30 November 2021

Posted on November 30, 2021 by simon

HEADLINES: Markets plunge on macro fears; EPA misses deadline; S American weather concerning.

Global ag, financial, and other raw material markets are sharply lower at midday as the overnight’s ‘get me out’ mentality spreads and intensifies. The Dow is down 600 points, with spot WTI crude down $4.30 per barrel at $65.60. Renewed uncertainty over global consumption/travel patterns is noted, and recent heavy fund buying of raw materials has exacerbated the market’s liquidation mode. We believe the break is fundamentally overdone, but corn, Chicago wheat and soybeans have fallen below their respective 20-day moving averages, which has added a new layer to speculative selling.

Brazilian fob soybeans for Feb delivery are quoted at $482 per ton, vs. US Gulf beans at $493. Widening Brazilian soy discounts are fairly routine in early winter, but this does validate the fact the US’s period of soybean export dominance will be closing in the next 60 days. The US wheat market’s chore of keeping exports slow, amid relatively tight stocks, has also become easier as European cash markets follow futures lower.

Yet, we strongly advise against chasing the break with new sales. In fact, end user purchases are advised at current levels.

The wheat market has digested ABARES’ record Aussie wheat production forecast, but whether a reduced Canadian crop offsets this will be known on Friday morning. Additionally, The EU and GFS weather models have added yet more rainfall to New South Wales and Queensland Dec 7-11. Open harvest weather there will be confined to just a few days next week. Soaking precipitation worth 2-3” is expected in the 6-10 day period, and wheat harvesting is estimated at just 25% complete this week in NSW. Cumulative moisture of 5-8” (snowfall worth 20+”) will keep rail repairs in Western Canada slowed.

We note that it is historically rare for ag market highs to be set in December. Technical healing will be needed but lingering in the background are worrisome S American climate forecasts, while additional net soil moisture loss occurs across the US Southern and Central Plains, both due to La Niña.

La Niña is not forecast to peak until January. The ongoing cooling of the equatorial Pacific will work to shift S American precipitation well north of major crop areas in Argentina, Paraguay and Southern Brazil. This pattern is now featured in the 10-day forecast and Dec-Feb climate guidance maintains similarly arid conditions. Heat will be absent from Argentina/S Brazil in the near-term, but the loss of soil moisture over time raises the odds that heat develops in late Dec/Jan. In the long run, weather takes priority over macro market fear/weakness.

US exporters sold 132,000 mt of soybeans to unknown destinations this morning.

The EPA looks to miss the statutory deadline to release its mandated volume requirements. EPA did propose an extension in this deadline, but little else is known about volumes or the timing of publication.

The midday GFS weather forecast is drier in far Southern Brazil over the next weeks but is otherwise consistent with the morning solution. A lengthy period of dryness/mild temperatures remains probable in Argentina and across the southern half of Brazil’s primary ag belt. This is very much in line with the development of La Niña, and amid consistency in Dec-Feb climate outlooks, S American weather must be monitored more closely. S Brazil poses the most immediate risk amid reports of very unhealthy summer corn in Rio Grande do Sul. S Brazilian dryness is also more expansive than previously expected, with large swaths of soy acreage now impacted.

It is impossible to know the potential impact of new Covid strains/mutations, but we highlight that global grain/oilseed consumption was record large in 2020.

29 November 2021

Posted on November 29, 2021 by simon

HEADLINES: Markets slide on Aussie production estimates; Midday GFS maintains dryness in Argentine/S Brazil.

Chicago ag markets are weaker again at midday as liquidation persists amid a sharply rally in the US$. Crude and gasoline futures remain firm but are well off session highs, and otherwise liquidation has been spread across the global commodity sector. Renewed concerns over Covid and consumer spending patterns during the winter months are noted, but we view today’s break as simply a function of money flow. FAS’s daily reporting system failed to include new US export demand and grain markets are digesting better than expected rainfall across Central Argentina over the weekend. ABARES in Australia boosted its Aussie wheat production forecast to a record 34.4 million mt, vs. USDA’s 31.5 million.

We do note that international cash markets have not fully participated in the recent break. Russian interior wheat and flour prices continue to score new seasonal highs on a weekly basis. Brazil’s interior cash corn market has stabilised at $6.40/bu. In the US, interior basis levels are steady with corn and soy basis in Central IL perched at $0.15-0.20/bu over Chicago futures for spot delivery.

ABARES projects Australian barley production in 2021/22 to be 13.3 million mt, the second largest on a record and 1.3 million above USDA’s current forecast. Australian canola production is pegged at 5.7 million mt, a record and 900,000 tonnes from USDA’s forecast. ABARES’ crop estimates lean slightly bearish wheat and canola/rapeseed markets, but quality and logistics issues persist. We doubt Australia can export more than 25 million mt of wheat in 2021/22, and so much of this boost in production will raise end stocks but will not find the world marketplace. Additionally, eastern Australia’s spot wheat future has rallied to $310/mt, vs. $260/mt in early November. This reflects a modest premium to spot Chicago.

The intensity of rainfall in eastern Australia has been downgraded, but another 2-4” will fall across crop-heavy areas of New Sales Wales and Queensland in the next 10 days.

US export inspections through the week ending November 25 included 30 million bu of corn as well as an 8 million bu upward revision to the previous weeks’ shipments to 33 million. Soybean inspections were 79 million bu and the previous week’s shipments were raised a sizable 27 million bu (44%!) to 89 million. Chinese demand for all-origin beans is robust, with Chinese imports in December likely to reach/top 11 million mt. Wheat export inspections totalled 9 million bu, vs. 7 million the previous week. It is clear Gulf fobbing capacity will favour soybeans in the near term. Improved wheat/corn shipments are due Feb onward.

NASS’s will publish its final winter wheat crop rating this afternoon. We look for the crop nationally to be pegged at 43-44% good/excellent, vs. 46% last year in late November. Warmth and dryness remain most probable across the Southern Plains throughout winter. Slow/steady drought expansion there is anticipated.

The midday GFS weather forecast is consistent with morning output in projecting a lengthy period of dryness in Argentina and across the southern third of Brazil. Normal/above normal rain will be ongoing in central and Northern Brazil. Closer attention must be paid to Argentine weather in early December as the GFS forecast hints at structural high pressure ridging there beginning Dec 15. This is too far out to place much confidence in, but the coming pattern reflects a classic La Niña signature.

The recent slide in crude cannot be ignored but we caution against adding to sales on breaks. Chart-based support lies at $5.80, March Chicago corn. KC/CBT wheat can lose another 10-15 cents and remain in a clear bull trend. It is Dec-Jan S American weather that determines fair value longer term, and concern over La Niña-based drought in Argentina/S Brazil remains elevated.

24 November 2021

Posted on November 24, 2021 by simon

HEADLINES: Wheat corrects, row crops follow; S American weather favourable into early December.

Chicago ag markets are lower at midday in a reversal from the overnight trade, with wheat pacing the break on profit taking. As previously mentioned, grain markets worldwide are heavily overbought and profit taking will occur periodically with wheat at 9-year highs. The wheat market this week has now digested excessive/unwanted rainfall in eastern Australia. Dec-Jan climate forecasts remain dry in Argentina and southern Brazil, but additional precipitation will fall across Central and Northern Argentina into the weekend. Argentine corn crop ratings will stay historically high in the near-term. The volume of trade has been surprisingly robust for a pre-holiday session.

FAS announced that US exporters sold 330,000 mt of soybeans to unknown destinations, 100,000 mt of corn to Mexico and another 30,000 mt of soyoil to India. Weekly US soyoil export sales through the weeks ending Nov 18 and 25 will be an impressive 70-90 million lbs, which follows sales in the week ending Nov 11 of 149 million. Firm palm oil and lofty rapeseed oil prices have funnelled global vegoil demand to the US soyoil market. Cash rapeseed oil in Europe this week is quoted at $0.80/lb, vs. $0.77 last week.

There is still no word on the EPA’s revision to biofuel blending mandates, but EIA’s weekly energy report confirmed that the US ethanol industry continues to operate at 95% of capacity. Ethanol production in the week ending Nov 19 totalled 317 million gallons, vs. 312 million the previous week. Recall weekly production must average only 296 million gallons to meet the USDA’s 2021/22 ethanol grind forecast, which is at least 150 million bu too low.

Motor gasoline consumption last week was 9.33 million barrels/day, up slightly from the prior week and up 1% from 2019 (pre-Covid). Gasoline use will be sharply this week as holiday driving patterns have normalised. Weekly ethanol production must stay elevated to prevent further stocks contraction, with Midwest cash ethanol prices clearly sending the signal of the need for additional supply. US ethanol stocks last Friday totalled 847 million gallons, down 3% from 2020. Cash ethanol in IA is quoted at $3.30, vs. $1.30 a year ago in late November.

The US’s release of 50 million barrels of strategic crude reserves over the next several months will temper energy market rallies during the winter months, but non-reserve stocks will still be below 2020 levels even assuming this 50 million gallons was released today in one tranche. Crude oil’s turnaround on Tuesday indicates that downside risk below $75, basis spot WTI, is limited.

Next week’s dry weather in Australia will be welcomed, but we note that the midday GFS weather forecast has added another soaking rain event to New South Wales and Queensland Dec 4-6. Whether the EU model includes this wetter change will be monitored.

The midday GFS forecast is wetter in Mato Grosso do Sul and Goias in Central Brazil in the 11-15 day period but is otherwise consistent with the morning solution. Moderate rains begin to fall across Argentina in the next 24 hours, with heavier amounts due over the weekend. 5-day accumulation in Cordoba and Santa Fe is pegged at 0.50-2.00”. Additional soil moisture improvement lies ahead. Needed showers will also impact Rio Grande do Sul in Southern Brazil on the weekend, while normal tropical showers persist in Central and Northern areas. South American weather into early Dec is favourable.

A correction in wheat was needed and March Chicago can lose another 15-20 cents and still maintain a longer-term bullish trend. End users are advised to add to supply coverage only on nearby corrections. Longer term, grain/oilseed price determination will hinge upon S American weather almost exclusively beginning in mid-December, and whether dry Dec-Jan climate outlooks in Argentina/S Brazil are proven correct.

23 November 2021

Posted on November 23, 2021 by simon

HEADLINES: Wheat leads as Australian forecast trends wetter.

Chicago futures are mixed at midday with KC wheat higher, soybeans weaker and corn caught in between. It is a typical pre-holiday session in terms of volume and enthusiasm. Firm closes are anticipated. Global crude oil futures have reversed earlier weakness and are trading sharply higher, which has acted to support Chicago soyoil.

There is not much fresh news available, including US export demand. FAS failed to announce any new US exports sales for a fourth consecutive day. Yet, market focus remains on weather issues in Australia, concern over future weather in Argentina and Southern Brazil, and rather strong interior US soybean meal and oil basis levels. Recall this particular week typically features new buying, while positive seasonal corn, wheat and soy price trends linger in the background.

The midday GFS weather forecast has added yet another frontal system to Eastern Australia Nov 30-Dec 2, with 10-day precipitation accumulation in New South Wales and Queensland now pegged in a range of 4-5”, with locally heavier amounts possible. Harvest progress will be halted entirely until after the first week of December.

This wetter near-term forecast also helps validate long range climate models, which feature a pattern of above normal rainfall in southern and eastern Australia into the end of next month. It is nearly impossible to quantify quality loss, and most in the trade expect the Australian wheat crop size to be 2-3 million mt above USDA’s 31.5. But the Aussie cash and futures market will be the best measure of changes to supply and demand, and both of have found renewed bullish vigour this week. A lengthy period of dryness is desired.

Paris milling wheat futures look to settle €2.50/mt higher at a new all-time record (in €uro) €311-312/mt ($9.55/bu). Grain market excitement in Europe has been cantered on wheat, but the corn market there has also found new seasonal highs amid the growing need for imports. We note that spot Paris corn holds a premium to Ukrainian fob prices of just $4/mt. Much higher prices are needed to prevent regional shortages of corn in Europe beyond winter. Our message is that international grain markets will continue to act as a buoy for US futures until much more is known about 2022 production potential.

The EIA’s weekly energy report on Wednesday is expected to show an ethanol grind last week of 312-317 million gallons. Recall just 296 million gallons per week is needed to meet the USDA’s 2021/22 corn grind forecast. US ethanol and gasoline stocks are unlikely to build until early 2021 as holiday driving patterns return to pre-Covid levels. Cash ethanol across the Midwest is now quoted firmly above $3.00/gallon, vs. $1.20-1.30 a year ago.

The midday GFS weather forecast is wetter in Cordoba and Northern Argentina into the weekend but is otherwise consistent with prior output. The outlook in Argentina and far Southern Brazil remains one of highly favourable conditions into early December but a growing risk that dryness becomes stagnant thereafter into mid-winter. More attention will be given to daily changes in Argentina’s forecast beginning next week. Daily showers will continue in Central and Northern Brazil indefinitely. A better mix of rain and sun would be welcomed in Mato Grosso and Goias, but soil moisture there has been fully replenished following last spring’s drought.

Downside risk in late year is limited. Positive grain market fundamentals will increasingly collide with the speculative community’s desire to own raw materials. Wheat will stay the bullish leader into late winter.

22 November 2021

Posted on November 22, 2021 by simon

HEADLINES: Wheat soars to new highs on E Australian rain and concern about Canadian loadings; US weekly exports uninspiring.

Chicago futures are higher at midday with wheat the upside price leader. Since the opening 30 minutes of morning trade, volume has really fallen off amid the pending holiday. We look for this to be a low volume week with traders not wanting to add to their risk profile. Adding to the uncertainty is that December options expire in a shortened trading session on Friday with first notice day against December being Friday. The market has a bullish tone at midday, but it feels that the range for the day is already in. Unless fresh news arrives on Tuesday or Wednesday, Chicago could just chop awaiting Australian, Central US and S American weather forecasts.

Chicago brokers estimate that funds have bought 5,500 contracts of corn, 7,400 contracts of wheat, and 3,100 contracts of soybeans. In soy products, funds have bought 2,700 contracts of soyoil and 1,200 contracts of soymeal. Funds are adding to their net long position across Chicago. However, the managed money tends to be put to work early in the trading session, leaving values to then sag going home. It is then repeated during the next trading session. We continue to see/hear investment funds looking for more exposure to raw materials including energy. Research argues that energy has formed a trading bottom.

USDA/FGIS estimated weekly US exports for the week ending November 18. The US shipped out 24.3 million bu of corn, 61.9 million bu of soybeans, and only 6.5 million bu of wheat. US corn/wheat weekly exports were well below trade expectations.

For their respective crop years to date, the US has exported 299 million bu of corn (down 67 million or 18%), 667 million bu of soybeans (down 246 million or 27%), and 385 million bu of wheat (down 71 million or 15%). Hurricane Ida had a big impact on US grain exports during September/early October as operations were slow to come back online. December and January exports will offer final indications as to whether then US can make up for any of these lost sales.

Russian fob wheat is trading at $351/mt fob today with interior CPT (carriage paid to) prices at 17,550 Rubles/mt. The Russian farmer has not shown any willingness to part with stored supply ahead of the coming winter. For each day that now passes, the Russian farmer will get into holiday mode, with sales likely on hold until after the end of the Orthodox Christmas holiday in late January. Russian farmers are concerned by their new crop prospects due to regional dryness. The world wheat market will have difficulty forging a top until the Russian farmer engages in sales. The calendar is starting to suggest that any volume of sales will hold off until early 2022.

Russian troops continue to mass along the Ukraine border which is a geopolitical concern to the world grain markets. If Russian troops were to push into Ukraine in a show of force, grain markets would quickly rally. Europe and the US (NATO) would likely call for an immediate embargo of Russian trade (ag included), which would force importers/millers to seek wheat elsewhere. We see the odds as remote that Russia pushes troops into Ukraine, but heading into a holiday week, traders are loath to enter shorts.

The midday GFS weather forecast is slightly wetter across Southern Argentina with near to above normal rainfall to persist across Northern and Central Brazil. The extra rain for S Argentina would be helpful as the 9-15 day forecast (week 2) shows below normal rain totals and warming temperatures. High temperatures will range from the 80’s to the lower 90’s.

Seasonal Chicago trends are higher into Friday with cash markets firm on reported $2.40/bu soybean crush and $2.40/bu cash ethanol grind margins. The massive profits of the US biofuel and soy crush industries underpins Chicago on breaks. US energy futures are also scoring trading lows with WTI January crude bouncing off $75 support following a $9/barrel decline. The next stopping point for wheat is $9.00/bu as wet weather causes damage to the E Australian wheat crop. March corn has resistance above $5.90 and March soybeans above $13.00.

19 November 2021

Posted on November 19, 2021 by simon

HEADLINES: Crude oil futures plummet on coordinated release of strategic reserves; Wheat rallies on Aussie wet weather; Corn/soy mixed.

Chicago futures opened lower, but quickly uncovered investor demand based on strong ethanol/soybean crush margins. Soybeans and wheat rallied while corn futures bounced off their overnight lows. Sinking crude oil futures has capped the rally, but the tone of Chicago remains bullish. Investment funds have a sizeable amount of capital to place in the commodity space before the end of the year. Grain and livestock breaks uncover support from managed money and institutional investors that want to add “stuff” to their portfolios. It is investor flows that will support a rally in grain/commodity values into the holidays.

Brokers estimate that funds have bought 2,200 contracts of wheat, 3,300 contracts of corn, and 2,100 contracts of soybeans. In soy products, funds have bought 1,300 contracts of soymeal while selling 2,300 contracts of soyoil. The prospect that the EPA will announce 2020, 2021 and 2022 biofuel mandates either today or no later than November 30 has sparked selling in soyoil futures on the risk of bearish headlines. Again, we would remind that we expect that EPA will raise the 2022 biofuel mandates which will be longer term bullish to US soyoil demand.

European traders indicate that China booked 200-250,000 mt of French feed wheat in the past 36 hours. Last week, China booked 700-900,000 mt of Ukraine corn with total Ukraine 2021/22 purchases estimated at 7-10 million mt. The Chinese buying of French feed wheat has raised eyebrows just as China harvested a record corn crop of 270-273 million mt. China’s domestic corn market is resting near historical highs. It is the huge margin between China’s domestic cash corn market and world feedgrains which is facilitating the buying. We estimate that China has now booked 19-21 million mt of world corn, on its way to another year of importing 28-32 million mt. This is a key reason why the downside in Chicago corn futures is limited, the risk that China secure US cash corn next.

Wheat futures have rallied to strong gains on the forecast for additional soaking rains for Eastern Australia. Farmers here were able to get a few days of harvest completed, but next week’s deluges look to cause fresh worry over wheat quality and yield. As we have previously reported, W Australian protein levels are low, which places added importance on E Australian wheat quality. The world cannot afford to lose E Australian wheat quality due to a shortage of high protein milling wheat as world spring wheat crops were knifed due to dire droughts in the US, Canada, and Kazakhstan.

Soyoil futures have fallen to key trendline support connecting the lows of June, September, and early November. Renewable diesel demand will be ramping up in 2022, and the bull market in vegoils is ongoing. Sunoil prices have rallied sharply in prior weeks, with shortages of palm and canola ongoing.

The midday GFS weather models are having trouble with a short wave that is expected to pull across Argentina next Thursday/Friday. The EU model has the front (and rainfall) further north, while the GFS is moving the system in this same direction, but at a slower pace. Note the rain across Central Brazil late next week with totals of 0.25-1.50”. Research argues that the GFS is overdoing the rainfall. The models will have the next week to decide on rainfall locations and amounts more fully.

Moderate to heavy rainfall will persist across N Brazil with totals of 3-6.00” into Nov 29. Brazilian farmers prefer more sunshine and drier weather conditions to slow emerging disease pressure on soybeans.

The big fall in US energy values is keeping fund managers from chasing Chicago values on the upside with meal/oil spreading pressuring soyoil. The volume of Chicago trade is modest today as traders will be taking off for the US Thanksgiving Day Holiday next week Thursday. December options expire in the holiday shortened trade session next Friday. Yet, US ethanol/crush margins are fantastic, limiting the downside on the premium cash basis bids heading into first notice day against December. Don’t sell breaks or chase rallies for now.

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

Weekend summary 19 November 2021

18 November 2021

Posted on November 18, 2021 by simon

HEADLINES: Market trades both sides on EPA announcement concern over 2020-2021-2022 biofuel mandates; US export sales ok.

Investment flows have been the theme of the past several days of Chicago trading. Some argue that the inflow is due to early Index Fund rebalancing or the pre-roll as some call it. Others suggest it is new funds coming into the space due to inflation. All we know is that open interest is rising from a 4 year low across Chicago which suggests that it likely is new investment. In year-end reports to fund shareholders, managers will want to see some exposure that helps counter budding inflationary pressures. Bitcoin is not approved by many investment committees, but commodity futures fit the bill. We look for additional fund flows into the ag commodity space into yearend. It is the degree that determines Chicago price action on a day-to-day basis.

And it is always difficult to figure out the index fund rebalance since reports of how much new capital comes or leaves the space is lacking. This makes estimating the rebalance an educated guess, and in past years the rebalance has shown that the impact on price is always less than originally feared. The biggest re-balance in Chicago is soymeal. But following the big up day yesterday, soymeal open interest declined which argued for short covering. Our bet is that much of the meal rally is due to massive shorts that were covered. Soymeal was the short used against long beans, corn, and wheat.

Chicago brokers estimate that funds have bought 3,500 contracts of wheat, 6,500 contracts of corn, and 4,500 contracts of soybeans. In soy products, funds have bought 1,900 contracts of soymeal while selling 2,100 contracts of soyoil.

The soyoil/soymeal spread should be getting close to a bottom. Soyoil will again start to the bullish leader of soy products following the EPA mandate announcements that has produced headline risk. US soybean crush operations have ramped up which is producing additional soymeal/soyoil. The meal production will more than offset the extra demand produced by spot shortages of lysine. The additional soyoil production is being exported overseas to make sure that strong crush margins can persist into early 2022.

US Export Sales for the week ending November 11 were: 14.7 million bu of wheat, 35.6 million bu of corn, and 50.8 million bu of soybeans. For their respective crop years to date, the US has sold 503 million bu of wheat (down 130 million or 20%), 1,298 million bu of corn (down 90 million or 6%), and soybeans 1,271 million bu (down 608 million or down 32%). The US soybean sales pace is not gaining, and USDA remains far too high with their annual soybean export estimate. We would note that Canada imported a record amount of US corn this week at 12.3 million bu with total purchases rising to 60.8 million bu. We look for Canada to import 6.0 million mt of US corn due to its dire drought and the lack of feedgrains. The competition for supply continues to ramp up for corn/soy in the Dakotas, Nebraska, and Minnesota. Premium basis bids are expected to persist well into early 2022.

Industry sources report that EPA is expected to announce 2020-2021 and 2022 biofuel mandates before the weekend. No exact timing of the announcement is being offered. The mandate announcements have been anticipated for weeks. The key will be the 2022 mandate since the blending for 2020 and 2021 is nearly completed. By 2007 Energy Bill Law, the Biden Administration must announce the annual mandates by the end of November. There is headline risk when the EPA makes the announcement.

The midday GFS weather forecast is like the overnight run with below normal rainfall for Argentina and the far southern areas of Brazil over the next 10 days. Moderate to heavy rains will persist across N Brazil with totals of 3-6.00” into Nov 28. The best chance of rain is for Santa Fe during the middle of next week.

Fund flows cause rallies, but when the buying ceases, prices correct. Cash soybean/corn movement has picked up on the rally with farmers willing to reward the market. However, if a drought were to develop across Argentina/S Brazil, much higher Chicago values would be justified.

17 November 2021

Posted on November 17, 2021 by simon

HEADLINES: Investment flows boost Chicago to sharp morning gains; US farmers boost cash sales; Egypt’s GASC buys just 60,000 Romanian wheat.

Grain markets are sharply higher at midday with the soy complex being the upside leader. Managed money inflows on inflation positioning and reports of concerning weather forecasts for S America has the complex pushing to sharp daily gains. March soybean futures were able to push back above $13.00, the highest price since the bearish September 30 NASS Stocks report. Corn and wheat have followed with both attempting to test last week’s high. March corn scored a short term high at $5.93 while March KC wheat topped out at $8.44 last week. The volume of trade has been active with moderate producer cash selling noted on the sharp advance. The daily highs are likely in place, but aggressive selling will depend on speculative profit taking going home.

Chicago brokers estimate that funds have bought 12,900 contracts of corn, 16,700 contracts of soybeans, and 6,900 contracts of wheat. In soy products, funds have bought 3,500 contracts of soyoil and 2,400 contracts of soymeal. The fund buying of soymeal has not been very large on the morning rally. This was less than expected volume with December soymeal almost filling an upside chart gap, which has produced some profit taking. The morning spike rally in meal likely forged a top in March soybean futures above $13.00.

FAS reported the sale of 30,000 mt of soyoil to India and 132,000 mt of US soybeans to China in the 2021/22 crop year. A year ago, India made a purchase of 80,000 mt of US soyoil at about the same time due to the US competitive soyoil price position relative to palmoil. The US soyoil sales pace has been slow due to elevated cash Gulf offers, but with world sun/canola oil prices rallying sharply, US soyoil is again competitive. The FAS/USDA will be releasing their weekly export sales report on Thursday.

EIA reported that the US weekly ethanol grind to produce ethanol rose to 312 million bu, up 7 million from the week prior. The US needs to average 296 million bu of corn grind per week to reach the WASDE annual usage forecast at 5,250 million bu. Research maintains a US 2021/22 US corn grind of 5,400 million bu or 150 million more (than WASDE). The weekly pace in the crop year to date is on target to reach our elevated US corn grind.

Weekly US ethanol stocks fell by 9 million gallons to 843 million due to strong blender demand. US gasoline stocks are at their lowest levels on years amid active consumer demand and elevated miles driven.

Egypt’s GASC secured 60,000 mt of Romanian wheat in the overnight tender. Turkey is tendering for 385,000 mt of wheat, which will likely be mostly Russian as exporters have been moving this wheat into position to lock down the Russian floating export tax. A sizeable Turkish purchase is expected. We expect that Russia sold nearly all the 800,000 mt of Algerian wheat purchased in a tender that closed on Tuesday. Reports that Russia sold just 250,000 mt are too low we believe.

The midday GFS weather forecast is like the overnight run with limited rainfall for Argentina and the far southern areas of Brazil over the next 10 days. Moderate to heavy rains will persist across N Brazil with totals of 3-6.00” into Nov 27. A break in the wet Northern Brazilian weather is desired with sunshine for soy crop reproduction.

New investment flows into Chicago has produced a one-way bullish price move this morning. However, the low volume rally in soymeal with values nearly filling an open chart gap suggests that a correction could befall the market heading into the weekend. It is premature to be overly bullish on S American weather for another few weeks.

15 November 2021

Posted on November 15, 2021 by simon

HEADLINES: NOPA crush exceeds expectations; Funds add to Chicago wheat length.

Chicago ag futures have again traded both sides of unchanged in weak volume, with soybeans, meal and Chicago wheat the bullish leaders at midday. The pace of physical US soybean exports remains impressive while funds continue to build net length in the US wheat market. CFTC data will be released this afternoon following last week’s Veteran’s Day holiday in the US. We estimate that managed funds last Tuesday were net short a modest 2,000 contracts of Chicago wheat, but since last Tuesday fund have bought some 35-37,000 contracts.

Algeria has postponed a wheat purchase planned for today to Tuesday. Paris milling wheat futures have reacted negatively to the allowing of minor bug damage, which favours Russian exporters, while Algeria has also boosted its minimum test weight requirement to 77kg, which bodes poorly for French exports following this season’s quality loss there. Wheat prices worldwide are not slowing importer demand, but the EU missing out on this week’s Algerian business is viewed as negative to wheat consumption there in the near-term. Aussie wheat futures are also down slightly amid coming dryness there.

FAS’s daily reporting system featured 264,000 mt of soybeans sold to unknown destinations and 198,200 mt of US corn sold to Mexico. 50,000 mt of Mexico’s purchase this morning is for 2022/23 delivery. Other tender/demand news is absent, and overall, it has been a rather uneventful/quiet start to the week.

US weekly export inspections through the week ending Nov 11 featured 76 million bu of soybeans, with the previous week’s total revised upward 9.7 million bu to 106.9 million, the largest weekly FGIS number since Nov 2016. Corn shipments totalled 34 million bu, vs. 26 million the prior week. US wheat shipments totalled 14 million bu, vs. 9 million the previous week. For their respective crop years to date, US exporters have shipped 1,223 million bu of soybeans, 33% below last year 1,263 million bu of corn, down 6%, and 488 million bu wheat, down 22%. Pace analysis argues against any significant changes to US exports in the USDA’s Dec WASDE, but weekly soy sales/shipments must stay elevated to avoid a downward revision thereafter.

NOPA-member soybean crush in October totalled 184 million bu vs. trade expectations of 182 million. Crush in October was down 1.3 million bu from last year but is the second highest for the month on record. The recent short-covering rally in soymeal has lifted the spot futures-based crush margin to an incredible $2.10/bu, vs. $1.15 a year ago in mid-Nov. Actual margins in the cash market are even better amid positive meal and oil basis. Monthly crush is expected to stay above 180 million bu well into mid/late spring. Oct 21 soyoil stocks were 1.83 billion lbs, vs. 1.49 billion a year ago, which leans bearish Chicago oil.

US soyoil disappearance has been intact at high prices, but until the US’s renewable diesel program ramps up in mid/late 2022, boosts in crush rate will keep the US soyoil market adequately supplied.

The midday S American weather forecast is wetter in southern Brazil in the 11-15 day period, with needed accumulation of 1-3” offered to Parana and RGDS. Confidence so far out is low, but whether rain expands into the drier areas of southern Brazil by late November will be monitored closely. The forecast is otherwise consistent with the overnight run. Daily showers persist across Central and Northern Brazil. Dry/mild conditions will be established throughout the next 10 days across Buenos Aires and Cordoba Argentina, which will allow soy seeding there to accelerate.

Chicago markets have digested record low exporter wheat stocks/use and the tightening of US corn supply and demand relative to expectations early Nov. A choppier marketplace is anticipated into the holiday season, with acute focus to be paid to S American weather beginning in early Dec. Jan Chicago soybeans are viewed as overvalued above $12.75.

12 November 2021

Posted on November 12, 2021 by simon

HEADLINES: President Biden and Chinese President Xi to hold a virtual summit Monday; Soymeal rises above 100-day ma.

Chicago ag futures have traded both sides in reduced volume from recent daily trading sessions. Corn and soybeans are the upside leaders while wheat follows. Managed money was a buyer following the morning Chicago reopening. The announcement of the Russian floating weekly export tax came as no surprise which was digested in Thursday’s rally. With Paris wheat futures unchanged, US wheat futures lack overseas leadership heading into the weekend. We look for a mixed close with cash strength in corn/soymeal/soybeans providing underlying support. Wheat values may “catch their breath” awaiting the next round of world trade demand.

Chicago brokers estimate that funds have bought 5,400 contracts of corn, 4,300 contracts of soybeans, while being flat in wheat. In soy products, funds have been sellers of 2,100 contracts of soyoil and buyer of 2,900 contracts of meal

The USDA/FAS announce the sale of 256,930 mt of US soybeans to an unknown buyer. Most of the sale is rumoured to be heading to China.

FAS weekly export sales were within trade expectations. For the week ending November 4, the US sold 10.5 million bu of wheat, 42.0 million bu of corn, and 47.4 million bu of soybeans. And US sorghum sales were the best in months at 10.3 million bu. For their respective crop years to date, the US has sold 488 million bu of wheat (down 139 million or 23%), 1,262 million bu of corn (down 82 million or 6%), and 1,223 million bu of soybeans (down 608 million or 33% from last year). US sorghum sales stand at 129 million bu, down 31 million or 21%.

We would note that WASDE 2021/22 soybean export forecasts are too high by at least 100-125 million bu, wheat too high by 15-20 million bu while corn is in line with historical averages. A further cut in the 2021/22 US soybean export estimate is forecast for December.

US President Biden and Chinese President Xi will be holding a virtual Summit on Monday. It is the second time this year that both presidents will talk about the relations of both countries, their economies, trade, and climate goals. It is hoped that Biden will prod China to return to trade negotiations and review the Phase One Pact. Asian sources indicate that China would be willing to extend the Phase One deal if the US would reduce or eliminate 35% tariffs on $265 billion of Chinese goods. Reducing the tariffs would lower the cost of household goods coming into the US and help beat back inflationary pressures.

Russia is again amassing troops/military hardware along the Russian/Ukraine border which has some fearing a new geopolitical conflict. The US warned Europeans that Russia may be weighing a potential invasion of Ukraine as tensions flare. The Russian Ruble has weakened on the news, with Moscow denying the US alert. We note that similar tensions erupted last spring when Russia amassed 100,000 troops along the border which eased after Biden called Putin and lined up a June Summit. If Russia were to invade Ukraine, it would be bullish as two key suppliers engaged in mutual aggression.

The midday weather forecast is consistent in keeping rain/snow over the next 10 days confined to the far Upper Midwest and Great Lakes. No threats to the completion of harvest are forecast across the Plains and principal corn/soy belt. Model guidance is colder across the Central US.

Chicago soymeal futures have rallied above the 100-day moving average for the first time since July which is sparking new chart buying and the soybean rally. Oil/meal spread unwinding has been aggressive this morning. China is still bidding for Ukraine corn but shows no US interest. China is rumoured to be dropping their DDG duties in January to allow US imports to resume in 2022. Inflation buying of Chicago grain has been widespread since the November report, but this is no place to chase the rally. Remember that bull markets always let you in.