HEADLINES: Chicago mixed at midday; NOPA crush disappoints; Better rain due in Dakotas next week.
Chicago futures are mixed at midday in modest volume. Neither the bulls or the bears have been able to build any momentum with values chopping back and forth. Paris wheat futures have declined from last week’s high to a lower closer. Algeria’s tender is likely to occur at a higher price than their purchase 2 weeks ago amid the tightness of quality French wheat supplies. The Pro Farmer Tour is uncovering strong yield potential in Ohio and portions of S Dakota. Amid lacklustre demand, the results of the Tour could cause Chicago selling into the coming weekend with rain in the forecast for the N Plains and W Midwest. A choppy/mixed trade is forecast with China underpinning the soy market on breaks due to pricing. China is short bought and has a considerable tonnage of US soybeans yet to price. Most of the US demand will be coming off the PNW due to soaring world freight rates. We forecast a mixed Chicago close ahead of the NASS weekly Crop Condition and Progress Report.
Chicago brokers estimate that funds have bought 2,300 contracts of soybeans and 1,900 contracts of wheat, while selling 3,600 contracts of soybeans. In soy products, funds have sold a net 1,900 soyoil while buying 2,300 soymeal. The corn market has a heavy feel amid the new fund selling.
USDA weekly export inspections were 29.7 million bu of corn, 16.2 million bu of wheat, and 10.2 million bu of soybeans. The soybean exports were larger than expected while corn and wheat were slightly less.
For their respective crop years to date, the US has shipped out 2,533 million bu of corn (up 936 million), 2,155 million bu of soybeans (up 614 million), and 179.5 million bu of wheat (down 29 million). China was the big exporter of US soybeans taking 5.3 million bu. We reported last week that China was loading 2 boats and is expected to continue loading out US soybeans into September.
The July NOPA soybean crush rate fell behind expectations at 155.1 million bu. This was down 17 million bu from last year. This was the second smallest US soybean crush rate since September 2019 and reflects that USDA’s 2020/21 soybean end stock total may still be 5-10 million bu too low. The trade was looking for the July soybean crush rate at 159 million bu with soyoil stocks at 1,500 million bu. The smaller crush rate yielded a soyoil stocks total that was well above expectations at 1,617 million pounds. This total reflected smaller than expected domestic demand and that price was rationing supplies. The NOPA Crush Report was deemed as bearish with high US soybean/soyoil prices producing rationing.
The Canadian harvest accelerated across the Northern Prairies with disappointing results. Yields for wheat/canola were often in the single digits in terms of bushels/acre, which has private analysts further cutting their wheat/canola/oat crop estimates. Extreme heat is being blamed as the cause.
The midday GFS weather forecast is wetter in the Central Plains and Iowa this weekend but is drier across the Great Lakes region. Overall, the GFS’s big-picture theme is consistent with prior output and the N American climate trends cooler and wetter beyond the coming weekend. The mean position of the jet stream beginning next week will allow for better rain chances across the drier regions of Canada and the Northern US. 10-day precipitation accumulation is pegged at 1.0-2.5″ across the Dakotas and MN. Totals upward of 0.50-1.50″ impact the mid-South and Southern Midwest amid the lingering remnants of Tropical Storm Fred. Highs across the Plains cool into the 80s in the 6–15-day period.
The US yield debate has not been put to rest, and next week’s exact precipitation totals and coverage are important to soybean crop health. The ingredients for a demand-led bull are firmly in place as international market rise, but sizeable new buying only occurs when this demand can be seen and felt on a weekly basis. The long-term outlook is bullish, but recent corn /soy price ranges hold into harvest.
A strong rally in soyoil along with sizeable soybean export sales announcements from the USDA offered late-week support. The USDA reported nearly 12 million bu of soybean sales to an unknown destination. Additionally, there was another 4.6 million bu of new crop soybeans that were sold to China.
Soybean processor bids have collapsed across the Midwest in the last two weeks. Crushers were able to extend coverage to harvest as both futures and basis rallied in mid-July. With the Midwest harvest less than 60 days out, old crop basis will weaken on Chicago rallies.
The smaller US soybean yield in the August USDA report were more than offset the larger old crop stocks. The USDA made cuts in domestic, and exports based on pace. US soybean sales are running behind last year and Brazil will fulfil China demand during September.
August weather will help in determining if the 2021 US soybean yield is 48 bushels/acre or 52 bushels/acre. It is still a wide range of yield outcomes with rain in the last half of August key to yield potential across the N Plains and the W Midwest.
Chicago corn futures ended flat as post USDA bullish momentum faded. We noted at midday that August FSA acreage enrolment data suggests final corn seedings may be raised 500,000-700,000 acres. Final US sorghum seeding will be raised 500,000-1.0 million acres, which will add to US feed supplies. The outlook stays bullish, but the market must see-and-feel historically tight US stocks/use before large scale buying is sustained.
Dec corn at $5.40-5.80 is aligned with the USDA’s current 2021/22 US balance sheet. US stocks and stocks/use will tighten steadily into winter, but the market in any given 30-day period has shown since late 2020 it will only trade fair value as determined by USDA. This is typical of demand-led markets, rallies slowly evolve. In the near-term, strong resistance is expected at $5.90-6.00 as harvest lies ahead, while downside below $5.50 is limited. As such, the strategy remains to use weakness to add to supply coverage. $6.00+ only occurs once world feed demand is fully shifted to the US in mid-autumn. Pro Farmer’s tour of the Midwest begins Monday.
US wheat futures ended 1-10 cents higher on Friday led by spring wheat contracts. Market strength was a function of international markets reacting to record exporter stocks/use with September milling wheat in Paris rallying €9.50/mt. Wheat does have a major milling quality supply problem, and key in the next 30 days is whether importers opt to extend coverage at current prices.
Disappointing Russian yields and historic Canadian drought have now been digested by the marketplace.
Spot cash fob offers in Europe and the Black Sea have rallied to $295-310/ mt vs $230 just 45 days ago. Such prices have not been witnessed since the spring of 2013. Our bet is that importers maintain normal buying patterns amid food security issues, but global demand, not supply, is now in focus.
The long-term outlook is bullish as physical supplies erode and dryness lingers in Argentina. Rallies will be laboured as Northern Hemisphere corn crops are gathered. Upside potential is pegged at $8.50+ during late autumn/winter assuming global consumption remains intact.
To download our weekly update as a PDF file please click on the link below:
HEADLINES: USDA surprisingly bullish on US corn/soy yield adjustments; East did not make up the difference for west losses; Seasonal lows appear to have been set in July.
The USDA August Crop Report was bullish with US corn/soy yields falling below trade expectations. NASS pegged the US corn yield at 174.6 bushels/acre, a decline of 4.9 bushels/acre from trend with soybeans at 50.0 bushels/acre, a drop of 0.8 bushels/acre from trend. The smaller yield produced an immediate rally in Chicago futures with December corn back testing $6.00 while November soybeans reaching $13.69. We see selling pressure above $6.00 December corn and $14.00 November soybean futures.
The big state by state corn yield falls occurred in the Dakotas/Minnesota. The North Dakota corn yield was just 106 bushels/acre, down 23.7 bushels/acre from last year with South Dakota at 133.0 bushels/acre (down 17.9) and Minnesota at 166 bushels/acre off 13.5. The Illinois corn yield was record large at 214 bushels/acre while Ohio was at 193 bushels/acre. The Iowa corn yield was 193 bushels/acre, some 7 bushels/acre below the state trend. The E Midwest did its best to offset the losses in the N Plains and Minnesota but came up short. August weather is more important with the key being another several new rain systems produce across the E Midwest.
US Stocks (million bu)
Jul Aug
2020/21 2021/22 2021/22
Corn 1,082 1,432 1,432
Soybeans 135 155 155
Wheat 844 665 665
US Yield
Corn 172.0 179.5 174.6
Soybeans 50.2 50.8 50.0
US 2021/22 corn end stocks were forecast at 1,242 million bu, down 200 million bu from July with the average farmgate price raised $0.15 to $5.75/bu. The surprise was the dropping of 2021/2 2 US corn exports by 100 million bu to 2,400 million bu. Research would argue for a 2021/22 total of 2,800-2,900 million bu due to Brazilian crop losses and the coming demand from Canada for US corn/feed. We would also statistically argue that the USDA is too low with its US 2021/22 ethanol demand forecast by 100 million bu. The net result is that US 2021/22 corn end stocks will decline with time. Yet, the nearby focus will be on US corn yield confirmation and weather. We doubt that December corn can rally too far above $6.00 without confirmation of better US corn exports/ethanol demand.
US 2021 soybean production was estimated at 2,339 million bu with a yield of 50 bushels/acre. The yield came in on the low end of trade expectations. The North Dakota soybean yield was 24.0 bushels/acre with Minnesota at 43 bushels/acre, and South Dakota at 39 bushels/acre. Such yields were down 28.4, 12.2 and 14.3 bushels/acre from last year. Illinois, Indiana, and Ohio soybean yields were record large at 64, 60 and 58 bushels/acre respectively. The east did not make up for the west.
US soybean end stocks were increased in old crop to 160 million bu with new crop holding steady at 155 million. The USDA cut 2021/22 soybean exports by 20 million bu to 2,055 million bu and crush to 2,205 million bu. We would argue that both are too low with US 2021/22 soybean end stocks to fall below 100 million bu, which rallies Nov to $14-14.25.
USDA wheat is the most bullish of the major ag markets, with exporter production lowered 17 million mt, far more than expected, and exporter wheat stocks pegged at a record low 12.5%. Combined Russian and Canadian production was lowered 20 million mt(!) with Kazakhstan’s crop down 0.5 million. EU plus UK production was raised by only 600,000 mt, and the burden of production/export growth now rests solely on Australia. Even assuming an Aussie crop this year of 30 million mt (which requires ideal weather there), exporter stocks will total just 52 million mt, vs. 59 last year and vs. 62 million mt in 2019. Wheat’s supply issue will be growing as importer demand increases during the autumn months.
US wheat production was lowered another 49 million bushels, but not due to reduced spring production. US winter wheat yield was cut 1.8 bushels/acre amid reduced harvests across the PNW. Additional cuts to US production lie ahead as NASS left spring wheat abandonment unchanged at 3%, which is much too lower in our opinion. We expect US spring wheat production to be lowered another 20-30 million bu. 2021/22 US wheat feed use was lowered 10 million bu but consumption was otherwise left untouched. Stocks were lowered to 627 million bu, vs. 665 million in July. US wheat end stocks in 2022/23 will fall to 530-550 million unless sizeable acreage expansion occurs this autumn and next spring.
NASS’s pro-active cuts to US corn/soy yields have changed the market’s perception on 2021/22 stocks/use rather quickly. Our biggest concern for end users is that the USDA is not yet accounting for the rapid return in corn and soy export demand, and even enlarged US wheat exports are likely in winter as supplies dwindle elsewhere. The outlook stays bullish.
HEADLINES: Corn, soy firm at midday; US ethanol production slows; GFS weather forecast trends drier again.
Chicago ag markets are mixed, with row crops firm and wheat slightly lower on profit taking. US and European wheat futures markets are perched at overbought levels, but weakness in wheat between now and winter will be mostly be confined to periodic long liquidation. Spot Paris milling wheat at midday is up €1.75 per ton ($.06 per bushel). Rapeseed futures are up sharply. Brazilian corn futures are up slightly, with the Nov contract sitting at $8.06 per bushel. December Black Sea wheat has rallied to $303 per ton. The bulls lack leverage ahead of NASS’s August yield data, but the bears too lack momentum as international markets rise and new crop corn and soy export demand begins to surface.
US exporters this morning sold 132,000 tons of soybeans to China. Another 4-6 cargoes should be announced Thursday as we hear of new activity at both the PNW and Gulf. Interestingly, there are two vessels scheduled to arrive and load soybeans at the Gulf this week, which aligns with talk of China seeking old crop US soy. The market awaits Chinese buying to begin in earnest (1.5+ million mt per week), but it is clear China is there under the market and recent large Brazilian imports will only last so long.
Brazilian fob soybeans for September shipment are offered $15/ton above US origin. Brazilian beans are not offered beyond October.
US ethanol production through the week ending August 6 totalled 290 million gallons, down 8 million from the prior week and the lowest since early May. Ethanol stocks did contract by 15 million gallons as export disappearance remains elevated. But US gasoline use last week was just 9.43 million barrels/day, down 4% from previous week. Gasoline use has failed to reach and stay above 2019 levels. Last week’s ethanol grind matched the pace needed to hit the USDA’s industrial corn use forecast. Yet, it is tough to be bearish of energy values as US crude stocks erode seasonally. Spot WTI crude has uncovered new buying and is up $0.10/barrel at midday.
The S American weather forecast has extended dryness across 40% of Argentina’s wheat belt into August 26. A pattern change is needed immediately thereafter if trend wheat yields are to be realised. This is a new threat to exporter wheat production and stocks as Argentine weather has been worryingly identical to last year, when wheat yield fell 7% year on year.
The midday GFS weather forecast has again eliminated rain from the Central and Northern Plains in the 6-10 day period. Tropical Storm Fred makes landfall in FL on the weekend but its impact on the North American upper air pattern will be minimal. Expansive high pressure ridging stays anchored aloft the Plains and Midwest into August 20, which keeps meaningful precipitation confined to the Delta/Southeast and eastern Midwest. The midday GFS has also trended warmer across the Plains over the next 5-7 days as soil moisture there erodes. Max temperatures in the 90s remain common into late next week.
A demand driven market looms as non-US exportable surpluses decline. The rate and intensity of this forthcoming recovery will be determined by US crop size, specifically NASS Sep yield forecasts. We continue to maintain our recommended strategy to get ahead of global importers by adding to coverage on near-term weakness.
HEADLINES: Chicago recovers with wheat/soybeans the upside leader; CONAB cuts Brazilian corn crop to 86.6 million mt, down 6.5 million from July.
The morning Chicago trade has been mixed with soybeans/wheat rallying while the spreading of wheat/corn and soybean/corn has kept corn under pressure. The volume of Chicago trade is picking up from recent days as traders’ position for Thursday’s August USDA report. Few are willing to add to risk, but end users are hopeful for a bearish USDA report as they want (need) to book forward amid tightening world grain supplies. The USDA report will likely offer bullish world grain data (Brazilian corn/Russian wheat/Canadian drought) with the big unknown being US corn/soybean yields. The whisper estimate today is that US corn/soy yields are not too far from trend. Traders are betting that US farmers like their corn/soybean yield prospect outside of the Dakotas and Minnesota.
Chicago brokers estimate that managed money has bought 5,300 contracts of wheat, 2,900 contracts of soybeans, while selling 1,400 contracts of corn. In soy products, funds have bought 3,200 contracts of soyoil while selling 1,200 contracts of soymeal.
CONAB lowered their estimate of the 2021 total Brazilian corn crop of 86.6 million mt, down 6.75 million from their forecast of July. Private Brazilian analytical firms gauge the 2021 total Brazilian corn crop at 81-83 million mt, with one firm as low as 77 million. USDA has been following CONAB estimates closely since April, and a cut of 7 million mt of Brazilian corn production would be important for 2021/22 US corn exports. It is October when the USDA should be close with the final 2021 Brazilian corn corp. CONAB forecast the 2021 Brazilian soybean crop at 135.9 million mt.
CONAB estimated Brazilian 2021/22 corn exports at 23.0 million mt with imports at 2.3 million. It is forecast by some that Brazil will export just 19.0 million mt of corn with import surpassing 3.5 million. The net result is that US 2021/22 corn exports are understated by at least 250-400 million bu.
The Business Standard is reporting that India will soon announce that the Government will allow the import 1.2-1.5 million mt of soymeal to battle surging feed costs for poultry firms. Argentine meal offers beyond October are difficult to find, but commercials wonder if China coastal crushers could export soymeal to India, while the soyoil would be used domestically. China is positioned to be a meal exporter amid the high cost of ocean freight and need for China to boost crush margins. India’s meal import program would take 6-9 months to complete. Not long ago, India was a world soymeal exporter, so the switch to being a large importer is important to world meal trade patterns.
The Russian wheat harvest is 54% completed with yield to date forecasting a 75 million mt crop. Black Sea wheat offers keep rising amid limited farmer holding. We guestimate the final Russian wheat crop in a range of 73-76.5 million mt, which is well below the July USDA forecast of 85.0 million. The USDA will likely cut their Russian 2021 wheat crop estimate to 79-80 million on Thursday. Russian fob wheat prices pushed up to $277-279/mt at the close.
The midday weather forecast is vastly drier across the SE US and Florida as a tropical storm is further east across E Florida and the Atlantic. Dry weather deepens the drought across the Dakotas while Iowa/Illinois are slightly wetter (0.10-0.50″). The big concern is Minnesota and through the Plains where rain totals will be less than 0.50″ through August 20. Nebraska/Kansas must be closely followed amid falling soil moisture.
High temperatures will range from the upper 80′s to the lower 100′s into the weekend. The coming heat will add to crop stress. The GFS weather forecast has subtracted rain from the Dakotas (like the EU model solution).
December corn has been straddling $5.50 for 11 consecutive days as traders await US yield definition following a summer of weather differences. Will good crops in the E Midwest be enough to offset losses in the N Plains, N Iowa, and Minnesota. World stock/use ratios of corn, wheat, and soy are bullish. It is the tightness of world grain that is raising Chicago corn/soybean harvest lows.
HEADLINES: Chicago slides at midday on macro financial market weakness; Midday GFS weather forecast adds rain in the 10-15 day period; Choppy trade ahead of the USDA report.
Red is the colour of Chicago midday trade with corn, soybeans and wheat retreating from Friday’s rally. Green blobs on the Central US radar and the sharp fall in US energy/metal prices has produced a risk off trading mentality. The US$ is firm with gold values down $35/oz as the US will be able to better manage through the Delta Covid outbreak with 71% of its population vaccinated.
Questions as to when the US Central Bank will begin to taper their bond buying program has added to the selling pressure. The US economy is strengthening amid a heated labour market. The US CPI will be released midweek which will likely show a strengthening of inflation. The rising cost of freight is a growing concern for shippers and end users with few new vessels being built in replacement. Ocean freight costs will stay elevated for months to come.
China has interest in US soybeans/corn while Black Sea wheat values continue to gain. December Black Sea wheat futures at $295/mt is getting close to $300/mt on limited Russian selling. The rise in Black Sea wheat/grain values is based on tight farmer holding and the diminished harvest. The USDA announced that 2 cargoes of US soybeans were sold to an unknown destination.
Chicago brokers report that funds have sold 3,400 contracts of corn, 1,900 contracts of wheat and 5,400 contracts of soyoil. Funds have bought 1,400 contracts of soybeans and 3,800 contracts of soymeal. It is the second day of the Goldman Roll as fund managers roll out of September futures and into December. Dec ’21 vs Dec ’22 corn spread has narrowed into 35 cent December 21 premium. The Dec/Dec spread below 30 cents will be an opportunity to bull spread corn for the coming demand led bull market.
For the week ending August 5, the US exported 26.6 million bu of corn, 4.2 million bu of soybeans and 22.2 million bu of wheat. Last week’s US corn and soybean export pace was disappointing. For their respective crop years to date, the US has exported 2,500 million bu of corn, 2,145 million bu of soybeans, and 161.6 million bu of US wheat. Census corn exports are running 213 million bu ahead of inspections, so it is premature to cut US corn exports in the August USDA report.
US producers report that they expect crop condition ratings to soften by 1-2% in the good/excellent category this afternoon for corn/soybeans. Last week’s lack of rain and heat in the Plains/W Midwest impacted yield potential. Pro Farmer will be holding a Crop Tour from August 16-19 to gauge if the USDA August Crop Report is correct. We maintain that it will be the September Crop Report before an actual accurate assessment of US crop size is known. The 2021 US corn and soybean crops will be mature enough for actual ear and pod weights to be determined. The September report is now the all-important measure of the 2021 US corn and soybean crop size.
The midday forecast is wetter in the final 12 hours of the 10-day run with rains for North and South Dakota. The extended range model is adding rain in the 11-15 day period amid the tropical activity that will impact Florida and the SE US. Until August 19, the forecast for the Plains/W Midwest is arid. We look for 40% of the E Midwest to receive 0.25-1.00″ of rain in the next 36 hours. The lack of rain is taking a toll on Plain’s/NW Midwest corn/soybean crops. High temperatures this week will range from the upper 80′s to the lower 100′s into the weekend. The rains following August 20 will be closely followed to see if it verifies and if temperatures subside.
Minnesota corn and soybean yields have the most to lose during August following the second driest July on record.
Chicago corn, soybean and wheat futures are correcting Friday’s rally as price action is choppy. The trade can dispute US corn and soybean yields in the weeks ahead. What cannot be disputed is the crop losses for Canadian crops, Brazilian corn, and Russian wheat/corn crops. The world shortfall is expected to produce a demand led Chicago rally from September onward. Early August crop sales do not correlate with final US totals. Wheat will be the upside leader.
HEADLINES: China buys at least 8-10 cargoes of US soybeans, they’re back!; Midday Central US weather forecast drier and further south with rain.
Chicago futures are slightly higher at midday with KC wheat/Chicago corn offering the upside leadership. Soybean futures rallied initially on the Chinese pricing of 8-10 cargoes of new US soybean buying before futures volume subsided. FAS/USDA announced another 2 cargoes of US soybeans sold to China, which offers additional confirmation that China is back securing US soybeans. Brazilian fob premiums keep rising and strong talk is developing in Brazil that soy crop estimates of 135-136 million mt are too high relative to cash market tightness amid the current export/crush programs. Brazilian farmers are not sitting on many old crop beans, and increasingly talk is likely to build that the 2021 harvest was overstated. Brazilian fob soybeans for September/October have rallied to $1.60 over which means that US soybeans are the cheapest in the world. US corn is about to capture that same crown in a few weeks, so the demand profile of US grain and oilseeds is set to rise into the harvest.
We look for a higher dose with traders reluctant to take on any new risk ahead of NC Midwest showers this weekend. Traders would rather have the rain in the rear-view mirror with the USDA August crop report ahead. Following the report, private crop tours will try to gauge US corn/soy yield potential.
We would remind that following the USDA August report, FSA will release their initial insurance program participation data. The trade will try to use the August program data to add or subtract US major cropped acres. Often, the August estimate is not complete enough to produce a definable acreage trend.
The Goldman roll will be underway at the close as index fund managers roll out of September futures and into December. This has September corn weakening vs December on spreads. We see the weakening as temporary due to China’s ongoing active corn export program.
Chicago brokers estimate that funds have bought 3,400 contracts of wheat, 4,100 contracts of corn, and 3,100 contracts of soybeans. In the soy products, funds have bought 2,100 contacts of soymeal and 1,200 contracts of soyoil.
China’s State Planner assured storm ravaged areas that it would release commodities that are essential for livelihood in a timely and targeted manner. The resurgence of Covid and storms have sent the price of a host of commodities including food goods higher. The Government said that it will take measures to assure supply and that price would retreat. The price of corn within interior China is holding well above $10/bu amid record large feedgrain imports that will surpass 50 million mt along with the release of nearly 130 million mt of reserve grain stocks (corn, wheat, rice) in the past year. To keep those reserves steady, China will have to import 30-40 million mt of corn in coming years.
This might be the reason why Dec 2022 corn futures is trading at $5.13 and November 2022 soybeans at $12.60, prices that exceed producer expectations. As we have previously documented, it is renewable biodiesel and China’s ongoing feedgrain imports which are the “demand drivers” of Chicago values in the years ahead. This is not a time to be selling 2022 or 2023 crops.
The midday forecast is drier and further south with rain than what the overnight run offered. The forecast offers light to moderate rains of 0.25-1.00″, but as the model has been doing in recent runs, it cut back on the heavier rainfall amounts. We look for 40% of the Midwest to receive 0.25-1.00″ of rain leaving 60% parched with extreme heat returning mid next week (90′s to lower 100′s) across the Plains and the W Midwest. The lack of rain and the coming heat is taking a toll on Plain’s corn/soybeans.
China’s return for US corn/soybeans adds a new bullish element following the USDA August crop report. Few expect a bullish USDA report next Thursday, which sets up a buy the break mentality for a rally into early 2022. It is the sharp drop in 2021/22 world crop supplies that will boost US corn/soy export demand this autumn.
To download our weekly update as a PDF file please click on the link below:
HEADLINES: Chicago steady/higher at midday; New crop demand surfaces; GFS weather forecast drier in Eastern Midwest.
Chicago futures are stronger today, led by row crop markets, as macro trends have reversed and new crop US corn and soy export demand begins to appear. Spot WTI crude at midday is up $0.85 at $69 per barrel. Gasoline futures have followed. The DOW is up 200 points and for now concern over potential Covid-based demand weakness has eased.
Old crop US export sales were virtually non-existent in corn and beans and near expectations in wheat Through the week ending July 29, exporters sold a net 2.7 million bushels of corn and just 0.4 million bushels of soybeans for 2020/21 delivery. US wheat sales totalled 11 million bushels, right at the pace needed to hit the USDA’s annual target.
New crop corn sales were a much improved 33 million bushels, vs. 21 million the previous week. New crop US soy sales totalled 16 million bushels, vs. 11 million the previous week. FAS this morning announced a sale of 300,000 tons of US soy to unknown destinations, which is rumoured to be China. Today’s sale to China follows ongoing active meal trade there and foreshadows a more regular pace of Chinese buying into late autumn.
Ignoring old crop outstanding sales, exporters to date have sold a record 688 million bushels of corn abroad. This compares to 452 million last year and implies that weekly new crop corn sales of just 32 million bushels are needed to achieve the USDA’s 2,450 million bushel forecast, which is easily 300-500 million too low. New crop US soy export commitments sit at 390 million bushels, down from 660 million a year ago in early August. Recall massive US soy sales made to China throughout July-August 2020. China’s return is inevitable but their absence in recent weeks has allow profit taking to occur unabated. Today, Brazilian beans for Oct delivery are quoted $20 per ton above US Gulf beans. US PNW soy is even more attractive into Asia.
We also highlight US Gulf corn’s increasingly competitive position in the world marketplace. Brazilian interior prices remain perched at $7.90-8.20 per bushel for Sep-Nov arrival, and there is strong talk that Brazil is seeking modest tonnages from the US for near-term shipment. That the second largest corn exporter needs imports to bridge its current supply gap is noteworthy, and this also suggests Argentine corn is not as competitive into neighbouring Brazil. Argentine logistics issues will only worsen in the weeks ahead amid labour strife and as river levels continue to shrink until seasonal rains return in early autumn.
The Argentine forecast into Aug 15 keeps rainfall confined to areas of eastern Buenos Aires, which will not aid river transportation. Eventually Argentine weather will also be monitored for changes to wheat yield potential there.
There is even some optimism surrounding winter/spring US wheat export demand as export production estimates slide further. Combined Russian, Canadian and Kazakh wheat exports in 2021/22 will be no larger than 63 million tons, vs. 74 million last year. Additionally, there remains massive concern over milling wheat availability in Western Europe as quality reports have been disappointing. Spot Paris milling wheatis up €1/tonne ($0.03/bushel).
The midday GFS weather forecast is drier in western Iowa and across the eastern Midwest into Aug 15. Otherwise, soaking rainfall of 0.75-2.00″ is still offered to eastern IA, WI, IL, IN and Ml Sun-Wed, while little/no precipitation occurs across the Plains. The GFS forecast also remains adamant that extreme heat returns to the Plains and Canada beginning Aug 14. The mid/late Aug temperature forecast must be watched closely.
Wheat’s upside vigour has paused as markets worldwide correct from overbought levels. Wheat breaks will simply be corrective in nature. We maintain that weakness in corn/soy is a buy as record yields are unlikely and the trade moving forward must contend with the return of US export demand.
HEADLINES: Chicago drops with the wetter midday GFS weather forecast with rains for IA/IL; Russian wheat yields disappoint; Canadian canola reverses early loss.
Chicago futures are mostly lower at midday in mediocre volume. StoneX’s lower yield projections have failed to spark much new buying interest, while weaker crude futures have weighed on Chicago soyoil. A larger than expected build in US crude stocks has reduced bullish energy market momentum at $74 per barrel, basis spot WTI crude. Concern over the rise in global Covid cases is noted. We doubt US energy consumption/consumer spending will be much affected in the near-term, but more uncertain is how European and Asian governments respond to the spread of the Delta Covid variant as autumn approaches. Interest in new ag positions remains lacking.
We note that Canadian canola futures. after filling an open chart gap, have reversed recent losses. November canola is up $9 per ton at $691, which compares to November Chicago soybeans at $485. Elevated US soyoil production will be required into early 2022 to fill the void left by reduced Canadian canola crush and exports. Recall world vegoil markets tend to find seasonal bottoms in midsummer, and so spot Chicago soyoil at $0.61 foreshadows newer highs by early winter.
Russia’s cumulative wheat yield at 49% harvested is down 7% from last year. This reflects a rapid widening of year on year discrepancy, which was largely expected as yields in the Central and Volga regions were unlikely to match last year’s incredible results. Russian wheat data must be analysed on a week-to-week basis, but the seasonal trend in yields (lower) implies a final crop size of roughly 75 million tons, 10 million below the USDA. US and European milling wheat futures are weak today, but only due to profit taking. Algeria bought an estimated 300,000 tons of EU origin wheat this morning. Turkey secured 245,000 mt of optional origin supply. Pakistan returns to the world wheat marketplace in late August.
US ethanol production through the week ending July 30 totalled 298 million gallons, unchanged from the prior week and 7 million above the pace needed to hit the USDA’s corn grind target. Assuming weekly ethanol production is unchanged over the next 30 days, corn used for ethanol in 2020/21 will be 5,060 million bu, 10 million above the USDA forecast. We would also highlight that US gasoline disappearance last week totalled 9.8 million gallons per day, up 1% from the same week in 2019. Elevated US ethanol production is required to prevent stocks contraction. US crude stocks last Friday totalled 439 million barrels, vs. 436 million the previous week and unchanged from 2019.
Other breaking news is absent and little change in volume/open interest is expected into next week’s USDA report. NASS should begin the process of lowering US production, but a dramatic bullish supply shock is unlikely.
The GFS weather forecast is wetter from E Iowa and into Central Illinois as the model has pushed the rains further south than what was indicated by the GFS/Euro models overnight. We would mention that the GFS ensemble is holding the rains further north in reduced amounts (E MN/WI) through next Wednesday and the Canadian model is similar. The Canadian model keeps Iowa drier with only 0.25-0.75″ of rain from E Iowa and NE IL. The EU model will be watched before the close as to the positioning of the rain next week. Our bet is that he rains will stay across the Northern Lake States.
The 11–15-day forecast features a US high pressure ridge West and another system passing through the Central US offering 0.25-1.00″ of rain. Confidence in the extended GFS operational model is low due to run-to-run differences.
Price is following the raindrops; Chicago futures fell amid the wetter forecast for Iowa/Illinois at midday. Yet, China cash soymeal trade was massive today for January-April with nearly 700,000 mt changing hands. China pig producers are tentative with nearby coverage as feeding margins are only neutral. A host of world end users have poor forward coverage and hope for a bearish August crop report to start purchase programs. We see strong support below $5.40 Dec corn and $13 November soybeans. Wheat drops are corrective. The Chicago soymeal market looks to be scoring seasonal lows against $350/December futures. Notice the bottoming chart pattern below.
HEADLINES: Chicago falls to sharp losses on fund selling amid a lack of resting buy orders from China; Stonex yields out this afternoon; GFS wetter for Lake States.
Chicago futures are sharply lower at midday with corn, soybean and wheat coming under acute selling pressure. November soybean futures fell below the 50 and 100-day moving averages which triggered resting layers of sell stops. The stops pushed November soybean futures back to key support at $13.00-13.10.
Corn/wheat followed the complex lower following active opening fund related buying. Several funds combined to secure 4,000 contracts of corn and 3,200 contracts of wheat which rallied both markets after the morningf reopening.
Trade volume has subsided at midday with few resting orders above or below the market. The midday tone of Chicago is bearish with algo traders on the sell side via bearish chart signals. But it is the sheer size of the algo selling this morning that could produce a late day bounce. There are no resting orders above the market but buying is noted in November below $13.00.
US soybean crop condition ratings unexpectedly gained on Monday, which started the overnight selling. More important is that Chinese soybean demand is slow to arrive for US soy. This has some wondering if US soybean values must fall to values to turns China’s crush margins positive for October I November.
The Chicago break has Chinese crush margins pushing close to near breakeven, the question is what levels would start China in making new US soybean purchases. China has been largely absent for weeks from the US soybean market after making record large purchases back in March/April. Brazil will mostly fill China’s soybean demand in September, with the US taking over in early October. We look for China to start a US purchase program in the next few weeks.
Chicago brokers estimate that managed money has sold 14,500 contracts of soybeans, 5,500 contracts of corn and 2,700 contracts of wheat. In soy products, funds have sold 5,600 contracts of soyoil and 3,500 contracts of soymeal.
The Delta Covid variant has traders questioning world commodity demand. Energy, grains, industrial metals are weaker at midday on liquidation. Yet, history shows that world raw material demand increased in 2020, amid all of the Covid lockdowns and negative GDPs. With 70% of American vaccinated and the vaccination total rising again, we doubt that economic lockdowns will be anything more than localised events. US livestock futures are higher at midday, and they would be the first to be impacted. For now, US GDP rates look to be 4-6% through to the end of the year.
In the past 28 years. the FC Stone/StoneX corn estimate has been high 61% of the time with the maximum variance vs the USDA August estimate being 4%. In soybeans, StoneX has been high 57% of the time with the biggest miss vs the USDA being in 1995 at 3.8%. Traders expect near trend 2021 yields from StoneX
The GFS weather forecast is wetter across Wisconsin/NW lllinois/S Ohio but otherwise unchanged from the overnight run. A few showers could fall on Wisconsin/Michigan on the weekend, but totals would be less than 0.40″ with coverage no better than 50%. The remainder of the Central US holds in an arid trend through the coming weekend.
A Northern Midwest storm system forms early next week that produces 0.25-1.00″ of rain for E Iowa/Wisconsin/Northern Illinois/Michigan. This system produces waves of rain for the Lake States with totals of 0.25-1.25″. The Midwest rain ends Wednesday with a drier trend following as a high-pressure ridge rebuilds across the Western US. An arid 11-15 day forecast is offered thereafter
Chicago soybeans are trying to find a price that entices fresh Chinese demand. Corn and wheat are reluctantly following. We would remind that resting orders above and below the market are limited which leads to exacerbated price moves. Rains come too late for Canadian crops and yield losses range from 30-60%. It is the loss of world crops that produce a bullish trend during the US harvest.
