Monthly Archives: July 2023

31 July 2023

Posted on July 31, 2023 by simon

• HEADLINES: Funds cut losses on last week’s Chicago purchases: US weekly exports start to seasonally improve; China active cash buyer on the break.

• Volatility, it is occurring in abundance with Chicago futures sharply lower this morning. Remembering back to just a week ago, Chicago and KC wheat futures were limit bid with corn/soybeans in tow on threatening Midwest weather and Black Sea grain export concern. Today, the bearish feature is an improved Central US weather forecast with the Russian war ongoing and no escalation in the attacks against Ukraine grain infrastructure (for now). Chicago futures are sharply lower at midday and those that chase rallies or sell hard breaks are the “wounded” in the marketplace as price trends last only a week or less.

• Some questioned at the start of May why we were calling for extreme volatility and not a lasting bull or bear move. Our response then (and now) is that Northern Hemisphere weather patterns, trade data and financial markets were not indicating a straight-line move, but extreme whipsaw price action that is difficult to navigate, even for the most seasoned and fast-moving trader.

• That volatility is persisting and is likely to continue until there is US crop yield clarity and world demand steps forward to produce a demand led market in Q4 2023 and Q1 2024. In fact, the lower Chicago drops into a late summer low, the better the longer-term opportunity in our opinion. However, be prepared for additional acute choppiness in the weeks ahead.

• Chicago brokers report that funds have sold 6,700 contracts of Chicago wheat, 11,800 contracts of corn, and 9,900 contracts of soybeans. In the products, funds have sold 4,900 contracts of soyoil and 5,400 contracts of soymeal. The funds were huge buyers in Chicago last week and are unwinding a sizeable amount of that market length today.

• The USDA reported that China purchased 132,000 mt of US soybeans for 2023/24 with the Philippines securing 183,500 mt of soymeal. We believe that China is active securing US soybeans for October/November on the morning break with an additional 6-8 cargoes selling. And the world is looking to US soymeal as Argentine imports of soybeans from Brazil are far below what is required to keep its crush industry supplied. The US will have an important opportunity to supply soymeal to key importers from late September through February. And Argentina looks to export 2.0 million mt less of soyoil which will help ignite a rally in tropical oil demand with Canadian canola supplies so tight.

• US export inspections for the week ending July 27 were up from prior weeks. The US shipped 20.6 million bu of corn, 12.1 million bu of soybeans, and 21.4 million bu of wheat. For their respective crop years to date, the US has exported 1,370 million bu of corn (down 676 million or 33%), 1,856 million bu of soybeans (down 116 million or 6%), and 100.5 million bu of wheat (down 5 million or 5%). We look for the US export pace to slowly improve amid record large world wheat/soy demand.

• Argentine grain inspectors have announced a strike in a bid for higher pay. Argentine inflation rates are soaring to an estimated 116% in July and workers are using every opportunity to improve wages. Argentina is increasingly becoming a banana republic which will curtail crop production gains following 2 years of drought amid financially stressed farmers.

• The midday GFS weather forecast is drier in the first 5 days of the forecast and wetter in the 6–10-day period with a soaking rain projected for Iowa. Confidence in the forecast beyond the next week stays low as the models struggle with ridge riding storm systems. Note that ridge riding systems during July proved to produce a hodgepodge of rain leaving some areas with improved crops while others suffer from acute drought. The only consistent trend has been a worsening Canadian drought and deepening dryness across the Dakotas, MN, and W IA.

• Soybeans have fallen below their 200-day moving average which has sparked additional liquidation. China is active securing US soybeans while US soyoil demand stays strong from renewable diesel. Corn and wheat futures are following the complex lower. Consumers should scale into additional purchases on weakness, this is no place to make new sales. Look for a turnaround on Tuesday in a market where volatility reigns supreme.

28 July 2023

Posted on July 28, 2023 by simon

• HEADLINES: Chicago leaks lower on the hope for improved Midwest rain amid liquidation; First notice looms on Monday for soy; GFS midday weather forecast offers scattered showers.

• It has been another volatile Chicago session with values swinging sharply lower following the morning reopening which triggered sell stops below last Friday’s low. The stop loss selling was buffered by end user/commercial demand which rallied prices back to unchanged in the grains. News that Ukraine had attacked Russia near a grain export port helped accelerate the morning rally. Concern is building on an escalation of the war, and the potential that Ukraine will strike back on Russian export capacity for ending the Black Sea Grain Pact. China remains active in cleaning up Brazilian soybeans for August/September and securing US soybeans for October/November. The break enticed additional Chinese demand with their domestic crush margins positive.

• We look for a mixed Chicago close as volume wanes, but resting sell orders above the market are lacking. End user pricing rests below $5.20 Dec corn, $13.75 Nov soybeans and $6.90 in September Chicago wheat. The escalating Russian war against Ukraine makes traders reluctant to sell Chicago price breaks. We would suppoprt buying of breaks with seasonal lows in place for world wheat/corn prices.

• Chicago brokers estimate that funds have sold 1,600 contracts of Chicago wheat, 3,100 contracts of corn, and 4,400 contracts of soybeans. In soy products, funds sold 4,300 contracts of soymeal while buying 1,100 contracts of soyoil.

• Initial Argentine farmer response to the NEW Corn/Dollar sales program has been better than expected with more than 1.2 million mt selling since the Peso offer was made on Monday. The Corn/Dollar program runs through the end of August, and we would raise our expected farm sales to 4-5.0 million mt. Much of the Argentine cash sales are hedged in Chicago, which helps explain the bump in open interest on Thursday.

• India has banned the export of deoiled rice into November according to trade sources. We understand that the Indian ag ministry is having meetings to lower import duties on wheat, following last week’s ban on 10 million mt of non-basmati rice. Domestic wheat/rice prices continued to rise this week and heading into the next presidential election, rising food prices will be a political talking point. Rumours persist that India has purchased 1.5 million mt of Russian wheat in a direct Government purchase, but confirmation from all sides is unavailable.

• The Russian Government is preparing a draft decree to price its ag exports in Roubles rather than dollars to help circumvent western nation sanctions/SWIFT payment system. The shift to Roubles for energy payment is also in the works. Historically, world ag exports are priced in dollars in the international market and converted back to local currencies. Due to the length of the Russian war against Ukraine, the Russian Government wishes to use its own currency as the payment method. Russia continues to offer wheat in $/mt today, but it could shift to Roubles/mt soon. There are no Ukraine fob price offers for corn or wheat/sunoil since the Black Sea corridor pact ended on July 16.

• The midday GFS weather forecast is like the overnight solution with limited Midwest/Delta rain as ridge riding storm systems are not good producers due to the eastward shift of the Bermuda high pressure cell in the Atlantic. There will be areas of severe weather and localised heavy rain this weekend across the North Central Midwest. Highs will range from the 90’s to the lower 100’s through Saturday and then drop to the 80’s to lower 90’s next week. Ridge riding rains will produce afternoon thunderstorms, but the coverage of the rain will be disappointing. This is a below normal Midwest rainfall pattern into August 10. The 11–15-day forecast allows the South-Central US high pressure ridge to progress north and east into the Midwest. Other models are not showing a Midwest ridge and questions abound as to its correctness.

• China continues to be an active soybean buyer in Brazil for September and the US for October/November. The rapidly expanding El Niño looks to delay the start of the rainy season across Northern Brazil with record heat in early August. World crop production is in decline with the harvest slowed in Russia by too much rain. Look for extreme market volatility to persist with the trend of early week rallies to persist on falling crop conditions.

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

Weekend summary 28 July 2023

27 July 2023

Posted on July 27, 2023 by simon

• HEADLINES: Chicago sags on a lack of buying with hope for better Midwest rain next week; Ukraine grain though the EU will be challenging.

• Chicago grain trade has been mixed in slow volume with corn/soy values under pressure on the belief that next week’s Midwest weather will improve as the recent extreme heat abates while traders debate Black Sea supply risks. Extreme volatility in August soybeans and soy products ahead of first notice day on Monday has been a key driver this morning. August soybean futures scored a fresh contract high at $15.8075, while profit taking, and forward position rolling has hammered soyoil futures. And oil share spread unwinding has been featured which has underpinned soymeal values. Soy futures are all about spread adjustments with traders unwilling to add to risk with most wanting to get flat ahead of the weekend.

• We look for choppiness to persist with the bulls and bears trained by the summer volatility, do not chase rallies or declines is the new manta of a successful 2023 grain trader. A late day Chicago rally is forecast due to the ongoing Russian war aggression. Neither the US nor world markets have fully adjusted to Ukraine grain export shortfalls.

• Chicago brokers estimate that funds have sold 2,200 contracts of wheat, 4,400 contracts of corn, and 4,200 contracts of soybeans.

• US weekly export sales for the week ending July 20 were 8.6 million bu of wheat,  12.4 million bu of old and 13.2 million bu of new crop corn, and 7.3 million bu of old and 20.0 million bu of new crop soybeans. Corn/wheat sales were below the average needed for WASDE to achieve WASDE annual totals.

• The percentage of the US corn crop that is enduring drought rose 4% to 59% with soybeans rising 3% to 53%. Seasonally, the amount of crop enduring drought rises from early August into November as rainfall fails to offset evaporative losses. We look for US corn/soybean good/excellent crop ratings to decline 2-3% on Monday due to this week’s heat and lack of rain. So far, ridge riding storm systems have produced a few thunderstorms that produce heavy rain in locales but have not produced a general Midwest rain. The deepening dryness is important in terms of corn ear tipping while soy pod abortion will occur without soaking rains. August needs to be a wetter across the Midwest/Delta.

• There has been much discussion regarding Ukraine grain flow through the EU and who will pay for the additional transportation cost this week. The EU ag minister (who is Polish) made comments that as much as 4.0 million mt/month could be exported from the EU. Of course, back in November 2022 when such grain was flowing into the EU, it was not encumbered by Polish blockades and long transit times to the ports for offload. And EU sources report that the EU is unlikely to pay for the transit cost as all EU members must agree to the above budgetary cost. And Romania and nearby countries have road restrictions on truck weights on roadways which would add to the logistical delays. The EU will not be able to export 4.0 million mt of Ukraine monthly. We could argue the total will be no more than 0.5-1.5 million mt which means that Ukraine grain exports will be just 30-40% of last year. This leaves the world with a big supply hole that Brazil/US must fill in terms of corn and Russia must fill with wheat.

• The midday GFS weather forecast is like the overnight solution with limited Midwest/Delta rain as ridge riding storm systems are not good producers due to the eastward shift of the Bermuda high pressure cell which limits the flow of Gulf moisture northward. A dry/warm Friday and weekend is forecast for the Midwest with extreme heat battering the Delta/W Midwest. Highs will range from the 90’s to the lower 100’s. A few instability afternoon showers develop across Intermountain West on Tuesday, but the next chance of rain is not evident until a week from today.  Extreme heat holds across the South-Central US.

• China continues to be an active soybean buyer in Brazil for September and the US for October/November. China will import a record amount of world soybeans in the 2022/23 crop year that ends on Oct 1, 104-105 million mt. China’s vessel loading of Brazilian corn is also growing. Amid declining US corn/soy yield potential and strong Brazilian buying from China, we see no reason for sustained Chicago price break with quality/quantity of the Russian wheat crop being questioned by importers/exporters.

26 July 2023

Posted on July 26, 2023 by simon

• HEADLINES: Chicago falls as the EU attempts to route Ukraine grain through their ports; GFS weather forecast drier at midday with cooler temperatures beyond August 3.

• Chicago grain futures are sharply lower at midday with soybeans gaining on both grains. Wheat futures have declined sharply as Russia did not attack Ukraine Grain infrastructure for the second day in a row and traders ponder whether ALL Ukraine grain can be effectively transported through the EU. The EU has offered Ukraine $1.5 billion to rebuild infrastructure that has been damaged (including grains) which started the break. Showers across Chicago added to the selling while support is offered by the searing heat that will impact the Plains and W Midwest today, and the entire Midwest for the remainder of the week. The wide ranges and extreme market volatility has every producer, trader and end user cutting their risk to derivative positions.

• It is hoped that a path can be carved through the EU to allow Ukraine grain exports from Romania, Bulgaria, and even Baltic ports. Although the EU Government argues that ports can export as much as 4.0 million mt of Ukraine grain monthly, European exporters are far less certain, and there is real worry that it will displace normal EU grain trade. The EU Government is said to have legislation pending to pay for the extra logistical cost for Ukraine grain. However, EU exporters are also voicing that the community needs to pay their rising cost of elevation/transit due to the additional Ukraine grain.

• The EU land movement of Ukraine grain is complex and costly. Moving Ukraine corn/wheat through Constanza, Varna or other nearby ports will produce considerable strain on trucks/bridges/rail lines. Ukraine truck drivers will unload their grain at the border with either an EU truck, rail or barge then taking the grain to a marine export terminal. The logistical costs are sizeable, and the EU is not set up to export such large/consistent tonnages.

• And Russian President Putin can bombard Western Ukraine roadways/rail that would further restrict Ukraine grain flow (into Europe) if it was the intent of Russia to halt Ukraine ag flows. Moving grain through the EU is the last (and a costly) alternative. Otherwise, Ukraine agriculture will be facing worsening bankruptcies of farmers, processors, and exporters. Ukraine farmers will not be able to make it through to another growing season.

• Weekly US ethanol production was hefty at 322 million gallons, up 7% from last year and the largest weekly corn grind for any week since October 2021. The US needs to grind 311 million bu of corn per week to reach the WASDE annual target. A few additional weeks like this would cause WASDE to raise their 2022/23 corn ethanol grind by 20-25 million bu. US ethanol stocks rose by just 3 million gallons to 973 million suggesting record large use. US gasoline demand was 8.94 million gallons, down 3% from last year.

• The USDA announced the sale of 272,000 mt of US soybeans to an unknown buyer for 2023/24 and 229,000 mt of soybeans received and to be sold to an unknown buyer. The buyer is assumed to be China as they start their October/November purchase program.

• The midday GFS weather forecast is drier that was offered overnight. The system that currently sits over Lake Michigan will push east today producing scattered showers across MI, IN and OH with rain totals of 0.1-1.00” on coverage of 40%. The period from Thursday into Monday is dry with searing heat in the 90’s/lower 100’s. There may be a few instability afternoon thunder storms on Tuesday, but rain total will be less than 0.25”. The Canadian Prairies are also drier/hot under the GFS forecast with limited rain for key canola, oat, and spring wheat areas for at least another week.

• A secondary surge of Midwest heat develops mid next week with a high-pressure ridge holding across the South-Central US. High temperatures range from the upper 80’s to the lower 100’s. A ridge riding storm is forecast for Aug 3 with 0.1-0.6” of rain favouring the E Midwest. The W Midwest/N Plains is dry into August 6 with considerably cooler temperatures in the 80s/low 90s.

• The EU hopes that Ukraine grain can flow through its ports in the coming months. We suspect the EU flow will be far smaller than was pushed through the Black Sea. The midday GFS forecast is considerably drier with cooler temperatures after August 3 for the Midwest. The amount of US crop in drought will be expanding. US soy crush and corn grind margins are profitable. The chase is on for remaining old crop beans.

25 July 2023

Posted on July 25, 2023 by simon

• HEADLINES: GFS weather forecast drier at midday for the upper Midwest and N Plains; Soy/Dollar program for Argentina starting September 1; IMF forecast grain prices to rise 10-15%.

• Chicago grain futures are lower at midday in declining volume. Traders are frustrated by the extreme volatility and the uncertainty of headlines that flow from the Black Sea in terms of the Russian war against Ukraine (that include Ukraine grain infrastructure). Did Russia attacked grain infrastructure or not will help to determine overnight Chicago trade. Due to war headlines that now involved Ukraine agriculture, Chicago price ranges since the pact ended have nearly doubled from the weeks prior. The wide daily price ranges and uncertainty surrounding headline risk has traders cutting position size. Few traders feel comfortable holding a position overnight now that the Black Sea Grain Corridor pact has ended, with the UK suggesting that Russia is preparing to inspect/board private Black Sea vessels to make sure that military hardware is not being transported. We expect that extreme Chicago market volatility will persist with weather and the Russian war playing oversized price roles. The remainder of summer looks volatile for Chicago markets.

• If Russia starts inspecting ships that come and go from the Black Sea, few owners will be willing to charter vessels as insurance is not available. Ukraine grain must flow through EU which is probably limited to only 1.5 million mt/month. World grain prices are rising on tightening exporter supplies of grain. This is a supply driven bull market.

• Chicago brokers report that the managed money has bought 2,500 contracts of Chicago wheat, 5,200 contracts of corn, and 1,400 contracts of soybeans. In the products, funds have bought 2,300 contracts of soyoil and sold 2,100 contracts of soymeal. Since the morning reopening, fund managers have been on the buy side of Chicago.

• The IMF indicated that the ending of the Black Sea Grain Corridor pact could raise world grain prices by 10-15%. IMF Chief economist Gourinchas told reporters that the Black Sea Corridor was “instrumental” in ensuring ample supplies of food to the world. We could argue that if the Danube stayed open (2-2.5 million mt/month) and 1-1.5 million mt of grain flowed into the EU each month, that Ukraine could have exported its entire grain supply. However, Russia then attacked a rail spur into the EU, and Reins (Danube) that caused concern that Ukraine grain has only one way to flow, through the EU and out through its export ports. The EU route has limitations and adds to the EU’s political woes as Eastern European farmers complain of low prices/profits.

• Argentina announced its corn/dollar program yesterday with a lukewarm response from the Argentine grain industry. The offer of 340 Pesos/1 US$ is good through August, and it is expected to spur farm sales of 2-3 million mt of corn. We understand that Argentina will be returning to offer a soy/dollar program immediately following the end of the corn/dollar program to make sure that tax revenue keeps flowing. It is uncertain how much grain the offers will produce with the black Peso rate at 570/1 US$ and monthly inflation exceeding 100%.

• The midday GFS weather forecast is slightly drier for the N Plains and the Upper Midwest than was offered overnight. The models are struggling with ridge riding storm systems and an Atlantic Hurricane that is forecast for the 10–15-day period. This reduces our confidence beyond the next week. The forecast models are struggling with the mean position of a high-pressure ridge next week and a more active Gulf of Mexico.

• Heat is building from west to east across the Central US as a high-pressure ridge amplifies. Midwest high temperatures will rise to the 90’s/lower 100’s starting Tuesday with the extreme heat lasting through Saturday. The mean position of the ridge retrogrades to the Intermountain West with Canadian air pushing south into the E Midwest next week. This means that the west will continue to swelter while showers dot the E Midwest. The GFS forecast also brings a hurricane into the Carolinas with very low confidence.

• Chicago breaks are going to be difficult to sustain amid the addition of war/weather premium to price. Funds have yet to cover a net short Chicago wheat short while the hodge-podge of Central US rainfall will not be enough to counter extreme heat. Bull spreads in soyoil lean bullish and new highs are forecast in the soy complex.

24 July 2023

Posted on July 24, 2023 by simon

• HEADLINES: US wheat futures limit bid; Corn follows on Black Sea supply worry due to war; GFS midday weather forecast is wetter for IL/IN, heat lingers across the W Midwest/Plains.

• Chicago grain futures are sharply higher at midday with Chicago wheat limit up as funds try to exit their net short position as Russia takes aim on Ukraine ag transit channels, and especially key infrastructure that allows the export of Ukraine ag products. Russia has bombarded Ukraine ports and now Reins (Danube River) which if there are repeated attacks, limits the only avenue for Ukraine grain into the EU. And with key EU border countries (like Poland) already blocking the flow of Ukraine grain into its country to protect local farm income, the pathways for Ukraine grain trade becomes difficult. As Ukraine farmers watch their crops grow, the fear is growing that war torn financial difficulties could become much worse.

• And there is growing concern that Ukraine will take revenge on the ended grain corridor pact and target the Kerch Bridge (Azov Sea) that could potentially block 35% of Russia’s wheat trade. Added together, the impact on the world wheat market would be sizeable quantities, amounting to nearly 20 million mt of wheat traded annually. The weekend again proved that geopolitics are difficult to predict/trade, but the impact on world grain/food markets is sizeable. Geopolitics and weather will produce considerable market volatility in August.

• And ocean freight insurance brokers have ceased offering insurance for any ship that would berth at a Ukraine port and are considering dropping insurance for ships that are contracted to haul grain from the Danube. This is further confirmation that Ukraine grain flows into the world market are halted. The biggest impact on an end user would be China that last year imported 11 million mt of Ukraine corn. China will be forced to secure their corn this year from Brazil or the US.

• Chicago brokers report that the managed money has bought 7,900 contracts of Chicago wheat, 11,200 contracts of corn, and 5,400 contracts of soybeans. In the products, funds have bought 1,600 contracts of soymeal and 5,500 contracts of soyoil. We hear that new investor money is being pushed into commodities with the US Central Bank to raise rates by 0.25% Wednesday and then pause.

• Argentina announced its Corn/Dollar program with a Peso rate of 340/1 US$ or a 25% premium to the existing Peso rate of 270/1 US$. At 340 Pesos, the Argentine Government is trying to get the cash strapped farmer to sell hoarded supply with inflation running well above 100%. The Argentine Government has IMF payments to make and is dire need of hard currency. Argentine farmers will be able to sell corn at the 25% Peso premium through August. We doubt that Argentine farmers will be big sellers of their stored corn unless they need to raise cash for the new crop planting campaign. The fear is that Argentine farmers will financially struggle due to 2 years of drought and have depleted financial resources to seed new the 2024 harvest.

• US export inspections for the week ending July 20 were 122 million bu of corn, 10.4 million bu of soybeans, and 13.2 million bu of wheat. Corn export sales were disappointing, but in line with trade expectations.

• The midday GFS weather forecast is slightly wetter for IL/IN than was offered overnight. The models are struggling with ridge riding storm systems beyond Saturday. Heat will build from west to east as a high-pressure ridge amplifies with Midwest highs rising to the 90’s/lower 100’s starting Tuesday and lasting through Saturday. The mean position of the ridge retrogrades to the Intermountain West with Canadian air pushing southward across the E Midwest in 7-8 days. This means that the west will continue to swelter and hold in a below normal rain pattern. The GFS forecast also brings a tropical system into SE FL and marches it northward which impacts most of state. Confidence in this FL hurricane is low.

• Wheat futures are pushing to sharp gains on the worry that the war will curtail/disrupt Black Sea grain trade. The corn impact will also be sizeable with soy futures following. Funds need to cover their short wheat futures via chart-based rules. We remain bullish until there is clarity on Black Sea grain supplies and Central US weather.

21 July 2023

Posted on July 21, 2023 by simon

• HEADLINES: Soyoil soars on cash premium gains; GFS midday weather forecast cooler/drier in the 10–15-day update with heat next week.

• Chicago futures are mixed at midday with the soy complex higher, while corn/wheat futures sag on the Black Sea grain saga and profit taking into an uncertain weather and geopolitical weekend. The volume of Chicago morning trade has been well below normal with traders adjusting risk through options. Few are willing to add to their risk profile amid so many uncertainties. The recent back-and-forth in the marketplace has exhausted both the bulls and bears. And many fear that getting US corn/soybean yields correct will be a difficult task until the Midwest harvest begins. Rainfall has been extremely spotty in July with some areas seeing an abundance of rain while farms 50 miles away are suffering from acute drought. Yields are likely to be highly variable. We guestimate the US corn yield at 173 bushels/acre and soybeans at 51.0 bushels/acre as of today, with a downward bias based on the Central US weather forecast for the next 2 weeks. We look for a mixed Chicago close with short covering before the close based on the Black Sea political tensions/uncertainties.

• Chicago brokers report that the managed money has sold 6,800 contracts of Chicago wheat, 3,200 contracts of corn, and a net 900 contracts of soybeans. In the products, funds have sold a net 200 contracts of soymeal while buying 3,200 contracts of soyoil. Funds have been on both sides of soybeans/soymeal this morning.

• The UN following today’s “Post Black Sea Grain Food Summit” warned that many may die with 362 million people in 69 countries in dire need of humanitarian aid. The UN claimed that some will go hungry, and some will starve based on the decision not to keep the Ukraine Grain Export Corridor open. An economist told the 15 member that world grain prices will rise, but that just 3% of last year’s Ukraine grain exports went to the poorest countries in Africa/SE Asia.

• And Russia is proposing that it will send wheat/corn directly to Africa’s poor. Program details are awaited, but Moscow appears willing to help in feeding Africa to deflect US/world criticism over the ended corridor pact. Also, Russian sources are also suggesting that Moscow is considering ways to close Ukraine grain exports from the Danube River. The ending of Ukraine Grain trade appears to be a new military tactic of Russia, which means that attacks could continue against Ukraine grain export ports over the weekend.

• Argentina is expected to announce a corn/dollar program today or on the weekend to prod farmers to sell stored corn in a high inflation economic environment. Argentine farmers are being trained to wait for Government programs.  Argentine farmers are estimated to be holding around 22-23 million mt of corn and with 3.5-4.0 million mt needed for domestic feed production, at least 18 million mt of corn would be available for export. However, unless Argentine farmers have a need for Pesos to pay off crop input bills for October seedings, the farmer will likely stand firm on storing corn/soybeans with the monthly inflation rate running at 114%. To borrow money from an Ag Argentine Bank carries an interest rate of 105-120% making farming a “cash only” proposition.

• The midday GFS weather forecast is consistent with limited Midwest rainfall outside of widely scattered showers for IN/OH today. Heat builds early next week as the SW US high pressure ridge amplifies north and east with highs in the 90’s/lower 100’s. The mean position of the ridge retrogrades to the Intermountain West with Canadian air pushing southward across the Midwest in the 11–15-day period which pushes ridge riding rains to the Delta leaving the Midwest in an arid flow.

• Soyoil futures are rising on cash premiums and slowing US crush due to seasonal maintenance. The lack of any extended period of heat is pressuring corn/soy futures while Black Sea geopolitical hope has wheat under pressure. Don’t sell breaks! Volatile Chicago trade will persist!

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

Weekend summary 21 July 2023

20 July 2023

Posted on July 20, 2023 by simon

• HEADLINES: Chicago nervously mixed with India banning rice exports; World food security issues rising dramatically; GFS midday weather forecast stays hot/dry for the Central US.

• The big news of the day is not that Russia bombarded Ukraine port facilities for the third consecutive evening, or that Ukraine threatened retaliation against Russian grain vessels in the Black Sea, but that India has decided to ban non-basmati rice exports. This is a “punch in the gut” to SE Asia/North African nations that count on the little white grain for their daily subsistence.

• Food security has come back to the fore of world grain trading in less than a week with the escalation of the Russian war against Ukraine and ending of the Black Sea Grain Corridor pact. Geopolitics has reared its ugly head (again) much like it did in the spring of 2022 following the Russian invasion of Ukraine. World end users of grain/oilseeds are short bought, and the price and origin of the supply is under widespread discussion. Worrying over whether importers can count on the Black Sea as a reliable grain supplier is growing. The curtailment of 10 million mt of Ukraine grain exports is endurable, but this would mean that Russian 2023/24 wheat exports of 45-46 million mt are desperately needed. If a Russian cargo ship is hit via the war, it may cause the cancelation of freight insurance to Russian exporters. The loss of Russian wheat exports shifts the wheat market to a more dynamic bullish price phase. This is where the geopolitics of world grain trade has changed so significantly since Sunday.

• In the case of Black Sea grain fob offers today, they are opaque and difficult to uncover. Azov Sea traffic is limited to just a few hours each day, which has all but closed grain trade from this key Black Sea supplier due to Monday’s strike on the Kirsch Bridge. The Azov accounted for 34% of Russian wheat exports last season. When will the Azov return to export capacity is unknown.

• Back to India, it exported 43% of the world rice trade in the past crop year with non-basmati rice accounting for 80% of the total or just over 17 million mt. This means that world rice importers must get their non-basmati rice from someone else. However, replacing just banned Indian rice exports from Thailand, Vietnam, and others is impossible in the volume halted by India. World food security declined sharply today and if key importers like Africa or SE Asia will now turn to enlarged wheat/vegoil imports due to rice shortages.

• The Indian decision to ban rice exports and the ending of the Black Sea Corridor Pact amid rising war hostilities has left the world in an immediate and sizeable, short food grain position. And making matters worse, Russia has trained world wheat importers/millers to secure spot supplies for the past year as forward Black Sea offers were difficult to find, and the price of global wheat fell each week. This food grain shortage is also fanned by droughts across Europe, Canada, and portions of the Central US.

• China was a sizeable buyer of US sorghum in the weekly export sales report due to switching and new purchases on a combined crop year basis of 650,000 mt.  There are rumours that China has been active in securing Brazilian corn in recent days for September-November, and now has also asked for US corn offers. We cannot confirm a US sale, but cash connected sources suggest that some trade has been done. The Brazilian corn is an easy purchase due it its steep discount. A US sale would likely be for Q1 2024.

• The midday GFS weather forecast is consistent with the overnight run with limited Midwest rainfall outside of widely scattered showers for W IN/OH in the next 36 hours. Heat builds early next week as the SW US high pressure ridge amplifies north and east. The mean position of the ridge holds from the Intermountain West and into the Central Plains. The ridge is strong enough to produce record heat for the date across the Western US. There will be several ridge riding systems by late July/early August, but it is impossible to know rain locations or amounts. Crop stress will be acute.

• Seasonal lows in wheat occurred in June and were likely forged in corn last week. Soyoil is pushing to new rally highs as the cash basis bids rise. We are bullish of wheat/soybeans/soyoil and neutral to bullish of corn on breaks. India’s ending of rice exports is a big deal longer term and each headline on the Black Sea will produce sizeable price moves.  Be prepared for acute market volatility for the remainder of the summer.

19 July 2023

Posted on July 19, 2023 by simon

• HEADLINES: Chicago wheat near limit up as Russia threatens Black Sea vessel movement; GFS weather forecast unchanged in projecting extreme Central US heat.

• Chicago futures remain firm at midday but have fallen from session highs. At centre stage is the market’s focus on escalating war in Ukraine, with newswires this morning reporting that the Russian military moving forward will consider any vessel traveling to Ukrainian ports a threat, and the countries whose flag sits atop those vessels as party to war. This follows attacks in Crimea and Southern Ukraine overnight. Spot Chicago briefly this morning was limit up. Corn and soy have ebbed and flowed as the market awaits details, and likely actual readings, surrounding this weekend’s/next week’s soaring temperatures. Recall the EU and GFS forecasts are at odds over exactly how extreme heat will be across the Central Plains and Midwest, but there is little doubt that a pattern of rapid/massive soil moisture loss lies ahead. Conditions are fine today, but the gut slot of reproductive stages are due in the next 2-3 weeks.

• Paris milling wheat, corn and rapeseed markets have been less willing to ease at midday. Black Sea grain flows will be challenged, but we would reiterate that it is military action in the region that is most concerning.

• It is also noteworthy that Brazilian corn futures have followed grain markets elsewhere higher. Sep corn in Brazil is up $0.18/bu at $5.26. Nov corn in Brazil at midday sits at $5.52/bu. The Brazilian market’s inability to fall to new lows at harvest is important and suggests global corn markets don’t have to do much to encourage the return of enlarged demand.

• US ethanol production in the week ending July 14 was a larger than expected 315 million gallons, vs. 303 million the previous week and slightly above the pace needed to hit the USDA’s new annual target. The outlook for corn grind into late summer is positive amid ongoing year on year expansion in gasoline use and rising gasoline and ethanol prices. The ethanol swap market has recovered rather quickly from weakness in early July, with spot ethanol today quoted at $2.49/gallon. WTI crude is up $0.30/gallon at $76.10.

• The US dollar index has stabilised, but a more supportive global ag tone remains in place amid chaos in the Black Sea and numerous weather issues. Coming US heat/dryness is priority number one, but Argentina’s new wheat growing season ends with subsoil moisture almost completely absent. Developing dryness in W Australia must be monitored.

• There is little to new say regarding Central US weather as the GFS weather forecast is unwavering in projecting max temperatures next week at 105-115 across the Central Plains and into western Illinois throughout the second half of next week. Light/scattered showers may dot parts of the Midwest into the weekend, but nothing heavy is indicated outside of far W KS and IN/OH. The midday GFS forecast keeps in place expansive high pressure ridging into Aug 1, which limits meaningful precipitation to eastern North America. Debate is warranted over temperatures next week, but our concern is that of a near complete lack of precipitation over the next two weeks.

• Ukraine’s maritime shipments of wheat, corn and vegoils has ended, and while land movement westward is expected the cost and uncertainty of Ukrainian supply availability has risen. This along with threatening US and global weather patterns warrants end user coverage on corrections.

18 July 2023

Posted on July 18, 2023 by simon

• HEADLINES: Chicago extends overnight rally as GFS weather forecast stays dry, very hot into early August; Spot crude up $1.50/barrel.

• US spring wheat futures are lower following Monday’s somewhat unexpected boost in crop ratings, but otherwise US and global ag markets are adding risk/weather premium. Wheat futures in the US and Europe have largely shrugged off talk that Russia would waive its current tax on wheat exports to ‘friendly nations’ and focus instead remains on the rapid escalation of war in Ukraine. We have highlighted previously that, on paper, the corridor won’t materially obstruct Ukrainian shipments given reduced Ukrainian grain output, but vessel movement in the Black Sea will be challenged by missiles/drones and there is some increased measure of risk in maritime exports from both countries. Additionally, forecasts in the US and large parts of Europe keep in place a pattern of widespread dryness and increasingly warm temperatures into the opening days of August. Regular rain is still needed in all but the eastern Midwest to fully salvage yield potential.

• Global rapeseed and canola markets have been the bullish leader of the oilseed space in recent weeks as the loss of just 2-3 million mt of Canadian canola production would be highly disruptive. November canola at midday is up another $1.50/mt and has rallied 12% since June 30.  August Chicago soybeans are down 5% in the last 30 days, and so similar to 2021/22 the world’s minor oilseed markets are providing a pillar of support to the soy complex. Spot cash rapeseed oil in N Europe today sits at an equivalent $0.51/lb, up 6% in the last 30 days.

• Interior US corn bids have been firm this week, especially at/near ethanol plants, with Cedar Rapids basis rising to $1.03 over, and with spot cash corn in the W Midwest above $6.20/bu for the first time since the release of NASS’s stocks and seedings data. Central Midwest soy bids have rolled to November, but flat prices are still well above $15/bu for Jul-Aug delivery. It remains that there is limited tolerance for yield loss, even corn, which makes the next 2-3 weeks of growing conditions critical. Current subsoil moisture is lacking or absent entirely in pockets of the Central and Northern Plains and Northwest Corn Belt.

• Export demand is struggling but domestic processing margins are elevated. Spot futures-based soy crush at midday is $1.85/bu, vs. $0.40-0.80 in mid-June. Ethanol margins remain profitable amid relative strength in cash ethanol prices.

• The midday is GFS weather forecast is consistent with morning output, and unfortunately maintains a pattern of lengthy and widespread dryness and a growing likelihood of extreme heat throughout next week. High pressure ridging currently aloft TX and the Southwest expands rapidly into Central Plains and far W Midwest this weekend. The GFS forecast keeps this ridge in place across the western part of the US Ag Belt into August 1-2. The GFS is unwavering in projecting max temperatures across TX, OK, KS, NE, MO and parts of IA at 96-107 degrees, which is probably overdone but there is agreement that a much warmer temperature profile impacts the Central US in late July. Meaningful precipitation will be confined to W KS and the mid-South. The outlook is threatening.

• Midwest rain in late June/July was welcomed, but heat/dryness in the second half of July is as or more threatening than early-season drought. There is a more broadly supportive tone to the global ag market amid ongoing firm prices in India, rising interior prices in Russia, firm South American corn fob basis the return of adverse US conditions.