Monthly Archives: December 2023

29 December 2023

Posted on December 29, 2023 by simon

• HEADLINES: Soy market sags ahead of Brazilian pattern shift; Weekly export sales within trade expectations.

• Chicago ag markets are lower at midday in even thinner volume as weekly export sales failed to spark short covering or the addition of new market length. Export sales in the week ending Dec 21 included 49 million bu of corn, vs. 40 Mil the previous week, 36 million bu of soybeans, vs. 73 million the previous week, 10 million bu wheat, vs. 12 million the prior week, and 296,000 tons of meal, vs. 163,000 the previous week. Sales across the board match the pace needed to meet USDA forecasts, but except for US SRW USDA is unlikely to raise 2023/24 US exports in its January WASDE. Otherwise, momentum in soybeans and soybean oil has been negative since mid-week, and there is not the participation to counter chart-based selling today ahead of needed Brazilian rainfall in early January.

• For their respective marketing years to date, the US has sold 1,158 million bu of corn, up 37% year on year, 556 million bu of wheat, up 1%, and 1,335 million bu of soybeans, down 15% from late December 2022. US soy export demand has been solid for early winter, but the market needs to see enlarged sales as a function of concern over Brazilian output. No new sales were announced this morning.

• Trade estimates suggest that managed fund length in beans is just 3-5,000 contracts, vs. mid-November’s peak of 88,000. Funds are short an estimated 180,000 contracts of corn, unchanged from last week, and are short an estimated 60,000 contract of Chicago wheat, vs. 65,000 last Tuesday. Funds’ soyoil short is pegged at a 3.5-year high 40,000 contracts. March soyoil is oversold.

• Radar maps shows pockets of heavy rainfall working across southern Mato Grosso at midday. Extreme heat in Brazil will begin to moderate in the next 24 hours, and model guidance keeps in place a more active pattern of rainfall in N Brazil beginning Sun/Mon. Showers will be widespread throughout next week. Extended range forecasts have on the margin trended wetter in mid-January.

• Spot WTI crude is up $0.40 at $72.20. The Midwest ethanol swap market is trading slightly higher for the first time in 30 days. Work suggests a bottom in ethanol is being forged.

• The midday GFS weather forecast is consistent with the morning run and has extended a pattern of normal Brazilian rainfall into January 14. Rain will be periodically intense across Mato Grosso and far Northern Brazil in the 6–15-day period, with two-week accumulation there estimated at 7-10”. If verified this rain will begin to replenish soil moisture when later planted fields are setting pods, and equally important, ahead of safrinha corn planting in late Feb/Mar. Rain is forecast to return to the core of Argentina’s Ag Belt Jan 8-10.

• Improving Brazilian weather and negative chart momentum have dominated Chicago since Wednesday. Volatility remains elevated in January as every drop of rain in N Brazil is measured and as uncertainty stays high amid Brazilian drought to date.

• We look forward to an interesting start to 2024, have a safe and happy New Year break.

28 December 2023

Posted on December 28, 2023 by simon

• HEADLINES: Corn, soy shed premium ahead of Brazilian rain; Black Sea concerns lift global wheat market.

• Chicago ag markets are mixed at midday, with wheat higher and row crops weaker. A civilian vessel on its way to Danube ports in SW Ukraine withstood damage from a previously placed explosive mine and following Ukraine’s attack on Russian naval assets earlier this week, Black Sea tensions are rising, not falling. Corn and soy are shedding modest premium ahead of soaking Brazilian rainfall next week and amid March soy’s inability to trade above its 200-day moving average. March corn, too, has struggled at initial $4.80 chart resistance. Otherwise, volume is thin. Chart patterns are driving whatever new money is being put to work. Egypt cancelled its tender for wheat for March delivery but gave no reason.

• Argentine President Milei has sent Congress his proposed reform bill, which features sweeping changes, both legislative and economic in nature. It appears the 15% tax on grain exports will remain in place, while taxes on soymeal/oil exports will rise from 31 to 33%. Yet, as has been the case since his inauguration, uncertainty is high with respect to what can be passed. Milei has little support in Argentina’s House and even less in Argentina’s Senate. Additional legislative sessions are scheduled through Jan 31.

• US ethanol production in the week ending Dec 22 was a larger than expected 325 million gallons, up 15% from the same week a year ago and the largest since Oct 2021. Note the counter-seasonal nature of last week’s expanded grind. A seasonal erosion in industrial corn use lies ahead during the winter months, but there can be no doubt US ethanol is cheap in the world marketplace as well as relative to motor gasoline. Cumulative weekly EIA ethanol production since Sep 1 is up 217 million gallons (5%) year on year.

• US commercial crude stocks last Friday totalled 437 million barrels, down 7 million from the prior week but up 4% from late Dec 2022. Gasoline stocks were 226 million gallons, up 1% from the prior year. Nothing unexpected was revealed in EIA crude data. Spot WTI is down $1.20 at $72.90.

• The GFS weather forecast remains consistent in calling for needed soaking rainfall across the driest areas of northern Brazil beginning Sun/Mon. That this pattern shift has been pulled into the GFS’s 3-day outlook is important and boosts confidence in the arrival of soaking rainfall. 10-day totals are pegged at 1-4” in Mato Grosso, Goias, Bahia and Minas Gerais. Totals above 2.5” will be scattered, but near-term outlooks are trending favourable, particularly for soybeans planted in late Nov/Dec. Brazilian soy production estimates will be very wide-ranging ahead of harvest.

• Just 62,000 contracts of March corn and 65,000 contracts of March soybeans have traded as of noon. Volume is likely to thin further on Friday. Crop inspections in Brazil in mid-Jan should help to provide clarity over production and potential changes in global trade flows in 2024.

21 December 2023

Posted on December 21, 2023 by simon

• HEADLINES: Chicago similar to overnight trade at midday; US dollar extends decline; Midday GFS weather forecast unchanged in South America.

• Chicago ag markets have carried overnight themes into midday with corn and wheat up 3-5 cents and March soybeans down 10. Weather premium is being extracted from the soy complex as rains fall across key areas of Mato Grosso this morning. The midday GFS forecast is unchanged in calling for light/moderate but steady rainfall into the week, with Thurs-Sat cumulative totals pegged at 0.75-1.50”. The GFS forecast remains drier than its EU/Canadian counterparts, but actual precipitation measurements matter most now. The market’s reaction to Brazilian precipitation is occurring in holiday-thin volume. Price moves remain exacerbated. We also note FAS’s daily reporting system failed to include new US business for a second day.

• Export sales in the week ending Dec 14 included 39 million bu of corn, vs. 56 million the previous week and at the lower end of expectations. Wheat sales totalled 12 million bu, vs. 55 million the previous week but still 4 million above the pace needed to meet USDA’s forecast. SRW sales were 3 million bu. Total SRW commitments of 155 million bu account for a record 89% of USDA’s forecast, and so USDA in January is expected to hike its SRW/all wheat export target 10-15 million bu. China last week also purchased 9 million bu of US sorghum.

• Weekly US soybean sales were a larger than expected 73 million bu, vs. 40 million the previous week and the highest since early November. China/unknown secured 55 million bu, with demand from Spain worth 7 million bu also noted. Soybean export commitments are rising counter seasonally amid concern over Brazilian harvest dates in late winter. Soy sales in mid-Dec a year ago were only 21-26 million bu.

• For their respective crop years to date, the US has sold 1,109 million bu of corn, up 37% year on year, 546 million bu of wheat, up 3%, and 1,299 million bu of soybeans, down 16% from mid-Dec 2022. Overall soy demand has struggled as Brazil’s 2023 export season has been extended into December, but US soy commitments sit at a more normal 74% of USDA’s forecast. A downward revision in January is unlikely.

• The US dollar has extended overnight weakness and a close below 101.7 opens downside potential to summer 2023’s lows. Treasury yields continue to drop, with the 10-year treasury yield at 3.87%, the lowest since July. US equity markets have shrugged off Wednesday’s late-day collapse entirely and have posted new all-time highs at midday, financial markets are ending 2023 more optimistic on US economic performance. We view the US dollar performance as important given index funds between April 2022 and now have liquidated 492,000 contracts of combined corn, wheat, soy and livestock length, due mostly to rising lending rates and strength in the dollar. The flow of money gets adjusted if rates enter a lasting downward trend.

• The midday GFS weather forecast is unchanged from this morning with steady rain to linger in Northern Brazil into Saturday. The intensity/coverage of rainfall there diminishes Dec 24-30, but a normal pattern of precipitation resumes thereafter into early January. The forecast, if it verifies fully, is non-threatening. Later planted soy fields will benefit. However, the debate over final Brazilian crop size will remain unsettled until harvest nears. We would note that updated verification data continues to confirm model guidance has been too wet this growing season.

• Downside risk in grains remains limited as US corn export potential stays elevated. Soybean price determination centres on where Brazilian production falls within a range of 150-158 million mt. Regular rain is needed in Brazil well into early February.

20 December 2023

Posted on December 20, 2023 by simon

• HEADLINES: Chicago sags as midday GFS weather forecast adds rain to northern Brazil.

• Chicago ag markets are weaker at midday as the GFS weather forecast adds to near-term rain totals in northern and western Mato Grosso and as FAS’s daily reporting system failed to include any fresh US export demand. Several long weekends lie ahead exactly when S American weather matters most. Market-changing input has been absent all week and today is no different. US equity markets have reversed morning losses, with Dow and S&P 500 at newer record highs. Spot crude is unchanged at $73.95. The US dollar index has recovered slightly, and a rather narrow wedge is forming between 102.0 and 102.5. Research maintains currencies will play a larger role in ag market price discovery in Q1 2024.

• US ethanol production in the week ending Dec 15 totalled 315 million gallons, vs. 316 million the previous week but up 4% from mid-Dec 2022. Cumulative weekly EIA ethanol production is up 4%. USDA’s 2025 million bu hike to industrial corn use in its November WASDE has been validated in recent weeks. Production margins have collapsed from the highs of Sep/Oct, but we still calculate plant revenue in the W Midwest at or slightly above total costs. Year on year gains in weekly grind will continue well into spring.

• US commercial crude stocks last Friday totalled 444 million barrels, up 3 million from the prior week and up 6% from last year. Energy stocks, including ethanol, rise seasonally during the winter months.

• Argus Media is reporting 2024/25 French winter wheat seedings at 4.24 million hectares, down 11% from last year and the lowest since 2000 following an abnormally cold/rainy autumn. Knowing precise EU winter wheat seedings will be challenging until spring, but our contacts do suggest regional acreage losses were heavy. This is not an issue for EU/Black Sea prices today, the EU grain market remains oversupplied, but excessive supplies will be cleared in 2024 without ideal spring/summer weather.

• The midday GFS weather forecast is wetter than the morning solution in Northern Brazil into Dec 25-26, with totals of 1-2” now projected to blanket Mato Grosso, Goias and Bahia. Confidence is increasing with respect to N Brazil receiving the best rains of the season in the next five days. However, the GFS forecast maintains a return to warmth and dryness in N Brazil in the 6-10 day period. Normal/broadly favourable conditions are forecast across the southern third of Brazil’s soy belt.

• March beans have fallen to major chart support at $13.10-13.12. March corn has scored new contract lows. There has been no counter to fund selling so far this week, and amid low participation rates large air pockets sit above and below the market. Sales are not recommended on breaks as a 150-155 million mt Brazilian soy crop is being suggested, despite coming rainfall.

19 December 2023

Posted on December 19, 2023 by simon

• HEADLINES: Row crops sag ahead of Brazil precipitation; GFS weather forecast trends drier in Brazil in 6–10-day period; Brazil boosts biodiesel blend mandate.

• Ag markets at midday are mixed as wheat finds additional speculative short covering and row crop markets shed risk premium ahead of Brazilian rainfall, which is scheduled to begin late Wednesday. Radar maps also show regional activity in Mato Grosso currently. However, we note the GFS forecast has trended much drier in the 6–10-day period, and so keeps any meaningful/lasting pattern change in northern Brazil backloaded, and consistently confined to the 11–15-day period. Weather-based volatility will be heightened into the New Year as the major forecasting models fail to agree on 10-day Brazilian forecast and as the need for any/all rain has become immediate in the major producing states of Mato Grosso do Sul, Mato Grosso and Goias.

• Storm damage at Argentina’s Bahia Blanca port over the weekend is variable, but certain terminals are now estimating they will be closed/restricted for an unknown period of time. Bahia Blanca is a major hub for Argentine wheat exports in Dec-Jan, and on balance Argentine flows of winter crops will be reduced.

• Brazil’s government has approved the mandatory use of 14% blended biodiesel, vs. 12% currently. Brazil’s mandated blend rate in 2025 jumps to 15%. This bolsters Brazil’s soybean crush industry, allows meal production to increase but strips a measurable quantity of oil from the global marketplace. Work suggests the increase in mandated blend volume will boost Brazilian soy crush 2 million mt in calendar year 2024. Tight old crop soy carryover in Brazil and rising domestic use imply production changes have a direct impact on Brazil’s exportable soybean surplus.

• FAS announced that US exporters this morning sold 132,000 mt of soybeans to an unknown destination for 2023/24 delivery. This validates rumours of recent Chinese interest, with additional sales announcements expected before the week’s end. The Jan-Mar Chicago soy spread has narrowed 11 cents in the last week.

• The US dollar index is down 0.3%. Crude is up $1.11/barrel at $73.60, $5.90 above last week’s low. The Dow at midday is up 200 points. Spot corn in Brazil remains perched above $6.20/bu, with Brazilian poultry trade groups concerned about the need for imports from neighbouring S American countries. Our message is that fresh input does seem bearish, but rather it is all about expectations for a normalisation of Brazilian rainfall Thursday onward. Key will be the performance of late week precipitation in northern Brazil, with Mato Grosso’s Sep 1-Dec 19 deficit from average now at a massive 11.5”.

• The midday GFS weather forecast is drier in parts of Mato Grosso and Mato Grosso in the 6–10-day period, and the model maintains that this week’s rain is not yet the beginning of a lasting pattern change. Light/moderate but steady showers blanket central and northern Brazil Thurs-Mon, with accumulation pegged at 0.75-1.50”. Totals above 1.00” will be confined to northern Mato Grosso, Goias and Minas Geras in the north and RGDS in the south. Warmth/dryness resumes in northern Brazil and excessive rainfall returns to southern Brazil Dec 25-29. We expect the EU weather model to stay wet in northern Brazil in this afternoon’s release, and so weather uncertainty remains elevated.

• Sustaining bearish price trends is challenging in Dec-Jan. This remains a highly abnormal year for weather in the heart of Brazil’s soy belt.

15 December 2023

Posted on December 15, 2023 by simon

• HEADLINES: NOPA adds two new crush plants raising November crush to a record 189 million bu and soyoil stocks to 1.2 billion pounds; GFS weather forecast slightly drier for N Brazil, hot into Dec 30.

• Chicago midday grain values are mixed with soybeans slightly lower, wheat higher and corn caught in between. The volume of trade has been slowed by the coming holidays with few wanting to add to their risk profile heading into the end of the year. Oil share spreading has pushed soyoil against its November low while soymeal struggles with the potential for additional Argentine meal offers.

• Ahead of an important weather weekend for Northern Brazilian crops, we anticipate a late day Chicago bounce. We calculate that funds are net long 18,000 contracts of soybeans and 112,000 contracts of soymeal, while being net short 26,000 contracts of soyoil as of Thursday’s settlement.

• USDA/FAS announced the sale of 447,500 mt of US soybeans to an unknown buyer and 134,000 mt of US soybeans to China. The US soybean sales pushed the 2-day total close to 1.0 million mt of US soybeans.

• Chicago brokers estimate that funds have sold 2,100 contracts of soybeans and 1,900 contracts of corn, while buying 2,300 contracts of wheat. In soy products, funds have bought 900 contracts of soymeal and sold 3,100 contracts of soyoil.

• The Biden Administration backed the US ethanol industry with an ability to claim tax credits under the GREET model which could amount to as much as $1.75/gallon. However, the DOE is updating the GREET model which has caused uncertainty as to actual future SAF demand. US ethanol/soyoil are fuels for SAF as the US airline industry looks to decarbonise. Sustainable aviation fuel will be an important new demand driver for US biofuels as the consumers increasingly turn to electric vehicles which has placed a 15 billion gallon cap on annual US ethanol production.

• The NOPA crush report reflected a record large November soybean crush rate of 189 million bu with member soyoil stocks rising to 1.214 billion pounds. However, the report included the crush/soyoil stocks from two new facilities in the Upper Midwest and Northern Plains that were not included in the October report. This skewed crush/soyoil stocks upwards. Also, it is unclear whether an E Midwest facility did not report their November crush/stocks data.

• The next new US crush soy crush facility (Platinum in Iowa) is not expected to come online until May or June of 2024. The NOPA November crush data points to another record large month of domestic soyoil offtake. As the US renewable diesel industry adds capacity in early 2024, a strain on US soyoil supplies/stocks is going to build into the summer.

• The midday GFS 6-day weather forecast is dry across Northern and Central Brazil with widespread 90’s/lower 100’s. However, the 7–11-day period offers rain of 1-2.50” for Mato Grosso, Goias, and Bahia. Confidence this far out is low based on the existing dry weather trend and lack of soil moisture, but the GFS forecast is consistent in breaking out rain starting on Dec 22. Our confidence in this rain is rising, but the exact details of the system have yet to be fully worked out. Traders will watch to see if the EU model follows with improving rain late next week. Argentina and S Brazilian rains are forecast to be near normal which favours crops.

• It feels like the holidays have started in Chicago with farmers in the US/Brazil and Argentina on hold with cash grain sales. Trade flow is coming from computer algo systems which are trading momentum. These traders sell or buy until the market pushes back. The Northern Brazilian rain is in immediate need and must continue regularly during January. Brazilian crops are declining, and yield drops would accelerate with widespread/meaningful rain. Patience is advised.

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

Weekend summary 15 December 2023

14 December 2023

Posted on December 14, 2023 by simon

• HEADLINES: New money enters ag space on sharp fall of the US Dollar; USDA confirms China wheat purchase; Northern Brazilian rain forecast for Dec 21-24.

• Chicago grain values are higher at midday with corn, soybean and wheat seeing fresh fund inflows (near the opening). The ongoing sharp fall in the US dollar has several key fund managers looking at commodities again. Fund managers loved commodities until World Central Banks started raising interest rates in May of 2022. That set off an exodus from the ag space which prevented rallies from being able to persist for more than a few days. Traders must monitor money flow into the commodity space now that the US Central Bank has hit the pause button with over $6 trillion dollars in money market accounts that will be searching for opportunities as rates/returns decline. Traditional fund managers are sitting in a sizeable, short position in corn, wheat and soyoil futures. The macro flow of capital has become much more important to raw material valuations, a trend that we expect will be exacerbated as AI works with managers to correctly allocate to different asset classes. Following the money will be key for commodity investors in 2024.

• Chicago brokers report that funds have bought a net 2,600 contracts of corn, 2,600 contracts of Chicago wheat, and 2,100 contracts of soybeans. In soy products, funds have sold 2,500 contracts of soymeal and bought 2,900 contracts of soyoil. The 50-day moving average crosses at $51.30 basis March soyoil which could start coverage of fund short positions.

• The USDA reported the sale of 400,000 mt of US soybeans to an unknown destination in the 2023/24 crop year. The buyer is likely China. We estimate that China has now booked 19 million mt on a known basis with 2.5 million being held in the unknown destination category. This takes China’s purchases of US soybeans for the crop year to date at 21.5 million mt. We estimate that China will book 23.5-24.5 million mt of US soybeans for 2023/24 which is why we argue that US soybean exports will struggle to fall below 1,725 million bu amid the delays in Brazilian soybean seeding/harvest.

• USDA/FAS reported that for the week ending Dec 7, the US sold 54.8 million bu of wheat, 55.8 million bu of corn, and 39.8 million bu of soybeans. The wheat sales were larger than expected with China having secured 2.2 million mt (81 million bu) in 2023/24. We estimate that China will book 2.5 million mt of US wheat in 2023/24. US SRW wheat export sales are 92% of the annual forecast with just over half of the crop year remaining with China the big buyer. The US has sold 534 million bu of wheat this crop year, up 16 million or 3%. USDA is forecasting that US wheat exports will be down 20 million bu or 3%. Price did its job to stimulate US wheat export demand. US corn sales stand at 1,069 million bu (up 282 million or 36%) with soybean sales at 1,226 million bu (down 305 million or 20%).

• The GFS 7-day weather forecast is dry across Northern and Central Brazil with widespread 90’s/lower 100’s. However, the 8–10-day period offers rain of 1-2.50” for Mato Grosso, Goias, and Bahia. Confidence this far out is low based on the existing dry weather trend and lack of soil moisture, but the GFS forecast is consistent on breaking out rain starting on Dec 21. Our confidence in a rain event is growing, but the exact details of the storm system have yet to be fully worked out. Traders will watch to see if the EU model follows with improving rain in this timeframe. Argentina and S Brazilian rainfall are near to above normal which favours yield. Argentine planting is accelerating as soaking rain ends a 2-year drought.

• It has not paid to sell sharp breaks or buy sharp Chicago rallies in recent weeks. Yesterday Chicago values were sharply lower and today they are higher. Fund managers are seeking to expand risk which includes commodities as the US dollar craters. $33.6 trillion of US debt and falling rates (returns) does not engender US dollar confidence. This is why gold is up $60/oz and crude oil is up $2.50/barrel. Macro-economic trends must be watched for long term commodity price direction. Price breaks are risky with managed money heavily short heading into the end of the year.

13 December 2023

Posted on December 13, 2023 by simon

• HEADLINES: Lines cross and funds sell Chicago; Argentina to boost export duty on grain and keep soy at 33%; Midday GFS midday weather forecast drier in week 2.

• Argentine devalued the official peso rate by 54% to 800:1 US$, knifed government spending, and reduced energy and transportation subsidies.  These changes were accomplished by Presidential decree late Tuesday. Argentine’s economic minister Caputo stated that Argentina will be worse off than before the announcements as an economic shock therapy is applied.

• Importantly, the Milei government indicated that it would eliminate the taxation of exports without providing a timeframe. We would note that an elimination of Argentine export taxes requires an act of Congress, which is not aligned with President Milei. And the repayment of the $44 billion IMF loan demands that ag export taxes stay as a source of revenue. Amid the talk that ag export taxes could be eliminated, Argentine farmers will keep planting, but not selling old or new crops. The Argentine farmer is bullish of their future. Yet, we suspect that ag export taxes will take a considerable time to end and there are strong rumours that Argentina will return to the taxation of corn and wheat to collect additional revenue. Argentine needs the tax revenue to pay the IMF loan as they cannot risk a default in this fragile economic timeframe.

• Algeria is said to have secured a sizeable 930,000 mt of wheat with most sellers being from the EU. The sale occurred at a $7/mt premium to their last purchase and reflects that world cash wheat values are rising. Russian fob wheat values are pushing upwards into the holidays on logistical snarls.

• A heat wave for N Brazil gains attention as private soy crop estimates fall and traders understand that it is the Argentine Congress that approves export tax changes. USDA will report large wheat, soy and corn sales on Thursday with a key NOPA crude report due Friday.

• Chicago grain futures are holding in the red at midday with algo/AI trading systems pressuring the market on the bearish overnight trading and the breaking of Monday’s low in corn/soybeans. If you recall, soybean futures took out the prior week’s high on Monday which triggered fund buying. These momentum traders placed sell stops under Monday’s low which were triggered this morning. For many traders, recent weeks have been choppy with the exception being a rally in Chicago wheat tied to Chinese SRW demand.

• Increasingly, traders are closing their books on 2023 which is adding to daily market volatility amid the lack of resting orders. Look for swinging Chicago trade to persist until S American weather/crop sizes are known. We look for a lower Chicago close, with short covering noted near the close ahead of what is expected to be solid US weekly export grain sales. Look for a rally effort into the weekend as N Brazilian dryness is noteworthy.

• Chicago brokers report that funds have sold 4,600 contracts of corn, 3,900 contracts of Chicago wheat, and 8,700 contracts of soybeans. In soy products, funds have sold 6,800 contracts of soymeal and 4,100 contracts of soyoil. It has been a sell (risk off) day across Chicago.

• The USDA reported the sale of 125,000 mt of US soybeans to an unknown destination for the 2024/25 crop year. The buyer is likely an EU crusher trying to lock down margin into next year.

• As previously noted, Argentine President Milei will increase corn/wheat export duties from 12% to 15%, and not change the 33% export tax on soybeans/ soy products. The Milei Administration indicated that ag export taxes would stay in place until Argentina’s financial crisis passed.

• Argentina will try to repay the IMF for their $44 billion dollar loan through ag export taxes, unless the Government wants to find a new source of revenue. The Argentine farmer is less cheerful about the overnight Peso devaluation and the coming tax bill. However, farmers are hopeful that President Milei will keep his campaign promise to end ag export taxation, at some point.

• Yet unknown is whether the hike in grain taxes will apply to exporters that booked corn export licenses prior to Tuesday’s announcement. It appears that the large volumes of Argentine corn export licenses that were booked suggesting that someone had a “heads-up” on the coming grain tax increase.

• And President Milei returned the grain/soy dollar program to 20% of the Blue and 80% of the official Peso rate, which is financially less appealing for farmers. Argentine farmers will remain as tight-fisted holders of corn/soy and wheat stocks until there is greater policy clarity on currency/export taxes.

• The midday GFS 7-day weather forecast is dry for Northern and Central Brazil with widespread 90’s and lower 100’s adding stress to the crop. The GFS model keeps backloading rain from December 21 onward which is like the overnight run. The extended range forecast has been too wet for weeks, and our confidence in any wet extended forecast is low. Northern Brazilian crop areas will be in dire need of rain by December 21 and rain amounts/locations will be important to monitor. A normal monsoon has yet to form across Northern and Central Brazil which is leading to the below normal rain trend of the past 3 months. The week 2 midday forecast is drier.

• S Brazil/Argentina will enjoy near to above normal rain and near normal temperatures with highs in the 80’s/90’s. There is no indication of adverse weather for Argentine crops. Our red flag worry is for N Brazil.

• It has not paid to sell sharp breaks or buy sharp Chicago rallies in recent weeks. Today appears to be no different as line X crosses line Y with managed money the sellers. China has used the Chicago break to secure 3-6 cargoes of US soybeans for their reserve. And there is talk of US corn being worked into N Brazil. Brazil cash corn is trading at $6.60/bu. Look for large US corn, soybean, and wheat sales on Thursday with NOPA crush on Friday.

12 December 2023

Posted on December 12, 2023 by simon

• HEADLINES: Chicago volatility stays extreme with grain recovering Monday’s losses; Argentina to update its new economic policies; GFS weather forecast drier next 7-8 days across N and C Brazil.

• Chicago grain futures are sizably mixed (again) with the grains higher and soybeans lower in a reversal of Monday. The volume of trade is holiday restricted with it not taking much order flow to create a meaningful impact on price. Corn/wheat futures have recovered most of Monday’s losses.

• WTI crude oil futures have fallen to $2/barrel losses which has pulled soyoil futures lower in sympathy with January again targeting $0.50/pound. Soymeal futures are holding firm which has underpinned soybeans. March soybean futures have traded to a 20-cent premium vs January late last week which has narrowed to a 16-cent premium today. Midwest cash soybean basis has been weak but is firming as US farmers slow down on their old crop sales cash flow needs. We note that the Mato Grosso/Goias cash soybean market has become hard to define with farmers halting sales while end users do not want to pay up amid the uncertainty surrounding crop size. Northern Brazilian soybeans are struggling under irregular and sporadic rainfall while several crop regions have recovered, but others are enduring worsening stress.

• Visual assessment is showing that crop size is in decline with rainfall/temperatures in the next 3 weeks having a significant impact on yield. Latest estimates put the 2024 Brazilian soybean crop at 155.3 million mt with a downward bias.

• Managed money has bought 5,200 contracts of wheat, 4,700 contracts of corn, while selling 4,900 contracts of soybeans. In the soy products, funds have sold 4,100 contracts of soyoil while buying 2,600 contracts of soymeal.

• The USDA reported the sale of 198,000 mt of US soybeans to an unknown destination for the 2023/24 crop year. There are cash connected rumours that China continues to ask for US soybean from the PNW for February. No new sales can be confirmed. US weekly export sales will reflect massive US wheat sales of 1.2-1.5 million mt, soy sales of 1-1.3 million mt and corn sales of 900,000-1.2 million mt.

• Tunisia has bought 100,000 mt of soft wheat, 75,000 mt of durum and 50,000 mt of feed barley for shipment from Dec 25 through Feb 5. The soft wheat was sold at $278.70/mt basis CIF which works back to an estimated fob value of $253.

• Argentina’s economic minister, Luis Caputo, is set to announce the shock treatment for the Argentine economy with President Milei’s initial policy moves. The announcement is planned after financial markets close to lessen their impact. Traders will watch for grain export tax changes.

• The midday GFS weather forecast is drier in the 7-day forecast for Northern and Central Brazil with widespread 90’s and lower 100’s. The GFS model keeps backloading the forecast with rain, which is in low confidence due to recent forecast failures. The model does break out moderate rain after December 21 (day 9) and continues with daily rain chances in the 11–15-day period. Our fear remains that the extended range forecast is too wet and that needed soaking rain is never pulled forward.

• S Brazil/Argentina will enjoy near to above normal rain and near normal temperatures with highs in the 80’s/90’s. There is no indication of adverse weather for Argentine crops, which favours their yield potential as crops are planted.

• Holiday thinning volume exacerbates Chicago price moves into the end of the year. It also produces more questions than answers on daily trade. Today’s wheat, soyoil and corn futures activity reflects the light volume and the fund impact. We hear no new demand for US wheat, while Brazilian weather is drier with rainfall being pushed backwards in time (again). NOPA is out Friday which keys soyoil price direction. We would prepare for rising volatility as the AI/algo machines don’t understand that it is the holidays. Daily price volatility will very likely be sizeable into early 2024.

11 December 2023

Posted on December 11, 2023 by simon

• HEADLINES: Soybeans rally to exceed last week’s high; China has halted request for US SRW on price; GFS midday weather forecast drier for N and E Brazil next 10 days.

• Chicago futures are sizably mixed at midday with Chicago wheat futures sharply lower, soybean futures sharply higher and corn caught in between. March corn futures fell to test key support at $4.75-4.60 while January soybeans held key support at $13.00 and January soymeal against $400.00. We note that January soyoil futures are holding support at $0.50 with a key NOPA crush report due out on Friday. The NOPA report could reflect a US soyoil end stock total of 950 million pounds of soyoil or less due to fresh renewable diesel demand. We maintain that Northern and Eastern Brazilian soybeans are enduring drought stress and the need for a soaking rain is growing in importance. Chicago soybeans are adding weather premium amid the potential for falling yields should the current below normal rainfall and above normal temperature pattern persist into January. Brazilian crops need to see a weather pattern change for the bears to feel comfortable enough to sell a sharp Chicago break.

• Chicago brokers estimate that funds have sold 6,800 contracts of Chicago wheat and 6,900 contracts of corn, while buying 8,500 contracts of soybeans. Managed money has bought 4,200 contracts of soymeal and 2,100 contracts of soyoil. Chicago has now pushed above last week’s high in January soybeans which triggered another round of fund buying.

• USDA reported the sale of 132,000 mt of US soybeans to an unknown buyer for delivery in the 2023/24 crop year. We understand that China has also bought another 2-4 cargoes of US soybeans for February/March. We see world ocean freight rates pushing even higher as vessel tonnage is tied up going around the horn of S America vs the Panama Canal. There are alternatives to the canal, it is just that there is cost to switching to the PNW or a longer duration voyage. China is still asking for offers on US corn but have halted their inquiries for US wheat.

• US export inspections for the week ending December 7 were 28.0 million bu of corn, 36.1 million bu of soybeans, and 10.3 million bu of wheat. For their respective crop years to date, the US has exported 361.4 million bu of corn (up 80 million or 22%), 725 million bu of soybeans (down 140 million or 16%), and 316 million bu of wheat (down 93 million or 23%). The trade will be closely following the shipping schedule of US SRW wheat sales to China.

• The GFS midday weather forecast is slightly drier in the week 1 forecast for Northern and Central Brazil with widespread 90’s and lower 100’s. The GFS forecast keeps backloading the forecast with rain, which is in low confidence due to recent forecast failures. For the next week, we look for Northern and Central Brazil to receive 0.2-1.25” of rainfall with coverage at no better than 45-50%. This leaves widespread N Brazilian areas in need of rain. S Brazil and Argentina will enjoy near to above normal rainfall and near normal temperatures with highs in the 80’s to lower 90’s. There is no indication of adverse weather for Argentine crops, which favours yield potential. It is N and E Brazil where an abundant rainfall profile is in immediate need.

• Holiday thinning volume exacerbates Chicago price moves into the end of the year. NOPA will release its November soy crush report on Friday which will be one of the most important reports of the year due to the determination of the 2023/24 soyoil yield (new crop) with member end stocks to drop below 950 million pounds. And US renewable diesel demand is again ramping up. Finally, Brazilian corn values are rising which underpins March Chicago corn below $4.80. March Chicago wheat has support at $5.90-6.00 due to recent Chinese offtake.  Thursday’s USDA Weekly Export Sales Report to show massive new US SRW wheat sales to China.