Monthly Archives: August 2022

16 August 2022

Posted on August 16, 2022 by simon

• HEADLINES: Crude extends correction; GFS stays mild; Mexico buys US soybeans.

• Weak, low volume trade at midday. Central US heat remains absent from two-week forecast. Crude reverses overnight strength.

• Chicago grain futures are again lower at midday amid a lack of enthusiasm and as energy markets worldwide failed to sustain overnight strength. Spot WTI crude at midday is down $2.25 as the market continues to reel from slower than expected economic performance in China and amid challenges in Europe. Additionally, work continues to be made with respect to restarting 2015’s nuclear deal with Iran, which if successful will bring elevated supplies of crude to the global market. The US$ remains strong. Fund length in raw materials is being pared modestly amid November soy’s inability to break through major moving averages.

• It is the wrong time of year to be overly bullish, with supportive seasonal trends not due until late Aug/early Sep. Yet, there is still no indication that US ag consumption will be stressed by elevated prices. The spot futures-based soybean crush margin has rallied to $2.55/bu, vs. $2.00 last week and vs. $1.60 in early July.

• Cash crush margins are even more profitable amid firm oil/meal basis, with Central IL cash margins calculated at $3.00+/bu. There is little doubt crush will be maximised post-harvest as renewable diesel production capacity continues to expansion.

• US exporters this morning sold 229,000 mt of soybeans to Mexico, which is routine business, but underscores demand lies under the market. China is not yet expected to chase rallies, but still has a majority of its Sep-Jan soy supply needs to price. There has been a modest uptick in meal demand in China, but overall volume remains subdued. The forward ethanol swap market at $2.17/bu leaves ethanol plant revenue across the W Midwest at/above all costs. Jordan secured an estimated 60,000 tons of optional origin wheat. Recall Iraq closes a tender for US-specific wheat today.

• The lack of breaking news and coming private tours of the Midwest will continue to weigh on volume and new positioning. We note that Pro Farmer’s tour does best at determining year-on-year changes in US corn yield, and the success of pollination in areas facing the hottest/driest summer conditions will be of particular interest.

• Paris milling wheat futures look to settle €6.75-7.75/MT lower, with EU corn futures down €6.50-9.00/mt. We note that the midday GFS weather forecast is less optimistic than its EU counterpart regarding rainfall in France and Germany into August 25. Rhine river levels in Germany become dangerously low in the days ahead.

• The midday GFS weather forecast is wetter in eastern Iowa but is otherwise consistent with morning output. Precipitation moves across the Missouri over the next several hours. Meaningful precipitation then shifts southward into the Southern Plains, Delta and Southeast, where in LA, AR and MO cumulative totals of 4-6” are possible. Delta corn harvesting will be in full swing through the balance of the month and regional delays are probable next week. Otherwise, the outlooks lacks major threats as temperatures cool. Extended range outlooks maintain high odds of abnormal warmth during September, with early frost risks lower than normal.

• We maintain that neither the bulls nor bears will find much momentum over the next 10 days. The looming harvests caps rallies. Profitable end user margins warrant pricing on breaks. Clarity over yield potential trickles into the marketplace over the next two weeks.

15 August 2022

Posted on August 15, 2022 by simon

• HEADLINES: Chicago bounces from aggressive early selling on crop condition fall expectations; China demand lacking.

• Chicago prices initially break hard; find end user support and bounce into midday. China commodity import demand questioned as economy slows; Needed rain starts to fall across eastern Nebraska and western Iowa.

• Chicago grain futures are lower at midday but bouncing from initial sharp opening losses on end user pricing and bottom picking. Soybeans lost well over 65 cents/bu at one point with wheat/corn futures both down over $0.20/bu. As the US stock market started to recover, so did most commodity markets. Soyoil and wheat have tried to pace the rally, pulling soybeans, soymeal, and corn along. The W Midwest rainfall will most aid US soybeans with the crop in the reproductive period of development. Corn yield gain during the fill process is likely limited to 5-10%.

• There is more certainty of US corn/soybean and spring wheat production amid improved weather, traders will be looking to cash basis and export demand trends for price direction. Chicago will be shifting its focus to demand by the end of August, after a series of private crop tours pull through the Midwest in the next 2 weeks. Pro Farmer have an east and west tour leg that begins next week Monday.

• We look for a lower close today, with the mid-session rally based on the expectation for US corn/soybean crop conditions to fall 1-2% later today. If the projected improved weather verifies, future US corn/soybean crop ratings should rise or hold steady in the weeks ahead. We doubt that either Chicago rallies or breaks will be sustained with choppiness to persist into the end of August.

• US weekly Export Inspections for the week ending August 11 were 21.1 million bu of corn, 27.4 million bu of soybeans, and 13.7 million bu of wheat. The wheat and corn totals were less than traders had hoped for. For their respective crop years to date, the US has shipped out 2,089 million bu of corn (down 458 million or 18% from the prior year), 2,031 million bu of soybeans (down 128 million or 6%) and 142.7 million bu of US wheat (down 43 million or 23%). US export demand continues to struggle, outside of US old crop corn and soybean exports to China.

• NOPA reported a July soybean crush rate of 170.2 million bu, slightly less than expectations of 171.0 million bu. The crush rate was in line to reach the USDA/WASDE estimate of 2,205 million bu. The soyoil stocks decline is related to the ongoing pull of renewable diesel, a market factor that will loom increasingly more important in the months ahead. We see the NOPA data as being neutral to friendly to soyoil.

• The International Research Institute for Climate (IRI) issued their long-range forecasts today. The forecast calls for drought risk across Argentina/S Brazil. IRI has been consistent in calling for an early season drought across much of Argentina and S Brazil as La Niña hangs on for the third year in a row. The US is forecast to see above to much above normal temperatures through November with the Southern third of the US holding in an expanding drought pattern. The 2022 S American spring planting season looks to have some issues with ongoing dryness.

• An improved rainfall pattern is forecast for the Midwest, Delta, and the S Plains over the next week as broad ridge/trough pattern forms across North America. Showers have pushed into W Iowa with the system expected to push south and east into S MO/S IL in the next 36 hours. Rainfall totals are forecast in a range of 0.5-1.25”. A second system is noted for the weekend which includes North Dakota.  The pattern set up offers regular rains for the S Plains, Delta, and the W Midwest. Near normal rain is forecast for the E Midwest.

• The bulls hope for another 2-3% decline in corn/soybean good/excellent conditions this afternoon to bolster prices on Tuesday. The bears point to weather and the time of the year with harvest dead ahead We doubt that either a bull or bear move can be sustained without more certainty on world economies and demand. Trade the range. China will need to secure additional US corn and soybeans to sustain a demand bull market. For political reasons, that does not look to occur with US/China relations at a low point following the visit of Pelosi and other congress people to Taiwan.

11 August 2022

Posted on August 11, 2022 by simon

• Strategie Grains slashes EU maize crop forecast by 10 million mt on drought. Consultancy Strategie Grains cuts forecast for EU-27 maize crop in 2022/23 to 55.4 million mt, a 15-year low, from 65.4 million mt forecast last month

• HEADLINES: Chicago adds premium on the hope for a drop in US yield; US grain export sales stay slow.

• Chicago futures add risk premium on new fund inflows. US producer price data helps confirm that inflationary price pressures peaked in June. USDA report ahead with eyes on crop tours and central US weather into Labor Day Holiday.

• US grain futures are higher at midday with old crop soybean futures leading the charge (once again). Exceptionally tight old crop US soybean stocks with US ethanol producers searching for old crop corn to bridge the gap with new crop has helped support the morning rally. And fund buying inflows have pushed November soybeans back to challenging $14.50 and December corn $6.30 resistance.

• Chicago wheat has rallied against the steady September Paris wheat futures as the US cash market firms. Plains cash wheat and sorghum basis bids are firm, as cattle feeders cope with their regional corn shortages.

• We look for a higher Chicago close, with traders paring some of their net position exposure ahead of the USDA August Crop Report. Market reactions to USDA reports has been bearish since May, it will be important to see if the market can buck that trend. Following this week’s rally, traders are expected to fade a bullish USDA report with the new crop harvest dead ahead.

• Chicago brokers advise that managed money has purchased 5,600 contracts of corn, 4,300 contracts of wheat, and 6,900 contracts of soybeans. In soy products, funds have purchased 3,200 contracts of soyoil and 1,900 contracts of soymeal. The volume of Chicago trade has been light and it does not require much volume to push valuations.

• The FAS/USDA weekly export sales report reflected net new sales of 13.2 million bu of US wheat, net cancelations of 2.5 million bu of old crop and purchases of 17.5 million bu of new crop soybeans, and 7.6 million of old and like amount of new crop. The US export sales pace is pitifully slow, with demand not stepping forward ahead of the 2022 summer row crop harvest. China, and most importers, are close bought and securing their needs hand to mouth.

• For their respective crop years to date, the US has sold 316 million bu of wheat, down 4.0 million from last year. US white wheat sales are up 11 million bu against smaller purchases in other classes. US 2021/22 corn sales rest at 2,395 million bu (down 364 million or 13%), with US 2021/22 soybean sales at 2,184 million bu (down 93 million or 4%). The good news is that there are 578 million bu of new crop US soybeans and 317 million bu of new crop corn sales on the books.

• The USDA reported that 103,400 mt of US soymeal to Mexico in 2022/23. The sale was seen as routine as Mexico will import 1.47 million mt of US soybean in the 2021/22 crop year. Mexico is one of the US’s largest importers of soymeal.

• And be aware that FSA will be releasing 2022 Certified and Prevent Plant acres by Crop at 1:00 PM CT. This report over the years has caused market reactions and confusion based on the completeness of the data.  2022 data certifications should be well along, but it is September data that will cause NASS to update final 2022 seeding.

• The midday GFS weather forecast follows the overnight forecast with mostly dry weather across the Central US. A few light showers are possible across MN/IA from a passing weak front with rain totals of 0.2-0.6”. Dry weather then returns for the weekend with the next system impacting E and S Missouri with rains of 0.5-1.50”. The remainder of the Plains and the W Midwest holds in an arid upper air flow into next weekend.

• The amplified ridge/trough pattern pushes any extreme heat further west into the Intermountain West. A cool upper air flow occurs across the Midwest with temperatures in the 70’s to mid-80’s, mild. Lows will be in the 50’s to the mid 60’s. Several good rains are needed to finish 2022 US corn/soy crops, but they are not forecast by the GFS forecast. We await the EU model output which has placed better rain across the C Plains and the dry areas of the W Midwest.

• Good luck with the USDA August report on Friday! Traders are leaning to lower than estimated yields and a bullish report surprise. Confidence around NASS August yield estimates are always low. It Is the September report that will hold the market’s attention. We remain a long-term bull, but the run up in price ahead of the USDA report and harvest makes it tough to chase a rally. A bullish report could produce profit taking amid the weakening old to new crop cash market.

10 August 2022

Posted on August 10, 2022 by simon

• HEADLINES: Chicago August soybeans rise back above $17.30; GFS adds rain on midday run for W IA, NE/KS, US inflation reached its peak?

• August soybean futures push back above $17 (new contract highs) which extended the new crop rally. Corn/wheat are following on ebbing US inflation. The peak in US inflation has formed, which could cause the US Central Bank to be less aggressive in future rate hikes. US financial markets have enjoyed a “relief rally” with raw material prices rising on the sharp fall in the US$.

• Chicago grain futures are sharply higher at midday with old crop soybean futures leading the bullish charge. August soybeans have rallied back above $17.30 (new contract highs) to find any unsold old crop beans and bridge the supply gap to new crop. August soymeal has rallied to $531/ton, a fresh summer high on the tight supply of meal and the premiums being paid throughout the E Midwest. The soybean bull is being pulled upwards by its horns as last trading day approaches against August futures. US soybean exports are active while crush margins are resting at record highs. The combination is causing crushers and exporters to fight for supply.

• The USDA announced that China purchased 196,000 mt of 2022/23 US soybeans. China has now booked corn or soybeans each looking backwards to late last week. However, traders question if the purchase pace will pick up during the new crop harvest amid the frosty US/China political relations.

• The US weekly export sales pace should expand modestly on Thursday AMmorning, but totals will still be below where seasonal averages should be for August. We estimate US wheat sales at 350-450,000 mt, corn 700-850,000 mt with soybeans at 800-900,000 mt. US soybeans are not the cheapest in the world into early 2023. Traders will be watching the EU to see how much US corn its feed compounders secured.

• The US reported a CPI of 8.5% with core CPI up 5.9%. Real average weekly earnings were up 0.5% in July. US food prices rose 1.1% while energy prices slid 4.6%. We expect that the August CPI will only be up 7.2-7.5% which will produce a trend of ebbing US inflation. This argues that the US Central Bank will raise its lending rate by 0.5% in September with 2 additional 0.25% rises in the coming months to get to a 3.00-3.25% fed funds rate by yearend.

• The US$ has fallen sharply with the Brazilian Real rising to 5.05:1 this morning. The surging Real has shut down Brazilian farm selling, even with the Chicago rally. If the Real continues to gain vs. the US greenback into September, it could have a negative impact on their spring seeding intentions. Brazilian farmers are closing down following the value of the Real amid its volatility.

• Chicago brokers estimate that funds have bought 5,200 contracts of wheat, 7,500 contracts of corn, and 5,600 contracts of soybeans. In soy products, funds have bought 3,800 contracts of soymeal and 5,400 contracts of soyoil.

• The midday GFS weather forecast is wetter with needed rain across NE/W IA and KS early next week. A sagging cold front and short wave combine to produce 0.5-1.50” of rainfall early next week. The retrograding ridge and the front is the right set up for moisture across the Plains/W Midwest. Until then, hot/dry weather prevails which will further stress crops. Several shower events will keep the E Midwest crops well-watered. The midday run is favourable for much needed Plains/W Midwest rain.

• The run up in Chicago prices ahead of the USDA August report makes it difficult to produce a strong bullish post report reaction. Central US weather is highly important with the cooler temperatures aiding filling corn. We remain longer term bullish, but this is no place to be chasing corn/soybean futures higher. The market has reached our short-term upside price targets. A bullish mindset is advised longer term, but for soy producers, this is a rally to make cash sales.

9 August 2022

Posted on August 9, 2022 by simon

• HEADLINES: Soybeans sharply rally on soymeal and tight cash supplies; Ukraine corridor grain movement caps corn/wheat rally.

• Chicago rally stalls ahead of key US inflation/crop reports. Traders loath to chase rallies as fund managers are not willing to commit to new raw material length until they know more about future US Central Bank policy. Range trade to continue in Chicago until there is economic and US crop size clarity.

• Grain futures are mixed at midday with wheat lower, while corn/soybean futures hang in the green. Trade volume was active early in the day but has faltered at mid-session. Few traders want to add to their risk profile with US July inflation data to be released tomorrow and the August USDA Crop Report on Friday. It is risk adjustment that is occurring and will be ongoing into Friday.

• September corn/soy futures are firm and leading the rally on tight cash supplies and the massive (record in some cases) premiums being paid for old crop grain. Plains feedlots are becoming painfully aware that there will be a deficit year for cash corn in Kansas, and that they will have pull in corn from the W Midwest. Garden City, Kansas is bidding $1.70 over for spot corn with cash HRW wheat bid at $0.35 under. This works out to $7.87 cash corn and $8.09 cash wheat for cash trades. The extra feeding value of wheat has feeders looking at HRW as an alternative feed to corn.

• Wheat prices have fallen relative to corn to levels that will spur feedlot interest with the grain located in areas amid sky high transportation costs. It will only take another 10-15 cent fall in HRW wheat values (vs. corn) to push feedlots to secure HRW cash wheat for feed into the end of the year. Once a steer/heifer starts a wheat ration, it is preferable that it continues until slaughter. Feedlot nutritionists amid a shortage of corn are looking to alternatives. The wheat market will more closely start following corn values.

• USDA reported that China booked 133,000 mt of US corn in another sign that China will continue to secure US ag products, even amid frosty political relations due to Pelosi’s visit to Taiwan. The corn purchase was related to a private buyer that expects to be issued TRQ’s for import later this year. China is not expected to secure large tonnages of Brazilian corn amid their surging FOB price on record July loadings. China will wait to secure Brazilian corn in 2023, when their initial first crop is harvested in March/April.

• Chicago brokers report that managed money has secured 7,400 contracts of corn and 5,600 contracts of soybeans, while selling 2,100 contracts of wheat. In the products, funds have booked 3,200 contracts of soymeal and 2,400 contracts of soyoil. Managed money were active early buyers, but their demand has slowed.

• July heat was unrelenting for most of US. The month ended being the third warmest on record with record high minimum night-time lows. July was also the 55th driest on record with the dryness cantered on the western half of the US.

• Somewhat cooler conditions were noted across the Lake States in July, but it was the sweltering heat that could be the villain of yield with the warm to hot trends extending into the first week of August. The record night-time lows would most impact corn yield, something to closely monitor at harvest.

• The midday GFS weather forecast is drier for the Plains and the W Midwest for the next 8-9 days with limited rain. High temperatures soar into the 90’s to lower 100’s across the areas where dry soils prevail. The heat/dryness will further stress crops and potentially push a larger portion of the NE, KS, MO and SW IA corn and soybean crops to poor or very poor condition. The heat out west has been relentless. Several shower events will keep the E Midwest corn and soy crops well-watered. It is a yield battle between the west and the east.

• Last August NASS used a corn yield of 174.9 bushels/acre and soybeans at 50.0 bushels/acre. Such yields seem too low for today, but one may find Plains/W Midwest farmers that are pessimist on their crops. September soymeal futures are back pushing above $450/ton on tight old crop stocks and the strong premiums of $30-40/mt in the cash markets. End users and importers are hopeful for a bearish USDA August report to add to longer term purchases.

8 August 2022

Posted on August 8, 2022 by simon

• HEADLINES: Can the EU import US GMO corn, debate rages with EU traders saying yes; GFS weather forecast drier.

• EU can secure US Corn on Government GMO missive issued in early March due to the Russian war. Look for EU purchases of US corn to grow beyond October on price competitiveness vs. Brazil. Active Bull spreading of Sept/December corn on old crop cash tightness and latency of 2022 Delta harvest. US soybeans cheapest in the world as Brazil is virtually sold out with Inflation Reduction Bill to push renewable diesel producers to complete their plant buildouts.

• Chicago grain futures are mixed at midday with the grains firmer while new crop soybeans sag on the weekend rains and the cooler weather forecast for the E and Central Midwest this week. Wheat has recovered from early day selling as taxes and the war limit Russian grain export logistics.

• Chicago trade volume was active for the first 10 minutes with massive September/ December corn spreading and commercial corn buying. Demand was focused on corn and the worsening EU drought. Wheat/soy markets have been followers with traders trying to keep their risk profile low heading into Friday’s USDA report. We look for a mixed to mostly higher close with corn to be the stalwart on growing evidence that the EU can secure US corn for import without GMO trait concern. Ukraine corn can be bought spot amid a few cheap offers.

• Chicago brokers report that managed money has secured 3,400 contracts of wheat, 4,000 contracts of corn, and 2,600 contracts of soybeans. In the products, funds have bought 3,100 contracts of soyoil and sold 2,400 contracts of meal.

• USDA reported that 132,000 mt of US new crop soybeans were sold to China, 105,000 mt of US corn to Italy, and 120,000 mt of US corn to an unknown buyer (rumoured to be Spain). The corn sale to Italy has produced considerable discussion of US corn exports to the EU in the 2022/23 crop year.

• Traders indicate that back in early March due to the war, Brussels changed regulations allowing corn imports from all, including the US (unconfirmed by us at this time). GMO trait concerns were abandoned on war/supply concern. We are seeking confirmation from Brussels, but the dropping of US GMO import limitations could allow a significant amount of US corn to flow into the EU due to the ongoing drought. We guestimate EU 2022/23 corn imports forecast at 22-24 million mt. If the EU could secure 5 million mt of US corn, it is something that is not in the USDA’s current US 2022/23 corn export estimate.

• The EU has been active booking Brazilian corn, but on a landed basis, US corn is cheaper from LH October onward. This allows the US an export window of opportunity. We note that spot Ukraine cargoes could work into the EU under the corridor deal, but forward offers of Ukraine corn are not available and the certainty of supply is unknown. The EU will take cheap corridor Ukraine corn via spot prices, but no one knows how long the corridor will stay open.

• The midday GFS weather forecast offers dryness across the Plains and W Midwest into August 20. Showers are forecast for the E Midwest and Michigan every 3-4 days on ridge riding storm systems.  A Plains/W Midwest high pressure ridge limits rainfall totals while producing heat with highs in the 90’s/lower 100’s. The heat and dryness will continue to impact the crop. Crops in the Delta and the E Midwest will enjoy near normal rains and seasonal 80’s/lower 90’s. The GFS weather forecast has been too dry in recent weeks and did not do a very good job catching the weekend rainfall across MN/N IA. The EU model will not be fully released until after the Chicago close. The overnight EU run offered better rainfall across the n Plains and Minnesota.

• Chicago values will chop into Friday’s USDA report with the industry looking to weekly crop condition ratings to assess yields. We hear that corn/soy in KS, NE, MO and S and SW IA are really struggling. Crops elsewhere are improving, it is a case of the have’s and have not’s. However, such hugely varied crops do not often add up to trendline. This is no place to turn bearish Chicago values.

5 August 2022

Posted on August 5, 2022 by simon

• HEADLINES: Chicago mixed but supported; FAS confirms Chinese demand for soy; GFS stays hot/dry.

• End user/importer interest in corn; Ukraine Ag Minister optimistic on future exports via Black Sea; soybeans await weekend rainfall in IA/MN.

• Chicago futures are mixed at midday in mediocre volume as few want to add to risk ahead of weekend weather, amid ongoing weather model disagreement, and as NASS’s first pass at by-state yield estimates loom large next Friday. It is clear end users/importers are rewarding the break in corn with new purchases, but it remains that a clear trend won’t be established until US crop sizes are better known. This process will begin next Friday. Yet, the market is beginning to pencil in severe yield loss across much of the Plains and mid-South, which on balance will weigh on national output even assuming normal E Midwest conditions.

• FAS reported the sale of 264,000 mt of new crop soybeans to China and unknown destinations, which helps rumours of China’s return on Thursday. China still has ample Sep-Jan supplies to price in the futures/cash markets, and while China may be unwilling to chase dramatic rallies the need for physical imports will provide a pillar of support moving forward.

• It has been confirmed that three additional vessels carrying a combined 58,000 mt of grain has left Ukrainian ports and are currently on route to Istanbul. Ukraine’s deputy Ag Minister this morning stated new crop wheat exports could begin via the Black Sea in September, but no details were offered. Thus far, it appears Ukrainian sea shipments will be piecemeal, and assuming handy-sized vessels are used, some 80 boats per month must enter and exit Ukrainian ports for shipments to reach 2 million mt on a monthly basis. We are hopeful that Ukrainian exports will increase, but logistical challenges look to prevent any explosion in grain flows there.

• IHS Markit, formerly Informa, joined in this week’s flood of US production estimates by pegging US corn yield at 176.9 bushels/acre. Production is estimated at 14,497 million bu, vs. USDA’s 14,505 million. Soy yield is projected at 51.8 bushels/acre, vs. USDA’s 50.5. The importance of rainfall across the Upper Midwest in the next 3-4 days cannot be overstated, and the market will wait with bated breath to see if radar maps show precipitation working across IA/MN on Sunday evening.

• The latest EU weather model, which only forecasts conditions 90 hours ahead, has trimmed projected rainfall in western IA, with Sun-Tues totals in excess of 1” to be only regional in nature across the far north of the state. Unfortunately, the major forecasting models look to enter the weekend in poor agreement on the 5-day outlook, which raises the odds of Chicago volatility Sun/Mon. Yet, reports of poor pollination across the Plains and mid-South are widespread and there is very little evidence to support corn/soy yield hikes next Friday.

• The midday GFS weather forecast is unwavering in its commitment to ongoing heat and dryness across the Plains and W Midwest. Spotty showers are forecast in northeast IA early next week, but the soaker needed to stabilise crop stress is unavailable. High pressure ridging will continue to meander aloft the Southern/Central Plains into Aug 20, which keeps meaningful precipitation confined to the Upper Great Lakes and far eastern/southern Midwest. Max temperatures in the 90s/low 100s are projected to be ongoing across TX, OK, KS, NE, SD and far western IA next week.

• The EU weather model since midday Thursday has trended drier across the W Midwest, and very close attention will be paid to this afternoon’s update.

• It is still a bit premature for bullish seasonal patterns to kick in, and fund investment in bulk awaits the release of NASS’s August crop report. But long-term fundamentals stay bullish, and it is critical that normal weather be established in S America this winter, particularly amid growing political instability there.

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

Weekend summary 5 August 2022

4 August 2022

Posted on August 4, 2022 by simon

• HEADLINES: Chicago soy leads recovery amid return of Chinese buying; GFS stays hot in Plains.

• China buying US soybeans for September confirming that US/China Ag trade is unaffected by Pelosi Taiwanese visit. US soybeans are now the cheapest in the world into mid-January which will gather world soybean demand. China’s big cash short is not in soybeans, but grains. Chicago bumps higher on the news.

• Chicago futures are higher at midday with soybeans/soymeal the upside leader on reports of fresh Chinese demand for US soybeans from the US Gulf for September. November soybean futures have recovered to $14.00 while December corn rising back above $6.00. Chicago wheat has held recent lows with a close above $8.50 spot futures confirming a seasonal low.

• There is limited selling above the market. And when a key importer secures US soybeans, Chicago reacts with vigour. We doubt that China is finished securing US September/October soybeans assuming that House Speaker Pelosi does not return to Washington and take a big media victory lap in the face of the Chinese. We see China returning as a more reliable buyer of US soybeans in the weeks ahead. This will help confirm seasonal lows. Much of the bearish news is worked into Chicago values, the risk starting to turn to the upside amid the USDA report and return of fund managers back into long grain positions.

• Chicago brokers estimate that funds have bought 2,200 contracts of wheat, 5,100 contacts of corn, and 4,500 contracts of soybeans. In the products, funds have sold 3,5000 contracts of soymeal while buying 4,900 contracts of soymeal.

• Cash premiums for old crop corn, soybeans and soymeal are record highs and we expect that they will stay strong. We advise against being short of September corn/soy futures which we see as “high risk” on active late summer demand. Delayed crops in the Delta and the S Midwest will not quickly refill the depleted cash pipeline until sometime in October, when the harvest gains speed across the C Midwest. We all need to remember that it will take a considerable amount of time for depleted US cash pipeline to be refilled.

• US Weekly Export sales for the week ending July 28 were 9.2 million bu of wheat, 12.4 million bu of corn (old/new combined), and 14.8 million bu of soybeans (old/new). The US sales pace is unexciting but based on the pace that Brazil is selling corn and with US soybeans now the cheapest from mid-September onward, this will be changing in the weeks just ahead.

• Wheat protein bids are on fire in the EU with the Russian wheat crop being a substantially lower protein level than initial expectations. Cash bids for French wheat are €30 €uro/mt above Paris wheat futures. The EU continues to actively sell wheat which was evident in this week’s Algerian tender. We note that world exporters are having trouble replacing prior wheat sales with EU and Russian farmers slowing their cash sales amid bullish expectations.

• The midday GFS weather forecast provides a brief hiatus from extreme heat across the Plains Sun-Tues, but the model is unwilling to let go of amplified high pressure ridging across the Central Plains and Midwest into the middle of the month. Overall, GFS weather output keeps meaningful rainfall confined to areas east of the MS River, with 10-day totals across the Plains, IA and MN pegged at no more than 0.10-0.50”. High pressure resumes its position aloft OK/KS/NE late next week, which fans additional heat into the region. The GFS forecast remains worrisome, but uncertainty over rainfall/temperatures across IA and the Upper Midwest continues.

• We doubt that the August USDA crop report will hold any major bearish surprises. Don’t forget that FSA data will be updated next Friday also. Chicago has digested a considerable amount of bearish information with cash basis bids helping to underpin new crop futures. Soy crush margins are incredibly profitable, and world corn production will fall short of consumption even assuming sizeable production in S America in early 2023.

3 August 2022

Posted on August 3, 2022 by simon

• HEADLINES: Chicago wheat tests July lows; Crude weakens; GFS weather forecast unwavering with hot/dry Plains forecast.

• Markets chop amid China war games close to Taiwan while Central US weather debate is ongoing. Chicago traders look ahead to the USDA August crop report. Showers develop across S and E Iowa this morning.

• Chicago futures are lower at midday in thinning volume. The market lacks fresh interest with end users stepping up coverage on breaks while uncertainty prevails on US weather and crop yields. Fund managers are flat summer row crops to short wheat but appear keen to look at the long side of corn, soybeans and wheat following either the August or September crop reports. Money managers have profited handsomely in the past 2 years and with world grain fundamentals even more bullish this year. As such, they are trying to decide on the correct entry date. Corn/soybeans have bottomed in late August and September in the past 2 years, let’s see what happens in 2022.

• Chicago brokers estimate that funds have sold 3,200 contracts of wheat, 4,300 contacts of corn, and 2,500 contracts of soybeans. In the products, funds have sold 3,200 contracts of soymeal while buying 1,900 contracts of soyoil. Sellers dominate Chicago trade amid the inability of the market to sustain last week’s recovery on worsening US/China political relations.

• Nov bean’s open chart gap last week at $13.49 will be targeted, but we strongly doubt fresh lows can be scored amid threatening Plains/W Midwest weather.

• Corn basis across portions of the W Plains remains perched at $2.00/bu, and unlike a year ago in late Jul/Aug there has been no evidence of supply/demand returning to balance there. The Southern Plains region is likely to lose upward of 450-475 million bu of combined HRW, corn and sorghum production in 2022/23, and the W Plains feed market may be one of the stronger markets in the world of ag between now and the completion of harvest.

• And lingering in the background is ongoing strength in S America’s cash corn market. Upriver fob basis in Argentina has rallied to $0.75/bu, vs. negative basis just 30 days ago. Brazilian corn futures are slightly lower today via weakness in the Real, but Nov corn in Brazil looks to settle at $7.00-7.05/bu.

• US ethanol production in the week ending July 29 totalled 307 million gallons, vs. 300 million the prior week, and which reflected a surprising jump. Spot Midwest ethanol margins are positive and new crop margins are exceptionally profitable as forward ethanol prices have been unwilling to trade below $2.00/gallon.

• Spot WTI crude is down $3.00 at midday as another release of strategic reserves triggered a 4.5 barrel boost in stocks.

• The midday GFS weather forecast remains steadfast in keeping an amplified high pressure ridge aloft the Central Plains, which will work to keep meaningful precipitation isolated to the Great Lakes and eastern Midwest. The GFS forecast is trending wetter east of the MS River, with 10-day cumulative totals of 1-3” offered to IL, IN, KY, OH and MI. Near complete dryness and elevated temperatures will be ongoing across the Plains, MO and IA into Aug 13. Max temperatures next week will stay perched in the 90s/low 100s across the western Corn Belt.

• The EU and GFS forecasts begin to diverge on Sun/Mon, particularly with respect to projected rainfall in IA and MN. Whichever model proves current is important. Our bet is that the market assumes the cooler/wetter EU solution is correct, but GFS output cannot be fully dismissed.

• The market now waits for Friday’s August WASDE, with choppy range bound trade most probable. We strongly caution against chasing breaks amid a growing risk that US yields fall below market expectations.

2 August 2022

Posted on August 2, 2022 by simon

• HEADLINES: Ag markets weak but off session lows; Chinese reaction to Pelosi landing muted.

• Markets extend correction on geopolitical uncertainty. weather debates; energy recovery; late August US weather critical.

• Chicago futures are lower again this morning amid negative prevailing macro themes. China’s response to Pelosi’s landing in Taiwan has so far including the flying of Chinese military jets over Taiwan Strait. Chinese military exercises are planned through Thursday in the region, but so far China’s reaction has been muted. There is also continued optimism over improved Ukrainian logistics amid talk additional vessels stuck in Ukraine will be exiting the region in the near-term, though there has been no additional boat movement as of yet. Chinese demand for US soy is typically strong in August, and all eyes will be on Chinese importer activity in the weeks ahead, with new uncertainty mounting as US-Chinese tensions escalate. Ag markets remain hostage to the recent flood of general global uncertainty.

• All markets are off morning lows as buying emerges in global energy markets. Spot WTI crude at midday is up $1.00/barrel at $94.80. The Dow is down a modest 100 points. Equity market sentiment is less certain that major damage will be done to the US/global economy through the balance of 2022.

• Paris milling wheat futures, too, have shrugged off early weakness and look to settle €1.25-2.75/mt higher. Our wheat thesis is that the coming post-harvest recovery will be led by cash markets, and there is already evidence of this beginning in Europe. Protein premiums in Central Europe have soared in recent weeks and following yield loss in Europe and quality loss in Russia, the very high protein wheat market is facing imbalance. Brazilian corn futures have been somewhat firm since late July as record European demand is funnelled there.

• And European drought will be unrelenting into the latter part of August as heat returns with vigour to Spain, France, Germany, and Italy this week. Max temperatures in Western Europe Wed-Thurs return to the low/mid-90s, or some 12-20 degrees above normal. Much of Europe’s Corn Belt is experiencing 2012-like conditions with limited relief expected. Europe will remain an active buyer of Brazilian corn amid uncertainty over the size/pace of Ukrainian shipments.

• Most important to long-term fair value is that of Northern Hemisphere production. Unfortunately, weather model volatility is ongoing, and the GFS and EU models fail to agree on even 7-day precipitation in IA and IL. The intensity of Plains temperatures this week and 10-day precipitation coverage is a big deal given that long-range guidance maintains a pattern of above-normal temperatures and below-normal precipitation across the Plains and far edge of the western Midwest. And following late seeding, it is crunch time for yield determination in key producing states NE, SD, ND and MN.

• The midday GFS weather forecast is consistent with the morning run and remains the most concerning of the major forecasting models. The entirety of the North American climate into Aug 15 hinges upon the placement intensity of high-pressure ridging. The GFS forecast keeps an amplified ridge in place aloft the C Plains/W Midwest throughout the next 10 days, which if realised will confine precipitation strictly to areas east of the MS River. This upper air pattern will also sustain well above normal temperatures through the period and trigger acute crop stress. Confidence in forecast details beyond 6-7 days is low, but the evolution of GFS/EU forecast output must be monitored closely. The GFS forecast is worrisome. Its accuracy will be partially measured by the afternoon run of the EU solution. Regional flooding in S IL is also an issue.

• Finding a lasting trend remains difficult as nearly all possible uncertainties are present today. However, our long-term opinion hinges upon global corn production falling short of consumption in crop year 2022/23, while record S American soy yields are needed to build global soy stocks.