Monthly Archives: August 2021

31 August 2021

Posted on August 31, 2021 by simon

• HEADLINES: Chicago sinks on US Gulf exporter uncertainty, both on structural damage and the return of electricity; USDA July soybean crush due today.

• Chicago futures are lower at midday on the concern of damage to Gulf export facilities amid the uncertainty of when electrical power will return. The damage unknowns from Hurricane Ida, and its negative short-term impact on exports, pushed December corn to fresh lows at $5.2525. The next level of support rests at $5.20 December corn and $12.50-12.75 basis November soybean futures. The market never likes uncertainty and there is plenty of that this morning including when export employees will be able to return to work, and when electrical power will be restored. It is a risk off morning in Chicago.

• Yet, end users should be using the break to add to forward coverage in futures. Like 2005 when Katrina struck NOLA, the export demand returned, and the initial export loss averaged out over time. Nearby, it is the uncertainty when employees/electrical services are restored. The assessments are underway.

• Chicago brokers estimate that funds have sold 4,600 contracts of wheat, 14,400 contracts of corn, and 7,600 contracts of soybeans. In soy products, funds have sold 4,200 contracts of soyoil and 2,900 contracts of soymeal. The funds have been pushing values lower on liquidation.

• There are limited FOB/CIF offers from the Gulf as export firms assess their damage and the uncertainty on when electrical power will be restored. China (like many importers) would like to secure soybeans (or grain) if there were offers on the break. China (others) can book US soybeans/corn off the PNW, but few Gulf exporters are back to making markets. And exporters that have wheat/corn/soybeans heading to the Gulf via rail, barge or truck are trying to divert the supply to other US ports including Houston, Galveston, Longview (PNW) and the Lakes. The scramble to find bulk export capacity away from the Gulf is underway.

• Gulf export availability is concerning Chinese crushers. They are extremely short bought on future soybean import needs and desire additional coverage. Most are trying to shift September loadouts to the PNW. They are hopeful that Gulf operations are restored thereafter. The stock of old crop corn/soybeans is thin at the PNW which requires a basis push for early harvested Dakota crops. Each day that the Gulf is down creates new up and downstream issues. Understanding when the SE LA electrical grid comes back up will be key to deciding when Gulf export offers are available again in a nearby position. We expect that November forward offers will be available in the coming days.

• The July soybean crush rate is estimated in range of 165-165.7 million bu in the USDA Fats and Oil report this afternoon with soyoil stocks pegged at 2,100 million pounds. The report will be a step closer to closing out the 2020/21 crop year on crush data.

• The GFS weather forecast is slightly drier for the Lake States and wetter for the SW portion of Iowa in the next 8 days. Otherwise, the forecast is similar with near to above normal temperatures and limited rainfall for the S and C Plains. There are no new tropical storms indicated for the Gulf while temperatures will be seasonal with there being no indication of a frost/freeze. In 10 days, the only weather concern remaining for the 2021 US corn/soybean crop is a frost before September 20.

• NOLA damage and the uncertainty when electrical power will be restored has pressured Chicago futures in the past 2 days. Ida produced considerable damage with CHS’s export elevator under water, Cargill lost elevator legs and others are assessing their damage. No one knows for sure when SE Louisiana power will be coming back on, or employees can safely return to their homes. Gulf exporters are not offering any grain or soy until they know their damage and have some visibility on power.

• What is known is that there will be a market snap back when Gulf export confidence is restored and cash market trade returns to normal. US wheat is holding on the future prospect of tightening world supplies. This is not a place to be making new sales.

27 August 2021

Posted on August 27, 2021 by simon

• HEADLINES: Cash market soars as old crop supplies run thin and Ida to slow early Delta corn harvest; September options to expire/Stats Canada Monday.

• Midday Chicago is dull/slightly lower with any volume attributed to September forward spreading, September option expiration, and first notice day positioning. Someone offered 800 contracts of the November/September soybean spread in a 4-minute period that pummelled the spread/flat price. Only when the US$ declined following Fed Chairman’s Powell speech did Chicago recover. We suspect that someone needed to roll a long hedge forward out of September soybean futures into new crop, but the speed and size of their actions hit the entire Chicago complex. We look for a mixed close into the weekend.

• Stats Canada is out Monday morning (drought losses) and traders want to see if weekly US good/excellent corn/soybean crop condition ratings increase following this week’s rain across the Northern Plains and the NW Midwest. Traders are expecting that US NASS weekly good/excellent ratings will increase 1-2%.

• We believe that the heat/dryness in the east will more than offset the gains in the NW Midwest, but NASS will be arbiter of this week’s weather on the crop. Getting past Monday’s crop data and first notice day will set the market to engage in yield and new crop demand discussions more actively. September 1 marks the end of the 2020/21 crop year for summer row crops.

• Spot cash corn/soybean markets are on fire. Cash corn is said to have traded as high as $1.90-2.20 over to East Coast Feed compounders while Central Illinois corn is bid $1.00-1.20 over. The strength of the spot cash corn/ soybean market is incredible with the S Midwest harvest to start in a few weeks. The extreme cash basis bids suggest that US minimum pipeline stocks are larger than the 1,100 million bu of corn or 155 million bu of soybeans that the USDA has plugged in for the 2020/21 crop year on September 1 (Wednesday). It is rare that old crop cash basis bids rally into the September Chicago expiration. Fort Dodge, Iowa is bidding $1.20 over for September delivery corn with Marshall, Minnesota bidding 70 cents over. New crop basis bids are firm as short bought end users and importers can no longer wait for supply.

• The restocking of the cash corn/soybean pipeline will take at least 2 weeks of active Central US harvest. The pipeline restocking will diminish harvest pressure and the impact on Chicago. US farmers advise that they will not make the same mistake as last year in selling their crop too cheaply at harvest. Most are planning to store as much corn/soybeans as their on-farm storage system allows. A 2021 corn/soy harvest glut is not expected.

• Chicago brokers estimate that managed money has sold 3,400 contracts of corn, 7,200 contracts of soybeans, and 3,500 contracts of wheat. In the products, funds have sold 3,000 contracts of soyoil and 1,200 contracts of soymeal. Funds have been on the sell side of Chicago for most of the morning.

• The GFS weather forecast is slightly further east with Ida’s landfall occurring to the west of NOLA (New Orleans and Louisiana). This means that the strong tropical winds and the storm surge will impact the port. Ida will make landfall late Sunday or early Monday. Flooding rains and 100 MPH wind is the risk to unharvested crops in LA/MS/AL. The storm slowly pushes NE across the Tennessee Valley and exits via New York late next week. In the wake of Ida, rainfall totals of 2-6.00″ are expected. Temperatures are warm to hot through the weekend with highs in the mid 80′s to the mid 90′s with cooling next week. Ida is likely to come ashore as a category 3 or 4 hurricane.

• There are a lot of balls in the air including Sept option expiration, first notice day against September futures, US crop conditions following this week’s rain, Stats Canada and the coming Sept NASS crop report. Fed Chairman Powell said that its bond buying taper could start in 2021 and that there is no rush to raise interest rates. The US$ declined on the news which placed a bid under commodities. As the importance of summer weather fades, it is back to demand and actual corn/soybean yield trends.

26 August 2021

Posted on August 26, 2021 by simon

• HEADLINES: China secures US soybeans for October/November on the morning break; World wheat prices resume rally on demand; Hurricane into LA/MS/AL.

• It has been slow morning of trade with corn, soybean and wheat futures mixed at midday. Price action has been a reversal of yesterday with meal gaining on oil while wheat gains on soybeans. However, we want to highlight that the volume of trade is extremely slow as few want to extend their risk profile heading into the weekend or next Monday’s Stats Canada report.

• We look for a mixed close with old crop September corn/soy futures supported by extremely tight cash markets. Cash corn bids are holding at $1.00 plus premium over for spot delivery while crushers are paying up for remaining old crop soybeans. The historically tight September spreads highlights the lack of supply which will be important at the end of September when NASS releases September 1 Stocks in All Position estimates.

• US exporters report that China has been active securing US soybeans this morning. We hear that as many as 10-14 cargoes of US soybeans have been sold to China for October/November in some of the biggest buying since the start of the year. Exporters report that China has booked at least 25-30 cargoes of US soybeans this week or estimated tonnages of 1.5-1.7 million mt. In total, we expect that weekly US soybean sales will easily exceed 2.0 million mt. Noteworthy is that Chinese crushers are being discreet in their purchases, not wanting to look like they are bulling the market (and adding to price speculation). However, Chinese crushers are extremely short bought on forward crush needs and will use breaks like today to add to forward coverage.

• The USDA/FAS reported that for the week ending August 19 the US sold 4.3 million bu of wheat (marketing year low), 67.1 million bu of soybeans (2.8 million old and 64.3 million bu of new crop), and 27.2 million bu of corn (300,000 bu of old and 26.9 million bu of new). The weekly wheat sales were disappointing, but the corn and soybean sales were in line with trade expectations.

• China has now shipped out a record 21.2 million mt (833 million bu) of US old crop corn, 1.5 million mt less than sales with net cancellations of 135,200 mt. If China ships out 500-700,000 mt by August 31, some 1 million mt of old crop corn sales will likely be rolled forward. China added 90,800 mt of old crop soybean sales with just 700,000 mt (25.7 million bu) left to be shipped. We look for 16-19 million bu of old sales to be rolled forward to new crop. China has done well shipping out its promised US corn and soybean purchases.

• EPA confirmed that is forwarding its recommendation for a cut in the 2021 US biofuel mandates due to the pandemic. The mandate will rise again in 2022. The news was debated by traders last week. With the 2021 calendar year 8 months complete, we see the impact on 2021 US biofuel demand as “modest”.

• The midday GFS weather forecast is slightly further east with hurricane coming in across E Louisiana/Mississippi. The storm would make landfall late Sunday or early Monday. Flooding rains and strong winds are a risk to unharvested crops in LA/MS/AL. The storm slowly shifts NE into the SE US leaving behind flooding rains. Temperatures are warm to hot through the weekend with highs in the mid 80′s to the mid 90′s with cooling next week.

• China has been active securing US cash soybeans for export on the break this morning. A sales announcement is expected Friday. Ag Canada estimated the Canadian wheat crop at 20.2M million mt, down nearly another 4 million mt from the August USDA estimate. A further drop in Canadian, Brazilian, and Russian crop sizes lie in the offing which we expect will produce a demand led rally into year end. Seasonal lows are forming.

25 August 2021

Posted on August 25, 2021 by simon

• HEADLINES: Chicago corn charges higher and tests 50/ 100 day moving average; Wind damage to crops important in NE IA; US ethanol production slows.

• It has been a mixed Chicago trade with corn the upside leader while wheat holds chart support on improving world tenders/demand. Soy has traded either side of unchanged with traders agreeing that the overnight/morning rains helped the crop. The rain comes too late to produce much benefit to corn.

• We look for a mixed close with fund managers closely watching to see if December corn can climb back above its 50/100 day moving averages at $5.52 and $5.53, respectively. Corn futures broke key support last week and the market is now coming back to test the breakdown. A close above $5.54 December will force out some of the faster moving managers that went short on the break late last week. In November soybeans, the 50-day moving average crosses at $13.4075, another key area to monitor. Wheat is well above all support levels with an uptrend in place after a $1.00/bu rally.

• Producers report that there has been significant straight line wind damage to crops in Fayette/Black Hawk counties in Iowa. Wind damaged crops are reported from west of Waterloo northeast into Decorah. Damage assessments are ongoing but downed corn appears to the biggest yield concern with stalks broken off or toppled over.

• It does not take much of a break to return world wheat demand. Iran is bidding for Russian/E European wheat with mentioned tonnages said to be upwards of 1.0 million mt. World wheat traders are raising their estimates of Iran wheat imports to 3.5-4.5 million mt amid the constant buying. The big question for Iran is payment and financing. FAS/USDA has Iran taking 2.1 million mt of world wheat in 2021/22 or 100,000 mt less than last year. The trade sees this estimate as low with drought producing an acute shortage of Iran flour/bread within the country. We estimate Iran taking at least 4.0 million mt of world wheat, double the USDA estimate.

• Turkey returned with a wheat tender for 300,000 mt which will likely be sourced from Russia. And Tunisia/Jordan are tendering for 100,000 mt of wheat. World wheat demand stays strong with importers uncovered on future demand beyond October.

• Russia’s Ag Ministry reported that 63.2 million mt of wheat has been harvested vs 68.4 million in the same week last year. Russia has cut wheat on 20.5 million ha of land, up 1.3 million ha from last year. The average yield is 3.09 mt/ha down nearly 14% from last year. The yield data argues for a final 2021 Russian wheat crop of 71.5-72.5 million mt.

• US ethanol production continues to slide on the high cost of feedstock, corn. Although plant margins are highly profitable, US ethanol producers are awaiting the new crop with heady premiums being paid for old crop corn. We see the slowing US August ethanol corn grind causing USDA to drop its 2020/21 US corn ethanol corn grind estimate by 25-35 million bu in September.

• The midday GFS weather forecast is wetter across Louisiana/Mississippi with a hurricane mid next week. The hurricane is forecast to make landfall around NOLA and slowly push north producing copious amounts of rain with totals exceeding 8-12.00″. The flooding rain and strong wind are a risk to unharvested crops in LA/MS. The storm slowly shifts NE into the SE US. The storm is not expected to replenish soil moisture in the Eastern Midwest, but some rains are forecast for early next week. Temperatures are warm to hot through the weekend and then cool late next week.

• It feels like new hedge fund money is coming into the grain space based on a developing bearish view of the US$ and a waning of the summer weather market. We see US corn/soy yields sliding on the less than favourable August weather. A US corn yield of 172-174 bushels/acre corn and 49-50 bushels/acre soybean is realistic in our opinion. Seasonal lows are forming, again our opinion.

24 August 2021

Posted on August 24, 2021 by simon

• HEADLINES: Markets find bullish enthusiasm; Crude boosts global oilseed markets.

• Chicago ag markets have extended their overnight rallies in decent volume. Last week’s lack of meaningful crop improvement in the Dakotas despite weekend rainfall has kept the US row crop yield debate alive, while updated model guidance features an acceleration in soil moisture loss across the eastern Midwest. Max high temperatures into the weekend east of the MS River will reach into the upper 80s and low/mid-90s. Our primary concern over US supply is that of rapidly declining water availability during the tail end of the growing season, with pod and ear weights to be capped as plants are rushed toward maturity.

• Spot WTI crude oil this morning is up another $2.00 per barrel, and crude’s $6 rally from Monday’s low has given life to vegoil-based oilseed markets and their longer-term use as biofuel feedstock. November canola is up $14 per ton, with European rapeseed and rapeseed oil markets following. In fact, EU rapeseed oil is nearing all-time highs scored in early June.

• Stats Can next Monday will confirm that Canada’s exportable surplus will be cut in half year on year, and equally important is Stats Can’s July 31 stocks report due on Sep 6. Stats Can canola stocks data all year has confirmed that USDA is understating disappearance. Final Canadian canola stocks are likely to fall to 500-750,000 tons, vs. USDA’s projected 1.1 million tons. This will quicken the need to ration supplies there. The bullish global veg oil story remains intact.

• FAS’s daily reporting system featured additional US corn sales to Mexico worth 125,000 tons. China bought 132,000 tons of US soybeans. Importers have been only willing to pick at supply needs amid elevated prices, but our US export thesis remains cantered on rising international markets and a lack of alternatives to US origin supply.

• Brazilian corn prices have held support at $7.55 per bushel, basis November. S American soyoil basis continues its rally, while the US becomes the only supplier of soybeans October onward. Even US HRW wheat’s premium to comparable German origin has fallen to just $4 per ton on a fob basis. This compares to $30 per ton three weeks ago. There is no doubt US crop demand will be large, but until crop size is known, we expect broadly neutral seasonal trends to hold into mid-September.

• Corn yield data out of the Delta region has largely matched expectation but results there are down noticeably from last year. Yield data will be available from the mid-South on or just after Labor Day. And Plains and Midwest yields will be known some two weeks earlier than normal due to early seeding in the east and heat/dryness in the west.

• General consensus on US corn and soy yields should be available prior to the release of NASS’s October report.

• The midday GFS weather forecast is wetter in TX compared to its morning solution but slightly drier elsewhere into Sep 3. Yet, confidence in forecast details beyond early next week is low as the major forecasting models are forced to handle elevated tropical activity. The GFS forecast features a rather strong storm impacting TX/LA next Tuesday and hints at another Gulf storm Sep 3-5. In the near-term, heavy rainfall stays isolated to SD, MN and WI. A lack of precipitation and abnormal warmth persist across the Central Plains and principal Midwest.

• The size and volatility of these markets will not relax until current stocks and stocks/use issues are solved. Chicago corn and soy bottoming in second half of August was routine prior to 2020. We continue to maintain that nearby weakness provides the opportunity to extend forward supply coverage.

23 August 2021

Posted on August 23, 2021 by simon

• HEADLINES: Chicago mixed as corn sags on fund selling; Rumours that China secured US corn cannot be confirmed by cash traders; Stats Canada out Aug 30.

• Chicago futures are mixed at midday following a liquidating break in December corn futures below $5.30. Soybean/wheat futures followed corn to easier levels, but never reached into the red. Soyoil is posting strong gains on the expectation that the Biden Administration won’t break its promise to US farmers on steady to expanding biofuel use made during the 2020 campaign. Traders are expecting steady to a 1% increase in US good/excellent corn/soybean ratings this afternoon. We are leaning to a firmer close, but it is a day where both the bulls and the bears do not want to be very vocal in their market stance.

• Chicago brokers estimate that funds have bought 1,900 contracts of wheat, while being flat in soybeans and selling 7,500 contracts of corn. In the products, the funds have sold 4,400 contacts of soymeal and bought 6,400 contracts of soyoil. Active oil/meal spreading is noted this morning.

• There is cash talk that China was bidding and may have bought US corn as December fell under $5.30. We cannot confirm the cash rumours but hear that China has a bid under corn on fresh weakness. If China did secure US corn under $5.30 December, the tonnage involved is likely less than 250,000 mt.

• There is also talk that China booked 4-6 cargoes of US soybeans with at least 3 cargoes sold off the PNW for October. We note that in checking with Chinese importers that there does not appear to be any problem offloading soybean vessels in China, while there are some Covid related snags in barley and sorghum. China’s 0% tolerance on Covid means that the entire crew must be tested and cleared for a vessel to offload.

• Stats Canada will release their August crop report a week from today. The report will be extremely important for canola/world wheat futures. Early harvest data has been disappointing in terms of yield results with private estimates discussing a Canadian 2021 all wheat crop of 21 million mt or less and a canola crop of 12.5 million mt or less. Both are well below the USDA estimate of August 12. Cash durum prices continue to push higher on tightening supplies.

• Russia started releasing harvest data after hiatus since August 11. Russia has now harvested 62.2 million mt of wheat with an average yield as of August 24 of 3.13 mt/Ha (46.4 bushels/acre), down 12.6% from last year. The harvest data points to a 2021 Russian wheat crop of 73-75 million mt, which is just above the USDA August estimate. Russian export tax rates calculated on a 60-day average price are expected to start a steady march higher in the weeks ahead. Russian farmers are showing no interest in cash related sales due to the tax/cash bids.

• The US exported 28.5 million bu of corn, 24.2 million bu of wheat and 7.9 million bu of soybeans in the week ending Aug 19. China shipped out 2.45 million bu of beans. China has 1.6 million mt of old crop corn left to ship out with an estimated 600,000-900,000 mt of those purchases likely to be rolled forward to new crop. We estimate that China will take 28.5-29.5 million mt of world corn in the 2020/21 crop year that ends on September 30t, a record by a wide margin. China was the US’s biggest wheat shipper last week taking nearly 170,000 mt.

• The midday GFS weather forecast is wetter across lowa/E Midwest, while being drier across Minnesota/Wisconsin and Michigan. The forecast models are struggling with the exact position of a system this weekend and the storm’s convective outlay of rainfall. A few light showers are falling across NW Illinois today, but totals are less than 0.25″. Warm/humid weather will prevail this week with highs in the mid 80′s to the lower 90′s. Crop maturity will be pushed with corn harvest starting across the Central Midwest in mid-September. The Central and Southern Plains hold in an arid trend.

• Funds are liquidating corn market length while world wheat/oilseed values are pushing upwards. This is the wrong time of the year to be making cash sales with US corn export demand starting to show. Mexico purchased 458,600 mt of US corn. Brazilian corn exports are far below last year, and the US will benefit. A seasonal low is forecast to be forged in corn/soy by early September.

20 August 2021

Posted on August 21, 2021 by simon

• Rumours that biofuel mandates could be lowered for 2020/2021/2022 had soyoil falling to near limit losses on Friday. RIN values are also in retreat. But it is worth noting that renewable diesel demand is not likely to be affected by changes to the federal mandate. This demand appears to be almost insatiable. Yet, after the close EPA indicated that 2022 biofuel mandates would be higher and that reductions for 2020/2021 were based on reduced fuel consumption due to the pandemic. The 2020 and 8 months of 2021 biofuel blending has already occurred. This means that only 4 months might be impacted. The real impact is on the cost that refiners would have to pay in terms of past RIN purchases. The impact on biodiesel blending is negligible. In our opinion Chicago was too bearish on the newswire flash.

• Pro Farmer released its soybean yield estimate from the week’s Crop Tour. The national soybean yield was pegged at 51.2 bushels/acre, with a crop of 4,436 million bu. The yield was 1.2 bushels/acre larger than the August NASS yield. Based on the Tour’s yield estimate, the September NASS yield can be expected at 51.7 bushels/acre, +/- 0.9. November soybeans fell back below $13.00, where we expect scale down Chinese buying. Our longer-term outlook calls for higher prices into early 2022.

• Dec Chicago corn fell to initial chart-based support at $5.30-5.40 amid negative demand input. The EPA is unlikely to mandate ethanol consumption growth beyond 2022, though actual ethanol production and use will be subject to gasoline consumption. We do not view any change in the RFS as significant to spot and future domestic corn consumption.

• Pro Farmer estimates US corn yield at 177 bushels/acre and production at 15.1 billion bu. If realised, this would add 365 million bu to 2021/20 US supply. We note that NASS’s Sep yield has a slight tendency to be above Pro Farmer, but NASS’s final yield correlates poorly with the Tour’s estimate. Note also that this year’s Tour yield is 0.5 bushels/acre below last year. If we used the Tour’s state by state Midwest yields and included NASS August yields for other states, the yield that is arrived at is 173.9 bushels/acre. Pro Farmer adjusts the US corn yield based on other assumptions.

• The lack of a US yield disaster keeps the normal seasonal price trend intact. Lows are normally set in late August with a demand-driven recovery unfolding thereafter. The timing and intensity of this recovery will hinge upon US export demand. US Gulf corn is the world’s cheapest feedgrain.

• US wheat futures ended 4-14 cents lower led by Dec Chicago, amid ongoing macro-based selling and weakness in corn and soy markets. We maintain that wheat will remain the bullish leader of the ag space into winter. Current prices should be used to scale into end user supply coverage.

• Spot Paris milling wheat again found fresh seasonal highs at €273/mt ($8.70 per bushel) as end users in Europe scramble to guarantee high quality milling supplies. And Russia’s interior wheat market rallied another $10-15/mt. Spot wheat in Russia’s southern region has rallied $40/mt in 30 days. Current prices indicate that exporters can only make money at FOB prices above $300-310/mt. Russian exporters total cost burden will rise further as the calculated export tax increases. Taxes will start going up next week.

• It is only August and already the world has a major milling wheat supply issue. Highs are not expected until late winter. Newer price highs lie in the offing, with $8.50 still targeted in Dec-January in KC December futures.

• Any weakness is a buying opportunity.

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

Weekend summary 20 August 2021

19 August 2021

Posted on August 19, 2021 by simon

• HEADLINES: Funds pound corn/soy as 50/100 day moving averages breached; China buys additional US soybeans on the break; Sept Paris wheat inverse.

• Chicago futures are lower at midday as “risk of” is the theme as Wednesday’s minutes of the US Central Bank indicated that it is moving away from its highly accommodative monetary policy. The first step in slowing its accommodation is the end of its purchasing of US bonds, which is called tapering.

• The risk off mentality based on the US unemployment rate falling below 5% with the US inflation target of 2% being reached for consecutive months. The risk off selling pushed corn/soybean futures below their key 50-100 day moving averages which triggered a host of technical sell stops. It is this technical selling which is pushing Chicago futures sharply lower. Soybean have endured the most selling with November futures pushing below $13.20 while December corn is in position to test $5.40 chart support.

• Chicago brokers estimate that funds have sold 6,000 contracts of wheat, 14,000 contracts of corn, and 12,000 contracts of soybeans. In soy products, funds have sold 4,300 contracts of soymeal and 4,000 contracts of soyoil. The initial commercial pricing in corn/wheat was overrun by technical selling. We note that Paris September wheat has rallied above €260 euros/mt. The EU and Black Sea cash markets are not following Chicago lower.

• China booked another 263,000 mt of US soybeans and Mexico 148,500 mt in the new crop year as reported in the daily sales report. We understand that China has booked another 6-8 cargoes of US soybeans this morning. China is consistent in booking US soybeans daily as they are well behind in their purchase pace. The decline in Chicago aids Chinese demand.

• US export sales for the week ending August 12 were 11.3 million bu of wheat, 28.6 million bu of corn (8.5 million old and 20.1 million new crop), and 82.2 million bu of soybeans (2.5 million of old and 78.7 million of new crop). New crop US corn sales are a record large at 732 million bu with new crop soybean sales growing rapidly to 509.4 million bu. The big purchases by China in soybeans has persisted for 11 consecutive days. US soybean export sales in the middle of August are now in line with the USDA Annual export forecast.

• EU wheat traders bemoan tightening supplies of milling wheat for export. Note that Paris September wheat futures is now above €260/mt with September wheat trading at a €16/mt premium to December. Exporters having difficulty finding milling wheat are buying Paris September futures to assure supply. And as Russian export taxes will keep rising each week (calculated based on a moving average), the outlook for their exports is in sharp decline. US wheat will be needed by the world to fill the supply gaps left by the Russian/Canadian/European milling wheat shortfall. We calculate that with normal Argentine weather, some 20-22 million mt will go to non-traditional suppliers. US and world wheat prices are in a bullish trend amid a dire supply shortfall.

• The midday GFS weather forecast is consistent with the overnight run. Another 48 hours of warm/dry weather prevails before rain starts to fall across the N Plains. Most of the remainder of the Midwest/Plains stays dry into Monday. The weekend rain targets include the Dakotas, W Minnesota, and NW Iowa. Totals are estimated in a range of 0.25-1.50″ across the Dakota while totals further south range from 0.2-1.25″. Coverage of the Central US rain through next Friday is 65-70%. Targeted is Iowa and Minnesota.

• The forecast is changeable due to the development of Hurricane Grace in the Gulf of Mexico. The hurricane targets the Yucatan Peninsula with inundating rainfall this weekend. Warm/dry weather returns to the Plains/W Midwest during the 10–15-day period.

• Fund and technical selling is pounding Chicago values as key moving average support is breached. China is expected to boost its soybean import program on the decline. By far, wheat is the most bullish Chicago grain followed by corn/soybeans. The downside price targets for December corn futures are $5.4 and $13.00 for November soybeans. End users should be building their forward coverage. We remain bullish with lows due in late August.

18 August 2021

Posted on August 18, 2021 by simon

• HEADLINES: Chicago mixed in slow volume on a lack of passion; China loading out US old crop soybeans; Egypt’s GASC wheat purchase at 6-year high.

• Chicago futures are mixed at midday. Soy futures are lower on the weakness in other vegoil futures, and the rain forecast for the Northern Plains and W Midwest on Friday and the weekend. The forecast calls for 0.25-1.25″ of rain for key crop areas that have been in a dire drought since May. Corn/wheat futures are firm due to a 180,000 mt purchase of wheat by Egypt’s GASC at the highest FOB price in over 6 years. There were just 6 offers of wheat from E Europe and Russia. If freight costs are included, the CIF Egyptian GASC wheat purchase is the highest looking back to 2011/12 (recall the dire US drought at that time). World wheat prices keep rising sharply with buyers chasing the market upwards. We look for a mixed Chicago close with the grains staying firm heading home, while key support should underpin November soybeans below $13.50.

• Paris wheat futures are up €5.25 at $248.00 amid strong demand and tightening milling wheat supplies. The fundamentals of world wheat are bullish on limited exporter supplies and concern that arid weather could damage Argentine hard wheat without needed rain into the middle of September. The Argentine weather forecast does not offer much rain into September 3, so traders are starting to sit up in their chairs and pay close attention. The world cannot afford the loss of any Southern Hemisphere wheat, either in Argentina or Australia.

• China booked another 131,000 mt of US soybeans in a new crop position. We see that China is actively loading out old crop soybeans from the Gulf with vessels going under spout and another 3 boats waiting. We look for China to export 500-600,000 mt of US soybeans during August.

• Chicago brokers estimate that funds have sold 3,200 contracts of soybeans, while buying 3,000 contracts of corn and 2,500 contracts of Chicago wheat. In soy products, funds have bought 900 contracts of soymeal while selling 3,100 soyoil. The fund selling in soybeans is falling into commercial pricing.

• US farmers are widely discussing the soaring price of fertilisers for the 2022 crops. Midwest farmers are considering backing down fertilisation programs, but the real nearby impact is that pulling in new marginal farmland into production in the Plains/Delta looks unlikely. US/corn seeded acres may be capped around 180 million acres in 2022. US farmers will choose wheat/soybeans vs corn via the high price/outlay for nitrogen, potash, and phosphates to plant corn. This is a reason why December 2022 corn futures continues to rise on the need for additional acres.

• The US ethanol industry produced 286 million gallons of ethanol vs 290 million gallons last week. The US now needs to produce 300 million gallons/week to reach the USDA 2020/21 forecast.

• The midday GFS weather forecast is consistent with the overnight run. Another 48 hours of warm/dry weather will prevail before rain starts to fall across the N Plains and Minnesota. Most of the remainder of the Midwest/Plains stay dry into Monday. Highs are in the 80′s and low 90′s before a slow moving cold front pushes southward. Weekend rains are estimated in a range of 0.25-1.50″ across the Dakotas/Minnesota while totals further south range from 0.2-1.00″. Coverage of the Central US rain through next Friday is 65-70%. However, the forecast is changeable due to the likely development of Hurricane Grace in the Gulf of Mexico. The hurricane targets the Yucatan Peninsula with inundating rainfall. Warm/dry weather returns to the Plains/W Midwest during the 10–15-day period.

• Low volume and low interest is producing mixed Chicago values at midday. The Pro Farmer Tour is not finding much to argue about in relation to crop size. Soy pod counts could be better, but heat is quickly pushing corn to the finish line. China is expected to remain a buyer of US soybeans while world wheat prices rise on tightening exportable supplies. A Chicago price bottoming process is underway as the market awaits elevated import demand for the new crop.

 

• UPDATE:

• Today, Egypt’s GASC purchased 180,000 mt of wheat from Romania and Ukraine for shipment in Oct 05-15. The average FOB price paid was $296.65 mt. That is up $35.16 mt from the average price paid at the tender held two weeks ago. For the second time in a row, there were only 5 offers. The lowest Russian offer was $21 mt above the lowest Romanian offer. The average CIF price paid in today’s tender was $331.58 mt. That is up $37.84 mt from the last tender price. Ocean freight rose $2.68 mt to $34.93. Freight is believed to be a record. GASC will pay for the grain within 180 days. Payment in 180 days is estimated to add $4-5 mt to the cost of the wheat. This is the 6th tender in a row that non-Russian origins captured most or all of the business. The average FOB price paid in this tender was $35.16 mt above the last tender. It is also nearly $87 mt more that the average price paid at a tender held a year ago.

• Spot Paris milling wheat has recovered all of Tuesday’s break. Non-US cash wheat markets are being driven by the abrupt decline in Russian production and a real lack of high protein milling supply in Western Europe. European milling wheat premiums have added further value to wheat. Spot milling wheat cash basis in Northern Germany has recovered swiftly from harvest lows in mid-July. Like futures, the seasonal trend in EU wheat basis is positive until new crop production is known. That cash markets are keeping pace with futures is important given it is only August and new Northern Hemisphere wheat production isn’t due for another 11 months. We also note that the surge in Black Sea feed wheat (and barley) will work to shift demand back to corn beginning in early autumn. The US corn market in particular stands to benefit from this shift.

17 August 2021

Posted on August 17, 2021 by simon

• HEADLINES: Chicago decline deepens on macro financial sell off; China securing US soybeans with another 4-6 cargoes sold today; Midday GFS weather forecast consistent.

• Chicago futures are mixed at midday. Chicago continues to measure US yield while also seeking a price that builds demand for US corn/wheat. US corn purchases by importers have not ramped up, while US wheat is the most expensive in the world. This has produced a Chicago correction of last week’s USDA Crop Report gains. Price is looking for a level that sparks enlarged consumption.

• We see price support below $5.60 in December corn and below $13.50 in November soybeans while Dec KC wheat should hold support at $7.10-7.20. Paris wheat futures are sharply lower which is causing the weakness in US futures. Paris and Black Sea wheat were the upside leaders on the $1.30/bu world wheat rally. Black Sea wheat is holding much better than Paris which suggests that the break is largely corrective and technical.

• We forecast that Chicago corn, wheat, and soybean futures will form a secondary seasonal bottom before the end of August. This is the wrong time of the year to turn bearish as August weather has been less than favourable. A couple of good finishing rains are required, but crop scouts report firing of lower corn leaves and that soybeans need a good drink. As witnessed last year, August and early September Midwest weather have an important impact on yield.

• Chicago brokers estimate that funds have sold 6,400 contracts of wheat, 6,500 contracts of corn, and 3,500 contracts of soybeans. In soybean products, funds have sold 1,500 contracts of soymeal and 2,000 contracts of soyoil. The fund selling is ongoing at midday on corn taking out yesterday’s low while soybeans were unable to rise above yesterday’s high.

• China keeps pecking away at US soybean purchases, but at a pace that is well below last year. China purchased 198,000 mt of US soybeans with another 132,000 mt sold to an unknown buyer. China has purchased 5.0 million mt of US soybeans on a known basis with another 3-3.5 million likely held in an unknown destination category, a total of 8-8.5 million mt. A year ago, China had purchased around 12 million mt of US soybeans. China is behind on its purchase pace. It has cut back on US soybean purchases amid a larger S American import program. China is still seeking offers for Brazilian soybeans for late September and October, so our bet is that it is related to the bigger S American soybean imports. Yet, China has as much as 30 million mt of US soybeans to purchase in the months ahead which should provide support below $13.50 basis spot soybean futures. China will likely scale into additional purchases on Chicago breaks.

• The Twitter feed from the Pro Farmer Tour is reflecting solid or near record corn yields in Indiana. We would expect that as the tour gets into some of the areas that endured water damage from the late June excessive rain, yield will tail off slightly. Otherwise, another round of strong corn yield data is expected with soy pod counts down from expectations when participants walk into a field.

• The midday GFS weather forecast is consistent with the overnight run in that rains start to arrive in the N Plains on the weekend and push south and east early next week. Temperatures sag with more seasonal 70′s and 80′s arriving for daily highs. The mean position of the jet stream will allow for better rain chances across the drier regions of Canada and the Northern US beyond the weekend. However, there will be patches of the Midwest that will be missed and the extended range 10–15-day forecast is warmer/drier. We maintain that crop condition ratings will slide again next Monday and that traders/producers will be discussing a decline in yield in September from the initial NASS August estimate.

• The DOW is down 450 plus points as the US$ rallies and it is a risk off macro day. We doubt that the US or world economic outlook will darken dramatically due to the Delta variant of Covid. Seasonal Chicago lows are likely already in place during July. China is forecast to be a sizeable scale down buyer of US soybean futures as margins turn green. Wheat prices may retreat as Russian CPT (carriage paid to) wheat values reached levels that triggered farmer selling. A deeper 10-20 cent break would produce a new buying opportunity.