- Limited news on trade and prevailing technical trends pressured the soy trade into the weekend. Soybeans again paced the decline, while crush spreads from Jul-September were firmly above $2/bu. Funds were estimated sellers of 9,000 soybean contracts on Friday Thursday’s WASDE report did not offer any real surprises as the trade had anticipated a slower export rate via tariffs. Worth noting is the USDA’s season average cash price forecast which was at $8-10.50. The midpoint of that forecast is $9.25 or $0.85 higher than November soybeans ended the week. Historically, it has been rare that Chicago trades under the USDA’s cash forecast, but at Friday’s close it was at a historic 10% discount. Consequently, our view is that Chicago values are too cheap. A trade resolution or late summer weather scare is needed for a sustained rally. Chicago has already greatly discounted the China trade risks. We see further downside limited to 10-20 cents or $8.20 basis Nov futures.
- Corn futures ignored the rally in wheat futures and followed soybeans lower on Friday. Weather and Chinese soy trade have been the main market focus for weeks. There has been no movement (publicly) on US/China trade negotiations, and the favourable weather forecast weighed on corn prices. Funds sold 13,000 contracts on Friday. The Commitment of Traders report showed funds as big sellers of close to 33,600 contracts of corn, putting their net short position at the largest since early February. Since early June funds have sold nearly 307,000 contracts in the corn market, which is just short of the record that was set in July 2016. That year a weather scare (Brazil and US) had funds building a large long corn position in the spring, and then sold it on good US weather. Seasonal lows were scored in September, and price rallied into the following summer. The fundamental outlook for 2018/19 is far more bullish, and with spot prices back at harvest lows, our view is that corn is close to forging a seasonal low. The US will be a record exporter of corn in the months ahead.
- Wheat futures were able to break free of the summer row crop markets and closed sharply higher on Friday. French wheat futures rallied €2/mt overnight on European/Black Sea crop size and quality concerns. Chicago and Kansas wheat futures rose 9-12 cents, while Minneapolis wheat reluctantly followed. Chicago Black Sea futures rose $2-3/mt for Aug-November. Commitment of Traders data showed that last week funds covered close to 1,700 contracts in Chicago and were short just 246 contracts. In Kansas City, funds added 2,500 contracts of length and were long 19,700, but sold 1,000 contracts in Minneapolis and held a record large net short position. The Russian Ag Ministry cut their 2018 wheat production estimate to 64.4 million mt vs the USDA’s forecast at 67.0 million. Such a harvest would be down 20.1 million from last year or 23%. A crop of this size would drop 2018/19 Russian wheat exports to 27-28 million mt vs 41 million this year. We are turning outright bullish wheat amid falling world supplies, and likely boost in US export demand.
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