31 January 2023

Posted on January 31, 2023 by simon

HEADLINES: New fund flows into Chicago reverses overnight losses; Cash basis sags in US; Argentine weather forecast little changed.

Chicago futures are mixed at midday with soybeans/corn/wheat enjoying another day of fund inflows. Managed funds appear to be putting additional money to work which showed up just after the reopening. We note that this money is being categorised as managed since it is index (long only) fund type money that can move between different commodities. This managed movement classifies it as managed money, not just as typical long only fund in raw materials. The index fund/long only positions as measured by the weekly CoT report has been steady/flat since the start of the year.

We look for a mixed close with March soybeans back targeting the contract highs at $15.50 while March corn ran up against resistance near $6.90. March Chicago wheat will find resistance at $7.80-8.00 with Russian fob wheat offers steady to slightly lower early this week.

Chicago brokers estimate that funds have bought 4,800 contracts of soybeans, 3,100 contracts of wheat, and 5,900 contracts of corn. In the products, funds have bought 2,900 contracts of soyoil while selling 1,900 contracts of meal.

The USDA/FAS did not announce any new purchases of US corn, soybeans, soy products or wheat in its daily reporting system. China has been securing US soybeans for their reserve, but those purchases have wound down as China must replace them following a reserve sale in 120 days. China soybean auctions ended in late summer. Minnesota, South Dakota, and Ohio crushers all dropped basis bids by 3-5 cents. US soybean crushers area again struggling with arctic cold which is slowing their daily run rates.

Statistics Canada will be releasing their December Grain Stocks report on February 7. We look for their all-wheat stocks to be 22.5 million mt (vs 16.8 million in 2022), canola of 11.6 million mt (vs 8.79 million in 2021), and oat stocks of 3.6 million mt (vs 1.87 million in 2021). It will be hard for the report to be bullish based on the comparisons in a drought year, and Canada’s import of US corn is also down accordingly. Canada has booked just 17 million bu of corn for import in 2022/23, down nearly 80% compared to last year. Reduced Canadian and Chinese imports are key reasons why we see 2022/23 US corn exports dropping to 1,800-1,850 million bu by the final WASDE count.

The midday GFS weather forecast is like the overnight solution, but our confidence in the GFS model is low. Widely scattered showers will break out Wednesday/Thursday, but the GFS is under forecasting rain amounts and coverage. We look for 0.25-1.25” on 60% of the Argentine crop area. Thereafter, a weeklong dry trend follows, but we doubt that Argentina is slipping back into the dire drought as La Niña collapses in the Equatorial Pacific. The next Argentine/S Brazilian rain chance is offered in the 11–15-day period. This rain chance looks solid on the midday run. Extreme heat is lacking which will help Argentine crop potential recover.

Leftover fund buying is underpinning Chicago corn, soybean, and wheat futures. Trying to gauge when the flow will end is always difficult. But the Brazilian soybean harvest is advancing and should reach 20% by February 10. A record soy crop looms and US export sales totals are in decline. If the rain for Argentina in the 10-15 day period is pulled forward in the forecast, soybean sellers will return. February 1 starts the price averaging for the US crop insurance program. Watch for bull spread weakening and a rally of backend futures ahead of the USDA Outlook meeting in late February. This is no place to chase a rally and old crop corn/soy should all be sold.

30 January 2023

Posted on January 30, 2023 by simon

HEADLINES: Funds aggressively buy soybeans/soymeal on charts/China reopening; Wheat follows on fund short covering

Chicago futures are mixed at midday with soybeans/soymeal surging on new fund buying while wheat prices rise on short covering while corn sags. We look for a mixed Chicago close with traders noting that new fund flows are being witnessed in soybeans/soymeal. Charts can be the only reason why fund managers are putting new money to work into soybeans/soymeal at $15.25 and $480/ton respectively. Historically, investing on the long side of soybeans/soymeal has not produced a lasting payoff. The Chinese reopening trade has been popular for the past 2 weeks, but by midweek, we doubt that fresh inflows will be seen amid the war of world Central Banks against inflation. We look for a mixed Chicago close with traders eying future Chinese buying trends, Brazilian soybean yields and Argentine weather forecasts.

Chicago brokers estimate that funds have bought 7,800 contracts of soybeans, 3,900 contracts of wheat, and 3,200 contracts of corn. In the products, funds have bought 7,800 contracts of soymeal and 3,000 contracts of soyoil.

The USDA/FAS announced a daily sale of 112,000 mt of corn to Japan. US corn is competitive in the world marketplace through May, when S American corn will be more available and economic.

For the week ending January 26, the US exported 20.7 million bu of corn, 68.2 million bu of soybeans, and 16.4 million bu of wheat. For their respective crop years to date, the US has shipped out 473 million bu of corn (down 217 million or 31%), 1,322 million bu of soybeans (down 17 million or 1%), and 485 million bu of wheat (down 15 million or 3%). The US corn export pace needs to rapidly grow to have any chance of reaching the USDA annual estimate with the crop year half completed by the end of February.

China is securing Argentine soyoil for March/April with tonnages said to be nearing 100,000 mt. Sinograin is booking the soyoil for China’s reserve. The purchase further tightens world vegoil supplies and reflects the attractive cost position of S American soyoil. US Gulf soyoil is priced $0.14/pound above Argentina due to renewable diesel demand. The US is not competitive in the world market due to record large soyoil demand for green fuels. Traders will be closely watching to gauge if China adds additional forward coverage.

Chicago soymeal futures have rallied to new contract highs on speculative buying. Brazilian meal is trading $40/mt below the US Gulf for March/April and even Argentine soymeal is $23/mt cheaper for April Decatur soymeal on the rail is trading flat to $2/ton lower. The cash market is not the leader.

Northern and Central Brazilian soybean yields are massive, often record large by 4-8%. The yields have Brazilian farmers smiling with Chicago March futures above $15.00 and diesel prices in decline. Most Brazilian farmers are selling their soybeans off the combine, which will quickly fill the pipeline. There are 8 million mt worth of vessels waiting to load US soybeans, but that total is below that of recent years. This week the Brazilian soybean harvest will kick into a higher gear, but the massive crop will cause logistical strains.

The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model is low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks. The GFS forecast is missing showers/storms over Argentina late Wednesday/Thursday with rain totals of 0.25-1.25”. A weeklong dry trend follows, but we doubt that Argentina is slipping back into the dire drought of recent months as La Niña collapses in the Equatorial Pacific. The next Argentine/S Brazilian rainfall chance is offered in the 11–15-day period. No lasting extreme heat is forecast with soil moisture being the best in months following 2 storm systems that produced soaking Argentine rain over the past 2 weekends.

The China reopening investment flow is in full view today with soybeans/soymeal surging on large speculative buying. We doubt that the rally can be sustained amid the record large soy yields being reported across N and C Brazil. The speculative China reopening push should be completed by the start of a new month on February 1. Corn and wheat are lagging and likely nearing a trading top. Chicago values have been choppy for months and our advice stays the same – “Don’t chase rallies with new purchases”.

26 January 2023

Posted on January 26, 2023 by simon

HEADLINES: Chicago rallies on strong export sales and chart buying; Brazilian premiums fall; US cash sales uptick.

Chicago futures are higher at midday with better than expected US weekly export sales offering bullish fodder while a record large Brazilian soybean crop and new rain chances for Argentina acting as a bearish drag. The volume has been better on the rally vs. the breaks this morning.

The Chicago choppiness of late should persist. Grain values have been wildly swinging higher and lower this week with Argentine rain pressuring prices on Monday/Tuesday while the hope that China returns to the world raw material market with new buying following the Lunar New Year holiday rallying values late week.

We maintain that with spot corn/soybean prices at their second best level on record for the month of January, buying rallies is difficult with funds already holding a sizeable long position, and the US/world economic outlook darkening on rising interest rates in the Central Bank’s battle against inflation. The demand outlook stays soft, but funds are adding to their net long position on bullish chart patterns.

The USDA announced the sale of 106,000 mt of US soybeans to China for the new crop season, 2023/24. There are a modest 229,000 mt of new crop sales already on the books to China. Small to moderate sized Chinse crushers are starting to take some forward coverage, amid their ability to lock down margins with Dalian soymeal and oil sales.

Chicago brokers estimate that funds have bought 6,200 contracts of wheat, 11,800 contracts of corn, and 6,900 contracts of soybeans. In the soy products, funds have bought 5,100 contracts of soymeal, while being flat in soyoil. The funds have come out with active buying this morning.

US weekly export sales were better than expected. For the week ending January 19, the US sold 18.4 million bu of wheat, 35.8 million bu of corn, and 42.1 million bu of soybeans. For their respective crop years to date, the US has sold 589 million bu of wheat (down 43 million or 7% from last year), 784 million bu of corn (down 784 million or 45% from last year), and 1,710 million bu of soybeans (up 88 million or 5% from last year). We would argue that the USDA’s export estimate for soybeans is correct, while the US corn export forecast is overstated by 100-200 million bu. WASDE is likely to further adjust US corn export estimates lower in coming monthly reports. Feed wheat sales have undercut the opportunity for US corn to work into SE Asian feedstuffs.

Brazilian soybean export premiums have declined on the Chicago rally by 4-7 cents. Brazilian farmers are anxious to make cash sales knowing that their yields are above expectations. Northern Brazilian soybean farmers report actual harvested yields coming in 3-6% above trend and are often record large. We expect Brazilian soy yields to hold at similar strong levels through Parana.

The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model stays low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks. The EU model is outperforming the GFS and will be out with its 10-day rainfall solution before the close. Showers should start to become more numerous later today and Friday with a slow-moving storm system with rainfall amounts of 0.5-2.00”. A second system is offered for mid next week. A third system is offered for the 11–15-day period.

These are not easy markets, don’t chase rallies or breaks is the best advice and keep risk small. A record large Brazilian soy harvest is underway which will pressure Chicago values as world demand switches to cheaper S American offers. Corn, soybean, and soymeal rallies will likely fail. And Mar Chicago wheat values are up against key resistance at $8.60-8.80. The US and world Central Banks will continue to fight inflation, including food inflation with higher rates. USDA adjusted upward their view on food inflation which is one reason why we suspect that rates will go higher for longer than many now expect. US farmers are rewarding the rally with old crop sales.

25 January 2023

Posted on January 25, 2023 by simon

HEADLINES: Chicago steady to higher at midday; Wheat leads on short covering.

Chicago futures are slightly higher at midday in thinning volume. Fund managers returned with new buying after the opening to protect large net long positions in corn, soybeans, and soymeal.

However, as the Chicago session advanced, that buying has waned. Some of the demand is due to positioning ahead the weekly export sales report to be released on Thursday morning. Another week of large corn, soymeal and hopefully soymeal sales is expected. It does not require much volume to push Chicago higher or lower. Questions abound as to Chinese demand in world corn, but for now, there does not appear to be any fresh interest. We maintain that China will be a buyer of Brazilian/Ukraine corn down the road, with only limited amounts of US corn from private TRQ buyers. The unknown sale this morning was not China’s Government importers and larger sales are needed to narrow the 760 million bu shortfall in US corn sales vs last year.

Improving S American weather and spot Chicago futures being at their second highest level on record does not argue for a sustained bullish Chicago run.

US ethanol production in the week ending Jan 20 totalled 298 million gal, up a modest 2 million from the previous week and right at the level needed to validate the USDA’s current industrial corn use forecast. However, net imports were recorded last week, which along with ongoing weak gasoline consumption allowed ethanol stocks to soar to 1,054 million gallons, up 2% year on year. Ethanol stocks building in mid-winter is seasonal, but we doubt a major drawdown in supplies occurs until mid-spring. The cash ethanol market this week, along with production margins, is flat.

Domestic corn, soy and wheat consumption is so-so. Greater emphasis will be placed on slowing export disappearance once S American harvests reach 40-50%.

India has confirmed the release of 3 million mt of stocks into the domestic market. This is a sign of supply fears there, but a record Indian wheat crop is likely to be harvested in April. India, like most importers, has managed to get by without discretionary imports. And world wheat trade begins to erode beyond February.

The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model stays low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks. We suspect that the model has a La Niña component that is still being used. La Niña is in fast retreat.

The EU model is far wetter and is outperforming the GFS. One storm system is passing through N Argentina and S Paraguay with 0.25-1.00” of rain falling. Showers should break out later tonight across Southern Argentina and persist into the weekend. Rainfall totals are estimated in a range of 0.5-2.00”. The best rain looks to fall on Thursday/Friday. A second system is noted for mid next week with similar rain totals. The rain will allow further soil moisture improvement. The 11–15-day forecast is drier with a new system shown in the week 3 forecast. The S American pattern has changed.

A bearish mentality prevails on rallies with corn, soymeal, and soybeans to pace the decline. We see soyoil as nearing an intermediate bottom. The wheat rally is based on short covering.

24 January 2023

Posted on January 24, 2023 by simon

HEADLINES: Mixed as Chicago tries to bounce following Monday’s lashing; Export demand lacking to keep the rally going.

Chicago futures are mixed at midday with the grains holding in the green while the soy complex sags on long liquidation and the coming harvest of a record large Brazilian soy crop. We look for a mixed close, but we doubt that Chicago corn futures can sustain the rally amid ongoing tepid export demand. The USDA announced the sale of US corn to an unknown buyer which is rumoured to be Japan. The window for an increase in US corn export sales has narrowed from March through mid-June. Thereafter, S America will again become the low-price seller to the world. We maintain that US 2022/23 US corn exports are overstated by 100-150 million bu which will add to old crop end stocks.

March soyoil is back testing key support below $0.61 while soymeal has tried to rally. However, US cash basis bids for soymeal are in decline with Central IL rail meal bid at even money. The weakening cash meal basis is narrowing the premium of March/May soymeal spreads. The soymeal and soybean markets have scored a longer-term top and oil share spreads should again start to perform. We would sell rallies as the supply bull market fades.

Chicago brokers estimate that funds have bought 6,100 contracts of wheat, 8,200 contracts of corn, and 3,200 contracts of soybeans. In the products, funds have bought 1,900 contracts of soymeal and sold 4,400 contracts of soyoil.

March soybean futures rallied and filled an open chart gap left from Sunday’s lower open due to better than expected Argentine/Southern Brazilian rainfall. That gap was at $15.04-15.06 March with a lower close today suggesting that further weakness lies ahead into the weekend. The downside price target is $14.45-14.65 nearby.

The economic outlook for the world economy is gloomy on rising rates in the Central Bank’s war against inflation. Rumours of Pakistan defaulting on palmoil cargoes while the private sector in Egypt struggles amid the falling Egyptian pound swirl. The sharp fall in world freight costs is due to slow charter bookings. World consumers are struggling on cost and diminished financing opportunity which is hitting commodity demand. USDA is forecasting no growth in 2022/23 corn trade for the first time since 2012/13. The data suggests that USDA will continue to trim 2022/23 world grain trade.

We have no way of knowing if China will return from their weeklong holiday with improved commodity demand due to its reopening. That is a bet being made. China was a sizeable buyer of US/S American soybeans in the first half of January, but since the weather is improving in Argentina/S Brazil, Chinese crushers may wait for cheaper prices amid the added supply potential.

The midday GFS weather model is coming around to the wetter thinking of the EU model solution. Moderate to at times heavy rain will fall across Argentina from late Wednesday into the weekend from a slow-moving storm system with rain totals of 0.4-2.50”. A few dry days follow with another system noted for the northern half of Argentina in the closing days of January and the first day of February. Additional rain will fall.

Near normal rain will drop across N and C Brazil which is ideal for late podding soybeans. And there are enough dry slots for N Brazilian farmers to advance their harvest. The forecast for leans favourable for S American crop yield/production.

It is a turnaround Tuesday with the supply bull market of recent weeks trying to fight for its existence. The supply bull will struggle against a lack of demand. The only positive of export demand is for renewable diesel, and soyoil is selling off on speculative liquidation. We doubt that corn, soybean, or meal markets can sustain a lasting recovery with another 2 rounds of rain to drop across Argentina. A seasonal price high was scored last week. This no place to chase a rally and with March corn at resistance at $6.77-6.83.

23 January 2023

Posted on January 23, 2023 by simon

HEADLINES: Chicago falls sharply on improved S American/US Plains weather; Fresh export demand lacking.

Chicago futures are sharply lower at midday as markets extracts weather premium from price due to needed moisture across S America and the US Western Plains. KC wheat futures are down over 30 cents with French wheat futures falling to a 10-month low. Lower prices on the soybean chart left a gap that if it is not filled in the next few days ($15.03-15.04), it becomes a break-away gap with an acceleration of price to the downside. Corn and wheat futures did not leave similar chart gaps, however the next downside price target for Chicago March wheat futures is $7.00 and a test of the September 2022 lows.

The decline in wheat keeps feed wheat (and milling wheat) offers below CIF US corn into North Africa and SE Asia. This will harm US corn export demand in the April/May period as farmers sweep their bins ahead of the coming harvest in July/July. Normally, world wheat trade seasonally declines in mid-February in preparation for a new Northern Hemisphere harvest. We hold to a bearish Chicago view this week and looks for a sharply lower close today.

Chicago brokers estimate that funds have sold 6,900 contracts of wheat, 15,200 contracts of corn, and 9,100 contracts of soybeans. In the products, funds have sold 7,200 contracts of soymeal and 4,000 contracts of soyoil.

US export inspections for the week ending January 19 were 28.6 million bu of corn, 66.4 million bu of soybeans, and 12.3 million bu of wheat. For their respective crop years, the US has shipped out 469 million bu of wheat (down 17 million or 3.5%), 453 million bu of corn (down 197 million or 30%), and 1,252 million bu of soybeans (down 35 million or 3%). The US has a record number of soybeans that are sold and not shipped in the middle of January.

The USDA reported that 192,000 mt of US soybeans were sold to an unknown destination. The sale follows like sales that were completed last week. US exporters report that these soybeans are sold “optional origin” which means they could be sourced from the US, Brazil, or Argentina. Amid the cheap offers out of Brazil, we expect that the soybeans will be sourced from Brazil. This would produce a sales cancellation at some point in the future. There are 5 million mt of US soybeans sold to an unknown destination which raises the chance for a US cancellation depending on the price/availability of S American soybeans.

Debate is ongoing as to where China’s purchase orders will rest in the marketplace when they return next week. The Argentine/S Brazilian rains are important, and China could slow its purchase pace. This will be watched closely.

The midday weather forecast is slightly further west with the Argentine rain later this week compared to the overnight run. The GFS Ensemble and Canadian forecast models have the rain further east. The GFS’s track record has not been particularly good as of late as the EU model has outperformed on rainfall totals/locations.

Moderate to at times heavy rain will fall across Argentina from late Wednesday into the weekend from a slow-moving storm cell with rain totals to date range from 0.4-2.50”. A few dry days follow with another system noted for the northern half of Argentina in the opening days of February.

Near normal rain drops across N and C Brazil which is ideal for late podding soybeans. There will be enough dry slots for N Brazilian farmers to advance their harvest and start the seeding of winter corn. No extreme heat is forecast.

It is a down and dirty day in Chicago as weather premium is extracted due to improved precipitation for Argentina/Southern Brazil and the Western US Plains. The next level of key support rests at $14.40-14.60 March soybeans, $6.45-6.52 March corn and $7.00 March Chicago wheat. Brazil is more actively harvesting soybeans while China is on holiday. We remain generally bearish looking for additional long liquidation.

20 January 2023

Posted on January 20, 2023 by simon

HEADLINES: Rains better than expected across southern Argentina; US weekly export sales support CBOT, but US corn sales historically lag.

The CFTC will release their CoT data today. Normally in a holiday shortened week, the CoT data is delayed. The US Government was closed for the MLK holiday on Monday, but the CFTC will be keeping to their normal schedule.

Chicago grain futures are mixed at midday. US weekly export sales were better than expected with US soybean/soymeal sales being larger than expectations. The solid soybean/meal sales and China’s purchase of 3 cargoes of US sorghum produced some Chicago buying. Wheat/corn spreading is also being witnessed.

However, China’s being on Lunar New Year holiday and wet weather forecasts for Argentina with needed rain falling across Buenos Aires and Cordoba sparked selling as the bulls look to take profits on rallies. If the CFTC CoT data shows that funds hold large net long position, the risk is for liquidation grows as Brazil starts to harvest its record soybean crop, and as Argentine crop conditions stabilise/improve. We loo for a mixed to lower Chicago close as traders position for improving Argentine/Southern Brazilian crops.

Chicago brokers estimate that funds have bought 4,100 contracts of wheat, while being flat in corn and selling 3,300 contracts of soybeans. In the products, funds have sold 2,200 contracts of soymeal and 4,400 contracts of soyoil. The index fund buying of corn/wheat in the past 3 days appears to be subsiding.

US weekly export sales for the week ending January 12 were 17.4 million bu of wheat, 44.6 million bu of corn, and 36.2 million bu of soybeans. The sales were on the top end of trade expectations. For their respective crop years, the US has sold 571 million bu of wheat (down 36 million or 6%), 910 million bu of corn (down 765 million or 46%), and 1,668 million bu of soybeans (up 84 million or 5%). Chinese demand for their soybean reserve along with sales of optional origin via the Argentine drought have helped support US soybean sales. However, with nearly 5 million mt of US soybean sales held in the unknown destination category, there is the risk of cancellations with Brazilian soybeans $0.85/bu cheaper landed basis into China in March/April.

The corn export commitment chart shows that as of mid-January, there is only one other year when US corn sales as a percentage of the annual forecast were lower, 2005/06 at 44%. We would argue that US 2022/23 corn exports should be cut another 100-150 million bu. US corn is losing market share to feed wheat.

The midday forecast is wetter than the overnight run with rainfall totals more like the EU model. Moderate to at times heavy rain continues across Cordoba/Buenos Aires from a slow-moving storm cell with rain totals to date range from 0.4-2.50”. This rain has been far heavier (from this system) than expected. And the GFS forecast maintains a wetter pattern across Argentina for the next 10 days with an additional 1.50-4.50” of rain from the passage of 2 systems. One of the storms on January 25 is a very slow mover which will produce meaningful rain over 2-3 days. We see Argentine rainfall risk as “above normal” for the next 2 weeks.

Near normal rain drops across N and C Brazil which is ideal for late podding soybeans. There will be enough dry slots for N Brazilian farmers to advance their harvest and the seeding of winter corn. No extreme heat is forecast. The weather pattern stays favourable for Brazil.

Solid US export sales helped underpin Chicago values early day. But the market is always forward looking, and it is the above normal Argentine rain and ongoing discussions of record soy yields being cut in Mato Grosso/Goias that will direct Chicago prices. Paris wheat futures are unmoved suggesting that the Chicago wheat rally is just short covering.

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

Weekend summary 20 January 2023

19 January 2023

Posted on January 19, 2023 by simon

HEADLINES: Rains to start Friday across Argentina; World Ocean freight rates decline to multi-year low; Wheat takes US corn export lustre.

Chicago grains are mixed at midday with the grains firmer, while soybeans sag. Brokers indicate that index fund flows are still occurring in the grains, mostly in corn, and investors try to gain exposure to ag/food markets. Some large brokerage firms see commodities outperforming equity markets in 2023 and are trying to diversify their clients accordingly.

We do not see fund flows as continuing or sizeable beyond this week, it is latent investor index fund type of buying that was waiting to get past the USDA January Crop Report. This flow is also pushing spreads, which is keeping some sellers aside. March corn futures trading at a 4-cent premium has some bears scratching their heads. However, Chicago spreads are more about order flow than cash markets, at least until spot futures are closer to delivery.

We look for a mixed to mostly lower Chicago close on fund flows. Thereafter, it is all about when and where rain drops hit in the gauges of Argentine farmers. The bulls won’t budge on their length until the rain falls.

Chicago brokers estimate that funds have bought 1,500 contracts of wheat and 5,500 contracts of corn, while selling a net 5,100 contracts of soybeans. In the products, funds have sold 2,100 contracts of soymeal and 6,900 contracts of soyoil. The soyoil selling was sizeable as key moving averages were breeched. Rain across Argentina could cause a decline below $0.62 March soyoil which would set up the next purchase opportunity. Over time we look for the oil share trade to appreciate.

World ocean freight rates have fallen to a 31-month low which argues that the world economic outlook is worsening, and raw material demand is soft. The China reopening following the Lunar New Year holiday could help spur demand in metal, energy, and ag markets, but assumes that China’s consumer steps forward with new spending. The Chicago rally since the US harvest has been about supply and the loss of US corn/soybean crops and the Argentine drought. It is demand that is troubling with US corn, soybean and wheat exports sagging and feed demand to decline due to falling US livestock numbers and the ongoing fight of the US poultry industry against avian flu.

Mexico purchased 195,000 mt of US corn. Traders expect that US corn, soymeal, and soybean weekly export sales to be large on Friday. We have concerns that Black Sea or Australian wheat can now trade into SE Asia below the cost of Gulf US corn on a landed basis. And Brazil/Argentina have started to drop their premiums on June forward fob corn to compete with the US. Nearby, Brazil will capture world soybean and product demand on price into September.

The midday weather forecast is little changed from the overnight GFS solution and remains consistent. A wetter pattern develops across Argentina’s crop belt starting later today with 10-day cumulative rainfall 1.50-4.50” with the passage of 3 fronts. Such rain totals are near to above normal. The extended range 11–15-day period enhances this wet trend which will includes RDGS in Southern Brazil next week. Near normal rain falls across N and C Brazil which will be ideal for late podding soybeans. There will be enough dry slots for N Brazilian farmers to advance their harvest and the seeding of winter corn. No extreme heat is noted, and the outlook stays favourable for record soy production. And it is far too early to worry about excessive wet weather causing any N Brazilian harvest delays or worry for soybean crop quality.

Friday’s price action will depend on Argentine weather and whether the radar “lights-up” heading into the weekend. China will be on holiday next week which will limit their buying. Key will be if fund managers added to their already record large soymeal length. The market risks are to the downside with cash soybean basis bids weakening. The location and amounts of Argentine rain will direct Chicago prices next week. Our view is bearish.

18 January 2023

Posted on January 18, 2023 by simon

HEADLINES: Argentine rain forecast washes over index fund buyers with Chicago sharply lower at midday; Soyoil holds on oil share spreading.

Chicago ag markets are mixed at midday as the grains, soybeans, and soymeal sag. New fund inflows are being witnessed this morning with the volume of buying below yesterday. Funds tend to move money in and out of markets in 2–3-day time horizons, so most of the recent investment by Goldman (and others) in commodities as an asset class should be completed by today’s close.

This morning it was a battle between the fund flows and improving S American weather. We expect that as the fund flows slow, a Chicago correction will unfold into the weekend. China is on holiday next week, so any fresh grain/soy demand will be modest. China has covered its February soybean import needs and is 60-65% finished with March/April. Amid the sharp discounts of Brazilian soybean fob offers, fresh future US soybean demand will be limited. And Asian feed compounders have secured Australian feed wheat due to its attractive price and lower transit cost compared to corn. US corn export demand will continue to suffer. We look for a mixed Chicago close with the coming Argentine rain for Thursday/Friday likely to pressure Chicago values.

Chicago brokers estimate that funds have bought 2,200 contracts of wheat and 1,500 contracts of corn, while selling a net 5,600 contracts of soybeans. In the products, funds have sold 3,800 contracts of soymeal and bought 2,900 contracts of soyoil. The oil share trade should perform amid the coming improved Argentine rain which will act to stabilise summer row crops.

There were no new FAS Daily Export sales announcements. And remember that FAS will release their weekly export sales report on Friday due to Monday’s MLK holiday.

There is no shortage of world soy crush capacity, just a potential shortage of soybeans due to the Argentine drought. Nearby, we expect that Argentine will continue to crush soybeans amid strong margins into the new crop harvest. And India will double its soymeal exports in 2022/23 while Paraguay/Brazil will both export beans to Argentina for future processing. If there is a shortage of soybean crush, it will be with the US new crop position if the US suffers weather adversity. Spot Chicago soymeal has rallied near record highs above $500/mt. This rally was based on the Argentine drought and a record inflow of investor funds into Chicago soymeal futures. Funds are estimated to be long nearly 150,000 contracts of soymeal at Monday’s close. If the rains fall across Argentina, fund meal length will be vulnerable to liquidation. And US and world livestock feeders are looking to alternative protein supplies in their feed rations on soaring meal prices. An important price top is forming in soymeal should normal Argentine weather returns into March.

The midday weather forecast is little changed from the overnight GFS solution. However, it is worth noting that the GFS forecast is not as wet as the EU overnight solution. The GFS has not been doing a very good job in itemising nearby total rainfall amounts.

A wetter pattern develops across Argentina’s crop belt starting tomorrow with 10-day cumulative rainfall 1.50-4.00” with the passage of 3 fronts. Such rain is near to above normal, the first time that such a statement can be made in the 2022/23 crop year. Extreme heat will be confined to the next 24 hours before showers develop Thursday/Friday/Saturday with 0.5-2.00” accumulations.

Near normal rainfall drops across Brazil which will be ideal for late podding soybeans in the north while RGDS sees improving rain chances this weekend. No extreme heat is noted for Brazilian crops and the outlook stays favourable for record production.

Index fund buying is starting to subside in the grains which is allowing improved rainfall forecasts for Argentina/S Brazil to weigh on Chicago prices. China is on holiday next week and if the Argentine rain persists, long liquidation in the soy complex could develop. It is just tough to be long soy as Brazil starts its harvest of a record soybean crop of 5.6 billion bu.

13 January 2023

Posted on January 13, 2023 by simon

HEADLINES: Chicago markets rally ahead of three-day weekend; Higher crude lends support; Fresh news absent.

Chicago ag markets are mixed but mostly firm at midday, with March soy scoring a newer two week-high, corn falling from session highs and wheat struggling amid weakness in the European market and as fresh importer tenders this week were again filled with Russian origin. Logistic challenges and insurance uncertainty pose questions over the future pace of Black Sea loadings, but for now there is no indication that exports will be disrupted in the near term. Larger than expected US winter wheat acreage expansion lingers in the background. Surprisingly large seedings expansion has weighed on Chicago wheat most heavily. Macro guidance leans modestly supportive. Crude has extended its overnight rally $1.05/barrel. The Dow is flat following morning weakness.

Breaking news is absent. FAS’s daily reporting system was void of new US export sales this morning. Key over the weekend is whether model guidance maintains at least a temporary improvement in Argentine rainfall Jan 21-23, and as a three-day weekend lies ahead for the US, there is limited enthusiasm in establishing new positions.

Otherwise, changing world price relationships favour a seasonal uptick in US corn export demand, flat wheat demand, and waning interest in soy February onward. Interior Russian wheat prices have failed to move, with replacement costs in southern Russia this week quoted at $185/mt. Brazilian soybeans’ discount to US Gulf origin widens to $0.65/bu in April. But there is hope for corn export improvement Feb-Jun amid the lack of Brazilian offers and rising Argentine premiums.

Yet, corn export sales in the week ending Jan 5 were a pitiful 10 million bu, the lowest since September, and despite the USDA’s downward revision to annual exports, weekly sales still must average 30 million bu to meet the USDA’s forecast. It is critical that export sales data shows a shift in demand from S America/Ukraine to the US in February. Otherwise, the market will assume global demand is being destroyed at high prices.

The release of bullish US stocks data Thursday implies closer attention will be paid to Argentine weather in February, Chinese demand in spring (as Covid’s impact wanes), with weekly export sales to be the best measure of changing global corn, soy, and wheat trade flows. The addition of risk premium has been warranted as moisture deficits in Argentina reach multi-decade highs, but demand, not just supply loss, is critical to sustain bull runs. This is especially true as spot corn and soy prices sit at rarefied levels for mid-winter.

The midday GFS weather forecast is little changed from the morning solution. A much wetter pattern develops across the southern half of Argentina’s crop belt beyond Jan 20, with cumulative totals of 1.0-2.5” offered to important regions of Cordoba, Buenos Aires and La Pampa in the 8-11 day period. Yet, widespread showers are not indicated the GFS hints at the return of dryness in Argentina Jan 23-28. Argentine’s forecast is expected to be more dynamic moving forward as La Niña fades. We note that extreme heat and dryness continue in Argentina into late next week.

Needed rain falls across the northern half of Rio Grande do Sul in southern Brazil this weekend. The remainder of Brazil stays wet/mild into late month.

A broadly neutral price trend will be extended into spring following US production cuts made on Thursday. It is still tough to overly bullish of ag markets in the long run amid the lack of a demand driver and improving soil moisture in the US and Europe.