Monthly Archives: February 2022

11 February 2022

Posted on February 11, 2022 by simon

• HEADLINES: Wheat leads morning rally on concern over Black Sea logistics; Global weather patterns stagnate.

• Chicago futures are mostly higher at midday as corn, wheat and soy markets add varying levels of premium. Wheat’s been the star performer on Friday amid escalating Black Sea tensions, with a new threat emerging the form of vessel logistics. Wheat markets worldwide have been reluctant to discount the potential for a slowing of Black Sea grain flows, but much more attention will be paid to weekly corn/wheat shipments there next week and beyond. We maintain a bullish bias based on geopolitical risks and as S American crop potential continues to erode as odds are high that warmth/dryness in Argentina persists into the first part of March. The Buenos Aires exchange on Friday detailed that later planted corn is beginning to pollinate in primary producing areas.

• Spot crude has extended its overnight rally to $1.95/barrel. The DOW is flat. Paris milling wheat futures look to settle €7.00-8.00/mt higher. US exporters sold another 108,000 mt of soybeans to China for new crop delivery and 128,000 mt of old crop corn to Japan. Importer interest has risen on the hike in price which is important.

• Other breaking news is absent. Key on Sunday night is whether updated weather model runs show any chance of needed rainfall in Argentine and Southern Brazil during the final week of February. Odds of this are low given cooling equatorial Pacific Ocean temperatures, and the lack of pattern change warrants strong early-week trade. As of this morning, longer-term climate models are in broad agreement that abnormal dryness will blanket Argentina and even much of Brazil’s safrinha corn belt into the end of March. Our message is that S American weather/supply threats have not ended.

• We also expect the market to pay closer attention to near-term US weather beginning in late February. There is no indication of any atmospheric pattern change that would allow a better flow of moisture to impact areas already impacted by drought across the Southwest and Southern and Central Plains. Precipitation accumulation since Oct 1 in TX, OK, eastern CO and western KS sits at just 15-40% of normal, and so current drought is the result of long-term deficits. NOAA’s analysis suggests rainfall there of 4-7” is needed in the next 60 days to end drought. Meanwhile, NOAA’s evaporative demand forecast implies Plain’s drought expansion over the next two months.

• The global wheat market in recent weeks has shifted focus to seasonally declining world trade and developing surpluses in Europe. The perception of new crop wheat supply and demand begins to impact wheat price determination more directly March 1 onward.

• The midday GFS weather forecast is much wetter in far North-eastern Argentina in the 11-15 day period, though confidence in this solution is lacking. Cumulative rainfall of 4-6” is offered to a narrow area enveloping northern Cordoba, Santa Fe and Entre Rios. Close attention will be paid to EU/Canadian model guidance for confirmation. Otherwise, the 10-day forecast is similar to the overnight run, with meaningful precipitation in S America isolated to Central and Northern Brazil. The GFS forecast also maintains extreme heat in Argentina in the 6-10 day period, with highs there routinely exceeding 100 degrees. Immediate focus stays on Argentina, but it remains that soaking rain is needed in Southern Brazil by early March to maximise safrinha corn yield potential.

• Chart-based support has held. Corn and soybeans have found new price plateaus, with spot beans to trade in a range of $15.50-16.20 until more Brazilian harvest data is available. The long-term outlook stays bullish as Argentine crop health slides further. Breaks are buying opportunities.

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

Weekend summary 11 February 2022

10 February 2022

Posted on February 10, 2022 by simon

• HEADLINES: Markets digest CONAB report then fade; Argentine crop health worsens.

• Ukraine stated that Russian military drills on the Black Sea make shipping virtually impossible in an escalation of invasion tensions across the area. The duration of the Russian military drills is unknown, but invasion concern keeps rising and will be closely monitored heading into the weekend.

• CONAB released their 2022 soybean/corn crop estimates. CONAB shocked the industry with a soybean crop estimate of 125.5 million mt, down a massive 15 million from January. And a corn crop estimate of 112.3 million mt, was down from 112.9 million. Such a small soybean crop produces the need for acute world demand rationing and a potential test of the historical high at $17.95 spot Chicago futures.

• Chicago futures are mixed at midday following new rally highs this morning amid CONAB’s massive cut to Brazilian soy production. The market has now seen a sub-130 million mt Brazilian soy crop actually printed by a government agency, and so a sort of ‘buy the rumour sell the fact’ mentality has weighed on soy values since mid-morning. This along with modestly weakening fob soybean basis in Brazil could make rallies above $16.30, spot, more laboured. But everyone should know that a Brazilian soy crop of 125 million mt along with ongoing dryness in Argentina leaves an incredible (450+ million bu) hole in the USDA’s current global soy trade matrix, which will only be solved by higher prices. We note that the spot futures-based soy crush margin this morning is calculated at $1.35/bu. This compares to $0.75/bu a year ago in mid-Feb.

• Soybean supply rationing is needed in the long run, even amid normal Midwest weather this summer. Corn rationing will also be needed, but the market’s perception of S American corn production hinges on Feb-Apr weather.

• Spot crude is up $1.60 at $91.25.

• US exporters through the week ending Feb 3 sold 23 million bu of corn, vs. 46 million the previous week, 3 million bu of wheat, vs. 2 million the prior week and a sizable 59 million bu of soybeans, vs. 40 million the prior week. Wheat sales were below expectations, while corn and soybeans were in line. The market has been aware of the flood of old crop soybean demand via a string of daily sales announcements. China’s 375,000 mt cancellation of prior corn purchases were also known. For their respective crop years to date, the US has sold 1,800 million bu of corn, down 21% from last year but a near record 74% of the USDA’s annual forecast. 2021/22 US soy commitments sit at 1,720 million bu, down 20% from last year. Wheat commitments total 637 million bu, down 25%.

• Exporters sold another 233,700 mt of soybeans to unknown destinations this million. Weekly sales in the weeks ending Feb 10 and Feb 17 are projected to total 35-45 million bu, which places US soy export commitments as of mid-Feb at 88% of the USDA’s crop year forecast. Additional old crop demand lies ahead as US fob offers remain competitive with Brazilian origin for shipment.

• We also reiterate that the bulk of the coming shift in global soybean demand will occur in a new crop position. It is 2022/23 US soy stocks that become untenably tight barring planted area expansion of 3 million acres, which becomes bullish corn due to corn acreage contraction. Solving current supply issues require record production in both hemispheres over the next 12 months.

• This week’s drought monitor showed another modest expansion in KS, NE and IA. Arid and warming weather is forecast across the Southern and Western Plains throughout the next two weeks.

• The midday GFS weather forecast is consistent with the overnight run. A stagnant pattern of excessive rainfall continues across Central and Northern Brazil, with 10-day accumulation upward of 5-7” projected in Mato Grosso, Goias and Minas Gerais. Net drying continues indefinitely across Central/North Argentina, Southern Brazil and Paraguay. The Buenos Aires Grain Exchange this morning cut its Argentine corn production estimate to 51 million mt, vs. USDA’s 54. Argentine soil moisture is the immediate concern, but ongoing extreme drought in Parana and pockets of Mato Grosso do Sul will be an issue for safrinha corn yields should it continue into March. S American weather is viewed as threatening.

• CONAB’s rapid trimming of Brazilian soy yields will trigger a more volatile marketplace moving forward. However, Argentine soy and corn crop health continues to erode, and this likely strips another 4-6 million mt from S American corn and soy production. Breaks are buying opportunities as supply focus shifts to Argentina.

9 February 2022

Posted on February 9, 2022 by simon

• HEADLINES: USDA report offers no statistical fireworks as they punt until March; China booking US soybeans; S American weather threatening.

• Chicago futures are higher following the USDA February report with S American soy crop sizes falling a 3-country combined 8.7 million mt (on top of the record 9.5 million mt cut in January). And China is securing additional US soybeans while the midday Southern Brazilian/Argentine weather forecast stays arid. Chicago will look to S American weather, harvest yield data and CONAB on Thursday to help traders better evaluate S American drought losses in corn/soybeans.

• At face value, the USDA February report was slightly bearish. WASDE only lowered US 2021/22 soybean end stocks by 25 million bu when the trade was expecting 40 million. And WASDE raised US wheat end stocks by 20 million bu to 648 million bu and left US 2021/22 corn exports alone at 1,540 million bu. It appears that with the USDA Annual Outlook Meeting in just 2 weeks, WASDE did not want to chop US old crop corn/soy stocks too aggressively with US export demand to grow in 2022/23.

• WASDE left the 2021/22 US corn balance sheet alone with the only modification being in world corn production with a 1 million mt cut in the Brazil corn crop to 114.0 million. Shockingly, WASDE left their Argentine corn crop alone at a record 54.0 million mt. The average US farmgate corn price held at $5.45/bu and the March and April WASDE reports now take on added importance. We see the USDA as being too conservative and not sending the right profit signal to US farmers during the tabulation period for 2022 US summer row crop revenue insurance.

• WASDE cut its estimate of 2021/22 US soybean end stocks by 25 million bu to 325 million. US 2021/22 soybean exports held steady at 2,050 million bu while crush was increased to 2,215 million bu (an increase of 25 million bu). WASDE estimated the 2021/22 US farmgate price at $13.00, an increase of $0.40/bu from January.

• In S America, WASDE cut their estimate of the Brazilian soybean crop to 134 million mt (drop of 5 million from January), while estimating the Argentine soy crop at 45.0 million mt, a drop of 1.5 million. The Paraguay soybean crop was cut 2.2 million to 6.30 million mt. The combined 3 country soybean production cut was 8.7 million mt. This was on top of the record crop fall of 9.5 million mt in January. The total of 18.1 million mt has not (yet) altered US old crop soybean exports. WASDE must sharply elevate new crop US soybean exports due to the supply loss. We could easily argue that another 12-14 million mt of S American soy production cuts will occur in coming March/April reports.

• The USDA’s Feb wheat data leans mixed, with US stocks lifted slightly on lower projected export total, while the exporter balance, surprisingly, tightened relative to January. US 2021/22 all-wheat end stocks are now pegged at 648 million bu, vs. 628 million in Jan. Exports were lowered 15 million bu to account for the pace of sales to date along with ongoing hefty Gulf premiums to other origins. Seed/food use was lowered a combined 5 million bu.

• Yet, world wheat trade was hiked 2.3 million to a new record 206.7 million mt. Global wheat production was trimmed just over 2 million mt amid downward revisions made to crop sizes in Kazakhstan, the UK, and Middle East. Global stocks were lowered 1.7 million mt. Exporter wheat stocks were lowered a like amount and exporter wheat stocks/use is again pegged at a record low 12.8%, vs. 15.2% last year and vs. 13.1% in 2007/18. Additionally, the wheat market into spring will sustain large premiums to corn worldwide to cap feed use.

• The USDA’s Feb WASDE was expectedly dull. WASDE is conservative and walks crop estimates downwards during droughts. WASDE will get it right, but it might not be until April or May. We expect CONAB to be more aggressive in lowering their Brazilian crop sizes on Thursday.

• China is back securing US soybeans with unconfirmed rumours of interest in US corn off the PWN. We cannot confirm any US corn business to China, but we hear they are booking US soybeans for old and new crop this morning.

• The USDA’s February crop data does nothing to change our bullish mindset with a deepening Argentine/S Brazilian drought to steal yield in the coming weeks. New crop US corn/soy futures must secure additional acres via price.

To download our USDA Recap as a PDF file please click on the link below:

USDA Recap 9 February 22

8 February 2022

Posted on February 8, 2022 by simon

• HEADLINES: Stats Canada surprises on year end wheat stocks; Additional soybeans to China/unknown; S American forecast threatening.

• Chicago futures are mixed with wheat posting gains on the Stats Canada December 31 stocks data, while corn/soybeans sag on long liquidation/risk reduction ahead of Wednesday’s USDA February Crop Report. The volume of trade is active with market volatility elevated. The February crop report does not often fan sizeable market moves, but this year could be different due to the dire drought across Southern Brazil and Argentina. Traders are expecting a slightly bearish report with their mindset to secure weakness based on heat/dryness holding across S Brazil/Argentina into the end of February. S American crop sizes are still in retreat which is the basis of the bull market that extends backwards to late November. We look for a mixed close with any selling pressure to fade by Wednesday’s Chicago open. This is not a break to be selling for producers with S American crop sizes to decline again into March.

• Chicago brokers estimate that managed money has sold 6,200 contracts of corn and 6,400 contracts of soybeans, while buying 4,100 contracts of wheat.  In the soy products, funds have sold 5,400 contracts of soyoil and bought 900 contracts of soymeal. Soyoil values appear to be following crude oil.

• FAS/USDA reported that another 332,000 mt of US soybeans was sold to an unknown destination with 132,000 mt sold to China. We hear that the new crop purchase is Chinese crushers, while the old crop sales are to the Government for reserve replenishment. There have been unconfirmed rumours that the Chinese Government could release 600,000 mt of soybeans from their reserve in March to cool surging cash soymeal/oil prices, but the rumour cannot be confirmed.

• Stats Canada released their December 31 stocks estimates this morning. The big surprise was Canadian all wheat stocks at 15.5 million mt, which was down 10 million from last year and 2.0 million mt less than trade estimates. Canadian December 31 canola stocks were a record low 7.5 million mt while oat stocks were 1.65 million mt. Both were in line with pre report forecasts and considered neutral today, but bullish longer term as crush/export data shows no future sign of slowing. Canadian canola futures are mixed while Chicago oat futures are higher.

• There are world cash rumours that China has booked 1.0 million mt of Aussie wheat for June/July loadout overnight. China continues to scour the world for soybean and feedgrain supplies to quell their rising domestic prices. China has purchased a record amount of Australian wheat and Ukraine corn in the 2021/22 crop year. A US corn purchase is expected before May 1 as trade negotiations continue. The US/China are looking for ways to complete the Phase One agreement.

• The US exported a larger than expected 196.4 million bu of corn, 50 million bu of wheat and 297.9 million bu of soybeans. US Census corn exports are running 148 million bu above FGIS inspections.

• The midday GFS weather forecast is consistent with the overnight run with below to much below normal rainfall dropping across Argentina and the Southern third of Brazil for the next 10 days. Heat starts to build on Friday and persists through next week with highs in the 90s/lower 100s.   Above, to much above, normal rains fall across Northern Brazil with 10-day totals in a range of 4.50-9.00”. The regular heavy rain will produce enduring mud and slow harvesting operations. The pattern is stable into February 25.

• Wheat values are catching a bid on the 10 million mt decline (vs 2021) in Dec 31 Canadian wheat stocks of 15.5 million mt. Corn/soy futures are liquidating ahead of the Feb USDA crop report and expectation that CONAB/USDA will be conservative in cutting S American crop estimates due to drought.  We see key support below $6.25 May corn and $15.50 May soybeans. Demand rationing is needed and not yet surfacing. Stay bullish and secure any post USDA report break would be our considered advice.

7 February 2022

Posted on February 7, 2022 by simon

• HEADLINES: Soybeans/soymeal to new contract highs; China bidding for additional US soybeans; Argentine second corn crop at risk.

• Corn/soybean futures are posting sizeable midday gains. Soybeans have scored another set of new contract highs on new potential S American crop losses. And China is behind in their soybean purchases with rumours that state buyers of COFCO/Sinograin becoming more active to secure US soybeans for the state reserve. Many Chinese watchers expect that China will also secure 5-7 million mt of US corn in the coming weeks. Wheat futures are struggling to keep up with the row crops, but with US winter wheat conditions in sharp decline, the supply side of the US wheat balance sheet is being questioned. A bullish outlook is maintained with corn likely to score new contract highs this week. Wheat will be the follower into mid-February. A sharply higher Chicago close is forecast.

• S American corn crop potential is in decline as the second Argentine corn crop suffers drought/extreme heat through pollination. We estimate that the first Argentine corn yield fell by 30-35% due to record heat and limited soil moisture which produced a yield fall of 7.00 million mt. We see today’s Argentine corn production at 44 million mt, down 10 million and well below the USDA Ag attaché estimate of 51.0 million mt made as of February 1.

• The world has been banking on a record large Brazilian winter corn crop of more than 90 million mt. The Mato Grosso winter corn crop is being quickly planted at 45% completed, but concern exists in Parana where corn is being replanted due to dryness. Parana accounts for 23% of the winter corn crop with S Brazil representing some 38%. It is premature to estimate Brazil’s second corn crop at a record with so many weather uncertainties ahead. It is too dry in the south and too wet across the north. Close attention should be paid to S American weather

• FAS reported that the US sold 507,000 mt of US soybeans to an unknown destination (rumoured to be China). The sale was 249,000 mt of old and 258,000 mt of new crop. US exporters report that China continues to bid for US soybeans as S American fob basis bids rally. As the harvest advances across Mato Grosso, yield data confirms pockets of problems and that it will be difficult for their final soy crop to exceed 39 million mt. Mato Grosso’s IMEA will update their 2022 total soybean harvest this afternoon. A total under 38 million mt (December estimate 38.1 million) would be bullish for Tuesday.

• US export inspections for the week ending February 3; 41.5 million bu of corn, 44.8 million bu of soybeans, and 15.3 million bu of wheat. US corn exports are running 2% behind the USDA annual forecast, but as WASDE cuts its S American corn crops, the US corn outlook will brighten. The outlook for future US corn/soy exports is robust as S American crop shortfalls (drought) are defined. We look for March forward USDA reports to raise US corn/soy exports. A 1 billion bu S American soy production loss lifts 2021/22 and 2022/23 exports by 800-900 million bu.

• Final Chicago open interest data for Friday showed a gain of 10,052 contracts in corn, 11,895 contracts in soybeans, and 764 contracts in Chicago wheat. Investor money continues to flood into Chicago.

• The midday GFS weather forecast is like the overnight run. Above normal rainfall occurs across Northern Brazil while Southern Brazil and Argentina see limited rainfall due to high pressure ridge aloft. Heat will become an increasing worry for the Argentine second corn crop that will soon start to pollinate. Highs in the 90’s to lower 100’s will become commonplace this weekend and persist into February 20. This is a hot/dry weather pattern that like December, shows little hint of changing. And portions of Northern Brazil will see 10-day rains of 5-11.00” adding to fertiliser leaching. Our S American weather concern is elevated.

• The weather forecast is threatening (again) for S Brazil/Argentina for the next 2-3 weeks. The main Argentine corn crop is at risk with exportable Ukraine corn supplies running low, and world feed demand shifting to the US. And the podding Argentine soy crop will also be suffering from extreme heat. Our outlook stays bullish with the next upside target in March soybeans at $16.20-16.50 and $6.50-6.70 March corn. Wheat is an upside follower for now.

4 February 2022

Posted on February 4, 2022 by simon

• HEADLINES: Chicago trades both sides in consolidation; S American average crop estimates surprisingly high; US economy rocks.

• It has been a mixed morning in Chicago with the grains firmer while profit taking (amid high prices) causes a two-sided trade in the soy complex. Meal/oil spreading is noted, but without much vigour. The bullish demand outlook stays intact for world vegoils, but the meal bull story is based entirely on S American crop losses and the US export opportunity. Following the recent Chicago rally, the market is pausing and correcting from the heady weekly gains. We look for a mixed Chicago close with next week’s market determined by the USDA report on Wednesday, S American weather forecasts and China’s return from their weeklong Lunar New Year holiday. Bull trends continue, it is just that following the recent strong rally, a pause is needed.

• Chicago brokers report that funds have sold 3,400 contracts of corn, 2,200 contracts of soybeans, and a net 1,200 contracts of soybeans. In soy products funds have sold 1,200 contracts of soyoil and bought 2,300 contracts of soymeal. Some bulls desire to bank windfall profits and see what next week brings in terms of the February USDA Crop Report.

• The USDA reported that the US sold 295,000 mt of soybeans to an unknown buyer that was mostly old crop (43,000 mt new crop). We believe that China is bidding for US soybeans for March/April again today. China has been buying US soybeans with this week’s tonnage estimated at 1.5 million mt. We are told that the buyer is the Government that is buying soybeans for their reserve.

• The outlook for the US economy continued to improve with net revisions of over 700,000 jobs in November/December and large job gains of 467,000 in January. The US unemployment rate held at 4% with the average hourly earnings improving by 0.7% and 5.7% year on year. The strong US economic outlook will likely cause the US Central Bank to raise rates in March with several economists now discussing a 0.5% interest rate hike. Yet, demand trend for a host of US commodities is strong into June. And WTI crude oil has pushed above $92/ barrel. US inflation rates will stay elevated amid the ongoing Chicago rally.

• The average trade estimate for the 2022 Brazilian corn crop is 113.6 million mt and 133.6 million mt for soybeans. Although USDA tends to be conservative, the data suggests that the industry is not trading a Brazilian soybean crop less than 130 million mt or a corn crop less than 112 million mt.  We see Wednesday’s surprise to the upside as early yield reports confirms the drought damage of November/December.

• The average estimate for the Argentine soybean crop is 44 million mt with corn at 51 million mt. The industry will be betting on smaller crops in March and will see post report weakness as a new purchase opportunity.

• The midday GFS weather forecast is like the overnight run. Light/widely scattered showers impact Argentina through Saturday with totals of 0.1-6” favouring La Pampa/Buenos Aires. Thereafter, widespread dryness blankets all of Argentina into Feb 18. Temperatures in Argentina will be variable for the next 5 days with warming occurring thereafter. The GFS forecast increases the risk of 90s/low 100s after February 9. A high-pressure ridge holds across Argentina in the extended range which will produce an arid trend. At risk in the podding soy crop and pollinating second corn crop. The initial Argentine corn harvest is starting with reported yields that are 30-50% below trend. The S American weather forecast is too dry for Southern Brazil and Argentina.

• Consolidation is the thesis today with the market trying to better understand S American crop losses and the shift of demand to the US following this week’s push above $15.50 March soybeans. Gulf corn is the cheapest in the world and will uncover fresh demand on weakness. US Gulf soyoil gains demand on the huge premium of palmoil to soyoil. China will become more active in securing US soybeans/corn.

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

Weekend summary 4 February 2022

3 February 2022

Posted on February 3, 2022 by simon

• HEADLINES: Ag markets relax on Chinese corn cancellations and mixed export sales.

• Chicago grain and oilseed futures opened the morning lower and have remained under pressure into midday. Soybeans were the downside leader in early trade but have recovered to within a few cents of unchanged. Corn has been 5-8 cents lower, while wheat has recovered from early selling and is just below unchanged. Soybean meal has been lightly mixed, and soybean oil has corrected from contract highs set on Wednesday.

• Early weakness in corn was tied to a USDA announcement that China had cancelled 15 million bushels of corn purchases. Some traders wonder if Thursday’s announcement had been misreported. Wheat futures have relaxed as tensions on the Ukraine/Russian appear to have eased somewhat. However, March wheat tested the 200-day moving average for the first time since July and has turned higher.

• There were no soybean sales announcements for Thursday, but Chinese buyers are rumoured to be working orders on this break, with additional demand thought to be below the market.

• Chicago brokers estimate that managed money has been net sellers of 8,000 contracts in corn, 3,000 contracts in soybeans, and 1,500 contracts in wheat.

• The US weekly export sales report was mixed relative to estimates. For the week ending January 27, US exporters sold 46.3 million bu of corn, just 58 million bu of wheat, 40 million bu of soybeans. The corn and soybean sales were within expectations, while the wheat sales were well below estimates.

• For the respective crop years to date, exporters have sold 634 million bu of wheat (down 189 million or 23%), 1,776 million bu of corn (down 432 million or 20%), and 2,413 million bu of soybeans (down 488 million or 23%).

• Additionally, exporters sold 32.4 million bu of new crop soybeans, which was well above estimates and at a marketing-year high. There were not any new crop corn sales registered, but new crop wheat sales also rose to a marketing-year high of 3.8 million bu.

• In the soy product markets, soybean meal sales were well above estimates and jumped to a 2 year high of 667,433 short tons. Soybean oil sales fell to a 3-week low of 9 million lbs, while weekly exports dipped to an 11-week low of just over 4 million lbs.

• In other markets, crude oil has held above $88 this morning, March natural gas has plunged 12%, while the US Dollar Index has dropped to a 3-week low.

• The midday GFS weather forecast is similar to the overnight run. Light/widely scattered showers will impact Argentina on the weekend, with totals in excess of 0.25” favouring La Pampa and Buenos Aires. Widespread dryness then blankets all of Argentina Feb 8-18. Temperatures in Argentina will be rather variable, though the GFS does maintain the risk of readings in the 90s and low 100s next week. This upper air pattern will also sustain above normal rainfall across key areas of Central and Northern Brazil. Harvest there remains sluggish, while Brazil’s soybean vessel line-up continues to grow.

• Wheat lacks the demand spark seen during late summer and autumn, with EU values probing for spring export demand. Corn and soy markets have paused following the recent dramatic rally but there is nothing to suggest lasting highs have been scored. Recall normal seasonal corn/soy price trends stay positive until the growing season begins in earnest. We would maintain that seasonal strength this spring will be exacerbated by exporters competing with feeders/processors for finite supply.

2 February 2022

Posted on February 2, 2022 by simon

• HEADLINES: Market volatility ramps up as funds sell grains/buy soybeans; US ethanol stocks rise for fifth week; Argentine weather concern is high.

• Chicago futures opened sharply higher but a wave of profit taking pulling values off the highs by mid-morning. However, with US and S American soy crush margins deeply in the green (US soy crush margin estimated at $1.85/bu), there is no indication of demand rationing. Chicago needed a rest and could not keep rising 20-30 cents/day in soybeans, but lasting bearish price trends are not anticipated. We would see May corn under $6.10 and KC May wheat under $7.50 as offering a new purchase opportunity. We continue to highlight that extreme price volatility is the new theme of Chicago based on high prices and new large fund traders.

• The soybean/corn ratio has pushed out to a 2.44:1 in old crop and a normal 2.40:1 in new crop. Soybean futures have additional work to accomplish if there is to be any chance that the US farmer will seed 90+ million acres of US soybeans this spring. The US needs to seed 90 million acres to prevent end stocks from falling into the negative with record large 2022/23 US exports forecast. A year ago, November soybeans peaked at $14.80/bu which was not high enough to jolt farmers out of their traditional crop rotations.

• Chicago brokers estimate that managed money has sold 12,300 contracts of corn and 4,200 contracts of wheat, while buying a net 4,600 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soymeal and 2,100 contracts of soyoil. Money managers have turned grain sellers based on the charts. Cash markets are holding strong both in the Central US with corn said to be trading at 17-18 cents over h corn futures for nearby delivery. The Chicago correction is not enticing fresh cash corn/soybean movement.

• The USDA reported that 380,000 mt of US old crop soybeans were sold to an unknown destination (rumoured to be China for March) in the 2021/22 crop year. Cash traders indicate PNW soybeans to China are becoming competitive based on rising Brazilian cash basis bids. Brazil is expected to export a record 10-10.4 million mt of soybeans in February. There is a record number of vessels that are waiting to load new crop soybeans. Brazilian crushers are outbidding exporters which is raising interior cash basis bids. Everyone is seeking new crop supply with the Brazilian farmer no longer a seller of their harvest.

• The US weekly corn ethanol grind produced 306 million gallons, up 2 million gallons from last week, and well above the 296 million gallon average forecast by the USDA. The USDA should raise their annual US corn ethanol grind by 25 million bu next week. However, US ethanol stocks swelled 5.6% to 1,086 million gallons. The sharp rise in US ethanol stocks is due to sluggish US ethanol exports. However, with US ethanol priced below unleaded gasoline, we doubt that the slowness in US ethanol exports will persist beyond the next few weeks.

• The midday GFS weather forecast is consistent with the overnight run with a below normal rainfall for S Brazil/Argentina for another 14 days. Argentine weather has been arid for the past 7 days and the crop areas that missed last week’s rains are back to showing stress. A few light showers of 0.2-0.85” are possible from Thursday through Saturday before another 7-10 day stretch of dry weather follows. Temperatures rewarm after February 6 with highs returning to the upper 80’s to the lower 100’s. Hot/dry weather could catch the second corn crop during pollination.

• Record large S American soy crop losses imply an acute need for demand rationing and higher soy prices with US crush margins at $1.85+/bu. S America has lost over 20 million mt of corn, and the Argentine weather forecast is threatening with heat/dryness for its second corn crop. But corn has been unable to close above the summer highs at $6.41 March. Wheat is locked into a range awaiting Putin’s next move. We see KC March wheat in a wide $7.60-8.40 price range. This is no place to turn bearish of corn/wheat.

1 February 2022

Posted on February 1, 2022 by simon

• HEADLINES: Dramatic rally in Chicago soy as Brazilian export premiums soar; Warm/dry weather threatens Argentine crop yield potential.

• Chicago futures are sharply higher at midday as new investment funds flow into corn, soybeans, and wheat in a new month. March soybeans have rallied to a new contract high at $15.39/bu, March soymeal has scored a new contract high at $437/ton while March soyoil tests Monday’s contract high at 66.77 cents. The next upside price target in soybeans rests at $16.23, the June 2021 high, $16.77, the May 2021 high and then $17.95, the drought high back in 2012. We see reasonable odds that the $17.95 high set back in 2012 will be tested or exceeded in an acute demand rationing rally effort.

• Corn/wheat have followed the soy complex to the upside, but it is February Argentine weather that will determine the Argentine corn crop size. The initial Argentine corn crop (35%) was stressed by extreme record heat in January that cut the crop by an estimated 7 million mt. The second crop seeded in late November/December will reach its reproductive stage in February and was adversely impacted by 3 million mt due to early heat/drought. If February weather is too dry or too hot, Argentine 2022 corn production could easily slip below 40 million mt and create a world shortage of exportable feed grains.

• Chicago is digesting S American crop losses that are adding up. In soybeans, Brazil/Argentina/Paraguay is estimated to have lost 27-31 million mt and 17-21 million mt of corn. The combined total of 44-52 million mt is massive in a world that already was short of supply. And the world’s largest buyer, China is poorly covered on forward corn and soybean import needs.

• Dry Argentine/Southern Brazilian 2-week weather forecasts are adding to the upside potential. There being no room left in balance sheets to lose any additional S American crop. World exporter stock/use ratios were already record low and S American crop losses compound the demand rationing chore. The onus on the Northern Hemisphere to produce record harvests is massive. Chicago prices can correct for a few days, but a lasting bearish price trend demands record large US corn/soybean production in July/August/September.

• Chicago brokers estimate that managed money has bought 7,300 contracts of soybeans, 9,500-10,500 contracts of corn, and 4,200 contracts of wheat.  In soy products, funds have bought 5,300 contracts of soymeal and 3,200 contracts of soyoil.

• The USDA reported that 110,000 mt of US corn was sold to Mexico in 2021/22 and 132,000 mt of US soybeans to China in 2022/23. China is active in new crop bids trying to cover a portion of their September-November import need.

• Brazilian fob/cif soybean basis bids are sharply higher at midday as panic sets in with importers and end users. We understand that premiums are up 9-15 cents/bu for March/April Brazilian soybeans.

• The midday GFS weather forecast is consistent with the overnight run in a dry forecast for Southern Brazil/Argentina for another 10 days. Argentine weather has been arid for the past 5 days and the crop areas that missed last week’s rains are back to showing stress under 90 plus degree heat. A few light showers of 0.2-0.85” are possible on the weekend with another long stretch of dry weather following for Argentina. Temperatures rewarm after February 6 with highs returning to the upper 80’s to the lower 100’s. The hot/dry weather will further reduce Argentine crop potential and could catch the second corn crop during pollination. S American crop risks are elevated.

• An acute Chicago demand rationing rally is underway in soybeans with China short bought and set to return from their New Year’s holiday late week. The next upside target rests at $16-18.00 March, a wide range. And any additional yield loss to the Argentine corn crop could spark a like dramatic rally in Chicago corn futures. Wheat is lagging on Russian aggression uncertainty with new contract highs forecast if Putin sets foot on the wrong side of the line. Soy/corn are big bull markets with extreme volatility. Our stance stays bullish.