Monthly Archives: August 2023

16 August 2023

Posted on August 16, 2023 by simon

• HEADLINES: Chicago recovers as US heat/dryness extended into early September.

• Global ag markets are in recovery mode this morning, with volume still rather tepid, as contracts worldwide reach or come close to oversold territory. Nov Chicago soybeans maintains a neutral chart-based trend. Major technical healing is needed in wheat and corn. Dec corn’s major moving averages are clustered around $5.18-5.20 and Dec Chicago wheat is around $6.85-6.90, but we continue to caution against adding to short positions here as the timing of normal seasonal bottoms approaches. Key in the near term will be the verification of 10–12-day US weather forecast, which maintain rapid drying across the entirety of the Central US. This is likely to weigh on pod weights. Note that Pro Farmer’s extensive tour of the Midwest kicks off Monday.

• Oilseeds have added considerable premium to grain markets, and not just in the US. November rapeseed in Paris has rallied €15/mt since Monday. November canola in Canada has rallied 4%. Unfortunately, a much wetter pattern lies ahead in far southern Canada and across the N fringe of Canadian production areas as expanding high pressure pumps Pacific moisture into the region. Rain in Canada is now unwanted as harvest begins. There is no room for canola quality loss.

• Our message is that amid the seasonal soaring of Brazilian soybean fob premiums and rising rapeseed/canola futures, US soy is the world’s cheapest oilseed. Board crush margins are nearing $3.00/bu. China still has large tonnages to buy for autumn/winter delivery, while coming Central US heat threatens a 50+ bushels/acre US soy yield.

• EIA data this week leans supportive corn and crude but explains the recent erosion in Midwest cash ethanol prices. US ethanol production in the week ending 314 million gallons, vs. 301 million the previous week and right at the level needed to meet the USDA’s 2022/23 industrial corn use target. Production has expanded counter-seasonally as margins return. US ethanol stocks on Friday totalled 984 million gallons, up 23 million from the prior week and adequate to meet near-term demand. Spot ethanol in the swap market has $2.20/gallon last week to $2.13 currently. US crude stocks less reserves were 440 million barrels, down 5 million week on week. Note that total crude stocks, including reserves, are a concerningly low 788 million barrels, vs. 886 million last year and 1,057 million in mid-Aug 2021. A lasting break in energy values is not anticipated.

• The midday GFS weather forecast is almost exactly unchanged from this morning’s release. The model does intensify Gulf storm activity in the 6–10-day period, but US landfall is not indicated into Aug 26. Otherwise, a pattern of compete dryness and soaring temperatures lies ahead, and importantly the GFS forecast maintains that heat stays in place across the C and E Midwest into next Sat-Sun. An expansive and abnormally strong high-pressure ridge will be anchored aloft the C Plains/Midwest Sat-Fri. Ridging returns to the Delta and S Midwest Aug 29-30. The second half of August will be defined by heat and dryness. Temperatures across the C Plains peak Sunday. Heat migrates into the principal Midwest beginning Tuesday.

• Every ton of produced, or not, matters immensely, which keeps volatility elevated. In fact, we expect volatility to be extended well into mid-2024. Sales are on hold, with autumn recoveries forecast. Soybeans remain the bullish leader, and crop condition changes over the next two weeks are critical.

15 August 2023

Posted on August 15, 2023 by simon

• HEADLINES: Speculative selling presses Chicago lower; NOPA crush data leans supportive beans, oil; GFS weather forecast drier at midday.

• Chicago ag futures are lower at midday, with wheat finding a newer low for the move and spot Chicago corn trading at the lowest level since winter 2021. Momentum-based selling continues, and fundamentally the catalyst has been last week’s improvement in corn, soy, and spring wheat crop ratings. Volume remains rather tepid. Macro markets provide weight as the Dow drops 300 points and crude falls $1.90/barrel at $80.60, the lower end of the recently established range. There has not yet been pushback from the end user community, but producer bin doors will be shut as new crop corn/soy well below revenue guarantee provides no incentive to sell above what is absolutely needed. We would note that RSI in all major crop markets is at or nearing oversold, which along with normal seasonal trends suggests this is no place to turn bearish. We guestimate funds’ short in Chicago wheat at a sizable 80,000 contracts this morning. Funds are short an estimated 45,000 contracts of Chicago corn.

• NOPA’s July crush data leans bullish beans and oil, and Dec Chicago soyoil at midday is up 0.7%. NOPA member crush in July totalled 173.3 million bu, vs. 165 million in June, up 3 million bu year on year and a record for the month. Meal has fallen along with corn. USDA’s 2022/23 soy crush forecast of 2,220 million bu is about right, but soybean disappearance and even meal stocks imply expansion in crush is needed in the long run, hence the recent surge in futures/cash crush margins.

• NOPA soyoil stocks on July 31 totalled 1.53 billion lbs, down 163 million from June and down 157 million from last year. Soyoil consumption in July was 2.23 billion lbs, and consumption exceeded production for a third consecutive month. Implied soyoil disappearance was also record large for any month, and it will be a challenge to prevent additional oil stocks erosion in Aug and Sep as crush rates slow seasonally. Soyoil remains a demand-led bull market.

• Paris milling wheat futures ended €3.00/mt lower. Paris corn has been weak in 14 of the last 16 sessions. The EU grain market is well supplied, and larger than previously expected Ukrainian production exists just east of the region, and debate is ongoing as to just how much Ukrainian supply will be allowed to flow into eastern Europe this autumn. Relative calm in the Black Sea (conflict-wise) has allowed for new selling there.

• The midday GFS weather forecast is warmer in the 11–15-day period and keeps in place a pattern of above-normal Central US temperatures into Aug 29-30. Otherwise, the outlook is consistent. A rapid expansion of high pressure ridging aloft Fri/Sat fuels at least 10-12 days of complete dryness and extreme heat across the C Plains and W Midwest Sat-Thurs. The GFS forecast is still viewed as overdone with its temperature forecast, with highs of 110-116 offered to much of the Central US, but the Canadian and EU models do agree that readings of 100-102 impact TX, OK, KS and NE early next week. Highs between 94-98 blanket IA, MN, WI, MO, and IL next Tues-Wed. Confidence beyond 10-12 days is low as tropical storm season begins.

• Seasonal/momentum trends have been compounded amid low volume/open interest and as it remains that every bushel produced or not has an outsized impact on global stocks/use. Broadly favourable July/early Aug US/European weather has triggered the return of fund liquidation. But US crop-finishing weather is important. Better selling opportunities lie ahead beyond summer in our opinion.

14 August 2023

Posted on August 14, 2023 by simon

• HEADLINES: Markets widely mixed at midday; Wheat stays volatile on Russian currency; GFS weather forecast maintains blast furnace heat in Central US.

• Chicago futures are widely mixed at midday, with renewed fund selling forcing new lows for the move in wheat, soybeans rapidly adding weather/supply risk and corn caught in between. Volume remains somewhat deflated, which exacerbates daily moves, and there remains a general feeling of exhaustion within the speculative community.

• The Russian Rouble today has traded a 7.4-point range as the currency’s scoring of a new 17-month high sparked an emergency Central Bank meeting. The Rouble at midday is now quoted slightly stronger than last week, but general weakness in the Rouble since spring along with rising Russian fob wheat prices have allowed exporter margins to resume. Interior wheat prices valued in Roubles in southern Russia are unchanged this week. Wheat in Southern Russia valued in US dollars is down $4/mt, and this has allowed Russian export margins to expand. July-August Russian wheat shipments will be record large, and large Russian supplies linger in the background. EU and US wheat markets fear extremely high competition from Russian origin continuing well into early 2024. Risk premium has been shed, and we believe this is the weakest time of year for wheat (and corn and soy) seasonally.

• And wheat risk management stays challenging. One targeted missile strike halts a measurable percentage of Russia’s export capability, while any return of a Ukrainian export corridor frees large tonnages of Ukraine stocks into the world marketplace. Unfortunately, there is no sign that wheat market volatility ends any time soon, though our guess is that, like normal years, a lasting low is scored by late Aug/early Sep.

• US export inspections through the week ending August 10 featured 16 million bu of corn, vs. 15 million the previous week, 11 million bu of soybeans, vs. 10 million the previous week and 7 million bu of wheat, vs. 11 million the prior week. Corn/soy shipments will limp into harvest, but pace analysis suggests further USDA adjustments are not necessary. Recall official US census corn exports through June are 16% above cumulative weekly inspections. Cumulative US soy inspections through August 10 are a very normal 95% of USDA’s annual forecast. Wheat shipments were disappointing, but given better than expected sales in recent weeks, a seasonal uptick lies ahead beginning in late Sep/Oct.

• Exporters also sold another 416,000 mt of new crop beans to unknown destinations, which is expected to be China. Soy crush margins there have been solid, and ongoing strength in meal market provides further evidence that Chinese soy demand is understated. Physical meal trade has been active at Chinese ports in recent days.

• Macro markets have done little since this morning’s open, with crude down $0.90/barrel at $82.30 and the Dow up 1 point.

• The midday GFS weather forecast is unwavering in calling for near complete dryness into the final week of August as well as blast furnace heat throughout much of next week. The GFS forecast is no doubt overdone with its temperature forecast, with high readings Sun-Wed pegged as high as 110-116 across the Central Plains, MO, IA, MN and western WI, but abnormally hot weather does lie ahead. Expansive high-pressure ridging will define the North American climate in the second half of August, and temperatures across the Plains and W Midwest most likely reach the mid/upper 90s and low 100s. All models agree on a real lack of precipitation nearby. The GFS forecast extends hot/dry conditions into August 29.

• Physical supplies will be adequate in late summer/early autumn, and EU/Black Sea stocks remain elevated. However, sourcing wheat from the US, Canada, Australia, and Argentina will be arduous amid tight supplies. This leans supportive markets there. And US soy stocks become untenably tight if US heat/dryness is extended into early September. The US weather forecast is concerning.

10 August 2023

Posted on August 10, 2023 by simon

• HEADLINES: Brazilian FOB corn premiums rally, US Gulf competitive: World grain prices rally; GFS weather forecast hot in the 9–12-day period.

• Chicago futures are higher at midday in thin volume as traders adjust risk ahead of Friday’s USDA August Crop Report. The bears are taking profits which is providing some lift to midday valuations. Few traders are willing to place large new bets on what NASS/USDA will say with this being the first survey-based estimate of the crop year. NASS has asked farmers to gauge their yield potential which will be supplemented with field visits in September. NASS abandoned field surveys in 2020 due to COVID and cost cutting and have continued to mostly use farm responses to gauge yield. We anticipate a strong response to Chicago valuations post report on Friday. And remember that most world traders won’t respond to the USDA report until Monday as they will be already enjoying the weekend.

• Chicago brokers estimate that funds have bought 1,600 contracts of wheat,  2,200 contracts of corn, and 2,800 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soymeal while selling 2,400 contracts of soyoil. Fund managers are also unwinding profitable oil share spreads.

• Brazil’s CONAB estimated the 2023 soy crop at 154.0 million mt and corn at 130 million mt. Both crop estimates are below private industry and WASDE forecasts. The USDA estimates the Brazilian corn crop at 133 million mt and soybeans at 156.0 million mt. Private industry has pegged the Brazilian corn crop as large as 139 mmy. However, yield data with the harvest beyond 70% points to a final crop of 131-132 million, which is still under WASDE. Some argues that industry total corn production estimates above 133 MMmillion mtTs are too high. We do not expect that WASDE will change their Brazilian corn/soybean crop estimates tomorrow.

• World feed prices are rising while Chicago and US cash values decline. This dichotomy is important to understand and its impact on future US corn export demand. September Brazilian fob corn is offered this morning at 82 cents over September Chicago futures with the US Gulf at 60 cents over. Stated another way, Brazilian September corn is 20-22 cents more per bushel vs US corn to world importers. This is the first time since January that US corn is competitive in the world market which will act to underpin futures.

• And US SRW Gulf fob wheat is priced at the same level as Russian 12.5% wheat for the first time in more than 1.5 years at $255/mt. The two wheat classes are not comparable for a miller, but in terms of the US SRW wheat becoming competitive in the world market, it is priced $8/mt below French fob wheat at $263/mt. Again, the point is that non-US wheat values are rising on tightening supplies and record large world wheat trade. The key question is whether US SRW values need to decline further amid tightening 2023/24 US wheat stocks.

• US export sales for the week ending August 3 were 20.9 million bu of wheat, 55.2 million bu of soybeans and 35.9 million bu of corn (both crop years combined). US corn and soybean export demand is seasonally improving based on the newfound price competitive position of US and PNW offers.

• The midday GFS weather forecast is slightly wetter across the Midwest through Sunday with a drier trend thereafter. Any heavier rain will be confined to MI/IN with 10-day totals of 0.5-2.00”. Otherwise, rain totals will range from 0.1-1.00” on 55-65% coverage. Starting Monday, a drier pattern unfolds with warming temperatures. A high-pressure ridge builds across the lower 48 with expanding warmth. Highs will range from the mid 80’s to the mid 90’s with limited rain. The 11–15-day forecast offers extreme heat under a strong high-pressure ridge with readings in 90’s/100’s.

• Due to strong world demand and falling non-US grain production, we see any bearish NASS August Report as providing a buying opportunity. We see world grain prices rising amid Chinse/Indian shortages.

9 August 2023

Posted on August 9, 2023 by simon

• HEADLINES: Chicago mixed with all eyes on USDA Friday: US weekly ethanol production declines; GFS weather forecast slightly wetter W Midwest.

• Chicago futures are mixed at midday in declining volume. Risk aversion for Friday’s USDA crop report is the theme with traders fearful of a strong market reaction as farmers offer (to NASS) their first measurement of US corn/soy yields. Also, FSA will be offering their first update on 2023 US farm program participation this Friday.

• The combination of the first NASS/FSA crop reports of the season will help define 2023 US summer row crop supplies. The August and September USDA crop reports have produced sizeable Chicago reactions in prior years due to their importance in measuring the US grain/oilseed crop supplies. A choppy trade is expected to continue into the Chicago close on position squaring amid the worry about a sharp rally or decline on Friday.

• Chicago brokers estimate that funds have sold 3,100 contracts of wheat and 1,900 contracts of soymeal, while buying 2,000 contracts of corn, and 2,400 contracts of soybeans and 1,900 contracts of soyoil. None of the fund selling or buying has been very sizeable.

• The USDA reported that 251,000 mt of US soybeans were sold to China for the 2023/24 crop year.

• There are cash rumours that China purchased 2 cargoes of US HRS wheat. The buyer is said to be Hong Kong Mills. And private Chinese importers have likely cleaned up the Texas Gulf sorghum market (in past 12 hours) as Chinese corn prices rallied and import profit margins enlarged. Look for Chinese private buyers to be active in booking US sorghum on any drop in Chicago corn futures. We do not expect China to book US corn until the Brazilian winter corn supply is cleaned up. Interior Brazilian corn/soybean premiums have been rising on a near daily basis for the past week on strong Chinese and SE Asian demand. Cash connected sources report that US corn will have an export opportunity from December and beyond off the PNW.

• US weekly ethanol production was 301 million gallons, unchanged from the same week last year. To reach the WASDE annual use estimate for the 2022/23 crop year, the next 3 weeks must average 314 million gallons per week. Notice that seasonally, US ethanol production tends to decline during late August before ramping up again with the new crop harvest in mid-September. We expect that WASDE may trim US corn ethanol production by 5-15 million bu in their final assessment.

• The midday GFS weather forecast is slightly wetter across the W Midwest and similar in the E Midwest vs the overnight solution. Any heavier rain will be confined to OH/IN with 10-day totals of 0.5-2.00” with reduced amounts of 0.25-1.25” for the W Midwest. Ridge riding storm systems will pass across the Central Plains and the southern half of the Midwest with regularity over the next 60 hours. One such system is noted over Missouri this morning. Thereafter a drier pattern unfolds with warming temperatures. A high-pressure ridge builds across the lower 48 with broadening warmth. Highs will range from the mid 80’s to the mid 90’s which will push crop maturity. So far there is no indication of any tropical storm systems across the Atlantic. The season for hurricanes is ahead, but the shear across the region is strong.

• The volume of Chicago trade is one of the slowest of the year as traders prepare for Friday’s USDA crop report. We remain bullish of soyoil in breaks on tightening supplies of vegoils. It is rising prices in China/India in terms of grains/oilseeds that will produce better demand once Brazilian corn/soybean supplies are exhausted. This is no place to turn bearish with commercials to raise basis bids to attract farm selling.

8 August 2023

Posted on August 8, 2023 by simon

• HEADLINES: Turnaround Tuesday in the making as end user pricing surfaces on morning break; GASC secures 325,000 mt of Russian wheat; GFS weather forecast slightly wetter across W Midwest.

• Chicago futures are mixed at midday in declining volume. Long liquidation by fund managers in soybeans/soymeal/soyoil and corn pressed values early, but end user pricing and profit taking by the bears trimmed losses at midday. Chicago grains are now trading in the green with a turnaround Tuesday in the making.

• We doubt that with the USDA August crop report due out on Friday that either the bulls or the bears can sustain a price trend for the rest of the week. Chicago markets are in waiting mode with traders paring risk awaiting last half of August weather, private crop tours and NASS August USDA yield data.

• Expect a mixed to slightly higher close as positioning is the dominate theme for price, and traders will lean into the potential for a supportive US 2023/24 soybean balance sheet with corn staying heavy with end stocks near or above 2.0 billion bu. We note that traders are not looking for much of a change in US all wheat production with an average guess right at the July NASS forecast at 1,739 million bu. Our bet is that if there is a surprise, it could be a smaller US wheat harvest due to sinking HRS yield.

• Chicago brokers estimate that funds have sold 3,400 contracts of wheat, 4,800 contracts of soybeans, and 2,900 contracts of corn. In soy products, funds have sold 4,300 contracts of soyoil and 3,200 contracts of soymeal.

• GASC purchased 235,000 mt of Russian wheat from the same supplier, Grain Flower, at reported prices of $262-265/mt basis FOB. This is up $12-15/mt from last week’s tender with freight costing $14.50-17.69/mt. World wheat prices as values have formed their seasonal low. Russian exporters are struggling to replace sold wheat from the farmer and insurance/freight rates are rising on the back of the expanding Black Sea marine war. As we have previously reflected in recent weeks, it is just getting tougher to supply Russian/Ukraine grain as the Black Sea Grain Corridor Pact ended in mid-July. If new Southern Hemisphere wheat harvests are not as large as USDA forecast (due to the rapidly expanding El Niño), the wheat bull story will become somewhat spicy into 2024. It is important to understand the growing difference in world wheat markets last year and this year and the bullish tailwind that it would provide for corn/soy futures.

• Ukraine President Zelenskiy indicated that Ukraine will attack Russian vessels and ports just as Russia has attacked Ukraine ports and grain silos in a tit-for-tat kind of war in the Black Sea. The Ukraine pronouncement on its exports was a surprise as it has been the defender not the aggressor in the war to date. However, grain/steel exports are at the heart of the Ukraine economy. We fear that Russia will continue to target Ukraine grain assets  with retaliation from Ukraine in a broadening war with September-December grain exports being the largest of the crop year. The expanding Black Sea war makes it difficult to be overly bearish of Chicago and world values once the US corn yield is digested. Sub $4.80 December corn futures offers ownership opportunities for end users with Ukraine corn exports expected to be curtailed by 4-6 million mt.

• The midday GFS weather forecast is slightly wetter across the W Midwest and similar in the E Midwest vs the overnight solution. Any heavier rain will be confined to OH/IN with 10-day totals of 0.5-2.00” with reduced 0.25-1.25” for the W Midwest. The best rain chance is with a ridge riding system in the next 48 hours across the C and E Midwest. Severe weather is probable across the OH Valley. Thereafter a drier weather trend evolves with seasonal temperatures. The high-pressure ridge amplifies northward late next week with 80’s to mid-90’s becoming commonplace. The GFS forecast has been the warmest of the forecasts in the 10-15 day period and is likely too warm. The northern branch of the jet stream stays strong which will prevent any pattern stagnation into late August.

• Speculative liquidation ended early in the session with end user pricing noted in soyoil, corn and soybeans. China secured additional US and Brazilian soybeans this morning. Cash soyoil holds at a $0.04-0.08 premium to August futures with only 71 deliverable receipts registered. Seasonal bottoms are forecast either right before or after the August or September USDA reports. World wheat, rice and soy product prices have already forged seasonal lows. Don’t sell sharp breaks!

7 August 2023

Posted on August 7, 2023 by simon

• HEADLINES: Chicago sharply lower on fund liquidation; Wheat rallies sharply awaiting GASC tender results; China active buying us soybeans.

• Chicago futures are sharply mixed at midday. Soy futures sharply lower while wheat values are sharply higher, and corn is caught in between. The fundamental tugs of an expanding/intensifying Russian war against Ukraine and a needed Midwest rain is directing grain valuations today.

• Trade volume is restricted by recent week market volatility with few wanting to place new price bets until after Friday’s USDA August crop report. The August report is based on farmer survey data and farmers tend to be more optimistic on their yield than NASS is in the September or October reports.

• We are doubtful that NASS will be able to conduct an October estimate if the US Congress cannot agree on a budget extension or new pact in September. The odds of a US government shut down are high for October and November.

• Seasonal Chicago price trends are down for another few weeks before bottoming in the last week of August or the first two weeks of September. US farmers report that they will store as much of the 2023 harvest as possible. This argues that cash basis bids will firm before Chicago values turn. It is the cash market that will provide the first signal of a seasonal low in corn/soybean futures.

• Exportable cash wheat values bottomed in June and have headed upwards into early August. US futures will need to maintain a healthy premium to the world fob wheat market to prevent exports beyond traditional demand.

• Chicago brokers estimate that managed money has bought 5,200 contracts of wheat while selling 8,700 contracts of corn and 7,900 contracts of soybeans. In the products, funds have sold 4,300 soymeal and 3,800 contracts of soyoil.

• US export inspections for the week ending August 3 were 10.1 million bu of wheat, 14.9 million bu of corn, and 10.4 million bu of soybeans. The corn exports were at the lower end of expectations while soybean inspections were larger. US wheat exports were near the weekly average needed to achieve USDA’s annual target.

• The USDA/FAS announced 251,460 mt of US corn sold to Mexico and 132,000 mt of US soybeans sold to China. We hear that China remains active in booking US soybeans for November while also securing 6 cargoes of Brazilian soybeans for February. It is our belief that China will take more than 105 million mt of world soybeans in the old crop international crop year that ends on October 1. USDA is way too low in forecasting both China’s old and new crop import pace and significant upside adjustments are needed in the next 2 WASDE reports.

• Argentine imports of Brazilian soybeans have declined to near nothing over the past 5 weeks and little interest is being expressed with commercial stocks falling to a record low for August 1. The point is that Argentina will try a soy-dollar program on Sept 1 to spark farm movement of drought stored soybeans, but their export stature in the world market is in sharp decline. This will push additional meal demand to the US while the world is shorted by a hefty 2 million mt on Argentine soyoil exports through April 2024.

• Traders are debating on how much yield benefit was produced by the Midwest rain. Our best estimate is that yield was boosted by 0.5 bushels/acre back to 51.0 bushels/acre from the week following. Midwest soybeans endured germination woes that produced poor stands and smallish plants. The rain will help podding, but we doubt that the US soybean yield will be able to reach back to 52.0 bushels/acre trend.

• The midday GFS weather forecast is drier than was offered overnight for the W Midwest and the Plains with 0.4-1.50” less rainfall. The E Midwest is wetter from Indiana and Ohio. Unfortunately, there will be areas of Minnesota that keep getting missed by the moisture. And temperatures look to be rising following the middle of next week as the high-pressure ridge amplifies northward and covers most of the Central US after August 18. Extreme heat returns and would be felt if the GFS weather forecast verifies.

• The bears have their claws out on the weekend Midwest rain ahead of a key monthly USDA report. Wheat futures are rising on tightening world exportable supplies amid rising Black Sea war tensions and a limited offers of insurance for freight. Our advice is the same, don’t sell breaks or chase rallies.

4 August 2023

Posted on August 5, 2023 by simon

• HEADLINES: Chicago corn futures declined for 8 consecutive days; GFS weather forecast at midday wetter on the weekend, drier in the 6–10-day period; US crop condition ratings to ease 1% on Monday.

• Chicago futures are higher at midday, but the overnight gains have been cut in half with soyoil/soybeans being the day’s bullish stalwarts. Wheat has retreated as Russian exporters tell their import customers that they will be able to manage future marine drone attacks from Ukraine. The Russian’s claim that no damage was done to Novo export infrastructure and that loading has quickly resumed. However, insurance brokers are more fearful, but ahead of a weekend, no one wants to push the green panic button until there is clarity on whether the war is expanding into the shipping lanes of the Black Sea in a more meaningful way. Those headlines will be closely followed next week.

• If the expired Black Sea corridor export pact is not renewed, neither Ukraine or Russia will want the other side to export and capitalise on the shortfall. It’s a classic case of, “If I can’t export then neither will you!”  Otherwise, traders will be counting weekend Midwest raindrops and where they fall and in what amounts for the key dry zones of Minnesota, W and N Iowa, and Central Illinois. Rain has been forecast for the drier Midwest areas since the start of the week. Rainfall totals this week were disappointing, but the models are still promising rain this weekend, so hope persists that a crop saving rain will develop. The midday GFS forecast is slightly wetter this weekend.

• Spot Chicago corn futures have declined for 8 consecutive days coming into today’s trading session with the September/December corn trading at a discount of 13 cents. The last time that spot corn futures has fallen 8 consecutive trading was back in 2016, 7 years ago. Our point is that for corn to drop 9 days in a row would take a further step back in history. The shorts are willing to bank profits ahead of a key USDA crop report a week from today. Headlines have been the biggest feature of Chicago this summer and who knows if Russia will retaliate for the Novo attack on the weekend.

• Chicago brokers estimate that funds have bought 3,500 contracts of wheat, 4,700 contracts of corn, and 4,100 contracts of soybeans. Funds have bought 2,200 contracts of soymeal along with 3,500 contracts of soyoil.

• We look for a stable or 1% decline in corn, soybean, and spring wheat good/excellent crop ratings on Monday. Seasonally, US corn/soy crop ratings erode into mid-September before stabilising ahead of the harvest. The impact of weather on US corn fades in the middle of August while its impact on soybeans is sizeable.

• S American soymeal export premiums slipped this morning on the need to uncover business. The cash slippage pressured Chicago soymeal spreads. However, the US cash soymeal market stays tight amid strong domestic demand and slowing US crush due to plant maintenance. August soymeal futures are priced at a $46/ton premium to December with September soymeal trading at $24/ton premium. August Illinois rail soymeal is offered at $34 over September soymeal futures.

• The midday GFS weather forecast is slightly wetter on the weekend with needed rain across SW MN and the northern third of Illinois. Rainfall totals are estimated in a range of 0.2-1.50”. The rains then cover a larger share of the E Midwest in the first half of next week. Short changed will be the Delta and the S and C Plains where limited rain looks to fall for the next week. The forecast models have backed off on heavy rains across the SE US as the Bermuda high pressure ridge is located further east. There is no extreme heat noted as a high-pressure ridge retrogrades to the SW US. A more zonal weather pattern is forecast for mid-August with near to above normal temperatures and near normal rainfall in the 11–15-day period.

• The week produced 2 larger than expected private US corn yield estimates of 176-177 bushels/acre, a bearish surprise. We see the US corn yield at 173 bushels/acre or under as producers report considerable ear tipping and shallow kernel depth. US corn supplies and end stocks are the bearish anvil on Chicago. US 2023/24 wheat/soybean end stocks will be smaller than last year, and we doubt that Brazil will be able to produce back-to-back record corn/soy crops amid El Niño. We are looking for longer term bottoms are in by mid-September.

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

Weekend summary 4 August 2023

3 August 2023

Posted on August 3, 2023 by simon

• HEADLINES: Chicago mixed at midday; Wheat and corn test recent lows; GFS drier; crude up $1.90/barrel.

• Chicago futures are mixed, with grains weaker and soybeans and meal higher, in very thin volume. The choppy nature of the marketplace and the inability to established new lasting trends has eroded participation. Key supply updates also lie just ahead, beginning with USDA’s August WASDE and followed by Pro Farmer’s Tour of the principal Midwest in mid-August. Calls for a mild/wet August are coming to fruition, but damage has been done to yield potential in July and amid last week’s extreme heat keep questions over exact final output intact. Funds have resumed adding to an already decently sized net short wheat position in Chicago amid expectations, right or wrong, that Black Sea exports will be normalised in the long run.

• Neutral/bearish seasonal trends and a lack of new US weather threats have weighed on the market this week, but secondary seasonal lows are close at hand. Yet, we note that the port of Asov in Russia is still operating below capacity, and only during daylight hours, and wheat futures markets are discounting Southern Hemisphere crop risks entirely. Exceptional drought will remain in place for another 10 days in all but the southern part of Buenos Aires in Argentina, with high temperatures into August 11-12 will exist in the mid-80s and 90s (or 9-15 degrees above average) in Cordoba and northern wheat producing regions.

• This along with developing dryness in Western Australia and New South Wales needs very close monitoring. Already USDA projects combined Argentine/Australian exports to drop 4 million mt year on year in 2023/24 to a 4-year low. This discrepancy rises to 6-8 million mt if weather stays adverse.

• We also note that the details of Egypt’s tender Wednesday featured aggressive Romanian offers for Sep arrival but substantial risk premium in non-Russian origin thereafter. We currently strongly doubt the Black Sea export corridor will be restored, and risks to Ukrainian and Russian infrastructure remain elevated. Wheat’s break seems short-sighted in nature.

• US export sales in the week ending July 27 included 4 million bu of old crop corn, vs. 12 million the previous week, 3 million bu of soybeans, vs. 7 million the previous week and 15 million bu of wheat vs. 9 million the previous week. Spot corn and soy demand remains lacklustre, while wheat sales continue to keep pace with USDA’s forecast. Exporters sold 14 million bu of corn for new crop delivery and a sizable 96 million bu of new crop soybeans. New crop soy sales in next week’s report will be a large 50-60 million bu following recent daily announcements, including a new sale to China this morning worth 134,000 mt.

• New crop corn export commitments to China as of July 27 total 21 million bu, just 0.5 million short of total physical exports to Canada so far in the 2022/23 crop year. Corn exports to Canada are expected to reach 50-70 million bu following dire drought there and falling barley, oat, and wheat yield potential.

• Spot WTI crude oil at midday is up $1.90 at $81.50. The Dow is down 10 points.

• The GFS weather forecast at midday is much drier in MO, IA and IL than this morning’s run, and rather abruptly the model has eliminated rain chances there through late next week. The GFS forecast keeps the jet stream aligned a bit further north than previously, and heavy precipitation into mid-August instead will continue to favour the Central Plains and southern Midwest/mid-South. This is a significant change, but the EU model must validate it this afternoon. Extremes stays absent.

• Russia’s supplying of the world wheat market, for now, and the expectation of a neutral/bearish August WASDE have triggered a test of recent lows in corn and wheat. Wheat markets add premium rather quickly if weather fails to change in the S Hemisphere or Black Sea infrastructure is damaged. Soy is a bull market until sizeable acreage expansion occurs in the US next spring. Corn stays choppy until US yield is known. 57% of US corn area is still experiencing drought.

2 August 2023

Posted on August 2, 2023 by simon

• HEADLINES: Chicago mostly lower on negative macro input, higher dollar; Egypt buys Russian and Romanian wheat.

• Midday Chicago futures reversed overnight gains rather quickly this morning amid weighty macro markets, wet Plains/W Midwest forecasts and as FAS’s daily reporting system was void of new soybean demand from China or others. Rating firm Fitch downgraded US debt from AAA to AA+, a move significant enough to pull the Dow down 230 points and spot WTI crude oil down $2.00/barrel to $79.30. The labour market is tight. ADP data features net jobs gains in July of 324,000. But the forward US/global economic picture is murky amid middling manufacturing index performance in the US and China. Some research suggests positive grain/oilseed fundamental input lingers in the background, but the trade is aware that seasonal trends are not overly supportive in early/mid-August and wheat futures worldwide are reluctant to add Black Sea risk premium.

• Weekly EIA data leans neutral of corn and ethanol but longer-term positive crude and distillate markets. US ethanol production in the week ending July 28 totalled 314 million gallons, vs. 322 million the previous week but 2% above the same week in in 2022 and right at the USDA’s forecast. USDA is unlikely to adjust industrial corn use in its August WASDE.

• US crude stocks less reserves on Friday totalled 439.8 million barrels, down a sizeable 17 million from the previous week. Available crude stocks now exist just 3% above last year, crude stocks were up 12% year on year in mid-June, and total US stocks, including strategic reserves, total just 787 million barrels, the down 12% from last year and the lowest since 1985. Energy markets are unlikely to embark on a lasting bullish trend until reserves stocks are replenished and global production rises, and we believe that OPEC is unlikely to change output levels materially below $85, spot WTI. Soy oil’s demand story is intact. Dec soyoil has reversed morning losses.

• Egypt’s GASC received offers worth 1.77 million mt of wheat, of which a majority were Russian origin at the newly established floor price of $250/mt and ultimately Egypt purchased 300,000 mt of Russian and 60,000 mt of Romanian supply. We would note that Russian wheat at $250 reflects the first rally there since September 2022, and the spread between German and Russian milling wheat has narrowed to $20/mt, vs. $33-37 last week. EU/Russian supplies will be large in late summer, but the value of cash wheat in the global market, particularly hi-pro milling, is forecast to rise seasonally into mid/late winter. Lows have been scored. The degree of the coming recovery will hinge upon the evolution of conflict in the Black Sea. Risk has not been eliminated.

• EU and Canadian canola are steady/higher following the recent collapse in Canadian vegetation health. The US dollar index is up 0.5% at a newer three-week high.

• The midday GFS weather forecast is again drier in the Eastern Midwest relative to morning guidance but maintains soaking rainfall of 2-4+” in western NE, northern IL, IL and the mid-South. The major forecasting models agree that an elongated ridge of high pressure between now and mid-August will stay confined to Southern Plains and Delta, which opens the Central Plains and Midwest to near normal temperatures and active showers. Not all areas will benefit but convincing new US supply threats are absent.

• Volatility continues. Daily moves of at least 1% have become commonplace in all markets. Managing risk on a daily basis will stay challenging indefinitely. Wheat and soy outlooks are fundamentally bullish, while corn scores a lasting low once US crop size is known. The fact that processing margins are profitable, extremely so in the case of US soy crush, is important.