• The September USDA Stocks in all Positions and Final 2020 US Small Grains report was bullish with US corn stocks falling to 1,995 million bu while US wheat 2020 production was trimmed to 1,825 million bu. Chicago futures soared on the news as S American and Russian weather condition become more important going forward. December corn and December wheat are at new rally highs while soybeans are 10 cents short of their September peak.

• The USDA estimated 2019/20 US corn end stocks at 1,995 million bu with the June-August feed residual use being a new record high of 928 million bu. This unexpectedly large feed use implied fourth quarter US corn demand rose to a record 3,028 million bu. This demand was 800 million bu larger than last year, despite a sizeable fall in US ethanol consumption. Compared to the September WASDE, such stocks are 233 million bu lower with a good portion of the stock loss occurring in Illinois.

• NASS estimated the 2019 US corn crop at 13,619 million bu, up by 2 million bu from the final with a yield of 167.5 million acres.

• US 2019/20 soybean stocks were pegged at 523.5 million bu, down 52 million from the September WASDE report. The loss of 52 million bu of US soybeans due to the residual factor was one of the largest in years. The loss of the old crop will tighten 2020/21 US soybean end stocks close to 400 million bu without a change in US soybean export demand or the loss of yield through early September dryness. The US soybean balance sheet is tightening with future Chinese demand and Brazilian weather becoming more important.

• NASS estimated the 2019 US soybean crop at 3,551 million bu with a yield of 47.4 bushels/acre. This is down 1 bushel/acre from their final estimate with the vast major of the stocks loss to be explained through the residual figure. WASDE had indicated a negative residual of -45 million bu in prior monthly balance tables, but the residual ended up being a positive 8 million bu. This was the first positive fourth quarter residual in 25 years and goes against prior NASS quarterly soybean stocks data.

• US wheat production was lowered to 1,825 million bu, a drop of 13 million. The decline was anticipated by the industry. The US winter wheat crop was lowered to 1,171 million bu (down 27 million bu), while the spring wheat crop was raised 9 million bu to 586 million. The US white wheat crop was raised 20 million bu with cuts in US HRW to 659 million bu and 266 million bu for 2020 US SRW production.

• US Q1 wheat feed/residual is estimated at 215 million bu which if included with corn, accounts for record feed use of US feed grains. This is the largest US feeding of wheat since 2016 when 266 million bu were fed. The adjustment in US corn stocks derives from the feed/residual category. It is shocking that US livestock feeders fed a record 928 million bu of US corn in Q4 of the 2019/20 crop year.

• US September 1 wheat stocks came in at 2,159 million bu, the lowest since 2015. Such stocks are down 187 million bu from last year and continue a declining stocks trend that now goes back to 2018. The lower US wheat stocks amplifies the dryness that is occurring throughout much of SW Russia for the second consecutive year. Rains will be needed to aid the next exportable Russian wheat crop.

• NASS Quarterly Stocks estimates are one of the most volatile data sets for US agriculture. Low confidence has been expressed in prior and recent data. Yet at face value, there was nothing bearish about the Sept estimates released today. The fall in old crop com/soybean and wheat stocks places a larger burden on US 2020 com/soybean production and the coming growing seasons in Latin America and SW Russia. Yet, the data leaves more questions than answers.

• Fund managers will pile into an even larger net long Chicago grain/soy position heading into the October WASDE and Crop Production report. The midday weather forecast maintains the chance of rain for N and C Brazil after October 9 with limited precipitation for SW Russia in the next 2 weeks.

• Chicago markets will be volatile in the weeks and months ahead. Chinese demand becomes more important and whether they return with new buy orders following their week long holiday will be closely monitored. This is no place to make new purchases, but support will be found on any corrections until large 2021 S American crops are known in early 2021. Daily highs are likely in place with brokers reporting an increase in US producer selling at midday.

• Chicago prices are lower at midday with corn, soybean and wheat futures weaker on fund liquidation heading into the end of the month. China did not show up as a buyer of US soybeans or corn overnight. Increasingly, traders believe that China has most of their September-January purchase book in place (85-90%). Chinese crushers may have some coverage to be fulfilled, but with China having secured some 24.5-25.5 million mt of US soybeans early 2021, the coming purchase pace will be from private buyers and not the ongoing large state run purchases that have occurred in recent weeks.

• Research looks for a mixed close. We expect that any moderate Chicago rally will be sold by US farmers looking to part with some new crop harvest. Yield reports from producer clients continue to surprise on the upside with traders no longer certain that NASS will be cutting their yield estimates in October.

• Technically, December corn futures is back to testing its 200 moving average at $3.6075, while wheat tries to hold yesterday’s low at $4.695 December KC while November soybeans have fallen below their 20-day moving average at $9.94. Fund managers are closing out positions into the end of the quarter.

• Chicago traders estimate that funds have bought; 2,700 contracts of Chicago wheat while selling 6,000 contracts of corn and 4,200 contracts of soybeans. In soy products, funds have sold 3,000 soymeal and 4,500 contracts of soyoil. Fund selling is expected into the close on long profit taking.

• There are rumours that the Argentine Government is preparing to relax its export tax on soybeans to raise domestic soybean prices to farmers and facilitate a larger old crop export program. Argentine farmers are hoarding soybeans amid inflationary and continued currency devaluation fears into mid 2021. The ROFEX currency/grain exchange is trading the Peso at 107 for next July, a depreciation of 40% vs today’s trading level at 76 Pesos:1 US$. Argy farmers will see the coming depreciation as greater than a relaxation of the current export tax. However, any additional availability of Argentine soybeans is seen as slightly bearish on more than adequate G3 (US/Argentina and Brazilian stocks) as of January 1.

• The midday GFS weather model has less rain for Northern and Central Brazil beyond October 9. The model has 0.5-1.25″ which is not enough to saturate soils for soybean germination. The models are going to struggle with the dryness that is offered over the next 10 days and the prospect for monsoonal flow from the Amazon thereafter. Traders will watch Brazilian weather forecasts more closely following the purchase run of China for US soybeans. Rains will be required after October 10. The midday Brazilian forecast leans less favourable for 2020 timely Brazilian soybean seeding.

• The midday GFS weather forecast maintains blocking pattern aloft across SE Russia. This will deepen moisture deficits. The EU/Ukraine will see soaking rainfall, it is the Russian wheat areas that will hold in an exceptionally dry pattern.

• The forecast has limited Central US rainfall for the next 2 weeks with a ridge/trough pattern prevailing this week while the ridge progresses east into the Central US next week. No real weather threat to the harvest is offered with temperatures to be variable. Notice that Gulf storminess should be monitored for development. The Midwest corn and soybean harvest will speed quickly ahead.

• Russian wheat and N Brazilian soybean dryness are the supply stories to keep the bulls engaged. However, the US harvest will be pushing ahead strongly. We doubt that any Chicago rallies can be sustained. A bullish September Stocks report is likely to be sold with fund length in soybeans/soy products at decade highs. We doubt that N Brazilian dryness can be sustained beyond mid-October, but Russian dryness needs to be closely followed.

• Chicago prices are mixed at midday the grains reversing early losses with wheat pacing the rally. December corn tested key support at $3.60 and reversed while KC December wheat bounced from trendline support at $3.70. The volume of Chicago trade has been better than expected with active profit taking noted in long soybean/short corn and long soybeans/short wheat spreads. We look for a mixed close with the expanding harvest of the Midwest soybean crop to cap Chicago soybean rallies. The market has a firm tone at midday with traders anxious about Wednesday’s NASS Stocks and Final Small Grains Report. A mixed and choppy trade is expected until there is clarity on US corn/soybean yields and Russian, Brazilian and Argentine weather.

• Chicago traders estimate that funds have bought 4,500 contracts of Chicago wheat and 9,000 contracts of corn, while selling 5,700 contracts of soybeans. In the products, funds have sold 4,200 contracts of soymeal while buying 1,900 contracts of soyoil.

• A weekend Australian frost has damaged the Victoria and South Australian wheat crops according to several cash sources. Actual losses are unknown. The cold weather across S Australia along with coming dryness for W Australia has supported expectations for a smaller wheat harvest. The Russian Ag ministry held a weekly grain export meeting that was termed to be “regular” according to industry sources. However, the ongoing acute dryness has Black Sea exporters discussing the chance that a mid October ministry meeting could lower 2021 Russian wheat export potential under quotas.

• The Russian Ag Ministry has promised to set export quotas during October for January to June shipments. Amid the acute dryness that is plaguing Russian winter wheat seeding/germination, Russian interior wheat/flour prices are back to historic highs. As the Russian Government is trying to combat local inflation, a reduction in old crop trade is in discussion. The trade will be sensitive to the mid-October meeting and Russian wheat export potential. The Russians appear to be exporting a record 5.2-5.7 million mt of wheat during September.

• The US exported 31.8 million bu of corn, 20.7 million bu of corn, and 44.5 million bu of soybeans in the week ending September 24. The corn exports were a touch disappointing while wheat was better than expected. For their respective crop years to date, the US has shipped out 109.6 million bu of corn (up 49 million or 45%), 178 million bu of soybeans (up 63 million or 54%), and 338 million bu of wheat (up 26 million or 8%). China shipped out 32 million bu of US soybeans or 73% of the weekly total. China also shipped out 6.6 million bu of US corn through the Pacific Northwest and the Gulf.

• The midday GFS weather forecast maintains blocking pattern aloft across SE Russia. This will deepen moisture deficits. The EU/Ukraine will see soaking rainfall, it is the Russian wheat areas that will hold in an exceptionally dry pattern.

• The N and C Brazilian weather forecast is arid into October 12. The chance of rain is not offered until late in the 14-day outlook and our confidence that far out is low. We maintain that it is worth closely following S American weather going forward as the window for seeding runs from Sept 20 into October 25.

• The midday GFS weather forecast has reduced rainfall with a passing cold front to 0.25-0.75″ across the E Midwest. The Plains and the W Midwest will be largely dry over the next 10 days. Temperatures stay cold for the E Midwest this week, but warm during the 8-15 day period. Harvest will strongly advance.

• There is a bull story in wheat due to Russian dryness that is impacting new crop seeding and germination. However, it is too early to be overly worried on N Brazilian dryness with just 1% of the Mato Grosso soybeans seeded. We would see a decline to $9.70-9.83 Nov to be well supported. The 200-day moving average is offering Dec corn support at $3.6025.

• Chicago prices are mixed at midday with corn/soybeans trading firmer, while wheat futures sag. Volume totals are down from recent days as traders struggle to balance dry S American and Russian wheat against slowing Chinese demand for US corn and soybeans. Neither the bulls nor the bears have much conviction at midday. A mixed Chicago close is expected with buying in wheat/soybeans to position for expanding pattern of dryness across SE Russia and N Brazil.

• A weekend of active Midwest harvesting lies ahead with traders trying to gauge pre-hedge sales going home. Harvest is ramping up across; IL, IN and much of MO/SIA. Soybean cutting is active and the week ahead will feature the “gut slot” of the soybean harvest. Corn harvest is slow with the crop slowly drying down. Corn cutting will become more active in October.

• Early yields results are solid in corn and improving in soybeans. Next week’s yield data should give the market trends that it can digest heading into the October USDA crop report. Producers are active in filling existing sales contracts and selling just harvested soybeans across the scale with November soybeans back above $10.00 and holding at a 1.5 cent premium to March.

• We note that there has been some commercial pricing in both Chicago soybeans and corn which is China finishing up some crush and feed compound buying before their autumn holiday that starts on Thursday. Tonnages are not said to be large, but a return of USDA/FAS sales announcements could come on Monday.

• Chicago brokers estimate that funds have sold 2,100 contracts of wheat, while buying 5,500 contracts of corn, 4,700 contracts of soybeans, 2,600 contracts of soymeal and 4,000 contracts of soyoil.

• The USDA/FAS announced the sale of 100,000 mt of soymeal to an unknown destination. The sales announcement was made prior to the normal time which caught the industry off guard. FAS confirmed that the sales announcement was correct and that the timing of the release was in error.

• The US soymeal sales announcement seemed to coincide with talk from Brazil that crush facilities will start taking seasonal downtime in November and December. Some of the closures maybe a few weeks early but fall within the historical norm of plant maintenance ahead of the new crop harvest which starts in January.

• Midwest cash basis levels are in fast retreat amid the filling of the cash pipeline with the new harvest. Cash basis weakness is expected to become pronounced as Midwest storage space becomes limited. US farmers are harvesting the second largest US corn and yhird largest soybean crop on record.

• The midday GFS weather forecast maintains blocking pattern aloft across SE Russia. This will deepen moisture deficits. The EU and Ukraine will see soaking rainfall, it is the Russian wheat areas that will hold in an exceptionally dry pattern.

• The forecast has reduced weekend rainfall with a passing cold front to 0.25-1.00″ across IL/MO with the rest of the Midwest to see traces to 0.50″. The GFS weather model is consistent in a shift to cold temperatures next week and beyond with a frost/freeze for the Upper Midwest next weekend. An end of the 2020 growing season will be seasonal and have little or no impact on 2020 US corn and soybean yield potential.

• Most of the Government Chinese corn/soy demand from the US is filled. Odds and ends will follow with normal S American weather. However, if N Brazilian dryness persists and Russian wheat areas stay in drought, there will be secondary Chicago weather scare rally that lasts until there is a pattern change. US 20/21 soybean stocks are tight, yet it is the Amazon and it is spring which always seems to produce needed rain, it is a question of timing. We expect that Russian/Brazilian weather becomes important late next week.

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Weekend summary 25 September 2020

• Chicago price action since this morning’s opening has been varied. Corn and soybeans values have extended declines while wheat finds modest buying near Dec Chicago’s 50-day moving average. Russian dryness will persist into at least October and the need for soaking rain thereafter will be immediate. Yet, EU milling wheat futures are down $.04/bu, and so US Gulf wheat prices will stay well above competing origins. FAS’s daily reporting system was absent of new sales for the first time since Sep 8. This validates talk that China’s interest in US products is waning.

• Outside markets are mixed. The Dow has shrugged off a modest boost in weekly jobless claims (870,000 vs, 860,000 the previous week), while spot crude is unchanged. EU milling wheat futures are down $0.05/ nu.

• Through the week ending Sep 17, exporters sold a net 84 million bu of corn, vs. 63 million the previous week, 117 million bu of soybeans, vs. 90 million the previous week, and 13 million bu of wheat, vs. 12 million the previous week. US corn and soy sales were at the very upper end of trade estimates, but last week’s robust demand for US row crops is not a surprise.

• Key moving forward will be whether private firms in China step in to replace the recent flood of demand from COFCO and Sinograin.

• In their respective marketing years to date, the US has sold 890 million bu of corn, up 147% above last year, 1,306 million bu of soybeans, up 193% from last year, and 495 million bu of wheat, up 7% from last year. Pace analysis indicates that the USDA’s US soybean export forecast is too low, but the extent of any upward revision will hinge upon S American crop prospects this year, and whether global importers return to the US market in early summer 2021.

• Pace analysis indicates USDA wheat and corn export forecasts are accurate. US wheat sales have been slowing following weeks of substantial premiums to other exporter markets. SRW sales through Sep 17 totaled just 0.25 million bu, SRW is the world’s most expensive wheat available for export, while SRW sales need to average 1.3 million bu per week. SRW stocks may rise another 5-10 million bu in coming USDA reports.

• Interior corn basis changes have been variable but have weakened across the primary Corn Belt. August’s weather and demand-driven market have been unique but harvest pressure will hang over price determination nearby as the second largest US corn crop on record will be gathered over the next 30 days.

• A rather wet, and favourable, climate pattern will be intact across the whole of Europe and Ukraine over the next 10 days.

• The midday GFS weather forecast maintains blocking pattern aloft Southern Russia. This will allow moisture deficits to worsen there. The need for soaking rain will be immediate come mid-October.

• The Central US weather forecast features spotty showers across the Eastern Midwest during the first half of next week but otherwise threats to harvest progress are lacking. The model is also consistent in forecasting a shift to cooler temperatures next week and beyond. However, freezing temperatures are not expected outside of ND and far northern MN and WI.

• Bull markets need constant fuel. The accelerated spread of Covid in Western Europe will weigh on global financial and energy markets. A slowing of Chinese demand for US soy will coincide with the gut slot of harvest. Large S American soybean crops are demanded in 2021, but Nov beans above $10.45 last week had digested the recent tightening of the US balance sheet.

• Chicago midday grain trade is mostly lower with soyoil pacing the decline on fund long liquidation amid the acute weakness in palmoil prices in recent days. The corn/soybean markets have been largely followers of the soy product values while December soymeal pushes to a new rally high against $350/ton. Funds have been sellers of Chicago wheat as key chart support is broken. We look for a mixed to weaker Chicago close as the consolidation pattern persists. The bulls will want to talk another week of large US export sale on Thursday while the bears point to the ongoing Midwest harvest and better than expected corn yield data.

• Research argues that counter seasonal highs are being formed in corn/soy and wheat futures with all eyes on S American and Black Sea weather. A weaker Chicago requires rain to seed the Brazilian soybean crop. December corn does fundamentally not need to rise above $3.80 or November soybeans above $10.50 as Midwest cash pipelines are being actively replenished.

• Chicago brokers estimate that funds have bought 2,300 contracts of corn, 4,500 contracts of soybeans and 6,900 contracts of soymeal. Funds have sold 4,000 contracts of wheat and 7,700 contracts of soyoil.

• FAS confirmed the sale of 132,000 mt of soybeans to China and 126,000 mt to an unknown destination, likely the EU. We maintain that China’s Sinograin is nearing an end of their active purchase program with Chinese crushers now having to step forward and make future purchases.

• US Gulf soymeal is offered this morning at $30/my over vs Brazil at $24/mt over and Argentina at $27 over for October. Argentine and Brazilian meal premiums fall to $20-23/mt over for November and December suggesting that both S American suppliers have soybeans to process and products to sell. We maintain that it makes little economic sense that Argentine meal sales will be shifted to the US on mass in coming weeks.

• US weekly ethanol production stayed well below last year at 266 million gallons, which is well below the 285 million gallons pace needed to justify the WASDE 5,100 million bu grind estimate. The current annualised production rate points to a 2020/21 US corn grind of 4,900 million bu, down another 200 million from the September WASDE forecast. US weekly gasoline consumption was down 11% from last year at 8.52 million gallons. As Covid-19 infections spike, we doubt that US gasoline consumption will be expanding into the end of the year.

• The Central US will stay dry as the overall pattern shifts to a more zonal flow on the weekend before forming a broad ridge/trough pattern next week. The southward sinking jet increases rain chances across the Lake States on Saturday with cooler temperatures settling southward starting Monday. California and the Western US will hold in a hot/dry weather pattern. The trough over the Lake States produces cooler temperatures with below normal readings to persist into October 8. No frost or freeze is featured, but should this chilly pattern hold into mid-October, the odds of freezing temperatures will be increasing. The US summer row crop harvest will be pushing strongly ahead in the next 2-3 weeks.

• The value of the US$ is rallying as “risk off” is the theme on expanding US/World Covid-19 hot spots. The Brazilian Real is back to 5.55:1 US$ while the Argentine Peso is at a record low 75.7. The Argentine Grain Exchange cut their wheat crop estimate to 17.5 million mt, but we see no reason why they would cut corn/soy production by 3 million mt each to 47 million mt. You cannot lose a crop that is still in the seed bag. Amid Australia’s larger wheat harvest and rain for Ukraine/W Russia, US wheat futures are under pressure.

• Confirmed fresh Chinese demand for US corn and soybeans pushed Chicago futures higher while traders await news on whether Egypt will pay higher prices to secure November Black Sea wheat. The corn market has lagged the wheat/soybean rally on better than expected yield reports while the large long position held by fund managers produces a limited ability to push Chicago soy futures sharply higher. November soybean futures are trading at a 1.5 cent premium to March which has Midwest farmers selling newly harvested crop on any Chicago rally.

• We look for a mixed Chicago close. If a grain closes lower, it will be corn amid the looming massive harvest and slowing non-Chinese import demand. Midday trade volume is slowing as traders await fresh world weather input for S America and the Black Sea.

• Chicago brokers estimate that funds have bought 8,300 contracts of soybeans, 6,500 contracts of corn and 3,700 contacts of wheat. In soy products, funds have bought 4,300 contracts of soymeal and 2,300 contracts of soyoil. The meal market will gain on soyoil with any S American weather soy seeding issue.

• FAS confirmed the sale of 266,000 mt of soybeans to an unknown buyer and another 264,000 mt to China. In corn, China booked 140,000 mt of US corn with another 320,000 mt sold to an unknown buyer. The combined sales amount to 530,000 mt of US soybeans and 460,000 mt of US corn for a total of nearly 1 million mt of summer row crops. China’s purchase pace shows no sign of abating with Monday’s decline providing another pricing opportunity.

• The lowest offer for wheat to Egypt’s GASC was Russia at $242/mt basis FOB with freight costs increasing the landed price to $257.50-259/mt, some $10/mt higher than last week’s purchase of Polish/Russian wheat for 235,000 mt. This is the third GASC tender during September as it tries to fill its wheat import need heading into year end. Traders await the results to see if GASC is willing to chase world wheat prices and book supply.

• China is securing/pricing late November/December US soybean cargoes. We estimate that including known/unknown sales, that China has secured 23.5-24.5 million mt of US soybeans for 2020/21. China is estimated to import an average 8.25 million mt of soybeans from all sources/month to reach an annual import total of 99 million. China could book upwards of 26-28 million mt of US soybeans for Sept-mid January before slowing their purchase pace. China will likely take 3 million mt of Brazilian soybeans with another 900,000 mt from Argentina in the same Sept-mid January timeframe. Key will be the Brazilian 2021 crop size and US soybean export potential during July/ August. If the US exports 3-5 million mt of soybeans next June-August, the 2020/21 US soybeans to China could reach 33-36 million mt.

• The remains of tropical storm Beta will shift slowly east/north and produce showers/storms over the Gulf States. The remainder of the Central US will stay dry as the overall pattern shifts to a more zonal flow on the weekend. The southward sinking jet increases rain chances across the Lake States with cooler temperatures settling southward. A ridge of high pressure builds northward from the SW US which will return heat to California and maintain a dry weather pattern across the Central US. A broad ridge/trough pattern returns into early October which will accelerate Central US harvest operations. The trough in the Eastern US allows cooler temperatures to sink southward with below normal readings into October 5.

• Soybean futures rallied strongly and then corrected back into the red as traders understand that China’s State buyer Sinograin is nearing an end of their reserve purchase program. However, Chinese crushers have needs to cover into early 2021 and will be be buyers on breaks (just not daily as Sino has since late August). Corn lacks Gulf loadout availability into January while the wheat market is all about Black Sea rain. A new Black Sea wheat crop needs to see rain fall prior to the middle of October. Chicago futures appear to becoming more sensitive to US/World financial markets.

• Chicago grain futures are sharply lower at midday with corn, soybeans and wheat all sinking on profit taking and the concern of slowing Chinese demand for US soybeans in the days/weeks ahead. Funds have been moderate sellers, but totals have not been large. End users have orders resting below the market. Soybeans appear to be better supported than either of the grains.

• Key support appears to be resting below $10.00 in November soybeans and below $3.57 in December corn. Chicago wheat futures have given up all of Friday’s gain and pushed below that low. Chicago has a general bearish tone at midday with the macro markets adding to the selling. Crude oil is off more than $2/barrel with the DOW down another 800 points. “Risk off” is the theme of the day with most funds cutting risk. A lower Chicago close is expected with fund selling to persist into the close.

• Chicago brokers estimate that funds have sold 9,400 contracts of wheat, 13,700 contracts of corn, and 9,500 contracts of soybeans. In soy products, funds have sold 5,300 contracts of soymeal and 5,900 contracts of soyoil.

• The US confirmed the sale of 132,000 mt of soybeans to China, with another 171,000 mt to unknown, and 132,000 mt to Pakistan.

• There are rumours that China may be washing out a few cargoes of US sorghum for a profit. It is unknown whether China’s feed demand is slowing or there are other issues. This is the first time that China sales backs are noted, but US sorghum premiums are through the roof and it may be an economic reason why some sellers are willing to bank a profit.

• Rumours are noted of corn contract defaults from producers to commercial buyers in both Romania and Ukraine where late season dryness has also curtailed crop potential. Sources estimate the defaults at 10-15% with most at an average of 13%. The defaults make cash trading more difficult in these nations, which is often expressed by their deeply discounted basis. Farmers defaulting are unwilling to sell remaining cash grain expecting further price gains. It is difficult to originate grain in Ukraine, Romania, Bulgaria, and Russia.

• Parana in Brazil has planted 33% of its spring corn crop with seeding accelerating amid the rain. The forecast leans favourable and Parana hopes to have first crop corn seeding completed by the middle of October. It is estimated that Parana will expand their first crop corn seeding by 5-6%.

• The US exported 29.7 million bu of corn, 48.1 million bu soybeans and 17.3 million bu of wheat. US corn and soybean shipments were below trade expectations.

• The midday GFS weather forecast is drier across the Delta as Tropical Storm Beta stays further south. A pronounced ridge/trough upper air pattern develops that should accelerate the US harvest. The jet stream holds further to the north which maintains a summerlike weather pattern with favourable harvest conditions. The 11-15 day period keeps the warm/dry weather profile in place with the soybean harvest to gain speed into the weekend. The US corn crop is drying down more slowly (which could be adding to yield), but it also delays the gut slot of harvest to late September or early October. We look for 10-12% of the US corn and 5-6% of the US soybean crop to be harvested through Sunday.

• This is the first real test of the bulls since the unseasonal Chicago rally started in late August. Macro market falls has produced a “reduce risk” on hedge fund trading floors and today’s Chicago break. However, it also produces a new buying opportunity for China. The next few days will indicate if China’s Sinograin has completed their reserve purchase program, and whether others are willing to step forward on the break. If China demand evolves, a retest of Friday’s high could return by late week. Otherwise, the seasonal high has formed. Watch FAS daily sale totals for direction.

• Chicago ag futures are higher at midday. Again the story is the same: China’s daily buying of US soy continues while US soy yield uncertainty lingers in the background. Black Sea farmers are reluctant to add to cash sales amid severe dryness and as optimal winter wheat seeding windows begin to close in early October. The Russian weather forecast remains dry into Oct 2.

• Contacts indicate spot Russian fob wheat is bid at $235 and offered at $240/mt, the mid-point of this range reflecting a new seasonal high. Russian fob wheat quotes at Thursday were $229-233/mt for Oct-Nov arrival. This has pushed EU milling wheat futures higher, with US contracts following. US Gulf wheat is still too expensive to boost export demand, and in fact in current prices will act to curtail future export interest. But it is difficult to be bearish as the world’s benchmark market continues to rise.

• There is also some concern over Argentine wheat yields, with Argentine wheat crop ratings this week falling to just 14% good/excellent. This compares to 44% in mid-Sep 2019.

• China this morning secured another 132,000 mt of soybeans and 210,000 mt of corn for 2020/21 delivery. Sources suggest this is still COFCO/Sinograin buying. Even private traders within China have been caught short, and until Government buying ends or private firms within China capitulate the path is higher. Work suggests current price require confirmation of US soy yield loss, but the timing of any top is unknown. There is no meaningful sign of a top in Chicago soy just yet, but it is important that markets holds near session highs today.

• We estimate that since last Tuesday, managed funds have extended their net length in soy by an impressive 55,000 contracts. We estimate combined soy length held by managed and index funds this morning at 432,000 contracts, a new all-time record. Even simple profit-taking could force a quick and intense correction during the throes of harvest.

• The S American weather pattern is beginning to show signs that seasonal rains arrive next week. The EU and GFS models are in broad agreement that rainfall of 0.50-2.00″ will impact Central Argentina Sep 25-28. Light rain across Mato Grosso, Goias and Minas Gerais will allow seeding to begin there.

• The USDA’s second round of Covid-inspired farm aid, also worth $14 billion, will include three tiers of commodities. Corn, soy and all classes of wheat will be available for assistance of $15 per acre at a minimum. Sign-ups will begin on Monday and run through December 11.

• Outside markets at midday are mixed. Spot WTI crude is unchanged. The Dow is down 130 points. EU milling wheat futures are up €3.00/mt ($.07/bu).

• The midday GFS weather forecast is wetter across the E Plains and Midwest beyond Sep 27 as a pronounced ridge/trough upper air pattern develops. The jet stream will sink as far south as AR/TN Sep 28-Oct 1. The GFS forecast advertises rainfall of 1-2″ during this period across E KS, MO, IL, IN, OH and Ml, along with a cooling of temperatures. Confidence in forecast detail is low beyond 10 days, but a wetter/cooler pattern is probable at the tail-end of the month.

• New sales are on hold as markets digest potential further tightening of the US soybean balance sheet and the real need for soaking rainfall across Ukraine and Southern Russia. Whether end users and importers chase the rally will be key in the days ahead, but market trends today are pointing up.

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Weekend summary 18 September 2020

• Last week, UK prices were supported by a sharp drop in £Stg with the Pound weakening from a current month high against the €uro of 1.12784 to a low of 1.0761. The drop was a result of a deterioration in sentiment surrounding Brexit negotiations and fears of a no deal outcome. £Stg has since recovered some of its losses to circa 1.09 against the €uro. This, together with a lack of fresh bullish news to feed the market has led to London’s LIFFE futures easing back by about £4/mt.

• A big part of the recent strength in prices has come from Chinese buying of US corn and soybeans and the resultant fund buying to cover short positions. For the time being, the pace of Chinese buying appears to have slowed and the markets have cooled.

• In Europe, attention is turning to new crop planting. Estimates for this season’s wheat crop are relatively stable at around 128 million mt. With current high prices, it is anticipated that we will see strong plantings with EU production rebounding to 140 million mt plus (assuming trend yields are achieved). Currently, some parts of Europe are experiencing dry conditions which could hamper plantings if it persists. For the time being though, this is just something to keep an eye on as there remains plenty of time.

• Chicago futures have reversed overnight losses as China continues to secure US soybeans and funds add to their length in corn/wheat. Soybean futures have reversed overnight losses on the ongoing demand from China (COFCO/Sinograin). China has been a buyer of US soybeans on nearly every day since mid-August. By our estimates, China has bought nearly 22.5-23.5 million mt of US soybeans on a known and unknown basis. China is also reported to have secured a few Brazilian cargoes for November this morning.

• The almost insatiable China demand for soybeans has some raising the total amount of US soybeans that China will secure to 30-32 million mt. By working the numbers backwards, we calculate that the USDA has China taking 27-29 million mt comparing year on year demand. China is quickly nearing this target causing the discussion on whether annual imports could be larger.

• China always seems to take some US soybeans in July-August as the Brazilian export program seasonally slows. Yet, this is State Government buying and these purchases could slow/stop at any time. When that timeframe evolves, a top will most likely be forged in the US soybean market. It is a guess, but commercials argue that China’s purchase book will be complete by early October.

• Chicago brokers report that funds have bought 16-18,000 contracts of soybeans, 12,000 contracts of corn, and 5,500 contracts of wheat. In soy products, funds have bought 6,400 contracts of soyoil and 5,900 contracts of soymeal. Fund managers have been active on the buy side of the marketplace.

• US Gulf export sources indicate that China has booked 5-12 cargoes of soybeans. The purchase pace was active on the overnight decline. FAS announced 327,000 mt of US soybeans to China this morning. Rumours have additional sales to be announced Thursday/Friday mornings. US soybean export sales are estimated to be large on Thursday morning at 2.3-3.1 million mt.

• European sources indicate that a key French wheat importer, Algeria, has decided to allow its wheat import insect damage restrictions decline to .05%. The phytosanitary change would permit Algeria to secure wheat from Ukraine/Russia. The French market depends on Algerian demand, and its loss to the Black Sea will hurt French farmers longer term.

• US ethanol production fell to 272 million gallons, down 5 million from the prior week and below the 290 million needed to reach the 2020/21 USDA forecast. The US annual corn grind is on a pace to achieve 4,900 million bu or another 200 million bu below the existing USDA 2020/21 forecast.

• US ethanol stocks declined 1% to 832 million gallons, almost a 4-year low. 36,000 barrels showed up as ethanol imports (likely to CA). The weekly EIA data was viewed as slightly bearish with US ethanol demand/production stagnant.

• The midday weather forecast is little changed with dry/warm weather across the Central US for the next 10-14 days. The remains of hurricane Sally will push northeast across AL, GA and into the Carolina’s with heavy rains of 1-5.00″. The Midwest stays dry with warming temperatures. Highs will range from the 70′s to the mid-80′s with lower 90′s in the far west. The heat/dryness will combine to produce favourable harvest weather into October. Farmers are likely to actively start cutting corn next week with the next chance of rain Sept 30.

• Chinese soybean demand keeps coming to the US which along with macro purchases of commodities has Chicago values pushing upwards at midday. The US farmer is a seller of the rally, but not in size. Big US soybean sales are expected in Thursday’s Weekly Export Sales Report. This is mostly known and could produce a short-term Chicago top, ahead of a harvest weekend. The US harvest is at hand, but Chinese demand rules the marketplace (until it slows/stops). The US Central Bank is expected to maintain a 0-0.25% interest rate policy well into 2022. Low rates have some funds shopping commodities for an investment.