Monthly Archives: August 2022

31 August 2022

Posted on August 31, 2022 by simon

• HEADLINES: Corn sags on inter-commodity spread unwind and talk of better yields; Weekly US ethanol production sags; GFS weather forecast midday wetter for C and E Midwest.

• Chicago grain futures are mixed at midday in thinning volume. Soybeans/wheat futures have been able to bounce on inter commodity spread unwinding. Long corn/wheat and corn/soybean spreads are being exited ahead of the long holiday weekend with debate raging as to what NASS will release in its September Crop Report. There seems to be little debate that US soybean yield could be trend or above at 51.5-52.0 bushels/acre, but it is the varied corn crop in the W Midwest and Plains is causing less certainty on the final size of the US crop.

• The bears argue that Pro Farmer’s yield was too low while the bulls point to its correctness and need for a demand rationing rally. Many sees the US corn yield in a range of 171-174 bushels/acre, down from August but not as dire as Pro Farmer. NASS will be the judge and jury on private corn yield estimates that range from 167-175 bushels/acre, a wide variance of opinions. USDA/NASS will be out with their next Crop Report on Monday September 12. Please note that small grains yield/production will not be updated until the September 30 report. Thus, production chances in wheat/barley and oats will have to wait until the Oct WASDE report to be included in the balance sheet.

• Chicago brokers estimate that funds have bought 4,400 contracts of wheat while selling 2,300 contracts of soybeans and 3,600 contracts of corn. Soy product trade has featured sales of 3,400 contracts of soymeal and buying of 4,500 contracts of soyoil. It has been a very mixed morning.

• The USDA announced the sale of 167,000 mt of US soybeans to China which helps confirm the business that was rumoured on Monday. China has been active in recent days in securing February forward Brazilian soybeans.

• EIA reported that 285 million gallons of ethanol was produced last week, down 5 million gallons from the week prior, but up 7% from last year. To reach the USDA annual grind forecast, the US needs to average 290 million gallons/week or 41.4 million gallons/day. It will be close, but the data suggests that USDA’s 2021/22 corn ethanol grind could be off by 10-20 million bu. Note that plants often take maintenance before the onset of harvest with a ramp up in production starting by late September. The fall from old to new crop cash basis levels will pad already profitable grind margins

• August exports of Ukraine grain are nearly completed with the ag ministry estimating monthly shipments of 763,000 mt of wheat, 1.33 million mt of corn and 161,000 mt of barley. Total grain exports are pegged at 2.25 million mt.

• The midday GFS weather forecast is wetter as a plume of Gulf moisture is lifted northeast from the Plains into the Central Midwest after September 6. Rainfall of 0.25-1.50” would drop across the S and C Plains which includes Missouri, and Illinois/Indiana. The N Plains and the far W Midwest stay dry.  Midwest high temperatures will range from the 70’s to the upper 80’s. The extended period of warm/dry weather will push crop maturity with tropical activity picking up in the E Pacific. The GFS forecast has a tropical system impacting the Baja, Mexico from September 7-9. The moisture from this storm heads eastward also.

• Chicago will not be able to shed its concern over a US or world recession anytime soon. This will limit managed money investment following the September NASS crop report. We would see March soybean futures at $14.50-14.70 as a favourable sales level should prices recover there.  We hear that early cutting of Gulf State corn is finding aflatoxin in corn and sprouting soybeans. A barge traded this morning at a cheap discount due to hot spots created by excessive seed moisture.  Wheat prices are rising on fund short covering and bullish chart patterns. We expect that a nearing harvest  pressures corn in early September.

30 August 2022

Posted on August 30, 2022 by simon

• HEADLINES: Bearish macro-economic fears pull Chicago values lower; Ukraine ag minister hopes to double exports in October; GFS weather forecast dry.

• Midday Chicago grain/soy futures are lower with soybeans finding consumptive demand under $14.10 November. Corn/wheat futures are sagging on profit taking amid the macro-economic weakness across a host of financial markets. Rising US/world interest rates will cause a contraction in a host of asset valuations with hedge fund managers being extremely cautious with new investments until after the next FMOC meeting on Sept 20-21. Until then, fund managers will look to sell commodity rallies based on the prospect of a 0.75% interest rate hike. US Central Bank Chairman Powell was resolute in his call to break the back of inflationary expectations with US interest rates staying higher for longer. This dramatically increased the chance for a US recession in 2023.

• Commodity traders are fearful of the potential for softer demand and are unwilling to chase strong rallies. This is a far different economic landscape from recent years, and the cash market must now lead rallies on tightening stocks in the last half of the crop year. It makes more sense to store corn than soybeans amid rising rates and the lack of carry. Brazilian farmers will be active selling March forward soybean futures to lock down heady margins.

• Chicago brokers estimate that funds have sold 3,900 contracts of wheat and 7,300 contracts of corn, and 4,300 contracts of soybeans. In the products, funds have sold 3,400 contracts of soymeal and 2,300 contracts of soyoil.

• The USDA announced the sale of 264,000 mt of US soybeans to unknown destination for 2022/23. The announcement helps confirm that although USDA will not be providing weekly totals, that the daily export sales report still works perfectly fine. Congress called for any seller of more than 100,000 mt to announce sales with 48 hours of completion. The daily report helps provide some comfort that China (other importers) are not making large purchases that are being missed by others.

• The Ukraine Ag minister forecasts that their October grain exports would reach 6-6.5 million mt, double the volume of recent months as 3 SE Ukraine sea ports fully reopen. Such talk is optimistic with the cost of transiting corn/wheat from the interior of Ukraine to port estimated at $4-5.40/bu.  Ukraine farmers are reluctant to pay such huge premium for transit due to war and high fuel costs. This would slow the flow of grain internally.  Also, concern is building that Russia may not want to extend the 120-day grain corridor export pact beyond early November. The Russian military strategy is to wear down the Ukrainians and the world over time. We were surprised that Russia would allow a Ukraine grain export corridor but taking it away as a new corn/sunflower harvest arrived would be depressing.  The outlook for world wheat/corn changes dramatically with or without an export corridor. Its closure would send corn/wheat values on a bullish rampage.

• The Sept/November soybean spread has collapsed from $1.45/bu premium on Friday to $0.83/bu at midday. The day and a half collapse has been sizeable and offers a glimpse of the new crop harvest which will refill the cash pipeline. Delta and S Midwest farmers are working hard to cut beans early to capture the premium.

• The midday GFS weather forecast is little changed from the overnight run with a dryness to prevail for the next 10 days. Temperatures will average near to above normal with the warmest readings in the Plains. Midwest highs will range from the 70’s to the upper 80’s. The extended period of warm/dry weather will push crop maturity with tropical activity picking up in the E Pacific. The GFS forecast has a tropical system impacting the Baja with leftover moisture providing considerable rain for S Texas. Other Gulf States are drier with the harvest expanding.

• It is complex push and pull market with a trading top formed early in the week. Chicago weakness is forecast into midweek. We look for late week rally as traders will not take a position home into a 3-day US holiday weekend. This is not a place to be making new sales. Corn will likely gain on soybeans/wheat. Pre harvest Chicago rallies offer new sales opportunities .

26 August 2022

Posted on August 26, 2022 by simon

• HEADLINES: Chicago rallies on expectation of bullish ProFarmer tour yields; US Central Bank to be at war against inflation for longer.

• Midday Chicago futures are higher with grain/soybeans pushing upwards in an expectation that ProFarmer will come out later today with a low yield estimate following their 4-day tour that concluded yesterday. Rumours have ProFarmer releasing a US corn yield of 172 bushels/acre and a soybean yield of 50.5 bushels/acre. Whether these “whisper” yield estimates are correct is unknown. Some years, ProFarmer releases final US corn/soybean yield estimates that seem disjoined with their actual tour results. The early Chicago rally is due to ProFarmer yield positioning.

• Funds are modest early Chicago buyers with resting orders lacking above or below the market. The lack of resting orders is producing choppiness and a wide swinging market. We see this choppiness continuing as smaller US/world crops battle a rising US$ and slowing economic outlooks. World grain demand is the big unknown going forward, but most would agree that the sharp rise in the US greenback is not helping emerging market demand/use.

• US Chairman Powell indicated that the US Central Bank would remain resolute in their war against inflation, for an extended period…… The US Central Bank hinted that it would raise its fed funds lending rate to 3.5-4.0% by yearend.

• We have concerns that the US Central Bank’s war against inflation will be difficult/lasting and that the US fed funds rate could rise above 4%, and hold heady levels amid wage pressures. Rising US lending rates blunt demand and could tip the US economy into a recession later this year or in early 2023. The US Central Bank’s resolve to push inflation back into their 2% target is unwavering. This will have an adverse impact on US/world grain demand that caps Chicago price rallies. There is no sign that the US Central Bank will lower rates at least into mid-2023. The US DOW is down over 500 points at noon on Chairman Powell’s hawkish Jackson Hole speech as the use of the word “pain” was used twice to describe

• Chicago brokers estimate that funds have bought 3,900 contracts of wheat, 6,700 contracts of corn, and 7,900 contracts of soybeans. In soy products, funds have bought 4,800 contracts of soymeal and 1,900 contracts of soyoil.

• The USDA/FAS confirmed the sale of 146,000 mt of US soybeans to an unknown destination. USDA/FAS has not updated a date/time to correct yesterday’s errant release of the weekly export sales report.

• China is said to have purchased 3-4 cargoes of US soybeans overnight for October/November shipment. China is also active in booking Brazilian soybeans for February-March taking at least 6 cargoes. US exporters suggest that future Chinese demand will slow due to negative spot crush margins. No one seems to know when China will release TRQs that could spark corn demand.

• The December/July corn and the November/July soybean spreads are extremely tight, reflecting a limited return to storage. September futures head into first notice day next Wednesday. Strong cash bids will soon roll over as the new crop harvest nears. Old crop September has been supportive for Chicago. We expect that Dec/July corn and Nov/July soybean spreads will weaken.

• The midday GFS weather forecast 60-hour high resolution NAM model has been the best in forecasting rain from ridge riding storms all summer long. The NAM has a system crossing the W Midwest and producing rain for NE/IA/MN this weekend with rain totals of 0.25-1.50”. The GFS forecast has the system further NE and weaker. Thereafter, an extended period of warm/dry weather follows that should push crop maturity with tropical activity picking up in the Gulf. The forecast has normal rains for the Gulf States, which following rains of 5-10” is welcomed.

• The US Central Bank’s hawkish policy curtails fund buying of commodities. And strong cash bids will fade with the arrival of the new crop harvest. Finally Russian wheat/Ukraine corn offers are exceptionally weak relative to the US Gulf/Brazil northern arc export facilities. We see no fundamental reason why March soybeans should rise above $15.00 or Dec corn above $7.00 pre-harvest.  We see Chicago corn/soybeans/wheat caught in a broad trading range into harvest.

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

Weekend summary 26 August 2022

25 August 2022

Posted on August 25, 2022 by simon

• HEADLINES: Chicago sinks following chaotic US weekly export sales report; Macroeconomics in play on Friday; Wetter midday GFS forecast.

• It has been morning of anxiety/uncertainty with USDA/FAS changing websites to release their weekly export sales report. The initial weekly FAS sales data was delayed, then incorrect data was released, and then corrected at 9:30 local time with supposed correct totals. Chicago grain traders are still untrustful of the data arguing that the US could not have sold 4.7 million mt of new crop soybeans without larger daily sales being reported. Whether it is a mathematical error or incorrect reporting, the US selling a whopping 172 million bu of 2022/23 soybeans all within one week seems odd. US corn/wheat and other grain sales look right, but US new crop soybean export sales are now resting right below the prior record for the third week of August.

• The massive weekly soy sale has the bulls crying that something is wrong as Chicago futures should be sharply higher. However, the explanation is that the big buyer (China/unknown destinations) could have switched purchases on the books of COFCO to Sinograin. Remember that COFCO is a domestic US grain merchant and does not have to report cash purchases until it shifts over to the export category of Sinograin. This means that the 172 million bu of soybeans could have been purchased over weeks/months leading into today.

• The switch is nothing more than a paper shuffle with China having purchased 12.2 million mt of US soybeans (known) with another 5.7 million in the unknown category. We estimate that 70% (4 million mt) of the US unknown soybean sales are to China. This suggests that China has booked 16.2 million mt of US new crop soybeans with another 1 million to be rolled over from old crop with total US soybean sales to China pegged at 17.5 million mt or 60% of China’s estimated US soybean imports in 2022/23 at 29 million mt. Assuming a record large Brazilian soybean crop of 150-154 million mt, China will source most of their soybean imports from S America from late January onward.

• Chicago brokers estimate that funds have sold 1,900 contracts of wheat, 2,600 contracts of corn, and 4,900 contracts of soybeans. In soy products, funds have sold 3,200 contracts of soymeal and 1,200 contracts of soyoil.

• A Ukraine fob corn market has developed with offers well below the US Gulf for shipment in the next several months. Today, Ukraine fob corn is offered at $0.35 over December Chicago for delivery into late October. This is $1.00/bu cheaper than the US Gulf. We note that freight costs via the corridor will be substantially higher, but Ukraine exporters are trying to push out some of their massive old crop corn stocks into the world market. The cheapness of the Ukraine corn offers has some EU importers trying to sell back Brazilian corn purchases. The EU would be the primary market for Ukraine corn on a geographic/logistical perspective. Ukraine corn and the weakness in Brazilian corn basis are the reason for selling in Chicago.

• Cheap Russian wheat and now Ukraine corn fob offers has received the attention major world grain importers. A two-tiered world grain market is developing which could cause a pull/push market in French/US futures markets. Rallies and breaks look to be difficult to sustain with the US harvest ahead.

• US weekly export sales for the week ending August 18 were 15.0 million bu of wheat, 12.6 million bu of old and 6.1 million bu of new crop corn, and 18.5 million bu of old and 172.4 million bu of new crop soybeans. The US sold a massive 190.9 million bu of soybeans last week, one of the largest weeks on record. China and unknown were the big buyers. For their respective crop years to date,  the US has sold 339 million bu of wheat (up 3 million or 1%), 2,412 million bu of old crop corn (down 356 million or 13%), and 2,207 million bu of old crop soybeans (down 77 million or 3%).

• The midday GFS weather forecast is wetter than the overnight run with 0.5-2.50” of rainfall for Iowa/Illinois and the E Midwest into September 4. The rains are further east than when compared to the overnight EU weather model solution. Also, the midday forecast offers additional heavy rainfall for the Gulf corn/soybean harvest which could pose harvest and quality issues. A much more active tropical storm path is forecast across the Atlantic with 3 storms being monitored. Based on the new tropical storm activity looks to be brewing, Central US weather forecasts will be changeable.

• Chicago values formed a trading peak yesterday with the coming harvest to pressure values into mid-September. Black Sea corn/wheat fob offers are weak while Brazilian corn basis is soft. We see corn as being supported on breaks while the start of Brazilian soy seeding in a few weeks caps rallies amid the prospect of a record large harvest. Wheat is caught in between corn and soy. We see a wide-ranging Chicago market without a much of a trend in the coming weeks.

24 August 2022

Posted on August 24, 2022 by simon

• HEADLINES: Chicago retreats after early fund buying; Corn/soy futures fall from chart resistance; Black Sea/ Brazilian corn not following.

• Chicago futures opened sharply higher following the announcement that China had booked over 500,000 mt of US new crop soybeans amid the left-over bullishness from technical/chart-based considerations. December corn and November soybeans tested key resistance at $6.75 and $14.85 before retreating. Futures are well off their highs at midday.

• Traders are awaiting the Jackson Hole Summit with Fed Chairman Powell to speak on Friday. Hawkish comments on future US interest rate hikes in the FED’s battle against inflation are feared. Chicago and a host of financial markets have cast aside worry about a future EU/US recession for now, but the fear is expected to return this autumn. It will be nearly impossible for the EU to avoid a recession given energy shortages. And US home prices fell by their largest amount since 2011 in July. Rising rates and slowing demand are worsening themes for US homebuilders. The outlook for US economic growth is slowing into 2023.

• We have held a generally bullish grain outlook for the past two years on tightening world exporter supplies/stocks. 2022/23 world exporter stock/use ratios rest at record lows, but with Chicago prices elevated, a wide swinging Chicago is expected during the coming harvest. Key longer term will be whether Brazil will be able to harvest a 150 million mt plus soybean crop next January-March.

• Brazilian farmers will start seeding their new soy crop in three weeks with recent rains helping to start rebuilding soil moisture. Brazilian farmers are optimistic for 2023 soybean production since back-to-back droughts are a rarity. Brazil endured its worst drought on record last December/January across Parana, RGDS, MGDS and Paraguay.

• The USDA reported that the US sold 517,000 mt of US soybeans to China for 2022/23. The sale was the largest reported in months (to China) for soybeans to be shipped from October into December. The market took a buy the rumour and sell the fact response with prices falling into midday.

• US weekly ethanol production rose to 290 million gallons, up 1 million gallons from last week and right at the average needed to reach the annual 2021/22 USDA forecast. US gasoline consumption fell 12% to 8.45 million barrels/day. US gasoline consumption continues to sway up and down on a weekly basis. The size of the weekly gasoline increases, and declines are different from prior months and difficult to explain. We do not look for WASDE to alter their prevailing 2021/22 US ethanol grind estimate of 5,350 million bu. We forecast that the US will grind 5,325 million bu in the 2022/23 crop year.

• Chicago brokers estimate that funds have bought 1,200 contracts of wheat, 3,900 contracts of corn, and 900 contracts of soybeans. In soy products, funds have bought 1,400 contracts of soymeal and sold a net 2,900 contracts of oil.

• The midday GFS weather forecast is wetter than the overnight run with 0.5-2.50” of rainfall for Iowa/Illinois and the E Midwest into September 3. The target for heavy rain is Iowa. Starting this weekend, some portion of the Central US will have a chance of daily rain. And the heavy rain across the Gulf States will end in the next 36 hours. The Gulf corn harvest will restart early next week. There is no evidence of any frost/freeze with high temperature s holding in the 70’s to mid-80’s. Late summer growing conditions are adding to US soybean yield potential.

• Chicago values have rallied sharply in recent days. The market likely formed a trading peak with the coming harvest to pressure values into September. Note that Black Sea corn/wheat fob offers are steady to lower for the week while Brazilian corn offers have declined 20-30 cents. The world market has not followed Chicago upwards. We look for a Chicago correction as the US harvest is ahead. The 2022 US soy crop looks to be record large.

23 August 2022

Posted on August 23, 2022 by simon

• HEADLINES: Chicago rallies sharply following day one Pro Farmer estimates; Macro markets lend support; US forecast largely favourable.

• Chicago futures have extended overnight strength slightly as new buying occurred just after the normal opening as the market digests disappointing day one results from Pro Farmer’s tour of the far western and eastern Corn Belt. Tour participants have begun to travel further into the principal Midwest and all eyes will be on the extent of improving potential in IA, IL and IN. Some work even updated crop ratings on Monday continue to indicate a final corn yield of 173-176 and final soy yield of 50.5-52.0, but where actual yields fall within these ranges is highly important given the lack of US and global carryover supplies. Pro Farmer’s yield estimates later this week will be the most important in years.

• Energy markets have also expanded upon overnight strength, with crude up $3.00/barrel at midday.

• US exporters sold two cargoes of soybeans to China, as Chinese interest continue to exist just below the marketplace. China’s hand-to-mouth approach to autumn soy supply coverage has kept excitement at bay, but China’s need to price sizeable tonnage of US origin for Oct-Jan delivery will buoy Nov beans above $13.50-13.70 through harvest.

• Egypt announced it had secured 200,000 mt of Russian origin wheat via direct purchases, rather than tendering for supply. Price details are unavailable, but that Egypt has confidence in the Russian market is important and provides one small piece of the puzzle regarding future Black Sea grain flows. Yet, importers are also still willing to pay large premiums for European origin due to reliability. Very close attention will be paid to military action in Ukraine ahead of Wednesday’s Ukrainian Independence Day, and as the US government urges citizens to leave the country.

• Heavy rainfall since mid-August across much of Southern Brazil will allow soy and first-crop corn seeding to begin there in a timely fashion. Very isolated but needed rainfall 1.5-1.9” has also been recorded in the last 10 days across central Mato Grosso, and we hear that producers will be active in planting the new soy crop once allowed on Sep 15. The timing of soybean seeding in Brazil is critical this year as record production is needed to boost global soy stocks and as annual US soybean exports will be fine-tuned Dec onward based on yield potential there. Brazilian soy acreage expansion remains probable given firm prices.

• The midday GFS weather forecast is drier MN, northern IA and northern IL compared to the morning solution, but it remains that active shower activity returns to the far eastern Plains and Central Midwest Sat-Mon. Accumulation of 1”+ will favour southern IA, MO, and far western IL. Additional rain chances are offered to OK, KS and MO throughout the first half of next week. It is a non-threatening forecast, with still no indication that polar air drops southward into Canada and US Northern Plains prior to Sep 8. The primary question is soybean’s response to late-season rainfall, with pod counts somewhat elevated in IA, IL and large portions of IN. Max temperatures over the next 10 days will exist in the 80s and low 90s across the Plains/W Midwest and in the low/mid-80s across the east.

• Chicago values are adding weather premium as the US yield debate is renewed. Chart patterns look more positive with wheat have recaptures last week’s Black Sea headline-based losses. We would advise against adding to speculative length at current prices ahead of harvest, with new buying advised only on corrections lower.

22 August 2022

Posted on August 22, 2022 by simon

• HEADLINES: China secures 5 cargoes of French wheat; September futures lead the rally on cash strength; GFS weather forecast wetter at noon.

• Chicago grains are higher on talk that China booked 5 cargoes of French wheat while soybeans rally on US soymeal demand amid thinning Argentine fob offers. The hefty premiums paid for US old crop soybeans/corn is underpinning valuations. If corn end users (livestock/ethanol) can make money at $7/bu cash corn on a spot basis today, they will all do very well with new crop bids down $0.80-1.20/bu in several weeks as the harvest starts. The ability of Chicago to hold with sharply lower crude oil/equity prices speaks to the potential that harvest lows have been formed. The question going forward, is can they be retested during the harvest.

• Chicago brokers estimate that funds have bought 5,400 contracts of wheat, 6,400 contracts of soybeans, and 5,500 contracts of corn. In the products, managed money has purchased 3,200 contracts of soymeal and 1,900 contracts of soyoil.

• China is said to have booked at least 5 cargoes of French wheat for November/December delivery, with inquiries out for Australia, Canadian and even US SRW off the PNW Coast. The news has caught funds short and rallied wheat futures to sharp gains. Under a 2001 WTO obligation, China is expected to secure 9 million mt of world wheat in a calendar year.   China has not asked for offers of Russian/Ukraine wheat, which reflects the worry of execution in war torn areas. The Chinese demand has sparked a new round of short covering with KC December to target $9/bu once again.

• Wet weather forecasts for the Gulf States will slow early harvest operations and cause a tightening availability of nearby corn/soy stocks. Crushers and ethanol producers are seeking remaining corn/soybeans to bridge the supply gap to the Midwest new crop harvest in mid-September. And US soybean exports stay active which is adding to the stocks battle. The September/November soybean spread pushed out to 96 cent premium with September/December corn pushing out to a 4 cent premium. Heading into first notice day, strong hands could be seeking deliverable September corn and soybean receipts.

• Ukraine’s Independence Day Celebration is Wednesday. Russia may be planning a robust rocket attack to disrupt any glee and for a payback for the bomb that killed a Russian leader’s daughter on the weekend. Grain markets should be alert to the potential of heightened war activities from Russian midweek.

• US grain export inspections for the week ending August 18t were 29.1 million bu of corn, 25.2 million bu of soybeans, and 21.8 million bu of wheat. For their respective crop years to date, the US has shipped out 165 million bu of wheat (down 46 million or 22%), 2,118 million bu of corn (down 459 million bu or 18%), and 2,057 million bu of soybeans (down 111 million bu or 5%). US old crop soybean exports were stronger than expected with China a noticeable shipper.

• A broad ridge/trough pattern holds across the US for another 2 weeks. The Central US weather forecast is dry this week with the next chance of rain being on Sunday/Monday in the NC Midwest. A ridge riding storm system pushes south producing 0.5-1.50” of rain across MN/IA and N MO. The showers then push NE across WI/MI and N IN with rain totals of 0.25-1.25”. The rest of the Midwest is dry. High temperatures range from the 70’s to the lower 90’s with any heat located across the S Plains. The forecast remains generally favourable except for NE/KS where the drought is set to worsen.

• Chicago values have rallied into the noon hour with China seeking world wheat. And tightness in old crop summer row crop supplies is placing delivery equivalents well above current prices. Look for additional Sept spread tightening into first notice day next week Wednesday. Flat prices should top out early this week and soften into the weekend amid the coming harvest. As the S Midwest harvest starts, premium cash basis bids collapse. But remember that margin for crushers, ethanol grinders and livestock feeders only improve on the futures break. US farmers hold 2022 revenue insurance at $5.89 in December corn and $14.32 basis November soybeans, they will not be big sellers on weakness. This is no place to chase a rally.

19 August 2022

Posted on August 19, 2022 by simon

• HEADLINES: Wheat tries to regain Thursday’s losses; Spot cash corn/soybean bids hold at record highs; GFS forecast wetter for the lake states.

• Chicago grains higher at midday with wheat being the upside leader in lacklustre volume. Corn follows wheat while soybeans trims losses on strong old crop cash market. End users and exporters fight for remaining old crop supply amid a Delta harvest that will be delayed by the coming wet weather conditions. The hope for any early Delta harvest supply is fading amid cool/wet weather.

• Futures are mixed at midday as the market continues to chop in a broad trading range amid the coming harvest (bearish) and future improving demand (biofuel and export that is bullish). Fund managers are covering fresh shorts in wheat, but new export demand is lacking. The Black Sea cash wheat market is closed for the weekend, which has taken away some of the bearishness of declining fob price offers. Wheat fell to sharp losses on Thursday due to declining Ukraine fob offers with Russian offers in tow on harvest supply availability. China has not been an aggressive US soybean buyer in recent days which has helped pressure nearby futures values. Amid the 2022 record large US soybean crop, the onus of higher Chicago price has shifted to demand.   We look for a mixed Chicago close with FSA data and the Pro Farmer Crop Tour determining price trends next week.

• Chicago brokers estimate that funds have bought 3,200 contracts of corn and 5,700 contracts of wheat, while selling 3,900 contracts of soybeans. In soy products, funds have bought 5,300 contracts of soyoil while selling nearly 3,900 contracts of soymeal.

• Old crop cash basis is holding strong, and in some cases still rising, amid exceptionally tight supplies. Central IL soybeans are bid at $2.10 over November with spot corn bid at $0.60 over September. Such basis bids are record high for late August, which strongly suggests that US old crop stocks are less than WASDE is forecasting.

• The massive old crop premiums are pushing Gulf State or Delta farmers to start their new harvest. Unfortunately, the forecasts call for mild/wet weather which will prevent active harvest for another few weeks. If a farmer has any old crop stocks remaining, this is an opportunity to reward a market. Cash basis bids should peak in the next 10 days as the Delta harvest will get underway at some point. The early Midwest corn harvest will start after September 10 according to measurements from recent crop tour data.

• Ukraine fob wheat/corn offers have fallen sharply as the market tries to encourage importers to take the risk of sending vessels into the Black Sea to load. Most offers are for loading in 2-3 weeks with offers at or below $270/fob. Russian 11.5% protein offers have followed to the downside. We note that freight rates have been falling for weeks with values nearing 6 month lows. The fob price decline is the sale of 8 cargoes this week.

• The midday GFS weather forecast is wetter for the Lake States this weekend with totals of0 .5-1.50”. The rains will be timely for C IL/IN and OH. And a pattern of inundating rainfall will be in place through the weekend from the Southern Plains into the Southeast US with cumulative totals estimated at 1-3”. Showers elsewhere will be regional in nature. Temperatures warm to normal/above normal levels by early next week, with highs in the upper 80s/90s resuming across KS, NE, SD, and W IA. The forecast isn’t overly threatening amid the lack of lasting heat. The market will closely watch rain totals for C IL.

• It is a struggle between tight old crop stocks and coming new crop, the weakness in the Black Sea on wheat and the fast wheat export pace of the EU. And the US/world Central Bank raising rates to slowing economic growth. It is premature to chase Chicago rallies or breaks due the lack of any meaningful trend. As a result, we expect that Chicago volume will be subdued into the end of summer. The FSA will release its certified acre data on Monday. We hold to a bullish bias longer term, but there will likely be better buying opportunities as the US harvest starts.

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

Weekend summary 19 August 2022

18 August 2022

Posted on August 18, 2022 by simon

• HEADLINES: Global wheat markets shed premium; Row crops supported by uptick in export demand.

• Wheat market finds new lows for move on Black Sea headline-based liquidation. Uptick in new crop export demand support corn, soy. Reality of Black Sea’s contribution to global grain flows still very uncertain.

• Global wheat futures are down sharply, though have bounced from session lows, amid a flood of negative headlines from Russia and Ukraine. Headlines suggesting today’s meeting between UN, Turkish and Ukrainian officials would aim to boost diplomacy with Russia sparked early heavy selling in wheat, but our feeling is that talks will centre on and around sustaining the recently established Black Sea corridor, the release of Ukrainian prisoners of war and the lack of Russian cooperation at Ukraine’s Zaporizhzhia nuclear facility. The market can see and feel the sluggish pace of Russian wheat exports, but the future of Black Sea exports is opaque. It is clear Turkey has benefited from the recent release of stuck Ukrainian grain cargoes and Ukraine’s ability to supply feed markets in Europe is uncertain. Geopolitics will continue to dominate wheat price discovery until the market can better evaluate global grain trade flows.

• Additionally, European wheat basis remains incredibly firm. Finding high-pro wheat offers has become difficult, and the 22/23 crop year is only 1.5 months old. Importers in the next 30-45 days will be forced to decide between relying on Ukraine and Russia, despite challenging logistics, or funnel demand to other traditional exporting countries. That the EU cash wheat market is working to ration supply so early in the season is noteworthy.

• Combined old/new crop corn export sales through the week ending Aug 11 totalled 33 million bu, vs. 15 million the prior week and the largest since mid-June. Combined soy sales totalled 51 million bu, vs. 15 million the previous week and the largest since mid-April. China secured 29 million bu of new crop soy, and total 2022/23 US soy commitments, including outstanding old crop sales, sit at 776 million bu, vs. 525 million a year ago. We understand that China must price massive tonnages of soy for autumn/early winter delivery, which will occur on breaks despite rising tensions over cosier relationships between the US/West and Taiwan. US wheat sales were a disappointing 8 million bu, vs. 13 million the previous week. Combined old/new crop meal sales were a decent 363,000 mt.

• NOAA’s updated autumn climate outlook features ongoing warmth/dryness across the C Plains and Midwest in Sep, an extension of the current pattern. Frost risks are lower than normal but additional rain is desired across KS, NE, SD and western IA to recoup soy yield potential lost by summer heat/dryness. Drought improvement is offered to TX, OK and AR, which is mostly based on heavy projected rainfall there over the next two weeks.

• The midday GFS weather forecast is wetter in eastern KS next week but is otherwise unchanged from the morning run. A pattern of inundating rainfall will be place through the weekend across the far Southern Plains and Southeast, with cumulative totals across TX and LA pegged at 3-5”. Drought in C and E TX will be eased considerably. Showers elsewhere will be highly regional in nature. Temperatures warm to normal/above normal levels by early next week, with highs in the upper 80s/90s resuming across KS, NE, SD and western IA. The outlook is not overly threatening but there is little doubt 1-2 heavy rain events are desired across the C Plains prior to early Sep.

• The wheat market will be driven nearly exclusively by Black Sea headlines over the next 30 days, with physical grain flows and cash market to more directly determine fair value thereafter. Corn and soy stay rangebound in the Sep crop report, but current values are not overpriced amid strong end user margins, soy crush margins particularly.

17 August 2022

Posted on August 17, 2022 by simon

• HEADLINES: Wheat again tests recent lows amid Black Sea headlines; GFS warmer in Plains in 6–10-day period.

• Corn, soy markets stay firm. Wheat tests recent lows on strength in the US$, arrival of ships at Ukrainian ports and US pledge to buy Ukrainian supply. GFS forecast arid in C Plains/W Midwest, wet in South.

• Chicago ag markets are mixed at midday, with row crops consolidating recent losses and wheat dragged lower by headline risk and weaker trade in Europe. Five vessels are now scheduled to arrive at Ukrainian ports today. The US through its USAID program has pledged to spend $68 million to secure and ship, and possibly store, an estimated 150,000 mt (6 billion bu) of Ukrainian wheat. Ukraine’s export corridor is gaining momentum and UN/US participation is working to provide confidence regarding future private purchases. Spot Paris milling wheat looks to settle €5.25/mt ($0.16/bu) lower, with Sep’s premium to Dec narrowing to €10/mt, vs. €16/mt two weeks ago. Paris corn futures are also down sharply as Ukrainian grain supplies get shaken from storage.

• US and world wheat markets are also contending without another round of US$ strength, which in turn has pulled importer currencies to/near record lows, which is negatively impacting purchasing power.

• Energy markets are steady/higher, with weekly EIA data leaning neutral corn/ethanol and supportive petroleum markets. US ethanol production though the week ending August 12 totalled 289 million gallons, just 1 million below the pace needed to meet the USDA’s forecast. Spot cash corn across the W Midwest this morning is quoted at an average of $7.03/bu, which amid ethanol at $2.40 and DDGs at $230 leaves ethanol plant revenue well above variable costs.

• More importantly, US gasoline disappearance last week was 9.35 million barrels per day, the highest since early July and unchanged from the same week in 2021. Weekly gas consumption has been rather volatile, but national average retail prices below $4.00/gallon, vs. $4.55 a month ago, appear to have stimulated miles driven. Motor gasoline stocks last Friday fell to 216 million barrels, down 5 million from the prior week and down 5% year on year. Crude stocks less reserves fell 7 million barrels to 425 million, down 2% from the previous year. Enlarged energy production is needed to better balance supply and demand, but refinery capacity remains an issue. We note that gasoline stocks contraction continues seasonally into Oct/Nov. Despite the recent correction, crude above $85 leans positive future biofuel production.

• It remains that production (and full access to Black Sea grain) is needed to solve food inflation entirely. Another two weeks of arid and warming weather lies ahead in Central and Northern Argentina. Wheat yield prospects continue to erode, and pattern of regular rain is needed by mid/late Sep to facilitate early first-crop corn seeding.

• The midday GFS weather forecast is slightly further south with Southern Plains rainfall next week and is warmer across the Central Plains and Upper Midwest relative to million output. Expansive high-pressure ridging is forecast to keep the mean position of the jet stream aligned north and east of the principal Ag Belt into Aug 27. Gulf moisture and active showers will produce heavy/soaking rainfall across TX, LA, AR and MS next Mon-Wed. Central US temperatures will be variable as meteorological summer comes to end, but the GFS has raised max temperatures next week across KS, NE, SD and W IA into the low/mid-90s Aug 23-26.

• We do note that the tropics are likely to become more active, with the GFS forecast for two consecutive days hinting at the potential for tropical storm impacting the E Gulf during the final days of the month. Confidence in this is low, but Atlantic disturbances will be monitored more closely.

• We advise against chasing daily moves but would urge end users to use near-term seasonal weakness to position long over the next 2-3 weeks. Recent crop tour updates have so far found excellent potential in N IL/E IA but pollination issues increase as one travels west.