Monthly Archives: October 2023

31 October 2023

Posted on October 31, 2023 by simon

• HEADLINES: Soybean/soymeal futures recovery while wheat/soyoil values hold lower; Brazilian weather focus increasing in Chicago; GFS weather forecast delays rain across N Brazil into Monday.

• Chicago futures are mixed at midday with soybeans/soymeal/corn futures higher and soybean/soyoil/wheat futures lower in moderate volume. As the calendar shifts over from October to November, the focus of trader’s is increasingly on Brazilian weather and impact on their 2024 soybean/corn crops. S American weather will loom large in daily price determination from here forward.

• We note that Brazilian soybean seeding is just a few days behind the 5-year average, but that some fields will have to be replanted. However, January soybean futures will have to rise above the 50-day moving average at $13.35 to alter prevailing sideways trends. Buying first notice day in November soybeans in the later stages of harvest makes good sense amid the weather uncertainty surrounding the Southern Hemisphere crop. We look for a mixed Chicago close with the volume of trade needing to expand to sustain a rally. Otherwise, Chicago will continue to chop sideways for a few more weeks.

• Chicago brokers estimate that managed money has sold 2,600 contracts of wheat, while buying 3,700 contracts of corn and 4,700 contracts of soybeans. In the products, funds have bought 2,400 contracts of soymeal and sold 1,900 contracts of soyoil. The length in soyoil is down under 8,000 contracts, but the story in renewable diesel will be building into the end of the year.

• The USDA reported that Mexico purchased 239,492 mt of US soybeans in the 2023/24 crop year. There are also rumours that China was back this morning asking for US Gulf soybean offers and US SRW wheat offers. China appears to have interest in securing US SRW wheat between $5.50-5.60/bu.

• Census will release final US September crush rate and soy product stocks as of October 1. The average September crush forecast is record large at 175.0 million bu with soyoil stocks falling to 1,600 million pounds.

• Census total would be off another 161 million pounds, the lowest total backwards into 2012. Either WASDE expands its 2023/24 soybean crush rate or reduces US soyoil food use to accommodate the larger US biofuel demand. 2023/24 US soyoil supplies and stocks are going to be exceptionally tight into Q1 2024. A year ago, US final crop year US soyoil end stocks were 1,991 million pounds, a far larger total. NOPA members estimated their final member soyoil stocks at 1,108 million pounds. Chicago values have not reacted to tightening US soyoil stocks, but to the expanding US export demand for soymeal, and unwinding of the oil share spread. Soyoil values have been driven more by spreads than actual stocks.

• EIA indicated that August US soyoil use for biofuel fell 75 million pounds to 1,197 million pounds vs July. Canola biofuel oil use was down 18 million pounds with cornoil up 5 million pounds. The big monthly gain came from beef tallow use which was up 199 million pounds or 79% with yellow grease use in biofuels up 128 million pounds or 26%. There was one less processing day in August vs July.

• The GFS weather forecast is drier across Northern Brazil with another round of heavy rain for Southern Brazil of 1.50-5.50” in the next 72 hours before a welcome drying trend develops for 4-6 days. The drier weather across Southern Brazil is welcomed, but additional heavy rain is forecast to return in the 9–15-day period. Below normal rain will fall across Northern Brazil through the weekend. The midday GFS forecast pushed back the rain development into early next week. Northern Brazilian rain from late Monday into next week Friday is estimated in a range of 0.75-1.50”. Thereafter, another 4-5 days of warm/dry weather returns. We see no real change in the S American weather pattern into mid-November. Our concern for Brazilian corn/soy crops is rising.

• Brazilian weather is gaining in importance due to an abnormal weather pattern of hot/dry across N Brazil and excessive rain across SE Brazil. Some areas of SE Brazil have received more than 35.00” of rain since Sept 1 and flooding is widespread. Chicago values will watch Brazilian weather forecasts closely to add or subtract premium. Look for Chicago short covering into the USDA November crop report on 9 November. Seasonal price trends are for a rally into Thanksgiving.

30 October 2023

Posted on October 30, 2023 by simon

• HEADLINES: Chicago down following crude oil ahead of US Central Bank meet; Southern Brazilian flooding worsening; GFS midday weather forecast offers a drier Southern Brazil in November.

• Chicago futures are lower at midday. Corn and soybean futures are slightly lower with US hard wheat futures mixed. Other than the soy product trends on the oil share spread unwind, Chicago has had difficulty sustaining a break or a rally since late summer. The choppy/sideways Chicago price trend should persist.

• The bulls claim that the US harvest is nearly completed, and that higher prices are needed to pull supply from the farmer. The bears cite diminished US export demand and future record S American crop potential. Both sides are right (as of today), which is leading to sideways trade. In fact, Friday’s big winner is today’s big loser, soymeal. US soymeal export sales as of mid-October are the second largest on record. However, tomorrow the EIA will provide US biodiesel production including renewable diesel demand for various fats and vegoils. There are budding demand bull stories for both soy products.

• Chicago brokers estimate that managed money has sold 3,300 contracts of wheat, 4,500 contracts of corn, and 3,900 contracts of soybeans. In the products, funds have sold 4,600 contracts of soymeal and bought 1,900 contracts of soyoil. Managed money and index funds are on the sell side of Chicago. This needs to change for a longer-term bottom to form and a sustained rally.

• FAS/USDA indicated that for the week ending Oct 26, the US shipped out 20.9 million bu of corn, 69.5 million bu of soybeans, and 7.0 million bu of wheat. The wheat and corn exports were below trade expectations while soybeans were in line.

• For their respective crop years to date, the US has exported 194.7 million bu of corn (up 28.8 million or 17%), 365.6 million bu of soybeans (down 10.6 million or 3%), and 261.4 million bu of wheat (down 93 million or 26%). The US looks to export a near equal number of soybeans in the first 2 months of the crop year vs last year (400 million bu) which makes any annual projection of US soybean exports of 1,650 million bu or less statistically difficult.

• Rainfall across Southern Brazil keep adding up and is historically unprecedented. Key areas of SW Parana have now received 33-40” of rain with widespread areas receiving 27-36.00” of rain in the past 2 months. And the forecast calls for another 1.50-5.50” of rain before the end of the week.

• Flooding is widespread according to reports and farmers are facing yellowing corn and the need to replant soybeans. Northern Brazil has received all the weather attention due to an unusual drought, but it is the southern third of Brazil where months of heavy rain is taking a real toll on Brazilian summer row crop yield and production.

• Chinese pork values are down 7% in a week, one of the largest ever moves as farmers liquidate herds following an autumn festival holiday that failed to produce improved demand. China’s hog oversupply has been evident for a year and farmers are just giving up. ASF is not the culprit according to Asian sources. ASF has been in the background of Chinese agriculture for years and new hog hotels have been able to build supply and manage the disease. ASF hot spots often develop, but the big fall in price is due to herd liquidation/margins.

• The GFS weather forecast has trended drier across Northern Brazil with another round of heavy rain for Southern Brazil of 1.50-5.50” before a welcomed drying trend. The drier weather across Southern Brazil is welcomed amid weeks of above normal totals. Near to below normal rain will drop across Northern Brazil with increased totals forecast to start next weekend. The extended range forecast has been inconsistent for Northern Brazilian rainfall and the intensity of a high-pressure Ridge aloft. Our bet is for continued below normal N Brazilian rainfall into mid-November.

• We look for the US soybean harvest to reach 85-87% with corn to reach 72-75%. The US harvest is in its final stages this week. Chicago soymeal futures will stay extremely volatile with little hope of expanded Argentine offers into May of 2024. We stay bullish of US soy products with the grains to chop in a broad sideways range. US crude oil being down $3/barrel has added to the bearish mentality.

27 October 2023

Posted on October 27, 2023 by simon

• HEADLINES: Soybean meal surges, forces November soy to test $13.00/bu; GFS weather forecast wetter in Mato Grosso.

• Chicago futures are mixed at midday, with meal scoring newer rally highs and forcing Nov soy to test $13.00 as options expire. Meal in recent weeks has done the legwork in boosting crush margins, and despite mediocre US soy export demand, it is just tough to be bearish of soy cash prices given processor profitability. We should expect meal to enter a new phase of increased volatility at high prices, but most important is that physical Argentine soy supplies won’t be fully replenished until spring. We would also pointy out that crush margins in Brazil are working to boost product output there.

• Spot KC wheat has fallen to new lows for move. Corn is caught between. Mato Grosso soy planting progress will be published after the close. The details of this report this week and next are important.

• Spot Paris milling wheat is down €1.50/mt at €232, testing the lower end of the recently established range. The EU cash wheat market continues to probe for export demand following sluggish shipments to date. The lack of drought across the US Southern Plains, and additional soil moisture improvement in TX and eastern OK, has weighed on wheat futures. Recall NASS will publish its first national winter wheat crop rating on Monday.

• We would estimate today’s CFTC report showing managed money short a net 110-112,000 contracts of corn, vs. 109,000 last week, short 104,000 contracts of Chicago wheat, unchanged from the prior week, and short 1,500 contracts of soybeans, vs. 2,000 the previous week. We estimate fund length in soyoil dropped to just 5-8,000 contracts vs. 21,000 the previous week.

• Funds have not been net short of beans since Q1 2020, and we views it as premature to count on record Brazilian production in 2023/24.

• Soy’s story, in the US, centres on a clear need for crush capacity expansion. But grains lack a story, with corn/wheat volume as of midday exceptionally low. Ukrainian grain flows resuming and Russian wheat offered $20/mt below comparable EU origin weigh on recovery efforts, but funds’ sizeable shorts in corn and wheat suggest bearish news has been digested. Grains lack direction.

• Crude at midday is up $1.20/barrel at $84.40. The US dollar has retreated slightly from morning highs.

• The GFS weather forecast has trended wetter in Mato Grosso beginning Nov 7. The GFS forecast is in better alignment with overnight EU solution in allowed high pressure ridging to lose its influence on the Central/Norther Brazilian climate in early Nov. Rains eventually fall across tropical latitudes of Brazil, and weather-based focus next week turns to actual amounts and coverage. Otherwise, the GFS forecast is consistent in projected additional needed rains in Central Argentina but unwanted excessive precipitation of 3-10” in RGDS and Parana in S Brazil.

• We see nothing to disrupt positive corn/soy seasonal trends into at least winter. Debate will centre on the extent of recoveries, and this will be a function of S American weather exclusively Dec onward. Wheat is subject to Russian cash pricing, but Chicago gains further on KC amid each market’s respective export potential.

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

Weekend summary 27 October 2023

26 October 2023

Posted on October 26, 2023 by simon

• HEADLINES: Row crops weaken slightly; Wheat maintains geopolitical premium; Export sales decent but key is timing of harvest in S America.

• Chicago futures are mixed at midday, with wheat adding modest geopolitical risk and corn and soy retreating from early morning highs amid crude’s correction and hope for improved rainfall in Central Brazil. The EU and GFS weather models are very much at odds over Brazilian precipitation beyond Nov 4. The EU model hints at normalisation, while the GFS model (and Canadian) carry dryness into the first week full week of November. Brazilian weather to date has had limited impact on price discovery and yield potential but gains in importance considerably beyond the next 10 days. Row crop balance sheets aren’t yet at a point where supply dislocation can be ignored (like in 2016 and 2017), and so the market’s path diverge massively based on weather performance in S American in late autumn/winter. Dryness in Mato Grosso, as well as excessive rainfall in Rio Grande do Sul will both be focal points. Note that soy seeding typically begins in earnest in RGDS in November.

• Spot WTI crude is down $1.50/barrel at $83.80. Crude has been somewhat volatile between $83-85. $90+ requires confirmed disruption of supply in the Middle East, but we would remind that strength in energy prices to date has been largely a function of expanding US exports and historically tight crude stocks. We see value in spot WTI below $80.

• US export sales in the week ending Oct 12 were decent. Exporters in the period sold a net 53 million bu of corn, vs. 35 million the previous week. Assuming sales erode June onward amid trend yields in S America, Work suggest that weekly demand of 44-46 million bu into late spring validates USDA’s forecast. Exporters sold 51 million bu of soybeans, vs. 50 million the previous week. All wheat sales totalled 13 million bu, vs. 23 million the previous week but 3 million above the pace need to meet USDA’s target. Meal sales were a sizeable 559,400 tons, vs. 479,000 the previous week. Already US meal export commitments account for 40% of USDA’s annual forecast , with 11 months remaining in the marketing year. Argentine crush doesn’t improve until new physical soy supplies are available in Mar/Apr. Demand for US meal continues throughout winter.

• We would also note sorghum sales in the week ending Oct 12 totalled 7.5 million bu, including known Chinese purchases of 2.6 million.

• FAS announced exporters sold 110,000 mt of US soy to China this morning.

• We expect the pace of US export sales to stay reasonable into winter, but an extension of US exporters’ window of opportunity is needed. Key is the timing of 2024’s shift in purchases from the N Hemisphere to S America. This will be entirely a function of the pace of Brazilian soy plantings over the next 2-3 weeks Seeding dates matter this year as it appears Argentine producers will again seed a near-record amount of second crop corn, which isn’t harvested until May.

• The US economy in Q3 grew by a larger than expected 4.9%, which shows resilience, but market sentiment remains hyper focused on elevated interest rates for a prolonged period of time. Equity markets today are focused on future consumer spending. The Dow at midday is down 190 points. Equity markets worldwide have struggled since mid-October. US dollar strength has been a weight on raw materials.

• The GFS weather forecast is consistent with morning output in calling for a stagnant pattern of dryness in N Brazil and excessive rainfall worth 3-8” in RGDS and Parana in S Brazil into Nov 5. Light/scattered rain in C Argentina this weekend chip further away at drought.

• Markets are waiting on their next tradable story, which we would maintain centres on S American weather beginning in November. The choppy nature of the marketplace persists this week and next.

25 October 2023

Posted on October 25, 2023 by simon

• HEADLINES: Back and forth Chicago trade persists as soymeal rejects key resistance; Amazon River shipping to slow on flow; US weekly ethanol production up 1%.

• Chicago grains have moved lower at midday on the prospect of rain across parched Northern Brazil and a further fall in energy values. Israel is reporting that it is holding back on its Gaza invasion until the US can set up missile defence systems across the Middle East. This sparked selling in crude oil.

• Yesterday, soybean/soymeal futures rallied sharply while soyoil enduring selling. Today, it is soyoil that is posting strong gains while soybeans/meal decline. Chicago is in a wide-ranging choppy trade that is frustrating. It does not take much volume to shove Chicago in one direction or the other. The market’s back and forth is causing fits to fund managers with end of year strategies in play. Index funds will be rebalancing their portfolios with the cheapness of grain (vs. last year) causing them to be significant buyers.

• One cannot underplay the importance of S American weather in world grain pricing. The USDA is forecasting that S American will produce an additional 50 million mt of corn/soybeans in 2024, which if correct, would maintain bearish market trends. However, if there is any adversity, a significant upward adjustment in price will occur with world exporter stocks/use ratios so tight. US corn and soybean exports for the crop year to date are keeping pace with last year.  This is why we continue our mantra, “Don’t chase rallies or breaks.”  The time for a more sustainable rally will likely emerge in early November.

• The USDA/FAS reported that China secured 126,000 mt of US soybeans for delivery in the 2023/24 crop year. Cash wheat traders are discussing the potential that China could secure additional US SRW wheat if December Chicago wheat futures fell to $5.60 or below.

• Chicago brokers estimate that funds have sold 5,400 contracts of corn, 5,900 contracts of soybeans, and 4,500 contracts of wheat. In the products’, managed money has sold 5,400 contracts of soymeal and bought 3,200 contracts of oil.

• EIA reported that US produced 306 million gallons of ethanol, up 2 million gallons or up 1% on last year. US ethanol stocks rose 12 million gallons to 899 million gallons, which is down 4% from last year. The US consumed 8.86 million barrels of gasoline/day which is steady from last year. US ethanol production margins are at their best levels in 9 years at $0.67/bushel. We believe that WASDE will raise their annual US ethanol grind estimate by 25-50 million bu in coming monthly reports.

• The Brazilian Amazon drought continues to worsen with shipping and barge companies warning about draft restrictions and slowed movement of grain due to record low water levels. Corn is the Brazilian grain that is most at risk to rising costs and supply chain delays.

• The GFS weather forecast is as dry as the overnight run with limited rain across North Central Brazil for the next 10 days with regular heavy rainfall to batter Southern Brazil. This is the same “stuck” weather pattern that has persisted since early August and shows no sign of change. Showers of 0.2-1.50” will fall across 50-60% of North Central Brazil over the next 4 days. The rain will help seed germination where totals are greater than 0.75”. Across RGDS, Santa Caterina and Parana, frequent heavy rainfall will tally 3.50-8.00” which will add to flooding woes.

• High temperatures will hold in the 90’s/lower 100’s across North Central Brazil with highs in the 70’s/80’s across the cloudy south. The S American weather pattern is abnormal and our drought worry for N Brazil stays elevated.

• S American weather during November and December will key longer term Chicago price direction. Our worry about Brazilian weather is growing and elevated. Our market stance stays one of a bottoming of price and a further firming of cash basis. However, whether you are a bear or a bull, price action since late August has been back and forth and frustrating. Research shows that soyoil and soybeans are undervalued relative to the weather and demand risks ahead.

24 October 2023

Posted on October 24, 2023 by simon

• HEADLINES: Chicago mixed at midday with soybeans gaining on the grains; Soymeal pushes to new rally high; GFS drier for Northern Brazil into November 4.

• Chicago grains are lower and soybean/soymeal firmer at midday. The volume of trade was active following the opening but has since slowed. Corn and wheat markets continue to trade in broad ranges while soybeans find support at $12.70-12.80 relative to November soybean futures. Soymeal is gaining on soyoil with the oil share spread falling to 37.7%. The oil share spread unwind has been sizeable which has contributed to the Chicago soymeal rally.

• We note a weakening trend of cash soymeal in Latin American which is producing the bear spreading of the Dec/March soymeal futures. Yet, domestic soyoil basis is starting to firm as end users reach seek forward coverage. A year ago on this same date, December 2022 soyoil futures closed at $71.87/pound with renewable diesel demand half of what it is today.

• And soyoil stocks as measured by NOPA/Census were far larger. NOPA as of October 1, 2023, reported member soyoil stocks at a 9-year low. Crude oil and heating oil prices were similarly priced which leaves one wondering on the downside price potential of soyoil. Argentina is exporting far less soymeal, but they are also exporting 2.2 million mt less soyoil. If there is a bearish point to soyoil it is that other vegoils can replace the lost Argentine exports. Yet, a 20 cent drop relative to last year on more bullish fundamentals appears that there is upside in Chicago soyoil futures when seasonal lows are confirmed.

• Chicago brokers estimate that funds have sold 5,100 contracts of wheat and 4,200 contracts of corn, while buying 1,600 contracts of soybeans. Funds are net sellers of 2,000 contracts of soymeal and 4,100 contracts of soyoil.

• In the first trade mission in years, China, and the Iowa Soybean Association along with US Soybean Export Council signed frame contracts for an unspecified tonnage of US soybeans. The press release claims that China booked billions of dollars of US soy, but neither the contract timing nor performance of the purchases were specified. Such frame contracts are largely ceremonial, but the legal departments of several US exporters will report the China sale to FAS/USDA which could produce a sizeable daily export sale over the next 48 hours.

• WTI Crude oil futures have not been able to sustain an early day rally with values down $2/barrel at midday at $83.50 basis December. Energy futures are retreating to prices that equate to October 9, the Monday following the start of the Hamas war against Israel. There were rockets launched at Iraq’s Ain al-Asad air base which is housing the US military. The geopolitics of crude oil will continue to produce sizeable market volatility in energy. But the war must spread beyond Gaza for spot WTI crude to push above $90/barrel.

• The midday GFS weather forecast is drier across Northern Brazil and Argentina with heavy rain forecast for S Brazil/Paraguay. The pattern remains stuck. Scattered showers are forecast for Mato Grosso/Goias from Wednesday into the weekend before dry weather returns. Rain totals are estimated in a range of 0.25-1.50”, about half normal totals. Southern Brazil is forecast to see 2-7.00” of rain which rekindles flooding worry. And Argentina has a chance of rain mid next week with totals of 0.15-1.00”

• Extreme heat across Northern Brazil exacerbates soil moisture loss with highs ranging from the mid 90’s to the lower 100’s. Southern Brazil and Argentina are forecast to see seasonal 70’s and 80’s for daily highs.

• It is too early for Northern Brazilian weather concern, but the existing dry pattern needs to change by November 10 for soybean seedlings to recover.  Some climate experts see a N Brazilian summer drought in November/December and January. Soymeal is scoring new rally highs with key resistance at $432.60 basis December. Corn and wheat look to trade in a broad range until the US corn harvest is 80% completed.

20 October 2023

Posted on October 20, 2023 by simon

• HEADLINES: Early Chicago rally fails with soybeans/corn in retreat; 2 wars have portfolio managers looking to diversify into commodities; GFS midday weather forecast drier for N Brazil.

• Chicago is mixed at midday with the summer row crops lower while wheat holds in the green. And soyoil futures are higher and soymeal is down in a reversal of recent day price action. Spot Chicago wheat is back above $6.00 with December corn futures rising to their highest price since August 2 at $5.095. Chicago corn values rallied following a long consolidation that extends backwards for 11 weeks. Yet, the morning;’ rally uncovered new farm selling with producers yet to harvest 50% of their crop and cash basis (and futures improvement) taking cash bids back to levels that have not been witnessed since July.

• Soybean futures have struggled with profit taking in soymeal noted following a near $60/ton rally. Traders are aware that Argentina could enjoy needed rain later this weekend while Northern Brazil sees showers mid next week. Weather leans bearish of soybeans. Traders are debating whether several large funds entered a long new meal/oil spread position which pushed the oil share trade down to 38%, near a 2-year low.

• Key heading into the weekend is whether December Chicago wheat can close above its 50-day moving average at $5.945. The last time that wheat was above its 50 day was in late July. We estimate that US farmers have harvested 73-77% of their soybeans and 49-53% of their corn crops. US cash soybean basis offers are rising as crushers bid for supply with cash margins near $3.00/bu.

• Chicago brokers estimate that funds have bought 4,000 contracts of wheat and 1,000 contracts of corn, while selling 4,700 contracts of soybeans. In soy products, the managed money has sold 5,300 contracts of soymeal and bought 4,100 contracts of soyoil.

• The USDA did not make any daily sales announcements contrary to rumours on Thursday that China may be securing US corn. We cannot confirm any new sales of US corn to China.

• Risk managers are assessing whether the Israeli war can spread beyond Gaza, upend world energy supplies, and produce a spike in crude oil values. A broadening Mideast cultural war that includes either Iran/Iraq or the Strait of Hormuz could have a crippling effect on Mideast energy production/exports. Wars tend to be bullish of raw material markets if they persist over several years. The Russian war against Ukraine is starting to curtail supplies of metals, energies, and soft commodities like grains. The Israeli war would raise energy values with the result being a fall in equity prices while macro fund managers would seek to diversify into raw materials as a portfolio hedge. Being short of commodities in a long war is an unfavourable portfolio strategy.

• The record low flow of 4 major river systems is unprecedented; 1/ The Danube River, 2/ The Rhine River, 3/ The Amazon River, and 4/The Mississippi River are all posting historically low flows. History shows no precedent for European, S American and the US ag waterways to be this low at the same time.

• The midday GFS weather forecast is drier across Northern Brazil than the overnight forecast. A few scattered showers will slide into Mato Grosso and pockets of Goias during October 25-28 before a new dry spell returns. Otherwise, meaningful S American rain is relegated to Southern Brazil and Argentina. The Argentine rain starts Sunday with the Brazilian rain being pushed backwards by a day to Thursday, October 26. Heavy rain will continue to drop across Southern Brazil. Extreme heat exacerbates soil moisture loss across Brazil with highs ranging from the mid 90’s to the lower 100’s. The Northern Brazilian heat abates late next week.

• US soymeal/soyoil have compelling demand stories into yearend which underpins soybeans on breaks. Longer term, it is soyoil that will dramatically gain on soymeal as Argentine soy crop supplies return to normal. An Argentine Presidential election occurs on Sunday with high expectation that there will be run off of the top two candidates. We expect that the flow of funds will be into raw material markets into yearend with the fund rebalance offering considerable buying in the grains due to low prices. We maintain that in El Niño years that Brazil will not produce trend corn/soy yields.

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

Weekend summary 20 October 2023

19 October 2023

Posted on October 19, 2023 by simon

• HEADLINES: Soymeal rally continues with soyoil in retreat on oil share spread unwind; US SRW wheat sales commitments reach 96 million bu or 66% of annual forecast: GFS drier at midday for N Brazil.

• Chicago grain markets are mixed and slightly higher at midday. December corn and December Chicago wheat futures are up 2 cents, while November soybeans are up 1 cent. Chicago price movement has been modest this morning, but there has been market emotion amid the oil share spread unwind and the bears that see Chicago soybeans as overvalued with rain slated to drop early next week across Northern Brazil.

• It is difficult to gauge how much weather premium exists in November soybean values, but our work suggests that it is modest. Traders have never really grabbed hold of the dryness in Northern Brazil as the area is tropical in nature and it is early to be overly concerned. Moreover, US 2023/24 soybean end stocks will be historically tight with farmers tight fisted with the US harvest pushing beyond 75% complete.

• We anticipate a firm Chicago close with a short covering bounce forecast for Friday. Traders do not want to walk into work on Monday with an escalation of the Israeli war and energy prices ripping to the upside. As an increasing amount of US summer row harvest is completed, the seasonal price trend is supportive of Chicago values into mid-November. Strong demand for US soy products makes a break in soybean futures difficult to sustain with crush margins rising.

• Chicago brokers estimate that funds have sold 7,200 contracts of soyoil and 2,200 contacts of soybeans, while buying 4,300 contracts of corn, 4,600 contracts of Chicago wheat, and 4,200 contracts of soymeal.

• There are rumours that China is back asking for offers on US SRW Gulf wheat and even US PNW corn. We have doubts on the Chinese cash corn rumour since Ukraine corn fob offers are so much cheaper. However, it is difficult to line up freight insurance for Ukraine grain export and a buyer may have to go without. The Chinese grain rumours are offering support to Chicago corn/wheat on breaks.

• US weekly export sales for the week ending October 12 were 23.3 million bu of wheat, 34.7 million bu of soybeans, and 50.4 million bu of soybeans. All sales were at the upper end of expectations. For their respective crop years to date, the US has sold 394 million bu of wheat (down 21 million or 5%), 639 million bu of corn (up 94 million or 17%), and 767 million bu of soybeans (down 351 million or 31%). Brazil is back offering 2-3 cargoes of soybeans for export in November that is competitive with US offers that is capping the Chicago rally.

• The Danube River level is in decline on a regional drought which is causing barges/vessels to cut their loads and drafts. Importers are starting to complain on shipping delays and demurrage costs which could further hit the Ukraine farmer. We are told that the Danube River restrictions are raising transit costs with bids to the Ukraine farmer becoming scarce. The Danube River impact needs to be closely followed as it could disrupt Ukraine exports.

• The midday GFS weather forecast is drier across Northern Brazil. A few scattered showers will slide into Mato Grosso and pockets of Goias during October 25-28 before a new dry spell returns.  Otherwise, meaningful S American stays relegated to Southern Brazil and Argentina. The Argentine rain will be welcomed but is unwanted across S B Brazil where totals since Oct 1 has eclipse 10.0-16.00”. Our primary concern is across the Northern two thirds of Brazil and the dry soils prevail. And extreme heat is exacerbating issues with temperatures ranging from the mid 90’s to the lower 100’s through the weekend. Cooler readings start on Tuesday.

• Fund demand in soymeal and fund selling in soyoil is the theme of the day. Soymeal prices have leaped upwards on import demand. However, end users are actively booking soyoil needs on today’s break and see value below $0.54 December. US SRW wheat sales account for 66% of the WASDE annual forecast at 96 million bu. The market has accomplished its chore of finding demand. Any additional Chinese demand will be highly bullish. Finally, whether it is the Amazon, Mississippi, or the Danube Rivers, all are historically low a worry for importers. World ocean freight costs are at a one year high. Central US cash basis bids are rising.

18 October 2023

Posted on October 18, 2023 by simon

• HEADLINES: Chicago steady/higher at midday; Wheat leads rally; US ethanol production begins seasonal expansion.

• Chicago ag markets are mostly higher at midday in still-thin volume. Wheat has led the way so far, with spot Paris milling wheat up €4.00/mt and testing highs scored in mid and late September. A specific catalyst is lacking but this week has highlighted the developing US export demand story amid competitive prices and China’s recent buying spree. Additionally, Australia’s season will end amid heat and a complete lack of rain into early Nov, which on balance trims yield potential south of Queensland, where peak harvest is still a few weeks off. Soybeans have reversed overnight gains. Raw material market rallies as a whole continue to be challenged by strength in the US$ and rising treasury yields. The Dow at midday is down 220 points.

• US exporters sold two cargoes of soybeans to China, which likely reflect confirmation of early-week rumours. We do note that Brazilian origin isn’t quoted for Nov-Jan arrival, and key is whether Brazilian soy becomes available in early Feb or early March. This will be determined by seeding dates. CONAB late Monday pegged national Brazilian soy seeding progress at 19% complete, vs. 22% last year. We estimate progress as of Oct 22 to be no better than 28-29% complete, vs. 35% in 2022.

• US ethanol production is beginning to rise as plant maintenance season draws to a close, and importantly ethanol stocks are not abundant. US ethanol output in the week ending Oct 13 totalled 304 million gallons, vs. 295 million the prior week and the largest since early September. Seasonally, weekly grind reaches its peak in Nov/early Dec. Additional boosts in domestic corn consumption occur over the next 6-8 weeks.

• Ethanol stocks last Friday were 887 million gallons, vs. 904 million the prior week and down 3% year on year. Residual disappearance, probable exports, have fared well in the face of Brazilian competition, with residual ethanol disappearance in the last 4 weeks of 157 million gallons three times that of last year. This along with profitable margins supports the need for enlarged industrial corn use. Crude stocks less strategic reserves on Oct 13 totalled 420 million gallons, down 4 million from the previous week and 4% below last year. The US energy market is tight.

• The midday GFS weather forecast is slightly drier in Northern Brazil into Oct 28. A few scattered showers will slide into W Mato Grosso and pockets of Goias, but otherwise meaningful S American rainfall into late month stays relegated to far Southern Brazil and NE Argentina. This rain will be welcomed in Argentina but is unwanted in Rio Grande do Sul, where rainfall since Oct 1 has been recorded at 10.0-15.5”. Our primary concern remains cantered across the Northern two thirds of Brazil. Extreme heat is exacerbating issues this week, with max temperatures on Monday in Mato Grosso reaching 103-104. Similar readings are projected into the weekend.

• Breaking news is absent, but our work suggests markets are embarking on seasonal moves higher into winter/early spring. The intensity of recoveries hinges upon S American crop potential, with weather increasing in importance considerably in November. CONAB/Mato Grosso soy seeding progress is data is key in the next two weeks.

17 October 2023

Posted on October 17, 2023 by simon

• HEADLINES: Chicago mixed as soymeal rallies above 200 day moving average; Grain prices sag on ongoing US corn harvest; Northern Brazilian dryness needs to be followed.

• Midday Chicago grain markets are mixed in thinning volume. The grains are under pressure while soybean/soymeal values hold in the green. Soyoil is enduring modest selling pressure on the unwind of oil share spread while Midwest cash basis bids are steady/firm on tightening cash soyoil supplies. Traders are debating historically tight NOPA soyoil stocks amid the rapid buildout/onboarding of additional US renewable diesel production into Q1 2024. It is the tightening of soyoil for food use along with seasonally declining SE Asian palmoil production that should encourage a soyoil rally into early 2024.

• Whether it is the US/EU or S America, farm selling has slowed in recent weeks leaving commercials longer on Chicago than they have been in years. Most US farmers will not make corn/soybean sales until the October revenue insurance price is set, and even then, once the grain is stored on farm, the cash markets will have to pry it away. This is why Chicago breaks will be difficult to sustain.

• Chicago brokers estimate that managed money has sold 2,200 contracts of corn and 900 contracts of wheat while buying 5,400 contracts of soybeans. In the products, funds have sold 3,600 contracts of soyoil while buying 7,100 contracts of soymeal. Soymeal rallied above its 200-day moving average.

• The FAS/USDA daily sales report did not announce any new sales this morning, but there is talk that China has priced 3-5 US soybean cargoes earlier today.

• US soybean products (soyoil/soymeal) have bullish demand stories into 2024. Brazilian hi pro meal is catching a bid this morning on increasing export demand while US soymeal export sales continue to gather steam and are near record large. US NOPA soyoil stocks itemised that domestic demand is record large and likely to grow substantially as Phillps 66 brings their massive renewable diesel plant online later this year or early in 2024 in Rodeo, California. Demand for US soymeal stays elevated until new crop Brazilian soymeal is available in March. Soy product demand limits the downside in spot soybean futures to $12.65 through year end. Note that new US crush capacity does not come online until Q3 2024, or mid to late summer in preparation for the US 2024 harvest. October Chicago soyoil futures did not have any soyoil tendered for delivery, something that has not happened in over a decade. There are only 67 contracts of soyoil registered for delivery today.

• November soybeans have rallied above $13.00/bu on speculative buying. The US farmer is not a large seller at $13.00. The old crop soy/corn ratio sits at 2.65:1 with the new crop ratio at 2.42:1. The new crop soybean/corn ratio is too low to encourage US farmers to seed 87.5 million acres in 2024. We estimate that based on the new crush capacity coming online that the US will need at least 87.5 million acres, which will drop corn seeding back to 90-91 million acres. US farmers are not excited about expanding seedings due to negative margins.

• The midday GFS weather forecast maintains an arid trend across North Central Brazil into October 27. There will be widely scattered showers of 0.25-1.00 from October 25-27, but the coverage of the rain will be less than 40% of NC Brazil. Rain will become more regular for Argentina, while S Brazil holds in an overall wet trend that is causing first crop corn to yellow and further harming HRW wheat crop quality. The drying trend across N Brazil is becoming historic and should the dryness last through early November, it will push back the start of soy harvest until February. Our concern for Brazilian weather is increasing amid the pesky/persistent high-pressure ridge that holds across Northern Brazil.

• Frustration… a word that we hear more often regarding Chicago. The bears are frustrated that Chicago won’t break while the bulls are frustrated that grain rallies can’t be sustained. US ethanol and soy crush margins are highly profitable which is raising cash basis bids. Brazilian weather is concerning, but not yet yield threatening. It is the wrong time of the year to be bearish. Paris wheat and Chicago corn have been going nowhere since mid-August. The Chicago bullish stalwart is soy oil while the grains look to chop.