31 March 2022

Posted on March 31, 2022 by simon

HEADLINES: NASS shocks traders with US intended corn acres of 89.5 million; Soybean intended acres record large at 91.0 million; soy/corn ratio narrows to 2.1:1.

The NASS March Intentions Seeding Report was bullish for corn/wheat and bearish for soybeans. Combined US corn/soybean seedings rose to 180.5 million acres, down 100,000 from last year. US all wheat acres rose by 700,000 acres to just 47.4 million acres. Northern Plains farmers opted to seed more soybeans vs spring wheat due to margin. Expanding US farmed acres is difficult and gets us back to our winter long discussion of “Peak US Farmland”. There just is no more land to bring into production.

Record high US fertiliser costs bit US farmers with a larger than expected fall in 2022 corn seeding intentions at 89.5 million acres, down 3.9 million from last year. The “I” states each witnessed a decline of 300,000 acres of intended corn acres for 900,000 acres in total. North Dakota corn acres fell 500,000 acres. We would note that these are only intentions and will be adjusted with spring weather.

US soybean seedings were record large at 91.0 million acres, up 3.8 million from 2021. The low soybean/corn ratio played a limited role in Midwest and Northern Plains seeding decisions. Every Midwest State recorded a soybean seeding gain.

We would note that it was not profit margins that determined US intended 2022 soy acres, but more likely the high cost of crop inputs. IL intended to plant 400,000 acres more, IN 250,000 acres more and IA 300,000 soy acres more than 2021.

Soy seeding gains included the Delta where soybeans/cotton competed for acres. 2021 US cotton seeding intentions were up 1.0 million at 12.2 million acres. WASDE will forecast that the US will produce a record 4.6 billion bu soy crop.

US all wheat seedings were 47.4 million acres with winter wheat seedings rising to 34.2 million compared to 33.6 million last year. The 600,000 acre gain in winter wheat seeding was less than initially forecast. And US spring wheat intended acres fell 200,000 acres to 11.2 million with durum seedings rising 300,000. The 500,000 acre drop in US HRS wheat seeding was the big surprise and should underpin Minneapolis wheat vs Chicago/KC. Northern Plains farmers opted to seed soybeans with input costs roughly the same.

US March 1 corn stocks were estimated at 7,850 million bu, up 154 million from last year, but down 35 million bu from trade expectations. We calculate the second quarter corn feed/residual at 1,385 million bu. This compared to 1,429 last year or down 44 million bu or 3%.

Amid the sizeable US corn export program that is underway, US 2021/22 corn stocks are tightening and could dip near 1,050-1,100 million bu. This would raise the upside price target for either May or July corn futures closer to $8.00.

US March 1 soybean stocks were 1,931 million bu, up 369 million from last year. The average trade estimate called for US March 1 soybean stocks of 1,893 million bu, so the actual estimate was 38 million more. We calculate the second quarter residual at -21 million bu vs -57 million last year. The slower export program is the culprit in US March 1 soybean stocks gain. The stocks report is slightly bearish which could pressure July soybeans to $15.50-15.75 support.

US March 1 wheat stocks were 1,025 million bu, down a hefty 286 million from last year, and down 39 million from trade expectations. The larger fall is related to greater feed use. We look for WASDE to adjust its 2021/22 US wheat feeding estimate up by 15-20 million bu. US March 1 wheat end stocks are the smallest in well over a decade which mandates a large 2022 harvest. We maintain that December KC wheat should not fall too far below $10.00.

Grain markets are outright bullish with corn to be the upside leader in new crop as US 2022/23 corn end stocks fall well below 1,000 million bu. Wheat follows with the drought in the Plains gaining in market importance. Traders understand March 1 seeding surveys were only intentions and not the final figure that will be released in June. Favourable weather could allow Midwest farmers to seed another 1-2 million acres of corn at the expense of soy. The key point is that total US cropped acres is not expanding which places additional importance on 2022 yield. Do not turn bearish on soybeans on this report amid record large oilseed demand. Stay bullish grains.

30 March 2022

Posted on March 30, 2022 by simon

HEADLINES: Chicago races higher to add back war premium ahead of the USDA stocks/seeding report; China active booking US soybeans.

War on/War off — Today the war is on.

Putin continues to send rocket bombardments into Ukraine and shows no willingness to slow or shift Russia’s military action, contrary to all the talk on Tuesday. The peace talks have broken down and most sources doubt that either president will be willing to speak face-to-face as trust has been lost. Chicago is adding back the war premium that was extracted yesterday on almost a 1:1 basis ahead of the NASS Stocks/Seeding report on Thursday. Putin and the Russians appear resolute in turning Ukraine into a pile of rubble with troops unable to take much Ukraine ground amid fierce fighting and the flow of NATO member military aid to Ukrainian troops. The war is a stalemate except for the structural loss that is produced by Russia’s artillery.

Chicago grain futures are sharply higher at midday on the addition of war premium. The Ukraine spring planting season has started. And increasingly, Russia is taking aim on energy and export facilities that will cripple the county’s economy for months to come. Russia is taking a long view of the war.

Chicago brokers estimates that managed money has bought 9,300 contracts of corn, 7,600 contracts of soybeans, and 4,300 contracts of wheat. In the soy products, funds have bought 3,200 contracts of soyoil and 2,900 soymeal.

The USDA reported the sale of 128,000 mt of soybeans to Mexico this morning. There are also rumours that China has booked 8-12 cargoes of US soybeans for both old and new crop on the break. Private Chinese buyers may have also secured a few cargoes of US corn as import margins returned. Private Chinese buyers are the ones that were stuck in cancelled Ukraine contracts that amounted to more than 6 million mt. The Chicago break stimulated Chinese interest. Additional buying will step forward on any bearish USDA reaction Thursday.

Questions abound on Ukraine infrastructure and how quickly that damaged ports could come back online. Commercial sources are rather downbeat on Ukraine being able to return as a significant importer until a new crop position. The Odessa port endured considerable damage last week and some fear that it could take 6-12 months of repair to bring any of the loaders or grain storage back online. And the fear remains that Russia could target the port again in the future which could render it useless. Ukraine can only rail 600,000 mt of grain per month to the west. Ocean ports are out of action for months.

And mines continue to complicate shipping in the Black Sea with few wanting to insure cargoes in a war zone. If a mine downed a ship in Turkey’s Bosporus it would take months to remove and snarl Black Sea shipments. The Russian war is causing new complications for Black Sea energy, grain, or metal transit. This adds another layer of angst for importers and users that are looking to others for their needed supply.

The midday GFS weather forecast is consistent. Limited rains are forecast for the Western Plains with 2 systems producing 0.5-2.50” for the E Plains and the Midwest. A secondary shift of cold air drops southward into the Plains during the 11–15-day period with Plains dryness maintained.

The Russian war is back on in full force as the latest peace attempt failed. The lack of trust and ongoing Russian bombardment of Ukraine will make it difficult for any member of NATO to drop sanctions if Putin is the Russian President. The USDA Stocks/Seeding Report is less than 24 hours away and position squaring will be featured into Thursday. However, with the war back on it makes it difficult to sustain any lasting bearish trend heading into a new Northern Hemisphere growing season. We hold to a bullish outlook on Chicago with the weather risks growing as Ukraine farmers struggle to seed spring crops. The duration of the war is a key price price driver.

29 March 2022

Posted on March 29, 2022 by simon

HEADLINES: Chicago lower on “constructive peace talks between Russia/Ukraine; Headline war risk returns; China buying US soybeans.

Chicago grain futures are sharply lower at midday on the news that Russian and Ukrainian negotiators called Tuesday’s face-to-face discussions “constructive”. Although the media reports that both sides are far apart on a peace accord/cease fire, the markets sold off sharply on the positive undertones that are initially being reported. World financial markets are extremely sensitive to headlines and the news this morning was that both sides saw each other’s demands for a peace accord as constructive.

However, although the Turkey Peace Talks are being characterised as positive, it is the details that will produce snags. The Russians will not give up the Ukraine real estate captured, and Ukraine will be unwilling to cede Crimea or large areas of the Donbass. Ukraine can state that it will not become a NATO member but remember that Putin in a mid-March Moscow speech stated that the Russian special operations was to cleanse Ukraine of the Neo-Nazi’s and those aligned with the western world. Putin is unlikely to relent this easily.

And remember that Russia sees the western media as its own propaganda. It was the first peace talks that Russian Foreign Minister Lavrov indicated that considerable progress had been scored before the entire process broke down. Our point is that a peace accord won’t be completed until its signed and the ink is dry. Like the rest of the world, we hope this war ends today, but the odds of that occurring are low in our considered view. And Russia does not want to make it look like economic sanctions pushed them to accept a Ukraine deal that does not include significant landmass of Ukraine, especially Odessa and the Black Sea Coastline. And Ukraine does not want to cede its sovereignty or much territory.

If the talks break down or stumble, Chicago will have a dramatic reflex rally as the market adds back war premium. As we have been warning, this is about trading headlines. However, if peace talks do not make progress in the next 3-4 weeks, the impact on Ukraine spring corn seeding will be one of devastation. Russia is not relenting on its firing of rockets and other bombardments into Ukraine. The time is now for farmers to plant. However, their employees have left, which along with low levels of fuel and parts produces many questions on 2022 Ukraine seeding potential. There is only one spring planting chance.

US exporters report that China has been active booking US soybeans in the past few days both in new and old crop positions. The break has enticed China to come back with crush margins in the green. China is rumoured to have bought more than 9-12 cargoes of US and Brazilian soybean cargoes in the past 36 hours. China is asking for bids and new demand is being worked.

New investment will return into commodities in the second quarter due to worsening inflation. The long commodity/short equity trade should come back in vogue following the USDA March Stocks/Seeding Report with a new Northern Hemisphere growing season ahead. The risk vs. reward has shifted back to the bulls. And the US$ has scored a significant high and is forecast to weaken.

The midday GFS weather forecast is consistent. Limited rains are forecast for the Western Plains with 2 systems producing 0.5-2.50” for the E Plains and the Midwest. A broad ridge/Trough pattern forms during the 11-15 day period with dryness being maintained across the Plains.

We have been surprised that Chicago wheat futures did not fall limit with corn futures in the morning trade We hope, but doubt, that Russia/Ukraine will reach a peace accord. Following Thursday’s USDA report, Chicago is likely to see risk on trade return. Managed money has sold 6,000 wheat, 25,000 corn, and 12,400 contracts of soybeans. A new growing season with record fertiliser prices provides more yield questions than answers.

28 March 2022

Posted on March 28, 2022 by simon

HEADLINES: War premium comes off on Ukraine/Russia peace talks; US weekly exports disappoint on corn/wheat; China back buying us soybeans.

Chicago futures are sharply lower at midday in a macro market/risk off decline based on the coming NASS Stocks/Seeding Report on Thursday and the acute selling in energies. Russian and Ukraine negotiators are meeting face-to-face in Turkey to see if they can achieve a cease fire/peace accord. It appears that Ukrainian President Zelensky will be willing to cede some of E Ukraine as part of the bartering process, which has offered some hope.

However, the Russian negotiating position is unknown, but what became apparent on the weekend is that Russia does not have a military might to contain or manage Ukraine. This skewed the Russians to focus on the Donbass, rather than entirety of Ukraine. This has also raised hope that Ukraine spring plantings could push ahead in C and W Ukraine. Last week, it was war on, this week with cease fire negotiations underway, it is less certain.

Chicago brokers estimate that have sold 4,000 contracts of wheat, 5,100 contracts of corn, and 7,300 contracts of soybeans. In the soy products, funds have sold 4,500 contracts of soymeal and 5,200 contracts of soyoil. Funds have been risk off in their positioning heading into the end of the month and quarter.

The USDA/FAS announced that 127,920 mt of corn was sold to an unknown buyer (rumoured to be either S Korea or Japan), and 132,000 mt of old crop soybeans to China. We hear this morning that China has been active in booking both old and new crop US soybeans on the break. China is short bought on soybeans and willing to use sharp down days to extend their forward coverage.

Asian sources indicate that China will be auctioning off 500,000 mt of soybeans from its reserves over the next 7 weeks for a total of 3.5 million mt. The auctions are to help boost domestic supplies. China has 120 days to replace the soybean reserves and will likely look to new crop with the July/November soybean spread trading outwards to $1.81/bu premium. China is active in securing US soybeans amid the S American shortfall due to drought.

US export inspections for the week ending March 24 were 63.2 million bu of corn, 23.1 million bu of soybeans, and 12.5 million bu of wheat. The corn and wheat export totals continue to lag trade expectations considering the Black Sea demand shift. For their respective crop years to date, US corn exports stand at 1,142 million bu (down 196 million or 15%), soybean exports are 1,596 million bu (down 398 million or 20%), with US wheat exports at 621 million bu (down 126 million or 17%). The Chicago markets were expecting larger export demand amid the Russian war, which has yet to materialise in any sustained way. Most importers are finding supply elsewhere or using their own stores to make it to the next crop cycle. Therefore, the Brazilian winter corn crop and Northern Hemisphere weather will be highly important in the weeks ahead.

The midday GFS weather forecast is consistent with the overnight run. The change in the forecast is that the W Plains will see limited rains over the next 10 days which will add to their drought concern. The remainder of the Midwest/Delta/E Plains will see near to above normal rainfall and variable temperatures. Highs will range from the 40’s to the lower 70’s. The Northern and Western Plains will endure a deepening drought, but the Delta will endure too much rain. Several storm systems are forecast to produce 10-day rainfall of 2.50-5.00”. This rain will cause early corn seeding to be slow/behind normal seeding dates. The Delta demands warmer/drier weather to facilitate spring seeding.

The coming mixture of war politics and weather will raise Chicago volatility in the weeks ahead. We have doubts that a peace accord can be reached nearby. Rockets that are hitting Kiev that does not indicate that Russia is shifting their war effort to the east. We would not advise new spec grain positions ahead of the USDA Report on Thursday. However, we believe that post the report, end users and importers will both be looking to secure any Chicago weakness. Look for choppy trade into Thursday.

25 March 2022

Posted on March 25, 2022 by simon

HEADLINES: Crude oil rally spurs a Chicago bounce; Plains weather too dry for HRW wheat; China to sell 3-3.5 million mt of reserve soybeans?

Chicago futures are mixed to slightly higher at midday with volume in retreat. The uncertainty surrounding the war (Ukraine/Russian) along with the coming USDA crop report next week has produced back and forth trade. Amid limited fresh fundamental news, the market is marking time, awaiting improved world demand for wheat/corn (due to Black Sea losses) and understanding the Brazilian and N American weather patterns during April. Brazilian farmers report fancy winter corn crop yield potential with the right mix of weather conditions into mid-May. Chicago values are about flow and when crude oil rallies, so do the bio crops of corn/soyoil. We look for a mixed close with few wanting to add to their risk profile heading into the weekend.

Chicago brokers estimate that have bought 1,200 contracts of wheat, 4,300 contracts of corn, and 3,300 contracts of soybeans. In the soy products, funds have bought 4,100 contracts of soymeal while selling 1,200 contracts of soymeal. The meal trade was very active in the first 10 minutes of the day with fund flows all being on the buy side. Chicago lacks any concerted selling outside of profit taking.

Asian traders report that China is considering the release of 3-3.5 million mt of soybeans from their reserve due to domestic shortages and soaring soy product prices. Chinese crushers have been behind the curve in making forward purchases due to rising prices amid the 2022 S American drought. China will release the soybeans weekly with totals said to range from 400-500,000 mt. If approved, the Chinese soybean release could continue into June. We note that the soybeans must be replaced in 120 days, which translates into additional new crop buying from the US.

S American corn premiums are weaker this morning with Argentine values down another 3-5 cents/bu. The premium leakage and cheapness of S American corn will cut into US corn export demand from June onward. June Argentine fob corn is said to be trading at $0.71 over with July at $0.56/bu over. This compares with the US Gulf at $1.60 over for June and $1.45 over for July. US corn is lacking competitiveness which will tug US corn export estimates lower. If Mother Nature cooperates, Brazil should have an additional 14-19 million mt of corn from their winter corn crop to harvest this year which partially helps to plug the hole from Ukraine’s absence via the Russian war.

March 1 grain stocks will be the big driver on Thursday’s NASS Stocks/Seeding report. NASS stocks estimates have been impossible to forecast in recent years, and we fear that this trend continues. The loss or finding 100-200 million bu of corn and 20-40 million bu of soybeans is a big deal with 2021/22 US end stocks projected to be historically tight. US seeding estimates change into June.

The midday GFS weather forecast is consistent with the overnight run. The change in the forecast is that the Plains will see limited rainfall for the next 10 days which will add to their drought concern. The remainder of the Midwest/Delta will see near to below normal rainfall and variable temperatures. Highs will range from the 40’s to the lower 70’s. The drier weather and variable temperatures will allow Midwest fields to dry and isolated fieldwork to begin in early April. The Plains drought is a worry.

It is more of the same, Chicago breaks and rallies are unable to be sustained. S American corn/soymeal are leaking lower, and fresh US corn/wheat export demand is difficult to find. As seed starts to be planted across the US, Ukraine, Europe and China, the market will start to pay close attention to each new weather forecast. Chicago values are at historically high prices and looking for a fresh fundamental spark. Longer term our view stays bullish, but a break into the Northern Hemisphere planting season is likely.

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

Weekend summary 25 March 2022

24 March 2022

Posted on March 24, 2022 by simon

HEADLINES: Slowing investor demand for Chicago grains sparks correction; Questions on Black Sea demand Shifts to US; Central US weather cool/wet.

Chicago futures are mostly lower at midday with the fund flow of new buying diminished from prior days. Funds have been large buyers of corn/soybeans and soyoil in recent days, but that demand is showing signs of tiring. And cash wheat/meal values are weaker on cash market pressure. Brazilian soymeal basis has dropped as crush rates are being amped up while Russia continues to leak wheat into the Mideast and North African markets. We look for a weak Chicago close into the weekend, with a continuation of the war, no longer being a big surprise for Sunday’s opening. Short term, it is all about adjusting risk ahead of the USDA report next week Thursday.

Chicago brokers estimate that funds sold 2,200 contracts of wheat, 7,300 contracts of corn, and 2,800 contracts of soybeans. In the soy products, funds have sold 3,500 contracts of soyoil while buying 1,900 contracts of soymeal. For the first time since late last week, funds are on the sell side of the marketplace. We suspect that much of the selling is related to profit taking ahead of the USDA March Stocks/Seeding report and need to bank profits before the end of the quarter.

USDA weekly export sales for the week ending March 17 were 5.7 million bu of wheat, 38.9 million bu of corn, and 15.1 million bu of soybeans. The sales were down from prior weeks and has some wondering about the transition of unfulfilled demand from the Russian war. Are importers hoping for lower prices or have they shifted their demand to others including India in wheat and Brazil in corn. China is active in securing US soybeans, but S American is far cheaper in corn beyond late June.

Central US weather will grow in market importance in the weeks ahead. This week’s 0.5-2.00” of rain across the Plains and Midwest/Delta has helped restore lost soil moisture, but the dryness is far from solved. Initial NASS wheat crop condition ratings will be released on April 4 and are expected to show the drought that built across the area this winter. 2022/23 US corn, soybean and wheat balance sheets have no room for weather/yield error and the focus on Central US, European and Chinese weather will be acute.

US rail logistics are a mess and car costs are near record high at $2,600-3,000. The cost side of transporting grain is soaring whether it is truck, rail, or ocean freight. Diesel prices are priced at $5.00 across much of the Central US. If a grain filled truck is getting 5 mpg, that works out to $1.00 for every mile travelled. And because of the high costs of diesel, companies have pushed to utilise more rail. That is causing car shortages and soaring rail costs. And yes, even barge demand is soaring. The point is that the cost to get grain on a Gulf vessel is record high, and still rising.

Cash rumours abound that Brazil is selling Spain corn upwards of 400,000 mt for April/May. Brazil is trying to push some of its first crop corn out the door amid a winter crop looking so favourable. And the Brazilian Real is expected to keep rising against the US$ which is pushing farmers to sell. We have been commenting about the big price discounts of S American corn beyond June. The US corn export window is relegated to April-May and June.

The midday GFS weather forecast is consistent with the overnight run. The Central Plains, Midwest and Delta will be open to wet/cool air with a regular flow of moderate to heavy showers projected into April 3. The next chance of widespread/meaningful precipitation occurs next Wed-Friday.

Chicago futures are lower on profit taking with traders questioning whether unfilled Black Sea grain demand will be pushed to the US. The weekly US export sales pace along with this week’s less than expected demand (China soybean demand excluded) has left the bulls without a story to push corn above $7.75, last year’s high. We look for choppiness into next Thursday’s report.

23 March 2022

Posted on March 23, 2022 by simon

HEADLINES: Soy complex leads morning rally; Crude stays firm amid tightening US stocks.

Chicago futures are mixed at midday with wheat in the red and row crops steady to higher amid surging global crude prices. Breaking news is absent, FAS failed to report new US export demand, but every day that conflict continues in Ukraine is another day of potential major infrastructure damage/disruption, while energy markets in the Western Hemisphere are beginning to exclude Russian supplies from balance sheets. Spot WTI crude at midday is up $5.50/barrel at $115 and the US crude market will find support based on its own tightening supplies. Volume in Chicago wheat remains somewhat weak.

The soy complex has been the leader on Wednesday as the Canadian canola markets scores a new all-time high. Spot Paris rapeseed is down €35/mt on profit taking, but only after reaching €1,022/mt ($1,124/mt, vs. spot Chicago soybeans at $631, nearly an 80% premium). Additionally, while S American corn fob basis retreats, Brazilian fob soy basis remains firm at $1.70-1.80, level money with US Gulf soy offers. Brazilian soy exports will be accelerating in the Apr-Jul period, but importers will continue to piecemeal demand needs with US origin indefinitely.

Spot cotton, too, has reached newer highs at $1.31/lb. Dec cotton this morning sits at $1.09, a new contract high. Along with rising oat and rapeseed prices, finding enough arable land globally to alleviate balance sheets will be impossible in the 2022/23 crop year. But it is each crop’s share of the pie in the US that remains difficult to forecast, which elevates near-term market risk ahead of and just after next week’s stocks and seedings release.

Weekly EIA energy data this morning leans broadly supportive, with ethanol production through the week ending March 18 totalled 306 million gallons, vs. 302 million the previous week and slightly above the pace needed to meet the USDA’s forecast. US ethanol stocks continue to build, and at 1,098 million gallons are record large for mid-March. However, gasoline use/miles driven will begin its seasonal rise in late spring. Brazilian ethanol prices have rallied sharply in the last 10 days. Improved US ethanol export demand lies ahead. A rapid drawdown in current lofty US ethanol stocks is due in spring and summer.

US crude stocks less strategic reserve on March 10 totalled 413 million barrels, vs. 416 million the prior week and down a sizable 18% from last year. There is no doubt conflict premium is built into WTI futures, but it is just tough to be bearish energy until there is confirmation that production can exceed consumption on a lasting basis. This confirmation is not available today.

APK Inform, a widely followed Black Sea news source, has estimated 2022/23 Ukrainian corn exports at 19 million mt, vs. pre-war 2021/22 estimates of 33-34 million.

New crop wheat exports are projected at 10 million mt, vs. 20 million in 2021/22. APK Inform knows no more than the rest of the trade, but the reality of Black Sea surplus availability will stay priority number one in determining fair value in the long run. Expect additional and wide-ranging Ukrainian crop/export estimates in the weeks ahead. There is hope that real clarity emerges by June.

The midday GFS weather forecast is again consistent with the morning run. The eastern Plains, Midwest and Delta will be open to wet/cool air, with a steady flow of moderate to heavy showers projected into April 1. The next chance of widespread/meaningful precipitation occurs next Wed-Fri. Accumulation of 1-3” will favour E KS E NE, IA, MI and much of IL.

The outlook stays bullish, but markets today exist near fair value with what is known today (old crop export disruptions) in the Black Sea region. NASS stocks/seedings data will provide a benchmark from which to measure the need for short, and long-term supply rationing.

22 March 2022

Posted on March 22, 2022 by simon

HEADLINES: Old crop corn/wheat retreat on profit taking; Brazil to lower biodiesel blend rate to B6 or B7 from B10; Egypt buys vegoils.

Chicago futures are mixed at midday with old crop corn and Chicago wheat lower while soybeans, soyoil and new crop corn hold in the green. The volume of trade has been better than prior days with profit taking noted from the managed money crowd. The end of the quarter and month looms along with an all-important USDA March Seeding and Stocks report. This has slowed the fund buying (compared to Monday) and caused profit taking in the front end of corn, soymeal, and wheat futures markets. Also, traders are preparing for a slowdown in the US corn, soybean, and wheat export sales pace on Thursday vs. recent weeks. The market tone in Chicago is mixed with bear spreading active in corn as Chinese corn demand has not stepped forward on their Ukraine corn shortfall/cancelations due to the ongoing Russian war. Fund managers are moving their long positions backwards to participate in an extended bull market should the Russian war persist, causing a disruption to spring Ukraine grain seeding.

Chicago brokers estimate that funds have sold 3,000 contracts of wheat, 7,000 contracts of corn, and 3,400 contracts of soymeal. Managed money has been buyers of 3,500 contracts of soyoil and 2,300 contracts of soybeans.

There are export rumours that Egypt has been a large buyer of optional origin vegoil in their last tender to the tune of 60-80,000 mt. Food security concerns may have fuelled the large oil purchase, but few exporters are willing to say whether the vegoil is US or S American soyoil. The market will be watching for a FAS sales announcement on Wednesday should any of the soyoil be supplied by the US.

And rumours in Brazil that they could move next week from B10 biodiesel blend to B6 or B7. The high price of soyoil within Brazil and need by the world market for vegoils could facilitate the biodiesel blending downgrade. We note that Brazil also dropped their import tax on ethanol to 0% from 10% starting in April. The lower ethanol import tax is not expected to produce much change for US exports nearby, but the tax reduction will be important from August onward. Brazil’s sugar harvest is ongoing and domestic ethanol supplies are adequate, but they will become exceptionally short by August. The lower tax will support US corn ethanol grind rates from August into January.

FAS/USDA announced that 240,000 mt of US soybeans were sold to an unknown destination, likely China. This was the first new sale to China in 5 days. China remains historically short on their forward soybean coverage into August.

The midday GFS weather forecast is like the overnight run with another chance of Plains rain during the middle of next week with moisture totals estimated in a range of 0.25-1.50” for OK, KS and NE. The upper air flow pattern is open and shows no evidence of a blocking pattern which should offer rain chances every 4-6 days for the Plains and the Midwest. There is a chance that several areas of the Delta will become too wet for spring grain seeding, but soil moisture restoration is underway elsewhere. The first half of April weather pattern appears normal for the Central US which will favour a timely start for the seeding of US summer row crops.

Chicago grain futures are at historical highs for late March, heading into the end of the quarter and a major USDA crop report. Look for the bulls to bank profits on rallies while end users will be slow to buy dips hoping that US farmers will seed fencerow to fencerow amid full margins. US March 1 corn stocks will be above last year, which means that China or other Ukraine corn buyers need to shift more of their demand to the US if Chicago corn is to rally above last year’s high at $7.75. Brazil is becoming more aggressive in offering new crop corn at sizeable discounts to the US Gulf. We hold a sideways/range bound view heading into April.

21 March 2022

Posted on March 21, 2022 by simon

HEADLINES: New contract highs in December corn futures; Fund flow Monday, fundamentals little changed from Friday; Turnaround Tuesday?

Chicago midday futures are sharply higher as the Russian war against Ukraine rages on. Recall our comment of last week, War on/War off, today it is “war on” with few expecting that diplomats negotiating a cease fire/peace accord can score progress this week. Chicago is adding premium to price awaiting new war headlines.

We note that forecasting war headlines is impossible which has caused a large share of the Chicago volume decline. Few have profited from chasing rallies or breaks, and the expanding volatility of the market is causing traders to retreat to smaller positions, or just not trading at all. We understand the difficulty in trying to trade war headlines.

The best war barometer is the US/world stock markets, and they are holding a strong rally that started early last week. Is the stock market suggesting that peace accord progress has occurred or that the war will not have a lasting bearish impact on world economic growth? US/world stock market values should be sharply lower if there was any sense that Putin’s war against Ukraine will be lengthy. Few have any idea on the length of Russia’s war aggression.

Today is a “flow Monday” with buying emerging in Chicago in the first 10 minutes of the day. We see no appreciable change in fundamentals that would argue that Chicago corn, soybeans and wheat need to be substantially higher than Friday’s close. The problem is that when funds want grains, there are no resting sell orders on the other side of the trade, which causes the running bull market.

Chicago brokers estimate that funds have bought 5,000 contracts of wheat, 9,000 contracts of corn, and 6,400 contracts of soybeans. In soy products, funds have bought 1,200 contracts of soymeal and 3,600 contracts of soyoil.

US export inspections for the week ending March 17 were; 57.7 million bu of corn, 20.0 million bu of soybeans, and 12.1 million bu of wheat. The exports of all three were less than expected. And for their respective crop years to date, the US has shipped out 1,078 million bu of corn (down 190 million or 15%), 1,570 million bu of soybeans (down 407 million or 20%), and 608 million bu of wheat (down 128 million or 17%). The US soybean export pace is catching up with last year, while wheat stays disappointing.

There is growing talk about how the US rail lines are struggling with car placement, velocity, and placement to move ag products/grain. Car wait times are rising and congestion is becoming worrisome. Whether this will impact grain/ethanol movement and rising spring planting inputs need is be closely monitored. Truck transit is costly with demand shifting to the rail.

The midday GFS weather forecast is wetter for the Eastern Plains and the Western Midwest than the overnight run with 0.5-2.00” of rainfall. The rain also pushes further west into the W Plains which would aid HRW wheat. The upper air flow pattern is open with fresh rounds of showers/storms to impact the Plains and the Midwest in April. We see no evidence of a blocking pattern which should increase rainfall chances for the Central US into mid-April. Warming temperatures and seasonal rainfall would aid drought stressed HRW wheat.

Today’s fund flows are strongly on the buy side due to the raging Russian war. Note that Chicago volume totals are low, and that resting orders are minimal or absent. US planting weather will become important following the March 31 Stocks/Seeding report. Total US farmed acres will be closely watched, with corn to likely gain on margin against soybeans. We fear a bearish surprise in US corn and a bullish surprise in soybean seedings. US export sales totals have been slow since late last week as end users have “altitude sickness”. This is no place to chase a rally.

18 March 2022

Posted on March 18, 2022 by simon

HEADLINES: Risk off ahead of weekend; Plains rainfall shifted slightly northward.

Global ag markets have been weaker by varying degrees today, with very few in the trade wanting to establish new positions. This is in part due to nearly unmanageable volatility and also due to unknowable weekend headlines in the Black Sea. FAS failed to announce any new US export sales this morning, while the trade awaits the impact of next week’s precipitation across the Southern Plains, and the winter wheat crop’s reaction to increased topsoil moisture. As of this writing, volume in May corn sits at a paltry 52,000 contracts, with just 46,000 contracts of May Chicago soybeans changing hands. We reiterate that price moves will be exacerbated by the lack of activity.

US President Biden’s 2-hour meeting with Chinese President Xi this morning focused on the need for peace in Ukraine. China, and others, want global economic stability, but questions linger as to China’s role in the Black Sea conflict moving forward. There is no indication that US-China trade was discussed, but interaction between US and Chinese officials offer a new layer of geopolitical risk. 2022 will be a unique/historic year in global grain and oilseed markets, but for now new speculative positions are not advised.

Spot Paris milling wheat looks to settled €5.50/mt ($0.12/bu) lower. The spot European corn market has also been surprisingly weak in recent days, with the widespread culling of animals a fear due to extremely tight feed supplies there. WTI crude is up $1.10/barrel at $104.

Other breaking news is lacking. Choppy and volatile trading is most probable into the release of NASS’s seeding intentions and March 1 stocks data, which is now less than two weeks away. Following historic soybean yield loss in S America and the loss of Black Sea grain surpluses into at least early spring, even modest changes to perceived US supply and demand will have an incredibly outsized impact on daily/weekly price determination. We look for US seeded area to be maximised, but how the pie is split between major crops is less certain. Spot cotton has soared to $1.27/bb this week, which along with elevated spring wheat, oats, corn, sorghum and soy prices make projected US new crop acreage with any precision somewhat difficult. Volatility will be heightened further as Northern Hemisphere becomes more important very soon after the release of NASS stocks/seedings data.

Yet, the biggest risk to global grain supply and demand in the long run is whether Black Sea exports are allowed to resume in the second half of 2022. This can be neither proven nor disproven at present, but if conflict there persists, even record N Hemisphere production will fail to match total world import demand. The importance of Ukrainian corn crop size in 2022, specifically, cannot be overstated.

The midday GFS weather forecast is further north with Plains rainfall early next week. Needed totals of 1-2” are still forecast in KS, NE and IA, but all of OK and TX will see little/no precipitation assuming the GFS forecast verifies. HRW production is heavily concentrated in the TX/OK panhandles, and amid the return of Plains dryness in the 6-15 day period, the midday GFS forecast is viewed as moderately supportive. Very close attention will be paid to actual amounts and coverage across the Plains next Mon-Wed. Otherwise, heavy rainfall will linger across the Midwest and Delta throughout the next 5-6 days. Precipitation accumulation upward of 2-4” will favour AR, TN, KY and portions of IL and IN.

It will be increasingly difficult to see the forest for the trees as war/weather premium is added and subtracted on a near daily basis. However, global grain and oilseed stocks will be untenably tight without record N Hemisphere production this summer and trend yields in S America next Dec-Feb. Spring/summer supply coverage is still advised on price corrections.