Monthly Archives: October 2021

29 October 2021

Posted on October 29, 2021 by simon

• HEADLINES: Chicago corn rally continues amid fat ethanol margins; Soy and wheat struggle on supply; US yields in focus next week.

• Chicago futures are mixed at midday with corn the upside leader while wheat/soy futures lag. Funds have been buyers of corn/soyoil, but at a much slower pace than recent days. Normally, funds enter/exit markets in 3-day time horizons, and this is the third day of the corn rally. Starting next week, corn and the entire Chicago should endure some correction as the US supply comes back into focus. Next week, the trade will be back to measuring US yield with StoneX and Markit updating November yield forecasts. Soybean yields will rise with most expecting gains in corn based on harvested yield data. And US farmers should be able to return to harvest amid sunny/cool weather.

• The volume of Chicago trade has been much less than prior days. We note that corn open interest has surged nearly 30,000 contracts this week on speculative inflows from investors. Corn appears to be cheap when measured against crude oil as an energy source and this has not been lost on fund managers. Yet, December corn will struggle to rise above $5.70-5.80 resistance until the November USDA crop report is released. US ethanol export demand is strong as US ethanol plants run at near capacity levels.

• It has been ethanol margins and their need to secure cash corn that has rallied Chicago corn futures this week. At some point, the pressure on securing forward corn will subside as US ethanol plants have enough forward cash coverage. We cannot find any interest from China for US corn. Although the rally in Dalian has sparked rumours of buying, cash connected exporters report that China has been quiet with Mexico the primary export buyer.

• FAS reported that the US sold 279,415 mt of US corn to Mexico and 132,000 mt of US soybeans to an unknown destination. The soybean sale was likely completed late last week and held offshore until its announcement this morning. China did secure a few cargoes of Brazilian soybeans for November. Where the Brazilians are finding the soybeans is hard to understand unless last year’s harvest was understated.

• Chicago brokers estimate that funds have bought another 4,000 contracts of corn and 2,000 contracts of soyoil, while selling 1,800 contracts of wheat and being flat in soybeans. Volume is well down from average and only modest hedge pressure will be felt heading into the weekend.

• Australian wheat harvest data is pointing to record yields and a potentially larger crop. The Australians and Argentines will become more aggressive sellers of world wheat as their harvest starts to gather speed. The new S Hemisphere supply is welcome and could cause a correction in world wheat values as the new supply is digested.  Coming world wheat tenders should be filled by Argentina/Australia, but Russian exporters will also try to shove more wheat out the door before tax rates rise in several weeks’ time. The Moscow Exchange will be closed next week Friday, so it is 2 weeks when the next tax determination will be made.

• Cool/dry weather will be featured across the Central US over the next few weeks. The cold temperatures will slow drying rates, but at least the precipitation chances will be limited to the Southern Plains and the Gulf States. Harvest progress will be slow to restart, but improved conditions will be noted by mid next week. High temperatures will range from the 40’s to the lower 60’s with lows in the 20’s/30’s/40’s.

• US Ethanol margins have been the story of the week with corn surging to its highest price since mid-August at $5.75 March. Producer selling is sporadic and fund buying could lift March corn to $5.80-5.85 resistance. Soybeans will struggle amid its current abundance of supply while KC December wheat is fairly valued in a range of $7.50-8.00.

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

Weekend summary 29 October 2021

28 October 2021

Posted on October 28, 2021 by simon

• HEADLINES: Morning rally cools on mediocre export sales; Canola scores new high.

• Chicago futures are mixed at midday with corn, soybean, and wheat futures trading both sides of unchanged. December corn futures rallied to sharp early gains with December futures testing key resistance at $5.65-5.70. Traders suggest that short sold $5.60 and $5.70 corn calls were blown out with the active purchase of futures, while the soybean market sags on oversupply and sluggish China demand. Once again, the USDA did not report any new US soybean sales to China and sales totals argue for a sharp cut in the USDA export estimate in less than 2 weeks. The lack of China demand and expectation of rising US soybean yields has traders selling soybeans against their long grain positions. Wheat values have come off their highs amid the weakness in Paris futures. We continue to hear of troubles that some Mideast and African nations are having in financing high priced wheat purchases. Yet, the US$ falling to a new 30-day low has provided background support to wheat in particular. The pace of wheat trade will be watched closely moving forward.

• Canadian canola futures are sharply higher with spot futures rising more than $50 Canadian which is not underpinning soyoil. WTI crude is down $1.10 per barrel at midday.

• The soyoil market is offering some weakness that is independent of other vegoil markets amid the sharp rise in US crush rates. We are not hearing of new Chinese demand for US corn, and although we are bullish, we would not chase the Chicago rally today.

• US weekly export sales through the week ending Oct 21 lean a bit bearish as FAS data showed a contraction in US corn and soy interest.

• Corn sales through the period totalled 35 million bu, vs. 50 million the previous week. This is still 5 million above the pace needed to hit the USDA’s target, but better demand is needed to fuel rallies, particularly amid shrinking Brazilian export commitments. US soy sales totalled 43 million bu, vs. 106 million the previous week, with China securing only 40 million bu on a known basis. Wheat sales were a disappointing 10 million bu, vs. 13 million the previous week. The US Gulf market, on a fob basis, is becoming much more competitive for world market share in the Jan-Feb period, but current steep premiums will limit non-traditional business into late autumn/early winter.

• For their respective crop years to date the US has sold 1,172 million bu of corn, down 3% from last year’s record, 1,119 million bu of soybeans, down 35% from last year, and 463 million bu of wheat, down 22%. USDA is unlikely to lower US soy export demand in its Nov report, but the market is acutely aware of this year’s timely pace of seeding in Brazil, with the first of new crop Brazilian exports likely to leave the country in early Feb.

• The midday GFS weather forecast is little changed with North American outlook. Light but steady rains will continue to challenge harvest progress in IL, IN, OH, with 48-hour precipitation totals there pegged in a range of 0.25-1.50”. It remains that a lasting period of dryness will blanket the whole of the Central US Oct 31-Nov 10. A timely completion to harvest is anticipated. Additionally, there are hints of needed rainfall across the western HRW Belt Nov 7-8.

• The GFS forecast is similarly consistent in S America. The only potential issue at present is a lasting period of dryness due in across the southern third of Brazil over the next two weeks. Soil moisture there is adequate for early crop growth, but rain will be needed by late Nov. Widespread boosts in soil moisture occur in Central Argentina and across Central and Northern Brazil in the near-term. This rain will be particularly welcomed in Argentina amid recent dryness and excessive heat this week.

• Soy remains the laggard, while incredible corn demand potential and extreme exporter wheat stocks tightness underpin breaks in grain markets. A steady/higher corn yield is needed in NASS’s Nov release to prevent additional bullish vigour, but until the report has come and gone, we look for resistance in Dec Chicago corn at $5.65-5.70.

27 October 2021

Posted on October 27, 2021 by simon

• HEADLINES: Corn jumps on expanding ethanol production; Soy, wheat follow.

• Chicago futures are steady to higher at midday as the overnight break found end user buying interest and as input leans bullish. FAS’s daily export sales reporting system was void of new business, but EIA data this week is considerably bullish ethanol and corn prices. The market’s perception of US corn supply and demand is changing rapidly as near-record industrial use is becoming more likely. Corn has been the upside leader this morning, with soy and wheat following. Fundamentally based trading operations are increasingly using Chicago corn futures as a proxy/hedge against soaring fertiliser prices as the market must sustain profitable corn/wheat returns amid the need for US and global acreage expansion in 2022.

• US ethanol production in the week ending Oct 22 totalled 325 million gallons, up 3 million on the prior week and the second largest total for any week on record.

• Recall that weekly production must average only 295 million gallons to meet the USDA’s forecast, which increasingly appears to be upward of 200+ million bu too low. It is just tough to justify an annual ethanol grind number below 5,400 million bu amid tight energy stocks and highly profitable margins.

• Most importantly, ethanol stocks last week totalled 837 million gallons, down 7 million gallons from the previous week, with weekly US ethanol stocks/use at 5-month low. We estimate that the industry is now running at 97% of capacity and the industry must stay at 95-97% of capacity just to keep stocks stable. Blend use is perched at pre-Covid levels, while ethanol residual/export disappearance through late Oct is up 7% from last year. US crude stocks are down 13% from last year. Gasoline stocks are down 5%.

• Brazil’s shrinking corn export program should boost US corn exports 100-200 million bu above USDA’s forecast. Adding 200 million bu of additional industrial use and trimming national yield by just 1 bushels/acre pulls 2021/22 US corn end stocks down to just 1.1 billion bu. There will be limited tolerance for additional yield cuts in NASS’s Nov or Jan reports.

• Paris milling wheat futures have reversed, with December posting new contract highs for a fourth consecutive session. Close attention will be paid to heavy rainfall in eastern Australia, with two-week precipitation in New South Wales pegged at 3-5”. Aussie rain is now unwanted as harvest moves along. We would also note that vegetation health in Central Argentina remains well below last year.

• Egypt’s GASC secured a sizeable 360,0000 mt of Black Sea and Romanian wheat for early Dec arrival at an average fob price of $328 per tonne. Egypt last paid $320 per ton in early October.

• The midday GFS weather forecast is slightly wetter IL and IN into the weekend but is otherwise unchanged. Harvest stays challenged over the next 4-5 days, but the first half of November is void of additional meaningful rainfall outside of the far eastern Midwest. 3-day precipitation totals are projected in a range of 0.50-1.50” in IA, MO, IL, IN and OH.

• The midday GFS forecast is unchanged in S America. Needed rain falls across a majority of Argentine crop areas Sun-Tues. Brazilian soy areas face additional sizeable boosts in soil moisture over the next 10 days.

• Wheat and soy rallies have struggled to gain momentum amid ample US soy supplies and talk of wheat import financing difficulties. Yet, Egypt’s tender this week suggests major wheat importers are only covered through early autumn. Breaks in wheat encourage consumption. Corn demand potential is turning outright bullish, with Dec Chicago now firmly above all major moving averages.

26 October 2021

Posted on October 26, 2021 by simon

• HEADLINES: Chicago corn holds the 50-day moving average at $5.33 and tests 100 day at $5.465; Cash ethanol rallies offering demand hope; US/China talk overnight Tuesday.

• Chicago futures are higher at midday with corn leaping to fresh weekly highs while soybeans/wheat follow. The corn rally appears to be related to strengthening US ethanol prices amid the ongoing advance in world energy prices. Cash ethanol values rallied 7-9 cents/gallon this morning which translated back into firming grind margins and new buying of Chicago corn futures. Wheat and soybean futures followed corn gains. Chicago oats scored new historic highs at $7.15/bu while Minneapolis wheat rallied to fresh contract highs at $10.4675 amid the fear of Canadian grain production shortfalls. The Chicago grain rally has been strong with December corn now trading at the 100-day moving average at $5.465. A close above this level would encourage a rally to $5.50 to see if the market could spur some cash connected selling.

• The US State Dept confirmed that the US/China held high level diplomatic meetings overnight including Janet Yellen, the Chair of the US Central Bank and China’s Vice Premier Liu He. The call was the second in the past 4 months with both sides pledging to work more closely together regarding macroeconomic policies and to broaden communications.

• US/Chinese relations received a boost back in a September phone call between the country’s two presidents. While the tone of Tuesday’s joint diplomatic meeting improved, the details of the discussions are lacking including any progress on trade. It is Chinese demand for US ag goods that will be highly important in the weeks ahead as the US/China Phase One agreement will be expiring on December 31. Can a new trade deal be cut for 2022-2024.

• We would note that China is well behind on Year two ag/energy purchase commitments. Whether China steps forward with new purchases that will be shipped in early 2022 will be closely monitored. Cash traders widely rumoured that China’s state buyer Sinograin was a buyer of US PNW March soybeans yesterday. Most assume that these soybeans will be heading to China’s reserve for future use since PNW fob offers are above S America.

• Chinese feed prices have been rising sharply in recent days, even as their farmers gather a record corn harvest. Dalian corn futures rallied to $10.325/bu overnight. The early start of Chinese wheat auctions and rising domestic corn values has caught the attention of world grain traders. Debate is rekindled over Chinese feed grain stocks and whether China will be a large importer of grain in the months ahead. China imported 29 million mt of world corn in 2020/21. Traders are raising their estimates of 2021/22 Chinese corn imports due to rising Chinese domestic prices and import margin. We have no indication that China is a corn buyer on today’s Chicago rally, but the widening spread does have US exporters talking more favourably about the potential for future demand.

• The midday GFS weather forecast is wetter than the overnight run by adding rain to the E Plains, Midwest, and Delta later this week. Rainfall of 0.5-2.00” is due from Wednesday into Saturday. A drier pattern returns late in the coming weekend, but the corn/soy harvest will likely be delayed into mid/late November east of the Mississippi River amid saturated soils and cool temperatures that will limit drying. Firming soils should support heavy equipment sometime after November 7.

• The midday GFS forecast keeps intact needed rainfall in Argentina in the 6–10-day period, while a favourable mix of rain and sun continues across Central and Northern Brazil. The S American weather forecast is improving for crops.

• Rising energy values and inflation are in the background of Chicago prices which produces buying on breaks. Hedge fund managers see corn as being a proxy for rising fertiliser prices on a long-term basis. Margins for ethanol producers and soybean crushers are near record highs. US weekly ethanol production is expected to be near a record high on Wednesday. The market will endure dips, but a seasonal rally is underway that should top in early 2022. March corn futures should rise above $6.00 for a winter seasonal high.

25 October 2021

Posted on October 25, 2021 by simon

• HEADLINES: Soybeans lead midday rally on Chinese demand; Corn, wheat exports disappoint.

• Chicago futures are mixed at midday with the soy complex firm, corn slightly weaker and wheat caught in between. Wheat’s rally has paused amid reports of Iran struggling to make payment, while a host of major importer currencies weaken. The Turkish Lira today this morning fell to a new all-time low of just 1:0.10 US$, and wheat importers that are not major producers of crude will struggle amid soaring cash wheat and freight prices. And crude’s move to highs this morning has pushed the Russian Ruble to a new 15-month low, which raises the value of the Russian wheat when priced in US$. Russian interior wheat prices this week are again firm, with replacement in the Volga region calculated at $210 per tonne, vs. $200 last week.

• Last week we highlighted that total world wheat trade through the middle of October was up 9% year-over-year, which compares to the USDA’s projected growth of just 2%. Populations must eat but financing issues will be monitored more closely in the weeks and months ahead. However, certainly breaks in the global wheat marketplace will encourage consumption and the extension of forward supply coverage.

• Weekly US export inspections through the week ending Oct 21 featured a sizeable 77 million bu of soybeans, while The prior week’s soy inspections were revised upward by 6 million to 90 million bu. Corn inspections were a disappointingly low 21 million bu, vs. 41 million the prior week. Wheat inspections totalled just 5 million bu, unchanged from the previous week.

• For their respective marketing years to date, the US has shipped 299 million bu of soybeans, 45% below last year, 173 million bu of corn, down 24%, and 348 million bu of wheat, down 15% from mid-Oct 2020. We hear that China this morning secured upward of 10 cargoes of US soybeans off the PNW. The pace of new soybean demand is impressive, but the market must see solid weekly soy sales and shipment data in each week between now and January to validate the USDA’s annual forecast. Chinese crushers are expected to remain active in booking winter/spring supply needs from the US as Brazilian origin is no longer competitive for old crop delivery.

• Macro markets lean supportive. Spot WTI crude at midday is up $0.40 per barrel at $84.10, having testing $85.40 in early morning trade. The Dow is up 70 points. Spot Paris milling wheat looks to settle at new contract highs of €281.50 per ton ($8.90 per bushel). Rapeseed/canola futures in Europe and Canada are sharply higher, with spot EU rapeseed oil still perched above $0.80 per pound.

• Weekend rainfall and thunderstorms across the Central and Eastern Midwest, along with additional precipitation this week, will further complicate the remainder of harvest there. Downed crops remain the primary concern and very little fieldwork is expected in IL, IN and OH over the next 10 days. A trimming of yield there is probable by NASS’s final report in January.

• The midday GFS weather forecast is consistent with the morning run in offering another system to the E Plains, Midwest, and mid-South late this week. Moderate but steady rainfall is due Thurs-Sat, with totals in excess of 1” to favour E KS, MO, IA and portions of IN and OH. A drier pattern returns late in the coming weekend, but the corn and soy harvest is likely to be dragged into mid/late November east of the MS River.

• The midday GFS forecast keeps intact needed rainfall in Argentina in the 6-10 day period, while a favourable mix of rain and sun continues across Central and Northern Brazil.

• We maintain a strategy of using breaks to add to supply coverage. China’s pricing of US soy will be ongoing into late autumn. Weekly US ethanol production will continue at/near record levels. The EU wheat market continues to work to slow future export demand, with US origin to be more competitive in Jan-Feb 2022.

22 October 2021

Posted on October 22, 2021 by simon

• HEADLINES: KC and Paris wheat futures score new contract highs; Brazilian Real weakens on political worry; Daily US soybean sales to China lacking.

• Chicago futures are mixed at midday with KC wheat futures pushing to new contract highs while soybeans sag on the weakness in soyoil. Corn is caught in between. Early Chicago volume totals were active, but they have been sliding at midday as Europe/Asia head into their weekends.

• World wheat futures are the bullish stalwart while soybeans are bearish anchor on rising US end stocks and growing concern of lacklustre China demand. China has been booking US soybeans this week, just not at a pace that allows USDA’s 2021/22 annual US export estimate to be correct.

• The Brazilian Real has been sliding on rumours that Brazil’s commerce minister would soon resign. The Real is trading at 5.7:1 with currency analysts forecasting a further Real decline to 6:1 amid the political uncertainty. A sliding Real pressures Chicago values as Brazilian farm margins expand, and the premium paid by exporters declines. It is expected that Brazil will be offering fob soybeans for export at even money with the Chicago March futures for February compared to US Gulf premiums that rest at $0.90 or more over.

• FAS did not announce any new US soybean export sales to China which was a disappointment. The US needs to be dramatically ramping up sales to China with the pace off 591 million bu from last year. The USDA is likely to cut their 2021/22 US soybean export estimate by 50-75 million bu in their November report.  The sluggish US soybean export sales pace caps Chicago rallies above $12.50 without a  American weather threat.

• ADM cancelled 1,314 deliverable KC wheat receipts overnight which started the KC wheat futures rally. Why ADM cancelled the receipts is unknown, but the move was considered bullish by wheat traders as the KC/Chicago premium widened and KC futures pushed to fresh contract highs at $7.745 basis December. The EU is exporting wheat too quickly, while Russian export taxes are rising. The US could export additional protein wheat in the last quarter of the 2021/22 crop year. Minneapolis wheat pushed above $10/bu for the first time since July 2012. US HRS/HRW wheat supplies will continue to tighten well into mid-2022.

• US and world fertiliser prices continued to rise on tightening supplies and additional export scrutiny provided by China. The rise in planting costs has US farmers wondering about their cropping options in 2022. Less ammonia nitrogen will be laid down this autumn as farmers cultivate their fields to plant either corn or soybeans next spring, depending on fertiliser cost and availability. US farmers need to understand that just because they have priced a fertiliser does not assure that it will be available for planting in April.

• The midday GFS weather forecast stays wet for the E and C Midwest over the next 10 days. Harvest delaying precipitation of 2-4.00” will impact IL, IN, WI, and MI. The hardest hit area will be N IN where rain totals exceed 4.00”. The coming cold front will slow harvest and down corn amid saturated fields. The extended forecast looks to continue the wet trend into November.

• In S America, the GFS forecast has added rain for Buenos Aries in Argentina while other areas stay arid into November 1. Daily high temperatures look to range from the 70’s to the mid 80’s. Confidence in the SE Brazilian November 1 rain is low since it occurs on the tenth day of the forecast. We fear that a deepening drought lies ahead for Argentina into early 2022. The weather trend for the next 3 weeks will be key.

• Rising energy prices and inflationary concern underpins Chicago breaks, but better corn/soy export demand is needed for a sustained rally.  We stay bullish of wheat, but one must be careful about buying new contract highs. The old saying is that bull markets always let you in applies here. Paris wheat must be the upside leader and values are sitting right at historical resistance at $280/mt. We are bullish of wheat/corn on breaks with Nov soybean futures holding support below $12.00.

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

Weekend summary 22 October 2021

21 October 2021

Posted on October 21, 2021 by simon

• HEADLINES: Energy markets fade on warm US winter forecast; Ags follow; corn, soy export demand improves.

• US and global ag markets have extended Wednesday night’s correction amid weakness in energy markets. NOAA’s updated Nov-Jan climate outlook this morning featured continued above-normal temperatures across the Southern US and East Coast, and odds are decent that this relative warmth will impact a majority of the US population. A warm winter will buffer against seasonal declines in natural gas stocks, and energy prices took this as a sign that worst case scenarios will be avoided. Confidence in 90-day forecasts is low, but given recent/upcoming warmth, NOAA’s seasonal temperature forecast is logical. WTI crude at midday is down $2.10 per barrel, with spot Chicago soyoil down $.021 per pound.

• US exports sales through the week ending Oct 14 are viewed as market positive. Exporters through the period sold 50 million bu of corn, vs. 41 million the previous week and the largest since March. China last week purchased 5 million bu of US sorghum, which reflects the first meaningful Chinese purchase of sorghum since early September. Exporters also sold 130,000 mt of corn to Mexico this morning.

• Soybean sales totalled 106 million bu, vs. 42 million the previous week, and the largest since Sep 2020. China secured 69 million bu on a known basis, and it remains that FAS’s daily reporting system is not catching the full extent of Chinese interest. Soymeal sales were an impressive 240,400 tons, including a rare sale to Denmark. US soymeal supplies will stay abundant, but the market is clearly cheap enough to funnel importers to the US. Soymeal export demand will be the dominant feature of soybean price determination in 2021/22, which makes Argentine weather and soy yields there so important this winter.

• For their respective marketing years to date, the US has sold 1,138 million bu of corn, up 2% from last year and an all-time record for mid-October, 1,075 million bu of soybeans, down 35% from last year, and 453 million bu of wheat, down 20% from last year.

• The lagging pace of soybean commitments, amid timely seeding in Brazil, raises the burden of the pace of weekly soy sales between now and December. Chinese demand is said to exist just below the market, and the issue in the near-term is whether importers opt to chase values higher amid solid crush margins. New sales announcements will be watched for on Friday following today’s break. We also wonder if Egypt opts to return to the wheat marketplace after cancelling its most recent wheat tender on Oct 12. Egypt’s GASC is only fully covered into late November.

• The midday GFS weather forecast is drier in the Upper Midwest but unchanged elsewhere. Harvest-delaying precipitation will be confined to the eastern Midwest, but totals in portions of IL, IN and OH of 3-4” next week will further weigh on yield potential there, while progress is unlikely to resume until Nov 3-4. Fortunately, relative warmth and dryness resumes beyond next week and November precipitation guidance features below normal amounts in all but far Northern Plains.

• In S America, the GFS forecast has followed the EU in adding light/moderate rain to western Argentine crop areas. A bulk of Argentina’s primary Ag Belt will see 10-day rainfall of just 0.25-0.75”. Favourable conditions persist in Brazil into early Nov.

• Seasonal lows have been scored in our opinion, but the whipsawing of this week indicates that lasting bull runs require the feeling of tightness in cash markets. Our bet remains that positive seasonal trends hold into winter. Soybeans stay the laggard, while US demand potential is massive. Overall, we believe it is still the wrong time of year to make sales.

20 October 2021

Posted on October 20, 2021 by simon

• HEADLINES: Chicago ag markets extend rally on bullish EIA data; Unwanted precipitation impacts Midwest next week.

• US and global ag markets have built upon overnight gains amid bullish US energy data, hot Argentine forecasts and as new money continues to enter the raw material space. The CRB index is likely to score a sixth consecutive weekly rally, and amid ongoing US/world inflation and tight per-capita food stocks, additional money will find the ag space into early 2022. Soybeans have been the leader amid suspected Chinese pricing and as prying the remainder of harvest from the US soy producer will be a difficult task. Soybean vessel line-ups are rising, as is the need for physical soy supply.

• EIA pegged US ethanol production through the week ending Oct 15 at 322 million gallons, up 19 million on the prior week and the third largest for any week on record. We estimate that production last week reflected 96% of capacity, and amid margins in excess of $1.00 per bushel, production will stay near full capacity throughout the autumn and winter. Importantly, ethanol stocks last week did NOT rise significantly amid elevated residual use (exports). There remains a need to sustain large weekly production, and ethanol production and blending economics stay favourable.

• US crude stocks last week totalled 426.5 million barrels, down slightly from the prior week and down 13% from mid-Oct 2020. Motor gasoline stocks last week were down 4% from a year ago. WTI crude futures are positive at midday, with RBOB’s premium to ethanol still a sizeable $0.27 per gallon.

• Our message is that the USDA’s 2021/22 corn grind forecast is increasingly viewed as 100 million bushels too low as weekly US gasoline use stays at or above pre-Covid levels. A string of solid weekly export sales data, and the market’s perception of US corn stocks/use will begin to change in a meaningful way.

• December Paris milling wheat has posted a new contract high of €278.75/mt. Spot Paris rapeseed is testing April’s all-time high of €700/mt. EU rapeseed’s premium to Nov Chicago soy is now an incredible $314 per ton, or 80%. International ag markets continue to reflect current dire supply tightness, with record S American crop sizes absolutely needed next spring/summer to stabilise global supplies. Minneapolis wheat today near $10.00 per bushel and spot cotton at $1.10 per pound shows clearly the need for acreage expansion in the US, and elsewhere.

• Continued net soil moisture loss in Argentina will begin to fuel abnormal heat next week, with highs in the 90’s to be widespread. This warm pattern is forecast to continue into early November, and whether current conditions are setting the stage for longer-term drought must be monitored closely.

• The midday GFS weather forecast is drier in the eastern Midwest in the 6-10 day period but maintains widespread heavy rainfall east of the MS River Sun-Tues. Most concerning is that the GFS forecast advertises accumulation of 2-4” across central IL, central IN and OH, which will continue to challenge the second half of harvest progress there. Dry weather resumes in the eastern Midwest beginning late next week, but such heavy rainfall will delay operations into the following weekend.

• The S American forecast is consistent with prior output. Near ideal conditions will persist across Central and Northern Brazil into early Nov, while worrisome dryness will be ongoing across Argentina and RGDS in far Southern Brazil through the period.

• The rapid finding of increased crop demand requires NASS to keep its US corn and soy yields steady to higher in its Nov report to prevent sizeable downward revisions to US stocks. We repeat our belief that lows have been scored. Seasonal trends are positive into winter.

19 October 2021

Posted on October 19, 2021 by simon

• HEADLINES: Morning rally fades on lack of news; Rapeseed markets soar; Argentine dryness to persist.

• Price action in Chicago and elsewhere has been mixed this morning, with oilseeds gaining on grains. We understand that Chinese buying/pricing exists under the Chicago soybean market and despite varying opinions on final 2021/22 US soybeans exports, there is no doubt that China remains the big short in the marketplace currently. The pace of Brazilian soy seeding will be rapid in the weeks ahead, and new crop soybean exports will reach the world marketplace by the second half of February. But there exists a wide open for excellent US soy sales and shipments in the meantime.

• Outside markets lack a clear trend at midday. Paris milling wheat and corn futures look to settle near unchanged. It is EU and Canadian rapeseed markets have been this morning’s  bullish leader, with spot rapeseed in Europe reaching new rally highs of €689 ($801) per tonne. This compares to Nov Chicago soybeans at $451 per ton. The trade is now wondering whether rapeseed prices must nearly double soybeans in order to adequately shift demand. Recall the world’s rapeseed supply issue is not solvable this year, and elevated substitution from rapeseed oil to soybean or other vegoil is a requirement.

• Iraq’s ag ministry has suggested 2022/23 wheat seedings there would be cut in half due to water shortages. Any drop in Iraqi wheat production would boost the need for imports immediately as end stocks there have dwindled to near zero. Cutting Iraqi planted wheat area in half would mandate imports of 4.5-4.7 million tonnes, vs. a projected 2.6 million in 2021/22. This would also be a new record large import total.

• Relatedly, Kazakhstan’s Minister of Ag pegged total grain exports in 2021/22 at just 6.0-6.5 million tonnes, vs. USDA’s projected 8.1 million. There is a clear wheat supply/demand issue in the Mid-East and Kazakhstan, and the USDA in subsequent releases will continue to boost total world wheat trade.

• It is tough to find other significant input. EIA’s weekly report on Wednesday is expected to show another week of sizeable US ethanol production, while crude and motor gasoline stocks stay well below recent years. We have previously highlighted that ethanol production is incredibly profitable amid current corn prices. We note that the incentive to boost blend rates has also been elevated, with RBOB gasoline’s premium to the ethanol ($0.28 per gallon) the highest since March.

• S America’s weather pattern appears to be developing a classic La Niña signature as dryness spreads northward into Rio Grande do Sul in far Southern Brazil. The midday GFS forecast has extended near complete dryness in Argentina and Southern Brazil into Nov 3. Rain will be needed soon thereafter.

• The midday GFS weather forecast has reduced rainfall totals projected in IA next week but maintains a pattern of widespread soaking rainfall across a bulk of the Midwest next Mon-Wed. Rainfall totals in excess of 1” will favour MO, IL, WI, MI and portions of IN. We note that the EU model has a much drier bias next week, and so the EU’s afternoon solution will be monitored closely. This is not an overly threating pattern but will add to harvest challenges east of the Mississippi River. Already corn and soy yields in the second half of harvest are expected to drop meaningfully in pockets of the eastern Midwest due to recent wet conditions.

• The S American forecast is unchanged at midday. Rapid soil moisture lies ahead across Argentina’s primary ag belt.

• Harvest lows have been scored in our opinion, but the rate/intensity of this season’s recovery requires steady confirmation of sizeable demand. We maintain a strategy of using breaks to add to Q1 2022 supply coverage. Continued dryness in Argentina will be a big deal for corn and soymeal markets.

18 October 2021

Posted on October 18, 2021 by simon

• HEADLINES: Early weakness uncovers new buying; Gulf activity nears normal; Midwest forecast trends wetter.

• Early weakness found new buying in Chicago, despite a relative weakening of global energy markets and a lack of new export sales announced by FAS this morning. We have in recent days has highlighted the recent surge in end user margins, profitability spreading from biofuel producers, crush plants and livestock operations. The market does not need to break to clear stocks and in fact end users can absorb a lasting post-harvest recovery easily. Price action since late last week continues to validate that secondary lows were potentially scored just after the release of the USDA’s October WASDE.

• Gulf loading capacity is very close to normal. Export inspections through the week ending Oct 14 featured 38 million bu of corn, vs. 33 million the previous week, 84 million bu of soybeans, vs. 64 million the previous week, while wheat shipments were a disappointing 5 million bu, vs. 16 million the prior week. Priority will be given to soybeans over the next 60 days, and while the pace must stay elevated to offset early September’s Gulf closure, soybean’s southern demand pull will be robust into late year. Similar soy inspections are anticipated next week, and China will be active in extended forward coverage on even modest breaks.

• Corn’s Gulf demand pull stays mediocre into winter but given US export commitments sit at the second highest level on record as of early Oct, weekly corn export inspections of 50-80 million bu will become common January onward.

• Paris milling futures are down slightly on speculative profit taking but it is equally difficult to find fresh bearish wheat input. Most importantly, interior cash wheat and flour price in Russia are up again this week in both Rubles and US$. Interior flour prices are rapidly rising to all-time record highs posted in late 2020, and our bet is that new record Russian flour prices are scored in the Dec-Jan period. It is imperative that European wheat prices follow the Black Sea higher in order to slow export demand, and ultimately this bodes favourably for the US’s share of world trade in early 2022.

• EU and Ukrainian corn harvests remain historically slow. The corn harvest in France is just 15% complete vs. 62% a year ago. The EU corn market’s goal in the very near term is encourage some measure of Ukrainian imports, which only occurs at higher prices. EU corn yields will be excellent, but the feed balance sheet stays incredibly tight until late November. Additionally, Ukrainian corn fob basis has rallied to $1.65-1.70 per bu over Chicago futures, vs. $1.45-1.50 in late September. Our message is that the cost of world corn trade execution will be costly, and US Gulf corn is viewed as increasingly cheap in the global feedgrain marketplace. Brazilian interior corn is again testing $7.00/bu.

• The midday GFS weather forecast is much wetter in the western and Central Midwest beginning mid/late next week and continues to trend drier in Argentina. Favourably dry and mild conditions allow the Central US harvest to roll along smoothly into the weekend. Thereafter, a series of frontal systems trigger an active pattern of rainfall across the far eastern Plains, Midwest and Delta region into Oct 30. Cumulative totals in the 6-10 day period across eastern IA, MO, IL, IN and MI are estimated in a range of 1.5-3.0”.

• The S American forecast features daily showers in Central and Northern Brazil, a developing dry trend in far Southern Brazil and a noticeable lack of precipitation in all of Argentina over the next two weeks.

• After a rather emotional period of determining Northern Hemisphere crop sizes, market focus has returned to demand, which will be sizeable, and tight global/exporter corn and wheat stocks. The worst of supply fears have been eased following NASS October US yield data, but there is still no tolerance for additional supply dislocation in any hemisphere in calendar year 2022.