Monthly Archives: February 2024

13 February 2024

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  • HEADLINES: Choppiness prevails awaiting USDA outlook forum; Oil share spread shines on firming soyoil basis; GFS weather forecast unchanged at midday for S America.
  • Chicago corn, soybean and wheat futures are mixed at midday with volume thinning. Macro-economic selling occurred after Chicago reopening with AI and algo trading systems adding to their net shorts. Soyoil has bucked the bearish trend on oil share spreading and firming cash soyoil basis bids. End user pricing in cash soyoil is noted with the renewable diesel industry trying to cover future feedstock needs and lock down profitable margins. Otherwise, news is lacking with modest amounts of cash corn selling on the need for spring planting revenue. We look for a mixed close with the USDA Outlook Forum expected to produce more bearish news in terms of 2024/25 US corn, soybean, and wheat stocks. Seeded US acres will be the most important statistics with yield to be determined by Mother Nature. The strong US dollar is a bearish omen ahead of the USDA Outlook Forum.
  • Chicago brokers estimate that funds have sold 3,200 contracts of soybeans and 1,900 contracts of corn, while being flat in wheat. In the soy products, funds have sold 1,600 contracts of soymeal while buying 1,600 contracts of soyoil.
  • The US CPI was higher than expected at 3.1%, which was down from December’s 3.4%, but still higher than the 2.9% that was forecast by analysts. The US stock market is down sharply while the US dollar is sharply higher. Prices moves are being exacerbated by the holidays in S America and Southeast Asia. The US CPI being above 3.0% took the chance for US Central Bank rate cut off the table in March. US financial markets are adjusting to a higher for longer US Central Bank interest rate manta which argues that US equity prices are overvalued. The 10-year US treasury note yield has risen to 4.25% which is adding to commodity price pressure.
  • There are a lot of varied opinions on Brazil’s soybean crop with the range of estimates being between 130-157 million mt. Until the industry can agree on S American crop sizes, it is difficult to be overly bullish or bearish of Chicago. The outlook for S American crop is varied due to the need for additional harvest yield data and history that shows the rarity of a Northern Brazilian drought from September through December. Yield analysis maintains a Brazilian soybean crop estimate of 145 million mt, but our future lean is for a further reduction in the crop.
  • And there are many unknowns with Brazil’s second corn crop with Mato Grosso cash bids clustered around $2.70/bu for July/August delivery. Ag Rural added 5 million mt to their winter corn production estimate due to a wider planting window with the Brazilian soybean harvest 23% completed. However, Brazilian farmers suggest that they will not plant due to poor profit margins.
  • The midday GFS weather run is dry for Argentina and Southern Brazil with any rain not showing up until the last 24 hours of the forecast run. The 10-12 day stretch of limited rainfall will drop soil moisture, but without any extreme heat, crops should be able to perform following 7 days of needed rainfall ranging from 2-5.50”. Northern and Central Brazilian rainfall will be normal with seasonal temperatures. The Brazilian monsoon shows no sign of prematurely ending and no extreme heat is evident. As long as near normal rainfall returns to Argentina and Southern Brazil after February 25, the yield impact of 10-12 days of dryness is negligible.
  • Amid the high odds that USDA’s 100th Outlook Forum will produce bearish 2024/25 US corn, soybean and wheat end stocks, traders are unwilling to hold onto net long positions. Bulls are quick to take profits on any rally. However, traders are also loath to push new shorts too far. This means that Chicago prices should chop sideways with all eyes watching price reaction to the USDA Outlook Forum late week. The inability of Chicago to decline (late week) allows for the start of a seasonal rally effort.

12 February 2024

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  • HEADLINES: Chicago bounces in tepid volume trade; Brazilian soy crop estimates hold in big range; Aprosoja tells members to hold soybeans.
  • Chicago grains are higher at midday with soybeans/soymeal pacing the rally. Corn and wheat futures have been pulled from their opening losses on short covering in extremely slow volume. It does not take much volume to push the markets around with S America and SE Asia on holiday. Fresh news is limited with the bears pointing to the USDA Outlook Forum for a late week break on historically large US new crop stocks. However, debate also centres on the wide disparity of CONAB/USDA crop estimates in Brazil. The lack of clarity on S American crops offers talking points to both the bears and the bulls in what we see choppy sideways market. Traders note the near record net short position in corn and Chicago grains in general which opens the potential for a sizeable Chicago rally with a fundamental catalyst. Seasonally, Chicago values tend to form their lows in mid-February, or in the next few weeks.
  • Brokers estimate that funds have bought 1,000 contracts of wheat and 3,200 contracts of soybeans, while being flat corn. In the soy products, funds have sold 1,900 contracts of soyoil and bought 2,700 contracts of soymeal. Bull spreading of March-May soymeal reflects strong cash basis bids.
  • US weekly grain inspections for the week ending February 8 were 34.6 million bu corn, 48.7 million bu of soybeans, and 15.0 million bu of wheat. Last week’s US soybean export total was revised up by 12 million to 64.3 million bu. For their respective crop years to date, the US has exported 676.6 million bu of corn (up 160 million or 31%), 1,130 million bu of soybeans (down 332 million or 23%), and 430.3 million bu of US wheat (down 95 million or 18%). The US 2023/24 soybean export pace is disappointing with a further cut in the US soybean export estimate expected in March of 15-25 million bu.
  • The Brazilian Soybean Farm Association, Aprosoja, is telling their members to withhold cash soybean sales due to a smaller crop and higher prices that are forecast. Aprosoja estimates the 2024 Brazilian soybean crop in a range of 130-135 million mt, by far the lowest of Brazilian private soybean crop forecast. Producer groups always favour declining harvests and higher prices/profit margins, but it is highly unusual for Aprosoja to tell its producers to hold a “seller’s strike”.  Parana and Northern Brazilian actual harvest yields are disappointing, but a sub 140 million mt soybean crop is premature. History does show that WASDE does not tend to make a big reduction in their crop forecast until March when harvest data offers an informed trend.
  • There are a lot of varied opinions on Brazil’s second corn crop with Mato Grosso cash bids clustered around $2.70/bu for July/August delivery. Ag Rural added 5 million mt to their winter corn production estimate today due to a wider planting window with the Brazilian soybean harvest 23% completed. Others claim that price and profit will limit seedings and crop input use. Mother Nature will have the final voice on supply.
  • The midday GFS weather forecast is slightly drier for Argentina and Southern Brazil for the next 2 weeks. The midday model run extracted rain from the forecast and added back some heat in the 6–10-day period with highs back in the upper 80’s to the mid 90’s. Thankfully, the past 6 days has produced needed rains across Argentina ahead of the new period of dryness. Northern and Central Brazilian rainfall will be normal and amid a lack of heat, crop yields should respond favourably. The Brazilian monsoon shows no sign of prematurely ending and no extreme heat is evident.
  • The big question that traders are ponding is how much bearishness is worked into current prices with managed money sitting on a near record short corn/soybean position. Brazilian premiums are rising in the paper market and there is a 60-cent positive spread for June/July Brazilian soybeans vs the current spot market. This premium structure suggests that the Brazilian soybean crop is well under the USDA estimate. We continue to maintain that soyoil will outperform soymeal with any break being corrective of last week’s reversal.

9 February 2024

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  • HEADLINES: Soyoil retreats following 50-day moving average test; GFS weather forecast midday slightly drier for SC Brazil; good rains for Argentina.
  • Chicago grain futures have traded both sides of unchanged with the grains rising while soy futures sag. The selling has come in soyoil as March futures tested its 50-day moving average. The early day rally failed with price in retreat on algo chart related selling. The soyoil price trend remains down and although the recent rally is creating a weekly reversal, the inability to rise above the 50-day moving average sparked renewed algo selling.
  • March corn tested key support at $4.30 which sparked a bounce while wheat futures are rising on short covering. All Chicago grains are at multi year lows and traders are loath to enlarge their bear position amid seasonal price trends that call for a bottom in mid to late February, and the arrival of a new Northern Hemisphere growing season. To make matters worse, farmers and traders are debating who is right on S American crop sizes, USDA or CONAB. There is a 60-cent premium from today’s $1.14 under offer to July, which Brazilian traders argue is suggesting that CONAB is the right crop estimate. Some maintain a 145.4 million mt Brazilian crop estimate, but it will take months, and potentially into 2025 before the debate is resolved. The bulls and bears both have talking points for today.
  • Chicago brokers estimate that funds have sold 2,200 contracts of soybeans, while buying 3,900 contracts of wheat and 3,200 contracts of corn. Managed money was early sellers of corn which they bought back on the rally. In soy products, funds have sold a net 800 contracts of soyoil while buying 1,100 contracts of soymeal. Midwest cash meal basis is rising on the Chicago decline as end users book forward needs and crushers work to fill record large US soymeal sales. Illinois soymeal on the rail is trading at $20/ton over this morning.
  • US core inflation held at 3.3% while the December CPI was revised downwards to 0.2% or an annualized rate of 2.4%. The rate of inflation is coming down, but the 4th quarter annualised rate is 2.7%. The US Central Bank is expected to start gradually easing in May or June meetings. Some believe that the US Central Bank will reduce rates 2-3 times before the end of the year and end quantitative tightening of the money supply. This should produce an easing of the US dollar. We expect that China will be more robust in fighting deflation with a broad stimulus pact and more aggressive rate cuts, which is why we doubt 4 US rate cuts as the market is forecasting.
  • Mato Grosso spot soybean and new crop corn bids continue their decline which is raising worry about Brazilian farm profitability and winter corn seeding. The cash bid today for spot Sorriso soybeans is $8.59/bu with the July bid for winter corn at $2.66. Both bids are below estimated farm breakeven costs. Farmers that plant winter corn will cut back on their fertilisation program to save costs. As such, March/April weather will have an oversized impact on yield.
  • Soyoil is priced below tropical oils in the world market which is boosting demand for Brazilian supply. And the Brazilian government is tendering for supply to boost their blend rate in diesel fuel as of March 1 to 14%. The combined demand is placing a bid under the domestic Brazilian soyoil market. And US soyoil is trading below imported Used Cooking oil into the West Coast.  There have been some big block trades in futures and options that traders associate with renewable diesel firms locking down margin and supplies into summer. NOPA next week is expected to show a modest rise in US soyoil stocks, but the arctic cold will curtail the crush rate.
  • The midday GFS weather run is slightly drier for South Central Brazil with limited rainfall for the next 7 days before totals arrive next weekend. Stress will be building on crops with high temperatures in the upper 80’s to the mid 90’s. Otherwise, rains will be above normal across Argentina and near normal across N Brazil. No extreme heat is evident.
  • There is limited fresh news to end the week. The market must get past next week’s USDA Outlook Forum for all the bearish news to be digested. The 2024/25 US corn balance sheet will be bearish with stocks of 2.5-2.70 billion bu with soybean stocks of 350-390 million bu. WASDE will not catch all the new US crush plants coming online in 2024/25. It has been a big week for oil share and soyoil with a weekly reversal forming. US renewable diesel feedstock supplies are tightening on new plant demand. It is soyoil that has a bullish demand story. The Index fund roll will be ongoing at the close.
To download our weekly update as a PDF file please click on the link below:

8 February 2024

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  • HEADLINES: February WASDE a touch negative; Market reaction muted so far; Soyoil rallies in tandem with crude.
  • The USDA February Crop Report was slightly negative. WASDE reduced their estimate of the Brazilian 2024 soybean crop by 1.0 million to 156.0 million mt and cut their total Brazilian corn crop estimate by 3 million to 124.0 million mt. USDA is reducing their Brazilian crop production estimates (like CONAB), but at a much more measured pace. We look for additional cuts in Brazilian corn/soybean production due to unfavourable weather conditions and ongoing disappointing harvested yield data. RGDS, MGDS and Santa Caterina soy/corn crops have been stressed by recent heat/dryness, but the early harvest is only just beginning.
  • The USDA will not get the Brazilian or Argentine crop sizes right until April/May. WASDE left their estimate of the 2024 Argentine corn crop at 55.0 million mt and the soybean crop at 50.0 million mt. Whether weeks of extreme heat took off the top end of production will not be determined until March.
  • The USDA raised 2023/24 US corn end stocks by 10 million to 2,172 million bu. USDA left the 2023/24 average US corn farmgate price at $4.80/bu.
  • World 2023/24 corn stocks fell 3.0 million to 322.0 million mt on a drop in production and modest decline in domestic demand. Estimated corn stocks were up 22 million mt from last year due to larger American and Argentine production. Ukraine’s corn exports were raised 2.0 million to 123 million mt and could be hiked another 2-3 million in future reports. World 2023/24 corn stocks must decline back near 300 million mt for longer term bullish price trends to be restored. The majority of world corn stock in the 2023/24 crop year is domiciled in the US.
  • US 2023/24 soybean end stocks were raised by 35 million bu due to a cut in US soybean exports of a like amount. No other balance sheet changes were offered. The US soybean export pace has fallen behind on pace analysis and we would argue for an additional 10 million bu reduction. However, record large US soybean crush is forecast with an expectation that future WASDE reports will raise their crush estimate to 2,340 million bu. As a massive amount of renewable diesel demand comes online in the next 6 months, the need for soyoil grows.
  • USDA elevated 2023/24 global soybean end stocks due to a sizeable 2.0 million mt jump in the 2022/23 carry in stocks, which was carried forward to arrive at 116.0 million mt. We forecast that world soybean supplies will decline in subsequent reports due to declining S American production. We would also argue for an expansion in world crush rates due to US and world soyoil demand. It is the Chicago close today that counts.
  • USDA wheat data leans slightly bearish as WASDE trimmed US food use 10 million bu following milling data through December and as 2023/24 US exports were left unchanged at 725 million bu. US end stocks were raised 10 million to 658 million bu. USDA did hike global consumption and world trade 1.1 million mt but awarded this increase in demand to Ukraine and Australia. Ukrainian exports were raised 1 million to 15 million mt following the success of Ukraine’s humanitarian corridor in winter. Australian exports were increased 0.5 million mt amid lower projected feed use there. Other meaningful changes in world supply and demand were absent, with exporter stocks/use in February unchanged at 14.8%, vs. 16.0% in 2022/23. Russian fob is still offered at $225/mt for late winter arrival. This is a weight on the marketplace, though we note US export sales in the week ending February 1 totalled 13.9 million bu, 8.5 million above the pace needed to hit USDA’s target. US SRW export commitments now total 166 million bu, or 95% of USDA’s forecast. We maintain that USDA’s annual US export forecast is 15-25 million bu too low.
  • The market’s reaction to another round of neutral/bearish USDA data has been muted, which suggests most bearish input has been digested, we estimate managed funds’ combined short in corn, soy and CBOT wheat at 476,000 contracts, the fifth largest on record, and focus turns to S American soy yields, the performance of Brazil’s monsoon during safrinha corn pollination in April and Northern Hemisphere seeding levels and dates. The spark needed to trigger and sustain short covering is absent today but reactions to supply surprises will be intense given the size of funds’ short today.

7 February 2024

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  • HEADLINES: Chicago soymeal/corn sinks while wheat/soyoil rallies, spreading gains importance; Ukraine corn/Argentine soybeans to China, rumours abound; CONAB report starts Thursday.
  • Chicago ag markets are mixed at midday with corn/soybeans lower while the wheat market bounces. A bearish February USDA report is being built into price with needed showers to fall across Argentina crop areas in the next week. The Argentine rain will help stabilise their corn/soybean crops following just over 3 weeks of acute dryness and blazing heat. Wheat futures are higher on spreading, with wheat gaining on corn/soybeans as USDA/WASDE is not expected to make any statistical changes to the US balance sheet.
  • The USDA’S 100th Annual US Outlook Forum will update balance sheets from the November Baseline report. Traders are discussing that the forum will release a US 2024/25 corn end stock total between 2,500-2,700 million bu and soybean end stocks of 340-380 million bu. The USDA baseline report highlighted future bearish corn stocks, but if there is a bullish surprise it will be new crop US soybean end stocks. Outside of potential large renewable diesel demand for soyoil due to changes in California feedstock legislation and new plants coming online, it is hard to find a bullish fundamental story for soybeans, soymeal, or corn. Chicago futures have digested a large amount of bearish news, but there remains widespread uncertainty regarding S American crop sizes.
  • Chicago brokers estimate that funds have sold a net 3,500 contracts of corn and 3,800 contracts of soybeans, while buying 3,900 contracts of wheat. In the soy products, funds have sold 3,600 contracts of soymeal buying a net 1,400 contracts of soyoil.
  • US December Census Trade exports of US corn were 189 million bu, up 48 million from November, and up 46 million bu from last year. Soybean exports were 177 million bu, down 97 million from last year, and down 116 million bu from last year. US wheat exports at 55 million bu were up 13 million from November, and up 14 million bu from last year. The December US soybean export estimate was the disappointment relative to recent years which sparked the late month selling as rains started to return to Northern Brazil.
  • US weekly ethanol production continues to expand with 1,044 thousand barrels produced this week vs 991 the prior week. US ethanol production fell sharply due to the arctic blast of mid-January. US distillate stocks fell 3.2 million barrels vs 2.5 million expected.
  • The news seems to be following the market this morning. There are rumours that China is securing Ukraine corn at $169/mt though no one can pin down tonnages or shipment dates. And there are also rumours that China has bought 4-5 cargoes of Argentine soybeans for their reserve with the timing of shipment being June. Some suggest that since China is booking Argentine soybeans for June that they will cancel a like number of US soybeans. We cannot find any confirmation.
  • The midday GFS weather forecast is drier than the overnight run calling for scattered showers and a moderation in temperatures across Argentina. Additional heavy rainfall of 2-3.00” will fall across the southern half of Buenos Aries but totals further north look to range from 0.5-1.50” and locally heavier. This is down some 0.5-1.50” from overnight run across the northern half of Argentina and the southern third of Brazil. Near normal rain is forecast for the Northern third of Brazil with 10-day totals of 1.50-4.00”. Heat lingers across Argentina in the week 2 forecast which will push crop maturity. Argentine highs will hold in the mid 80’s to the mid 90’s as an upper-level high pressure ridge holds across Paraguay.
  • The return of Argentine rain is pressuring soymeal and corn to new lows while wheat is rallying on spreading against the row crops. The trade seems convinced that tomorrow’s CONAB and USDA reports will be bearish. Our view is one of caution with the reaction of the market more important than the data in the report itself. Bunge indicated that 1.4 billion gallons of new renewable diesel capacity would come online in the first half of 2024. Oil share spreads should continue to perform.

6 February 2024

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  • HEADLINES: Chicago mostly higher at midday; Soy crush margins stabilise on rising oil market; Breaking news absent.
  • Chicago ag futures are steady/higher at midday with wheat consolidating following Monday’s break and soybeans adding modest premium amid stabilising crush margins in both the futures and cash markets. Meal has been unwilling to enter a new bearish phase as the arrival of physical Argentine supplies doesn’t occur until April, US meal export disappearance will be robust nearby, and as spot soyoil finds ample support at $0.45 per pound. A more two-sided, consolidative ag market landscape lies ahead until spring, when S American soy/first crop corn production is known, and US acreage intentions are revealed. Chart momentum stays negative, but large N Hemisphere crops are still needed to guarantee structural oversupply in crop year 2024/25. Many unknowns are present.
  • Macro markets have mostly reversed from Monday. The US dollar is down slightly. Spot WTI crude is up $0.90 per barrel at $73.65. The Dow at midday is up 77 points, with US equity indexes still perched near record highs.
  • International ag markets, too, are adding modest premium. World rapeseed/canola values have recovered from Monday’s multi-week lows. The world awaits changes to S American/global balance sheets from USDA, CONAB and Stats Canada on Thursday, and overall, it is just tough to be overly bullish or bearish at current prices and in early February. The short side of the marketplace is crowded. Whether recently placed short bets are rewarded will ultimately be determined by Mother Nature over the next 6-7 months.
  • US/Canadian temperatures stay 10-16 degrees above normal into Feb 15, and any return of cold is likely to be short-lived. Temperatures will be 10-19 degrees above normal in E Europe, Ukraine, and key areas of southern Russia’s winter wheat belt. This is not an issue today, but the extreme nature of weather patterns is acknowledged.
  • Most important in the near-term is the duration of Northern Brazil’s rainy season. Recall Mato Grosso alone produces 40% of Brazil’s safrinha crop, and planting there should reach 50% complete in the next 10 days. Normal/near normal rain has been recorded in Mato Grosso since Jan 1, but the intensity/speed of withdrawal will be monitored March 1 onward.
  • The midday GFS weather forecast is similar to the morning run in calling for scattered showers and a moderation in temperatures across Argentina beginning Friday. A pattern of regular rain continues in Argentina into Feb 15-16, with cumulative totals of 1-2” projected to the widespread. Heavy rain favours N Brazil into the coming weekend. The GFS forecast is drier than the EU model in Brazil thereafter, and while confidence in GFS forecast details beyond 5-7 days is low, rain is desired in Mato Grosso and Goias well into April. The S American forecast is absent of new threats currently.
  • Markets will be adrift into Thursday, and even February CONAB/USDA data is unlikely to provide much in the way of fireworks. New speculative investment will likely be funnelled into equity markets, rather than ag markets, until there is a clearer threat to exporter crop production.

5 February 2024

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  • HEADLINES: Chicago bounces with soyoil holding chart support; Brazilian premiums rise on demand; Wheat falls on Russian cash sales aggression.
  • Chicago grains are mixed at midday with corn/soybeans recovering while wheat futures hold in the red due to sagging Russian/Black Sea price offers. Chicago March soyoil tested its prior contract low at $0.4449 and bounced. Strengthening cash basis bids and the rally in the Brazilian paper market offered early day support. Debate persists over S American crop sizes with Citibank pegging the 2024 Brazilian soybean crop at 148 million mt and 117 million on corn. Private soybean crop estimates are in retreat for Brazil in a massively large range of 135-157 million mt for soybeans. However, Argentine crop estimates are holding steady. The impact of the recent hot/dry weather is being assessed during the corn/soybean reproductive phase with at least another 10-15 days required to gauge if there are pollination issues.
  • A mixed Chicago close is expected with short covering to occur on breaks heading into Thursday’s data dump from Statistics Canada (December 31 Canadian grain stocks), CONAB (Brazilian crop and stocks update), and the USDA February Crop Report. The bears are looking to take some money off the table just in case the USDA/CONAB slashes Brazilian soybean/corn crop more than expected.
  • Chicago brokers report that the managed money has sold 3,400 contracts of wheat, and bought 1,300 contracts of corn and 2,700 contracts of soybeans. In the soy products, funds have bought 3,100 soymeal and 3,900 contracts of soyoil.
  • US export inspections for the week ending February 1 were 24.6 million bu of corn, 52.4 million bu of soybeans, and 9.7 million bu of soybeans. Last week’s corn exports were revised up to 36.5 million bu with soybeans at 33.6 million bu.
  • For their respective crop years to date, the US has exported 641.2 million bu of corn (up 142 million or 29%), 1,070 million bu of soybeans (down 330 million or 23%), and 414 million bu of wheat (down 93 million or 18%). WASDE can trim the US 2023/24 soybean export estimate by 15-25 million bu while holding wheat and corn exports steady on Thursday. We anticipate that WASDE will raise Ukraine corn exports by 2-3 million mt which could cause a future decline in US corn trade.
  • The USDA will be holding their Annual Outlook Meeting in Washington DC next week. It is the 100th anniversary of the USDA Ag Outlook Forum and will be well attended. As part of this meeting, WASDE will be releasing new balance sheets for the 2024/25 US crop year. Note that in November, the Baseline Report estimated 2024/25 US soybean end stocks at 300 million bu and corn at 2,616 million bu with US corn seeding pegged at 91.0 million acres and soybeans at 87.0 million acres. We expect that WASDE could raise 2024 US corn acres by 500,000 due to reduced SRW wheat seeding (January Report). This suggests that the WASDE 2024/25 US balance sheets will lean bearish of corn and neutral on soy/wheat.
  • The midday GFS weather forecast is wetter across Argentina crop areas with soaking rains of 1.50-3.00” for Buenos Aires, Santa Fe and Cordoba in the 6–10-day period. Showers are expected to fall across Southern Buenos Aires starting Thursday, with the GFS forecast being more generous with rainfall for the rest of the country next week. Any dryness will be centred on Southern and South-Central Brazil where rain totals look to average less than 1.25” into February 15. Another 3-4 days of acute heat and dryness occurs across Argentine before rain chances improve. High temperatures reach the mid 90’s to the lower 100’s with moderation starting from south to north on Thursday.
  • The macro crowd points to the strength of the US dollar (today) as a reason why the morning commodity rally will stumble. An early Chicago break could not gain any momentum to the downside which sparked the recovery. The coming CONAB/USDA reports on Thursday look to produce the next directional price move. Seasonal price trends offer a bottom in mid-February and a rally into spring. Flagging Russian wheat offered prices are deemed as bearish for US wheat futures. Look for choppiness into Thursday’s reports.