybeans, split evenly between old and new crop delivery. This demand had been rumoured and largely digested.

• Otherwise it is still tough to find bullish input. Spotty dryness will persist across key area of the EU/Black Sea wheat belt, but Europe and Ukraine’s primary corn regions will be well watered.

• The GFS weather forecast also hints at soaking rainfall of 1.0-1.5″ across Mato Grosso. This will add to what is already record safrinha yield potential there.

• The midday GFS’s US forecast is consistent with the morning run. A warming of temperatures is imminent, with highs across the Plains and Midwest to reach into the mid-70s on Thursday. Moderate to heavy rainfall will impact a wide swath of the Central US, stretching from OK/KS into the Eastern Corn Belt, over the next 3-4 days. Complete dryness will be established next week. Scattered Midwest showers then follow May 24-25. This mix of rain, sun and warmth will boost vegetation health in the weeks ahead.

• Ag markets worldwide are looking for demand. Also key in the days/weeks ahead will be the evolution of US-China tensions. A positive atmosphere is critical for China in meeting its Phase One buying commitments.

12 May 2020

Posted on May 12, 2020 by simon

• The USDA May Report failed to offer any major market surprises. US 2020/21 corn stocks are forecast at the largest in over 3 decades (3,300 million bu) while US wheat stocks stayed large (909 million bu) with soybeans more than adequate at 405 million bu. 2020/21 world wheat stocks were record large at 310 million mt (up 15 million), world 2020/21 corn stocks were up 25 million at 340 million mt, while world soybean stocks fell nearly 2 million to 98.4 million mt. The US and world hold an abundance of grain and oilseeds in old and new crop positions.

• Chicago outlook hinges on Central US/world weather and future Chinese demand for US ag goods. We would note that WASDE is taking a stepped approach in reducing US/world demand due to Covid-19. WASDE made little or no demand reduction in 2020/21 world trade/consumption due to Covid. Our concern is that WASDE is too optimistic as the virus grips the world’s health. However, forecasting the end of the virus is impossible. Thus, WASDE will be making a demand reduction on a month-by-month basis. This means that without dire weather, Chicago rallies will be capped with price bounces tied to the arrival of China for US farm goods.

• WASDE estimated the 2020 US winter wheat crop at 1,255 million bu. The crop is down 49 million bu from last year, but it was above prior trade expectations. The US HRW crop was pegged at 733 million bu, SRW at 298 million bu with white wheat at 223 million bu. The US 2020 all wheat crop was forecast at 1,866 million bu, down 54 million from last year.

• WASDE forecast 2020/21 US wheat end stocks at 909 million bu with exports at 950 million bu. Such end stocks model out to a farm gate annual price of $4.60/bu which will limit rallies in KC spot wheat futures above $5.00. US wheat feed/ residual wheat use was placed at 100 million bu based on the cheap price of corn.

• 2020/21 world wheat production is forecast to be record large 768 million mt with the Russian crop at 77 million mt, Ukraine at 28 million mt, and Europe at 143 million mt. Russian and EU wheat crop cuts were as expected due to late winter and early spring dryness. China looks to produce a record large wheat crop of 135 million mt. The size of world production is bearish with the 2020 Australian crop estimated at just 24 million mt. The Aussie crop could be 2-6 million mt larger. World wheat stocks at 310 million mt is massive with world less China stocks at 150 million mt.

• US 2020/21 corn production is forecast to be record large at 15,995 million bu. This is the first time that the US has produced a 16 billion bu corn crop. The size of the crop allowed WASDE to raise their feed/residual total to 6,050 million bu. US exports were raised to 2,150 million bu with China to take 7 million mt. The farm gate price was forecast at $3.20 which consider to be $0.30/bu too high.

• World corn stocks were raised to 340 million mt (up 25 million) the largest since 2018/19. WASDE followed prior trendline consumption increases and did not make any adjustment for Covid-19. We expect that WASDE will be forced to trim world corn consumption/trade if the virus persists through the summer. The 2021 Brazilian corn crop was forecast at a record large 106.0 million mt with Argentina at 50.0 million mt. The Ukraine new crop harvest was pegged at a huge 39 million mt. Local currencies are fanning an accelerated world corn production trend.

• US 2020/21 soybean end stocks were forecast at 405 million bu assuming a crop of 4,135 million bu (up 568 million bu from last year). The yield was forecast at trend at 49.8 bushels/acre with seedings at 83.5 million acres. We expect that US 2020 soybean seeding will rise at least 1.5 million acres to 85.0 million acres. The forecast annual farmgate price was pegged at $8.20/bu which looks to cap rallies above $9.00 basis November futures. Note that US old crop soybean end stocks were raised to 580 million bu based on a cut in exports to 1,675 million bu. WE believe that US old crop soybean exports could be trimmed by another 75-125 million bu.

• The USDA May crop report held little for the bulls with US/World crop production and stocks more than adequate. A bullish outlook depends on adverse US weather. Traders are unwinding long soy vs short corn and long wheat vs short corn spreads. China demand is needed, and it can provide bounces. Corn remains the bearish drag with December rallies capped above $3.40. Soybeans could well bounce as much as 20-35 cents on (if) China buying.

11 May 2020

Posted on May 11, 2020 by simon

• After a firm start Chicago turned mixed with soybeans higher while corn/ wheat futures were weaker. The volume of trade has been curtailed by the uncertainty surrounding Tuesday’s USDA Crop Report. Fund managers are squaring positions and waiting for the WASDE/NASS stocks/crop data. The May WASDE report incorporates the March Seeding Report and will provide the first WASDE blessed 2020/21 crop/stocks estimates. Traders are positioning long soybeans/ short corn and long oats/short corn. Corn appears to be the short leg of all spreads with WASDE to use 97.0 million acres of seeding until the final release of the survey in the closing days of June.

• We anticipate a lower Chicago close in corn /wheat with KC July wheat futures holding at key support from the 50-day moving average at $4.76. If July KC wheat futures closes below $4.7325, last week’s low, the selling pressure is likely to increase. Soybeans are firmer as China crushers have secured another 4-6 cargoes from the US for September/October keeping with last week’s program. Soybean/corn spreads should widen into early summer.

• Chicago traders estimate that funds have bought 3,400 contracts of soybeans and 1,800 contracts of soymeal, while selling 2,000 contracts of corn and 1,600 contracts of soyoil. Funds are flat in Chicago wheat futures’ trade.

• China crushers have booked another 4-6 cargoes of US soybeans to start the week. This is like what occurred last Thursday and is now expected become more “normal” as Chinese crushers cover their autumn import needs. We cannot confirm rumours that China’s is securing soybeans for its reserves. In fact, China announced to start the week that it will start auctioning off domestic Government surpluses of corn and soybeans on a weekly basis. The auctions are starting earlier than normal, based on abundant supplies in government stores. The Chinese purchases of US soybeans is what is underpinning Chicago soy futures.

• US export inspections for the week ending May 7 were; 52.5 million bu of corn, 18.2 million bu of soybeans, and 12.5 million bu of wheat. For their respective crop years to date, US corn exports stand at 984.7 million bu (down 457 million or 32% from last year), US wheat exports at 12.5 million bu (up 23 million or 3.5% from last year), with US soybean exports at 1,262 million bu (up 61 million or 5% from last year). WASDE is expected to trim their 2019/20 US soybean exports in Tuesday’s report by at least 50 million bu. China shipped out 2.5 million bu of US soybeans off the PNW last week.

• Russian fob wheat trades continue to leak lower with a trade reported at $194.50/mt for July. The recent rain has stabilised the Russian wheat crop.

• The forecast holds less rain for the Midwest with greater totals for the Plains/Delta. Midwest rain totals are forecast in the next 10 days in a range of 0.75-2.50″ which would be ideal for emerging summer row crops. The 11-15 day forecast holds another rain chance to keep crops well-watered. Temperatures start warming on Tuesday with highs reaching the 60′s, 70′s and 80′s by the last half of the week. The warmth persists into May 25 with near to above normal rain. The warm/wet weather is favourable with farmers to complete their spring planting by the weekend amid this week’s cool/dry conditions. There is no indication of any lasting extreme heat.

• China crushers have become regular buyers of US new crop soybeans now that Brazilian fob offers are rising, and Brazil has shipped out record soy tonnages since February. China has soybean import need from late August into early 2021, before Brazilian soybeans are cheaper again. Rains for the right areas of the Black Sea and Mato Grosso Do Sul are aiding world wheat/corn production outlooks. Our view stays bearish with WASDE’s old crop corn /soy stocks estimate likely to be larger than industry expectations for the report.

7 May 2020

Posted on May 7, 2020 by simon

• Chicago futures are higher at midday based on US corn sale to China and hope that there is additional demand to follow. Chicago corn, soybean and wheat futures are rising on the return of China for US corn amid a cold weather threat for the E Midwest on Friday/Saturday mornings. Funds are buyers on midday short covering, but end users see no reason to chase a rally. We look for a firm Chicago close. Corn, soybeans and wheat have been trading in the same range for over 2 weeks awaiting new crop weather developments. Until more is known about late May and June weather, we look for the same range trade to persist.

• Chicago brokers estimate that funds have bought; 11,200 contracts of corn, 4,100 contracts of wheat, and 7,400 contracts of soybeans. In soy products, funds have secured 3,200 contracts of soyoil and 2,400 contracts of soymeal.

• USDA confirmed that China purchased 686,000 mt (27 million bu) of US corn that was largely split in an old and new crop position. The purchase is said to be part of the 1.5 million mt of TRQ allocation that was offered several weeks ago.

• We hear that there may another 200-300,000 mt of US new corn purchases that are working. To date and including the announced sale today, China has secured 1.25 million mt of old crop and 819,000 mt of new crop US corn. No one other than USTR/China knows their annual purchase (Feb 2020 to Feb 2021) pledges, but rumours peg the amount between 15-20 million mt of US corn in total. Note that China will not secure all the US corn at once, it will be a process into February 15. COFCO was the cash buyer in the Gulf overnight.

• China is also rumoured to be booking US soybeans for private crushers in a new crop position with tonnages sold estimated at 4-6 cargoes. China appears to be returning to the US soybean market and will be a more regular soybean buyer in coming weeks. Brazil is quickly selling/shipping soybeans, and the US will have an open opportunity to fill world demand from September through January.

• Moreover, China was a buyer last week of US sorghum (65,000 my), US cotton (217,500 bales), US cattle hides (200,100 pieces), 1,400 mt of US beef and 40,200 mt of US pork. The Chinese are a continuing to secure US meat/sorghum.

• US export sales for the week ending April 30 were 9.0 million bu of wheat, 24.0 million bu soybeans and 30.5 million bu of US corn. For their respective crop years to date, the US has sold 962 million bu of wheat (up 23 million/2%), 1,478 million bu of corn (down 347 million/24%), and 1,459 million bu of US soybeans (down 190 million or 11%). WASDE should cut their 2019/20 US soybean export estimate by 25-50 million bu and corn by 25 million bu on Tuesday’s report.

• Stats Canada estimated that its 2020 all wheat seeding would rise 3.3% to 25.4 million acres, canola seeding would fall 1.6% to 20.6 million acres, while oat acres soared 6.3% to 3.8 million acres. Canadian total wheat stocks rose to 17.8 million mt, up 1.6% from last year. The Stats Can report was neutral to slightly bearish. The market is back to reacting more to weather/economic forecasts.

• The Central US weather forecast is wetter for the E Midwest that was offered by either the overnight GFS or the EU models. Our view is that the midday is once again too wet and errant. Limited rain will impact the Midwest allowing swift seeding progress for the next week. Cold temperatures on the weekend begin to moderate early next week. Near to above normal temperatures are forecast in the 9-15 day period.

• Chinese buying of US ag goods sparks modest short covering rallies in Chicago. However, it I s hard to have confidence on the US or world economic outlook with 33.5 million Americans unemployed while India’s unemployment surges to 122 million. Research maintains that China’s demand for US soybeans will become more regular in coming months.

6 May 2020

Posted on May 6, 2020 by simon

• Chicago futures are weaker at midday in tepid volume. Markets opened mixed and quickly uncovered selling based on improved US/Black Sea weather and the decline in energy values. June crude oil will expire in a few weeks and traders are already discussing whether a negative price calamity could impact June futures. Traders remember the negative price trade of May crude futures days before expiration. With Cushing OK storage tight, such fears persist.

• Chicago values are moving to the orders. End users nor importers are compelled to make large forward purchases amid the ongoing vastness of negative economic news that prevails. We anticipate a lower Chicago close awaiting weekly US exports sales data Thursday morning. It will be key for July KC wheat to close above $3.76, the 50-day moving average.

• Chicago brokers estimate that funds have sold; 2,300 contracts of corn, 2,400 contracts of soybeans, and 3,200 contracts of wheat. In soy products, funds have sold 2,900 contracts of soyoil and 1,400 contracts of soymeal.

• US livestock processing plants are struggling to come back online with employee absenteeism elevated. Workers are fearful for their health amid Covid-19 infections and are just staying home. This is leaving livestock processing plants to slow chain speeds, which produces meat shortfalls. We are hearing that bonuses are being paid to employees, but employee absenteeism will become a structural problem for the US meat industry until health confidence is restored. US cattle and hog slaughter rates are woefully short of domestic needs and shortfalls are likely to persist.

• US ethanol production rebounded slightly to a 42% decline from last year with stocks falling to 1,075 thousand gallons vs 1,106 thousand last week, still a record for the week. The US ethanol industry is seeing margins improve to a negative -$.18/gallon, but it is not enough to spur plants to reopen. That requires plants to see sustained profitability over several months. Research suggests that Chicago ethanol futures are rather flat into mid-autumn amid demand uncertainty; what is the new world of normal driving in Covid-19 times.

• Summer holiday planners lack confidence in booking air travel, hotel stays or even rental cars unsure of the future path or longevity of Covid-19. Most are planning to visit relatives or staying close to home amid the virus. This does not bode well for the summer travel season.

• The weather forecast is slightly wetter for the Plains including some of the driest areas of the HRW wheat belt. Several storm systems look to push eastward along a cold front in the coming 7 days. These systems will produce heavy rain for the S and C Plains and the S Midwest. Cumulative totals range from 0.75-2.50″. The Midwest will see rains of 0.25-1.25″ with a warming temperature pattern after the weekend. Near to above normal rain is forecast in the 10-15 day period along with above normal temperatures. The coming warm/wet weather trend will aid 2020 US summer row crop yields.

• Favourable Midwest, EU and Black Sea weather look to keep pressure on Chicago values. China’s State buyer needs to start securing US soybeans for its reserve before there is any confidence of Phase One adherence. End users are not willing to chase rallies.

5 May 2020

Posted on May 5, 2020 by simon

• Slow/mixed with limited interest best describes midday Chicago price action. Corn, soybean and wheat futures have not changed much from the 8:30 opening with a new US soybean sale to China and corn sale to Mexico offering only background support. Traders will be watching closely to see if China steps up their US ag/energy purchases beyond their Labor Day holiday which ends on Friday. Traders are also trying to balance out the improved outlook for 2020 US crops along with the additional 19.7 million acres of seedings as Prevent Plant optionality will be sharply curtailed by favourable spring weather. The sizeable new crop outlook will cap Chicago rallies while the downside will be defined by the arrival of (or lack of) Chinese demand for US ag goods. We anticipate a mixed Chicago close in uninspiring volume.

• Chicago brokers estimate that funds have bought a net; 800 contracts of wheat, 1,900 contracts of soybeans, and 2,100 contracts of soybeans. In the soy products, funds have sold 1,100 contracts of soymeal and bought 700 soyoil. The sharp rise in crude oil prices has slowed fund manager grain sales.

• FAS announced the sale of 378,000 my of US soybeans to China in a mostly new crop position. And Mexico secured 109,135 my of US corn that was split between old and new crop years. The US soybean sale is said to be to private crushers that are securing their autumn crush needs.

• The US/EU announced that they will accelerate trade negotiations for a free trade deal that boosts investment and trade with both parties. The talks will be held virtually and will involve nearly 30 different groups. US and UK agriculture are both net exporters of farm goods, and a market changing increase in US grain or meat demand is not expected.

• Canada announced that it will spend $252 million Canadian Dollars to help their farmers and food processors that were hit with a decline in demand due to Covid-19. The funding is likely only an initial step, and Canada will also launch a food purchase program much like the US’s CCC buying. The assistance is needed as Canadian agriculture relies heavily on exports which are fading. The new funding will aid Canadian farmers which are now seeding a new crop.

• There has been much discussion related to EU and Black Sea grain crops following weeks of winter and early spring dryness. The recent rains have provided crop stability and improvement in yield potential. The unknown is whether the more favourable weather pattern last into late May and June. EU/Russian wheat crops are made in June and that is when weather will be critical to yield/ production. Key to world wheat price trends will be June weather conditions.

• The new May EU monthly weather forecast for N America shows no lasting heat or dryness through September. The forecast calls for generally favourable growing conditions for N American crops in coming months. Research agrees that any Midwest warmth or dryness will be limited into late July.

• The forecast is slightly wetter for the E Midwest over the next 10 days. The model has added some 0.5-1.25″ of rain across the E Midwest late in the 10-day forecast. We suspect like prior midday runs, that the GFS is too wet. This model has a wet bias that is not confirmed by either the EU, Canadian or prior GFS runs. And, any sub 32-degree temperatures will be confined to the N and E Midwest. No frost or freeze is expected for the C Plains.

• The surge in crude oil prices has added support to Chicago. Crude has rallied back to $25/barrel on declining OPEC/Russian production that started on May 1. But the USDA May WASDE report looms on the 11th which will likely lower US 2019/20 soybean exports and estimate decade large US 2020/21 corn stocks. US farmers are speeding ahead with seeding, but temperatures are cool under a low-pressure trough.

4 May 2020

Posted on May 4, 2020 by simon

• Chicago grain/soy futures are mixed at midday with the wheat market trying to recover as July KC wheat futures hold their 50-day moving average. Corn and soybean futures are weaker on active planting progress in the W Midwest and the hope that planters will roll in the next 10 days across the E Midwest. And some will debate as to the benefit of Black Sea rain following weeks of dryness. We would note that wheat is still rather immature in SE Russia and Ukraine and historically, any moisture in late April/ May benefits yield. We look for a mixed Chicago close with traders positioning for another week of solid US seeding progress.

• Chicago traders estimate that funds have sold 2,400 contracts of corn and 3,900 contacts of soybeans, and buyers of 3,100 contracts of wheat. In soy products, they have sold 2,100 contracts of soymeal and 1,900 contracts of soyoil.

• We are raising our corn seeding estimate to 45-48% and 21-24% for the US soybean crop. W Midwest seeding has pushed ahead quickly with corn nearly completed. The bullish story for US seeding pace is fading and the focus on the crop will be on NASS condition ratings in late May or early June. The 2020 crop will be rated well above last year, and potentially one of the best of recent years. The strongly rated crop should produce a bottom in Chicago markets in early June.

• The Brazilian Real is sharply lower vs the US$ as their struggle with Covid-19 worsens and politicians try to work through tightening cash flow and budgetary considerations. The Real is likely to keep weakening in the weeks ahead which will further incentivise new crop seeding and 2021 soybean production.

• The USDA announced the sale of 115,800 my of corn to an unknown buyer for the 2019/20 crop year. The USDA has delayed its weekly export inspection report.

• US/China political tensions are rising amid the US discussion that the virus came from a Chinese Wuhan lab and was covered up for weeks. Chinese buyers must be worried whether a US purchase will execute or be charged a higher tariff if China retaliates to a US move. It is a question that keeps being brought up today. Political trade uncertainty was diminished with the US/China Phase One agreement in January, but that uncertainty is returning.

• One coming bull market looks to be natural gas as US frackers that are shut down due to low crude oil prices. Gas is a by-product of fracking for crude oil. US ethanol production margins depend on cheap natural gas. Should gas prices rise too much, it could delay any return of production to the autumn, a time when US domestic natural gas demand seasonally ramps up. It is the question of how fast/how much that US natural gas prices rise beyond the summer.

• The midday weather forecast is slightly wetter for the S and W Midwest over the next 10 days. The midday model has added about 0.5″ of rain. The rain is welcomed where crops are seeded, but it could produce some delays for the SW Midwest. Cool temperatures are now pushing southward across the Eastern US which will limit highs in the 40′s, 50′s and low 60′s. Any sub 32-degree temperatures will be confined to the N and E Midwest. No frost or freeze is expected for the C Plains.

• US planting progress will be solid as concern for getting the 2020 crop in the ground is pushed aside. Amid a full profile of Midwest soil moisture, dire heat during pollination is the biggest risk for 2020 corn yields. We have no way of knowing how US/China politics will play out, but if Phase One demand does not occur, the outlook darkens.