Monthly Archives: August 2023

31 August 2023

Posted on August 31, 2023 by simon

• HEADLINES: Deral says no seeding gain in Parana ; GFS weather forecast adds showers for KS/MO/NE on September 9-10; US export sales expand, but well below last year.

• Chicago futures are mixed at midday with corn/wheat reversing early losses while soybean futures hang in the red on grain/soy spread liquidation. Chicago wheat futures have formed a key reversal up after forging new contract lows shortly after the opening on the September liquidation. Massive deliveries against Chicago September futures sparked new contract lows with a key reversal following. Managed money net short positions in Chicago wheat are now estimated at over 84,000 contracts. Such a massive net fund short in wheat as the Northern Hemisphere harvest nears completion has historically produced seasonal or in this case, a secondary seasonal low.

• Corn and soybean futures are holding key support as the market looks to clarify new crop yield potential. Disease pressures are becoming widespread in soybeans while the coming record heat will pressure the starch accumulations in corn kernels. It is small and light test weight corn kernels that will be the result from the acute dryness since mid-August with 2 separate periods of intense heat. Although traders argue that corn in dent is free from yield deterioration, agronomists worry that corn may lose more yield (than soybeans) as 2% of dry matter is determined daily in corn, even in the dent stage. A sub 170 bushels/acre US corn yield is possible if the GFS/EU weather model forecasts are correct. And corn harvested acres will decline on the need for extra silage.

• The USDA did not announce any US corn, soybean, or wheat sales this morning.

• Chicago brokers report that managed money has bought a net 1,400 contracts of corn and 1,300 contracts of Chicago wheat, while selling 3,600 contracts of soybeans. Funds have sold 3,100 contracts of soymeal and bought 1,600 contracts of soyoil.

• US export sales for the week ending August 24 where 12.7 million bu of wheat, 41.8 million bu of corn, and 39.2 million bu of soybeans. The corn and soybean sales were a combination of both the old and new crop years. For their respective crop years to date, US wheat sales rest at 276 million bu (down 85 million or 30%), US old crop corn sales are 1,598 million bu (down 750 million or 31%), and 1,963 million bu (down 233 million or 11%). The US export sales pace remains bearish due to cheap offers of corn/soybeans from Brazil and the high cost of freight to complete against European and Russian wheat price offers on a CIF basis.

• Deral, the ag statistical arm of Parana, indicated in a just completed farm survey that their producers would seed an equal number of soybeans and 8% less first crop corn compared to last year. The price pressures on Brazilian farmers are real and farmers are responding with less expansion. The theme of less expansion in Brazilian seeding is contrary to prior years and what WASDE is forecasting in terms of a record 163 million mt soybean crop. Also, Mato Grosso will allow producers to seed soybeans before Sept 15, the normal start date to prevent the spread of rust. These beans will be available in late December.

• The Plains/Midwest/Delta weather forecast is consistent with an extended period of little/no rainfall and above to too much above normal temperatures starting tomorrow. High pressure ridging holds across the Central US with record heat forecast on the weekend and early next week (90’s to the lower 100’s). The opening 10 days of September are forecast are as hot/dry as anyone could imagine. There is a chance of rain in the 9-10 day from a ridge riding storm that is forecast to produce showers across NE, KS, and MO. The remainder of the Midwest/Delta stays dry and warm.

• The end of the month is here but new risk taking will hold off until next week. The rapid spread of soybean diseases is something that crop watchers will try to decipher following the holiday. Next week, the trade will pay attention to the dryness enveloping S America and Australia as crop growing cycles start. And China continues to be a big buyer of barley, corn, and soybeans in non-US markets. We believe that seasonal Chicago lows are forming, no new sales are advised with end users to add to forward coverage.

30 August 2023

Posted on August 30, 2023 by simon

• HEADLINES: Month end positioning has been key to price direction; GFS weather forecast hotter in the extended range forecast; Russia to send discounted wheat to Turkish millers.

• Chicago is characterised by low volume and mixed prices at midday. Corn and soy futures are sagging while Chicago wheat holds marginally in the green. The volume of trade is in decline heading into first notice day tomorrow against September futures and the long US holiday weekend. Few traders will chase rallies ahead of the pending harvest while end users are more willing to buy breaks due to poor finishing weather across the Central US. Field assessments will be made over the holiday weekend as producers and NASS enumerators measure US yield potential. We look for a mixed Chicago close with wheat to be the upside leader as funds have piled back into a net short position exceeding 84,000 contracts. The large net fund short and coming time for seasonal lows has captured the interest of speculators. The sharp rise in world rice prices has the other food grains, wheat, becoming of interest to SE Asian importers.

• The Mississippi River is in seasonal decline which is being hastened by the lack of Midwest rainfall during the last 4 weeks of summer. Like last year, the fear is raising barge costs that will hit cash basis bids and could slow US exports on rising FOB costs. Today, fob Gulf corn/soybean offers are near normal and should not have an impact. However, look for strong activity of unit trains running in parallel to the Mississippi River to keep US grain flowing.

• The USDA announced daily sales of 266,000 mt of soybeans to an unknown destination, rumoured to be China. US corn, soybean and soymeal export sales are expected to noticeably increase tomorrow and next week amid all of the newfound demand.

• Chicago brokers report that managed money has sold 3,400 contracts of corn and 2,300 contracts of soybeans, while buying 1,300 contracts of Chicago wheat. Managed money has been flat in soyoil while selling 2,100 contracts of soymeal,

• EIA reported that the US produced US ethanol production averaged 1,007 thousand barrels per day vs 1,048 thousand last week. This consumed 298 million bu of corn and allows the WASDE annual forecast of 5,300 million bu to be close to correct. Seasonally, US ethanol production ramps up in mid-September with the new crop harvest. We expect the seasonal demand to be strong with profit margins sitting at their best levels since 2018.

• There appears to be no willingness of Russia to return to the old Grain Corridor Export pact that they abandoned in mid-July that would allow Ukraine to return to marine grain export trade. The Russians are proposing to Turkey that Russian wheat will be discounted to Turkish millers which is turned into flour and exported to those in need across the world (hopefully at a cheaper price). Qatar is said to provide some of the financing of the transaction. Russia also claimed that it would view any Ukraine grain cargoes as potentially carrying military cargo and subject to inspection/attack.

• The Plains/Midwest/Delta weather forecast is consistent with an extended period of little/no rainfall and above too much above normal temperatures starting Friday. High pressure ridging holds across the Central US with record heat forecast on the weekend and early next week (90’s to the lower 100’s). The extreme heat adds new stress to summer row crops. Crop maturity will be pushed to the detriment of yield. The opening 10 days of September are forecast as hot/dry as anyone could imagine. The drop in the US corn/soybean yield potential will take some time to understand, but seed size will be impacted. A front pulls across the NW Midwest in the last half of next week that produces light showers. Meaningful rain is not forecast/indicated into September 10.

• The end of the month is here, and traders are banking profits on short wheat and long soybean positions. Corn futures are range bound until there is clarity on US yield. It is September when traders will look for increased US export demand, a falling US dollar and the refilling of the cash grain pipelines that are so severely depleted. Seasonal price lows are in the making and consumers should be using weakness for purchases. If US combine reports offer less than expected yields with tight producer holding, a marching bull market can unfold during the harvest.

29 August 2023

Posted on August 29, 2023 by simon

• HEADLINES: Chicago sags in corrective trade with traders debating the yield impact of another 2 weeks of hot/dry Midwest weather; Stats Canada number supportive.

• Ongoing wheat fund selling on the charts along with traders debating the impact of late season heat/dryness across the Central US has dominated Chicago price discovery discussions. Wheat futures have pushed to new lows, while oat futures pushed to new highs. Spot Chicago oats are now trading at a $0.17/bu premium to spot Chicago corn. And soybean futures are consolidating against $14.00 November as sub 50 bushels/acre soybean yields are being bantered around.

• Soybeans will be the most impacted by the coming record heat/dryness, but the degree may require actual harvest data in late September. NASS enumerators are heading to the fields to measure crops and pull ears and pods to determine weight. Recent crop tours have placed the trade on notice that NASS survey yield will come in below their August farmer survey forecast. Note that StoneX will be out with their corn/soybean estimate on September 6 followed by the Markit/S&P group and others later that week. In a price nutshell, it is all about US corn/soy yield potential and the coming Central US weather.

• Chicago brokers report that managed money has sold 5,400 contracts of Chicago wheat, 2,500 contracts of corn, and 2,600 contracts of soybeans. In the products, funds are flat in soyoil while selling 4,100 contracts of soymeal.

• The USDA announced daily sales of 246,000 mt of soybeans and 105,000 mt of soymeal to unknown destinations. China remains active in securing US soybeans while SE Asia is booking US soymeal amid the Argentine shortfall that starts in October. It is difficult to find an offer of Argentine soymeal beyond October due to their lack of bean imports from Brazil.

• Stats Canada estimated their crops at 29.4 million mt of all wheat (down 14% from last year) with the oat crop at 2.4 million mt (down 54% from last year), and a canola crop of 17.6 million mt (down 6%). WASDE sees the Canadian wheat crop at 33 million mt, and a reduction of 3-3.5 million mt in world wheat supplies is coming. Canadian 2023/24 wheat exports will likely be cut to 20-21 million mt, which compares to 25.50 million last year. Oat prices are soaring since the US will need to import every mt of Canadian oats available to avoid dire shortages. Finnish oat quality was curtailed this year due to wet weather conditions at harvest.

• The spot Chicago wheat/corn spread has poked below $1.00/bu premium on the ongoing selling of wheat by fund managers. US SRW Gulf wheat is the cheapest in the world at 8 over December for October or $230/mt. This compares to French wheat at $260/MT for October and Russian 12.5% hi pro wheat at $265/MT. US SRW Gulf wheat is priced to sell and should a GASC tender come forward, US SRW wheat values allow the US to have a rare export chance. Russia appears to be holding their wheat offers near above $260/mt basis Novo while Argentine new crop wheat prices are impossible to find. Our point is that it never pays to be short the cheapest wheat (world) with seasonal lows due this week.

• The Plains/Midwest/Delta forecast is consistent in calling for an extended period of little/no rainfall with above to too much above normal temperatures starting Friday. High pressure ridging holds across the Central US with record heat forecast in the 6-15 day period with highs in the 90’s to the lower 100’s. The extreme heat will add new stress to summer row crops. Central US soil moisture is in sharp decline and crops in the driest areas could endure premature death. The forecast is about as hot/dry as anyone could imagine for early September and the impact will be smaller US soy/corn seed sizes. It will take actual harvest data to understand how the late summer extreme heat/dryness impacted 2023 US summer row crop yields.

• The end of the month is here and liquidation of any stale September length in wheat/corn is ongoing. September soybean, soy products and wheat futures are largely liquidated prior to first notice day on Thursday. It is corn where open interest is historically large at 81,835 contracts. The Mississippi River is declining amid the acute Midwest dryness, but river levels are above last year’s low. Transit costs on the river will be rising, which will hit new crop basis bids. Farmers report that their plans are to sell newly harvested soybeans and store corn. Look for the market to follow the price pattern of recent weeks with a rally to start the week, a mid week break and a recovery to add weather premium ahead of a long holiday  weekend.

25 August 2023

Posted on August 25, 2023 by simon

• HEADLINES: Chicago wheat drops on higher dollar; Row crops steady/higher; Central US heat probable through early September.

• Chicago wheat futures are down 8-10 cents but otherwise US and global ag markets are steady to higher. Pro Farmer’s tour summary is awaited, but the bigger question is just how negative an impact will recent/coming Central US heat and dryness have on final pod and ear weights. Model forecasts have trended warmer overnight, with high temperatures in the 90s to resume across the Central Plains and western Midwest mid-week onward, and there is no indication that soaking rain returns to any area prior to September 8. There is no doubt soy output will be more impacted by late season weather, but even in dent measurable corn yield loss is possible. We note that concern is centred on areas of eastern NE, IA, MN, WI and northern IL, where negative soil moisture anomalies are present today. USDA estimated that very little subsoil moisture was present across the far N Plains, IA, NE, MN and Wi on Aug 20. There are four tropical disturbances present in the Atlantic, but none are forecast to provide moisture to the Plains or Midwest.

• US exporters sold 121,000 mt of soy to China. Egypt was in private talks to secure additional wheat overnight, but no purchase was made.

• Spot cash milling wheat in India rallied another $0.03/bu to $8.45 overnight. Nov Dalian corn in China has recovered 3% from last week’s low and Dalian corn’s premium to US Gulf origin remains perched above $150/mt. The US oat market continues to add premium amid fears Canadian production will drop below 2.6 million mt, vs. 5.2 million last year. Dec Chicago oats at midday sits at $4.99/bu, up $0.38 on the week . Recall oat planted area in Canada in 2023 fell to a new multi-decade low 2.5 million acres. There is a more bullish tone to foreign markets and to minor grain/oilseed markets.

• Volatility will stay present indefinitely. Supply issues are widespread, rain is needed in the US, Argentina, Australia, and India’s monsoon continues to fail in southern and western areas, but the US dollar remains supported above initial chart-based resistance. Federal Chairman Powell from Jackson Hole this morning acknowledged the sticky nature of inflation and that further hikes to benchmark lending rates were not off the table. More energy/food supply is needed, but rising interest rates act as a weight.

• Wheat, as is typical, has been hardest this week by strength in the dollar.

• The midday GFS weather forecast features a tropical storm making landfall in the eastern Gulf, and then traveling along the southeast coast next Wed-Fri. The Plains/Midwest forecast is consistent in calling for an extended period of little/no rainfall. High pressure ridging eases south and westward this weekend/early next week but resumes its position aloft the C Plains and Midwest in the 6-15 day period. This upper air pattern promotes the return of abnormal heat Sep 1-8. High readings of 95-100 will favour TX, OK, KS, NE, SD and western IA. Soil moisture continues throughout the next 10 days

• The risk that national soy yield declines to or below 50 bushels/acre and corn yield drops to 170-173 is elevated. Soy gains on corn in the long run amid the need for acreage in 2024, but it is becoming late in the season to be bearish of ag markets.

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

Weekend summary 25 August 2023

 

24 August 2023

Posted on August 24, 2023 by simon

• HEADLINES: Chicago mixed at midday; Corn reacts to Pro Farmer IL data; Soy adds premiums on massive crush margins; Brazilian crush to slow nearby.

• Chicago ag markets are mixed, but little changed in thin volume at midday. The lack of breaking news and a decently sized IL corn yield estimate from Pro Farmer overnight have weighed on corn and wheat prices globally. Nov Chicago soy has been resilient above $13.50 amid threatening Central US weather, rising minor oilseed markets and incredible processing margins in the US. A choppy end to today’s session is anticipated.

• The spot futures-based soy crush margin remains perched above $2.50/bu, vs. $0.50-1.00 in early summer, with meal adding to value now on weak and falling soy product output in S America. Argentine crush will struggle until 2024’s soy crop is harvested next spring, and a host of Brazilian plants plan to slow/close nearby amid the lack of margins there. Unlike the US, oil supplies are building in Brazil’s domestic market. Record US meal export demand is forecast to stay place into Q1 2024. This is important as already the US is consuming much more soyoil than it is producing. We also note that seasonal trends in canola/rapeseed markets turn decidedly positive in late summer, and seasonal lows in EU/Canadian canola markets have been scored early due to dire drought in Canada.

• Our message is that, while US soy yield and supplies are debated, Nov beans at $15.50 are not overvalued.

• India’s cash wheat market is higher again and in US dollars sits a new multi-month high $310/mt. India still must confirm a nationwide elimination of its 40% import tariff before the market begins to add demand-based premium, but we continues to hear that upward of 7 million mt of Russian origin imports have been worked. Transparency over Indian-Russian deals is unlikely to be found given the likely private nature of the business. Yet, we maintain that the lack of Indian food security is a big deal in the long run. Near zero rain is forecast in southern and western India into Sep 7. In normal years, monsoonal rains begin their seasonal exit in late Sep/early Oct. Time is running out to replenish moisture across a large swath of India’s soy/groundnut production region.

• The Buenos Aires Grain Exchange this afternoon is likely to trim wheat crop ratings another 1-2 points, at which point late August ratings will exist below last year. Recall USDA projects Argentine wheat yield in 2023 to rise 30% year on year. This recovery gets cut in half if dryness is extended into mid-Sep. S Hemisphere weather patterns remain concerning.

• US export sales in the week ending Aug 17 featured 26 million bu of corn (both years combined), vs. 37 million the prior week, 58 million bu of soybeans, vs. 50 million the prior week, and 15 million bu of wheat, vs. 13 million the previous week.

• We note that US wheat sales must average only 11 million bu/week to meet the USDA’s forecast. Some measure of wheat demand gets funnelled to the US market if yield loss in Argentina/Australia surpasses 15% relative to trend.

• The midday GFS weather forecast is not consistent with previous output in extending a pattern of near complete dryness across the Central US into the opening of September. No model has so far indicated any hurricane/tropical storm making US landfall nearby, and upper-level high pressure ridging will dominate the N American climate as autumn approaches. A brief cooling of temperatures occurs Sat-Tues. Normal/above normal temperatures resume thereafter, with highs in mid/upper 80s most probable across the C Plains and W Midwest in the 6–10-day period. Abnormal dryness/drought is building in TX/OK.

• The Dow is down another 160 points and concern over middling global economic growth continues its battle against weather/supply issues. Seasonal bottoms lie just ahead. Elevated volatility stays in place well into early 2024.

23 August 2023

Posted on August 23, 2023 by simon

• HEADLINES: Blast furnace heat expands across the Midwest; Pro Farmer tweets point lower on IL/IN yields; 100,000 mt of soymeal sold to unknown, more to follow.

• Chicago ag markets are higher at midday. Recent price direction has been determined by the Pro Farmer Crop Tour with yields being above last year on both far sides of the Midwest (OH/IN and SD/NE). The better yield news produced pressure to Chicago values on Monday and Tuesday. Today that trend appears to be changing with discussions of a sharp fall in US corn/soybean crop condition ratings on Monday. There is no doubt that the ongoing hot/dry weather is taking a sizeable toll on Central US corn and soybean yields.

• Pro Farmer tour participants are uncovering yields/pod counts in IL/IA that are below last year and the 3-year average which is supporting today’s Chicago rally. Futures are recovering with traders myopic on US yield potential. The reason for their US supply focus is that Brazil is exporting record tonnages of corn/soybeans which has stolen the US export thunder. However, world grain and soybean demand is record large, it is just that Brazil is fulfilling the sales/exports due to availability/price. The trade keeps bad mouthing export demand, and they are right to bad mouth US demand, but world trade is record large in wheat/soybeans. When the US crop yield is determined, the next phase of the marketplace will unfurl amid massive world demand and a sizeable increase in US 2023/24 grain and soy export potential.

• Chicago volatility stays acute, and it does not take much buying or selling to have a significant price impact. Acute market volatility will persist into yearend. Our advice all summer has been “don’t sell sharp breaks or chase sharp rallies.” That same advice will persist into the US harvest. US and world wheat prices can seasonally rally, but it is the wrong time of year for corn/soybeans to sustain a recovery with a new harvest dead ahead.

• Chicago brokers report that funds have bought 3,200 contracts of Chicago wheat,  4,500 contracts of soybeans, and 5,700 contracts of corn. In the products, managed money bought 4,200 contracts of soymeal and 2,800 contracts of soyoil.

• FAS reported the sale of 100,000 mt of US soymeal to unknown destinations for the 2023/24 crop year. We believe that a series of US soymeal sales are ahead with Argentina no longer offering soymeal after October 1.  Argentina has not been able to import enough Brazilian soybeans to maintain existing crush capacity and the US is now in the hot seat to fulfil world protein demand going forward. The meal sales will add to US soy crush margins and keep US soymeal sales totals at a record.

• The US produced 308 million gallons of ethanol last week, up 6% on last year. The weekly total keeps USDA’s annual corn grind of 5,215 million bu in reach.

• India will announce that it will ban sugar exports for the first time in 7 years with the halt starting on October 1. India exported 6.1 million mt of sugar in 2022/23 and 11.1 million mt in 2021/22. The absence of India as a sugar exporter means that Indian food inflationary pressures are building. Look for India to import sizeable tonnages of food grains/vegoils for a population of 1.4 billion.

• The midday GFS weather forecast is consistent with a few light showers noted over the SE Midwest in the 1–5-day period before there is no rain in the 6-10 day forecast with temperatures reaching back into the 90’s to lower 100’s for much of next week. The heat/dryness will produce acute crop stress on corn and soybeans and in some instances, premature death. The extended range forecast does offer a few SE Midwest showers from September 4-6 with totals of 0.2-0.8” on coverage of 65-70%. Until then there is no chance of meaningful Central US rain.

• Brazilian corn/soybean export sales and line ups are massive. China keeps securing Brazilian corn with vessel line ups suggesting tonnages of at least 8 million mt. Brazilian export logistics are full amid the demand. And India has a real problem with food inflation and a sputtering monsoon that leaves them as large food importers in the months ahead. We maintain that longer term lows are forming.

22 August 2023

Posted on August 22, 2023 by simon

• HEADLINES: Chicago weakens on US dollar strength, negative macro input; Egypt buys Romanian wheat.

• Chicago ag markets are weaker at midday. It is not Pro Farmer’s findings, but rather macro market weight, with the US dollar index finding a newer 11-week high, which pulls money from global raw material markets. The US$ is perched against initial chart-based resistance and key is whether support can be found above 104 points. Spot WTI crude is steady/weaker. The Dow is down 125  points. Weakness in the Brazilian Real and Russian Ruble is also noted. Wheat’s most recent break has been centered on the return of exporter profitability there as fob quotes rise and currency weakness weighs on replacement costs across S Russia’s export corridor.

• Egypt’s GASC this morning purchased just one cargo of Romanian wheat at fob price of $256/mt.

• Russian wheat was offered in bulk but at the long-discussed new floor price (for public tenders) of $270/mt. Russian origin despite large supplies is no longer the cheapest. We also note that two cargoes of Ukrainian wheat were offered, and broadly competition for near-term wheat import demand remains sizeable. Egypt has covered supply needs through mid-October. Additional Egyptian/major importer tenders are anticipated on breaks.

• US exporters sold 112,000 mt of US corn for 2024/25 delivery and 112,000 for 2025/26. Why Mexico is inching into coverage two years out is uncertain.

• There is an otherwise lack of breaking news, and it is all about supply into the beginning of the Northern Hemisphere harvest. The return of meaningful rainfall and lasting mild temperatures in the Central US is unlikely prior to mid/late September, barring tropical storm/hurricane activity. Updated 16-30 day guidance keeps in place a pattern of abnormal heat/dryness. Extreme heat will stay centered on the Central Plains.

• There is still no hint that needed rain arrives in Central Argentina in the next two weeks. FAS’s updated subsoil moisture maps this morning feature zero water in Cordoba and La Pampa, and minimal water in northern Buenos Aires and Santa Fe. Argentine wheat crop ratings are projected to drop another 1-2 points on Thursday to just 18-19% good/excellent. It is early in the season but ratings now are no better than last year. Recall Argentine wheat yield in 2022 was 30% below trend.

• Southern Hemisphere weather takes on more importance beyond the next 10 days. ABARES will publish its next 2023 Aussie grain production estimates on Sep 5.

• The midday GFS weather forecast is consistent with the morning run in calling for only briefly cooler temperatures this weekend/early next week and an ongoing lack of precipitation into the first full week of September. Amplified high pressure ridging currently aloft the Plains/W Midwest will be forced south and west Sun-Tues. Ridging expands thereafter, and while extreme heat ends on Friday, high readings in the 6-15 day period will be routinely in the mid/upper 80s Central US-wide. Evaporation rates stay elevated. There is a chance of light/scattered showers across the Great Lakes Region Mon-Tues, but arid conditions persist elsewhere.

• Volume remains tepid. Open interest remains deflated. The looming N Hemisphere harvest keeps new buying limited/absent seasonally into late month, but amid record large global soy and wheat trade and recovering corn demand, recoveries lie ahead. The US soy balance sheet becomes unsolveable if yield is trimmed another 0.5-1.0 bushels/acre. The ongoing rise in Brazilian fob corn premiums suggests importers are capitalising on the recent correction in value. Sales are not advised here.

21 August 2023

Posted on August 21, 2023 by simon

• HEADLINES: Chicago shrugs off Central US weather threat; Market hopes for larger Ukrainian exports.

• The wild back and forth of ag markets continues, with wheat and corn lower and soybeans slightly higher at midday. Central US weather threats have been dismissed, for now, in favour of record August Russian wheat exports and funds’ unwilling to exit short positions ahead of Pro Farmer’s tour of the Midwest next week. Variability is being found in OH this morning, while there is little doubt yields in SD will be up year on year following dire drought south/southeast of SD in late summer 2022. Key will be ear checks and pod counts as the two legs of the tour converge in IL on Wed/Thurs.

• Black Sea headlines since last week have been a battle of escalating military tension within the Black Sea and hope that Ukrainian stocks will be granted safe passage to the world market by late 2023. Romania’s Prime Minister suggests 60% of Ukraine’s surplus may be moved through Romania. The European Commission is “considering’ providing a subsidy to move Ukrainian grain through eastern EU member states. Otherwise, there is nothing concrete available, and most importantly nothing surrounding details of allocating funds, but wheat markets worldwide are unfazed by Black Sea execution risks. Russian export margins remain profitable.

• More and more Russian wheat business will be that of private Government to Government deals, likely including any Indian business, and so the details of quantity, timing, freight and fob costs will be somewhat opaque at best. Russia’s interior cash wheat market is up $2-4/mt this week. Recall seasonally the market there rises into Dec-Jan.

• We also note that still no pattern shifts are advertised in the Southern Hemisphere prior to Sep 2-3. Complete dryness stays in place across Cordoba in Central Argentina and across New South Wales and Queensland in eastern Australia. Sep rainfall is key in determining yields there, and work suggests that in Argentina Sep rainfall of 2-4” is needed to salvage potential. S Hemisphere wheat yield loss is a growing threat.

• US export inspections through the week ending Aug 17 featured 19 million bu of corn, vs. 18 million the previous week, 11 million bu of wheat, vs. 10 million the previous week, and 12 million bu of soybeans, vs. 15 million the prior week. We note the previous week’s shipments were revised upward 2 million bu in corn, 4 million bu in soybeans and 3 million bu of wheat. Old crop corn and soy exports are unlikely to be revised amid stable late-season shipments. Weekly wheat inspections moving forward must average 13 million bu per week to meet USDA’s annual target.

• US exporters this morning sold 159,350 mt of new crop soy to unknown destinations and another 112,000 mt of new crop corn to Mexico. Unlike a year ago, US/Brazilian corn is not prohibitively expensive which bodes favourably for re-stocking among the principal importers.

• Stats Canada’s model-based production estimates will be published on August 29. Downward revisions are no doubt expected, but unfortunately official Stats Can data won’t be available until autumn. Canadian-centred markets continue to add premium. Spot canola this morning is firm along with Nov Chicago soy. Dec Chicago oats are up $0.03/bu and testing the highs of mid-July at $4.65.

• The midday GFS weather forecast is consistent with morning output. Dangerous heat persists Central US-wide into Fri/Sat. Temperature moderation occurs briefly thereafter, but a pattern of above-normal temperatures remains most probable into the opening days of September. Heat peaks across the C Plains on Tues-Wed, with highs reaching 103-105 from TX to far western IA. Temperatures peak in the heart of the Midwest Thurs-Fri, with highs from 96-101 offered to IA, MO, IL, IN and KY. And there is just no precipitation of note indicated throughout the next 10 days. Expect changeable 11–15-day guidance as activity in the tropics ramps up. Currently no major tropical storm/hurricanes are expected to make US landfall nearby.

• Pro Farmer dominates row crop price discovery this week. We maintain that actual yield potential won’t be known until combines begin to role. Seasonal/annual lows will be forged by early Sep. US soy yield loss of 0.5-1.0 bushels/acre is a big deal.

18 August 2023

Posted on August 18, 2023 by simon

• HEADLINES: Chicago extends overnight gains; Exporters sell corn to Mexico; Tropics more active.

• Chicago ag markets have extended overnight rallies at midday as few want to add to existing short positions amid escalating attacks in the Black Sea, following a drone attack in Moscow overnight, and as blast furnace heat impacts the Central Plains/W Midwest next week and possible confirmation of Indian wheat imports linger in the background. Stable crude and a recovery in the US equity market is also noted. Following extreme volatility, Dec corn is set to end modestly higher on the week. Nov soy is up 35 cents. Dec Chicago wheat has cut its losses to just 13 cents. Recall seasonal lows are very often scored in the second half of Aug/first part of Sep. We would still caution against chasing daily large daily moves, but it makes increasing sense to use correction to extend longer term supply coverage.

• Other breaking news is limited. Exporters this morning sold 112,000 mt of corn to Mexico for 2023/24 delivery. Mexico’s President has stated he would accept any resolution from third party trade panel regarding the future of GMO corn imports from the US. Key is whether the trade panel sides with the US and Canada on Mexico’s commitment to the US-Mexico-Canada Agreement signed in 2020.

• We also note that Brazilian corn fob premiums for Sep-Oct delivery rallied $0.10-0.15/bu overnight, with Brazilian corn on fob basis offered $0.05/bu above US Gulf origin for immediate shipment. North Hemisphere feed crop harvests keep global interest in corn imports somewhat subdued in early autumn, but along with sustained profitable ethanol margins it is clear Dec Chicago corn at $4.80-5.00 is not overvalued. Additionally, Dalian corn in China’s premium to US Gulf origin remains perched above $4.00/bu, vs. $2.60 a year ago in mid-August.

• A warm west Indian Ocean and cool east Indian Ocean, what is known as a positive Indian Ocean Dipole, is likely to sustain adverse heat and dryness in both western India and key parts of Australia. Recently released climate guidance suggests a continued failure of India’s monsoon in western production areas, with soy, peanuts, and rice to be most impacted. Southern Hemisphere weather patterns will be more closely followed beginning next week amid worsening drought in Argentina and building dryness in New South Wales and Queensland in eastern Australia. Despite Russia’s dominance of wheat exports and newfound exporter margins there, there is still no tolerance for additional supply dislocation. Unwanted rain will fall across the Canadian Prairies in the second half of August, with spring wheat and canola harvests imminent in Saskatchewan.

• The midday GFS weather forecast is consistent with the overnight forecast. A moderation in extreme/threatening heat occurs beginning next Sat/Sun as high-pressure ridging shifts south and west. However, the details of North America’s upper air pattern in late August will hinge upon the development and path of tropical storms, with activity in the tropics rising somewhat quickly.

• In the near term, heat bakes the Central Plains/W Midwest Sun-Tues and moves into the principal Midwest during the second half of next week. And there is just not a lot of rain in the forecast between now and Sep 1. Tropical storms/hurricanes will be key to US weather beyond the next 10 days.

• There is no sign that volatility ends as the bears highlight economic fragility and the bulls highlight ongoing supply threats. Pro Farmer results next week dominate daily price discovery. A seasonal bottom occurs by early Sep, which is normal.

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Weekend summary 18 August 2023

17 August 2023

Posted on August 17, 2023 by simon

• HEADLINES: Chicago mixed; Soy adds premium ahead of US heat and rising global oilseed markets; Funds sell wheat; Indian wheat imports probable.

• Ag markets are mixed at midday, with corn up slightly, soybeans up 13-15 cents amid upcoming Central US heat and dryness and rising global rapeseed/canola prices, while fund selling persists in both US and European wheat markets. Volume is again tepid as next week’s Pro Farmer estimates are awaited, but work suggests bottoms are close at hand. Following independent tours of IA and IL, Pro Farmer is expected to find soy pod counts measurable below last year. Corn yield potential is decent but record yields are off the table, and overall we view the market’s corn/soy yield expectations as a bit too high.

• Newswires are again reporting that India is in talks to purchase 8-9 million mt of Russian wheat to build stocks and cool food inflation.

• Cash connected sources indicate 7 million mt is indeed in the works, with price, logistics and timing still yet to be worked out. Indian imports of even 3-4 million mt would be a big deal and would displace the same amount of Russian origin shipped to other destinations, at a time when S Hemisphere production and export potential is in retreat. Argentine wheat crop ratings will be published after the close. Recall Argentine wheat good/excellent rating last week was a disappointing 21%, vs. 18% the prior year. Ratings below 20% in early Sep hint strongly of sizeable yield loss relative to trend. Wheat is undervalued.

• Rampant inflation in Argentina is also sparking questions over producers’ ability to finance 2023/24 production. The blue Peso, which is used by the population, this week has surged to 780:1. Early planting in Argentina lies just ahead, and long-term research continues to suggest that it will be difficult to solve corn supply issues on a lasting basis amid a lack of acreage expansion in Argentina, Ukraine and the US. The Central Bank’s devaluation of the official Argentine Peso this week, Argentine beef exports were suspended initially, with the government now working to negotiate a cap on prices. There is a risk that similar measures are applied to grain/oilseed.

• US export sales in the week ending August 10 featured 37 million bu of corn (both crop years combined), vs. 36 million the previous week. New crop soy sales totaled 55 million bu, unchanged on the prior week. US wheat sales were 13 million bu, vs. 21 million the previous week, but 2 million above the weekly pace needed to meet the USDA’s forecast. We note a Chinese delegation will make its way to the Midwest next week. There is no word on whether frame buying contracts will be signed, but new crop soy sales will stay at 50+ million bu into late autumn.

• Spot WTI crude at midday is up $1.40 at $80.80/barrel. Sub-$80 has so far been short lived. The Dow is flat.

• The midday GFS weather forecast is little changed and maintains a pattern dominated by expanding and intensifying high pressure ridging. Light showers are forecast in MI and OH in the next 12-24 hours, but a pattern of complete dryness will be established elsewhere. Temperatures in the Central Plains peak Sun-Tues in the low 100s. Temperatures in the Midwest peak next Thurs-Sat in the mid/upper 90s. Maximum pod size is needed to counter reduced pod counts, and beyond Sep 4-5, weather plays limited role in yield determination. Heat/dryness in the second half of August is concerning.

• India’s need for wheat imports, S Hemisphere weather issues, still-uncertain US yields and global economic fragility argue that extreme volatility continues well into 2024. It is the wrong time of year to add to sales. An autumn recovery lies in the offing.