Author Archives: simon

25 March 2024

Posted on March 25, 2024 by simon

• HEADLINES: Chicago steady/higher at midday; Press release surrounding dairy cow disease expected; GFS weather forecast wetter in N Brazil.

• Chicago grain futures are steady/higher at midday in a reversal of Friday the volume of trade has been active with short covering being featured.

• Wheat and soy futures have been the bullish leaders on the Russian political battle between the Kremlin and a private exporter, RIF. 4 cargoes of RIF wheat are said to be held at ports awaiting phytosanitary certificates. Russian wheat is offered at $210/mt and most recently traded on Friday at $206/mt. The next level of resistance is the 50-day moving average which crosses at $5.775 basis May Chicago futures.

• For the fourth day in a row, soybean futures have pushed either side of the 50-day moving average with soyoil futures forming a reversal. There is no big news for Chicago soybeans other than Brazilian soybean exports for March are forecast to be the second or third largest on record. Brazilian soybean export commitments are the third largest on record which is offering the cash market support.

• Corn futures have been unable to gain any upside traction with active wheat/corn and soybean/corn spreading. Traders find it difficult for Thursday’s report to be overly bullish with the US holding 2.0 billion bu of corn supplies and stocks being over 1.0 billion bu larger than last year.

• Chicago brokers estimate that the managed money has bought 5,300 contracts of soybeans, 4,700 contracts of soyoil, and 1,200 contracts of soymeal. In the grains funds are flat in corn while buying 5,600 contracts of wheat.

• US weekly export inspections for the week ending March 21 were 48.3 million bu of corn, 28.2 million bu of soybeans and 11.6 million bu of wheat. For their respective crop years to date, the US has exported 961 million bu of corn (up 242 million or 25%), 1,342 million bu of soybeans (down 309 million or 19%), and 520 million bu of wheat (down 93 million or 15%). We look for WASDE to raise their 2023/24 corn export forecast by 25-50 million bu and cut soybean exports by 15-25 million bu in April.

• The US dairy industry is awaiting a USDA press release that is rumoured to tie HPAI (avian flu) to dairy cattle in several Southern Plains operations that have had cows go off feed and nearly dry up due to illness. The mortality rate of the illness has been low, but milk production declines and fails to recover in some older animals. The disease has been a mystery and previously blamed on bad feed and the smoke from recent prairie fires. The US dairy industry has been aware of the mystery illness for 10 days, but only now USDA will be having a comment. We have no knowledge of what the USDA will say or what is the remedy. Also, a Minnesota goat has also been infected with an avian flu type of disease which was reported last weekend. We currently doubt that the mystery illness will have a significant impact on grain or feed consumption, but additional information is required. This is something new to monitor.

• The midday GFS weather forecast is again wetter in Mato Grosso and far Northern Brazil, with accumulation there into April 4 raised to 3-5”. Scattered showers will persist across N Brazil into April 5-6, and so the GFS forecast has extended the duration of this wet pattern. The GFS and EU models are at odds over early April rainfall in N Brazil, but safrinha corn crop threats nearby remain confined to Mato Grosso do Sul and Parana, where 30-day rain has been recorded in a range of just 30-50% of normal, and where a pattern of below normal rain is forecast to continue. Mostly dry and warmer than normal temperatures in Argentina facilitate active harvesting.

• Recall there remains an 8.1 million mt spread between CONAB and USDA’s estimate, which matches nearly exactly projected US end stocks. Key is whether new weekly soy sales of 10-15 million bu/week continue into the latter part of April. Yet, be prepared for additional choppiness into Thursday. USDA’s first pass at the 2024 US acreage matrix is important. Snow/cold in the north and unrelenting/unwanted rainfall in the Delta/Southeast will be more closely monitored beyond April 1.

23 March 2024

Posted on March 23, 2024 by simon

• HEADLINES: Wheat recovers on soaring European market; Row crops struggle.

• Wax on/Wax off! Chicago grain futures are mixed at midday with corn and soybean in the red and wheat futures following the EU market higher. Based on midday Chicago values, March corn prices are virtually flat for the week at $4.395, May soybeans are down 3 cents (last week’s close at $11.9825) with May Chicago wheat up 23 cents at $5.51. Chicago wheat has traded within last week’s range, which makes a break above or below this week’s high or low important. We note that long term monthly wheat charts in Paris and Chicago reflect strong support below current values, and it appears that wheat is trying to forge a seasonal low. The choppiness of Chicago trade has been fully expected as a key NASS Crop Report is due next week Thursday. US farmers will tell NASS that their total seeded acres will be down 2-3 million acres from last year due to a lack of profitability, it is just how much of a rotation out of corn into soybeans/cotton will be uncovered.

• Traders are also expecting a sharp fall in net short managed money positions in corn, soybeans, wheat, and soy products. Whether this fall occurs will be key to next week’s trading. The managed money crowd will bank profits heading into the end of the month and quarter. Brazilian farmers were active sellers of recently harvested soybeans and corn which was hedged on the early week Chicago rally. It is still the case that neither rallies nor breaks are able to be sustained.

• The USDA announced that 263,000 mt of US corn was sold to Mexico. 173,000 mt was for the 2023/24 and 90,000 mt for the 2024/25 crop year.  Mexico is the largest US corn importer and has secured more than 18 million mt of US corn to date. Mexico is forecast to import 20.6 million mt of US corn in the 2023/24 crop year. Pace analysis suggests that Mexico could import 22 million mt of US corn.

• Chicago brokers estimate that the managed money has sold 6,300 contracts of soybeans, 4,700 contracts of soyoil, and 4,100 contracts of soymeal. In the grains, funds have sold 5,100 contracts of corn and 3,600 contracts of wheat.

• Low grain prices are straining farmers across the world including Brazilian farmers where bankruptcies are up 534% and Russian farmers that will cut back in spring grain seeding due to negative margins. And Ukraine farmers are facing new crop corn bids that are near $100/mt or $2.60/bu off the farm. Even with the Ukraine government trying to provide free seed, the margin for its farmers is exceptionally low due to rising fixed and variable costs. The extended war is finally starting to take its toll. The first crop that will endure the smaller seedings due to its high input cost is corn followed by wheat. Soybeans and other oilseeds will be favoured along with fallow acres. Northern Plains and Delta farmers are shunning corn, while Midwest farmers are adding 5-10% more soybeans to save cost and reduce risk. The market is doing its chore in reducing new crop supplies through profit and price. Total US and world cropped acres will be curtailed this spring, which will elevate the importance of weather/yield.

• The midday GFS weather forecast is wetter in Mato Grosso, with 10-day accumulation there raised from 3-6” to 4-9”. Regional flooding is a concern in western Mato Grosso, but otherwise coming soaking rain across the northern half of Brazil’s safrinha corn belt is viewed as a positive. Longer term issues remain present, namely the probable return of warmth/dryness in April, but there will be no shortage of soil moisture in Mato Grosso, Goias and Minas Gerais nearby.

• We do note that rains into April 1 miss key areas of Mato Grosso do Sul and Parana, which combine for 30% of Brazilian safrinha output. Drought worsens there, and the need for rain becomes immediate beyond April 1. A major difference in corn crop health between northern and southern areas lies ahead.

• Late winter/early spring is typically a strong time of year, seasonally, for ag markets. This is due to the erosion on physical N Hemisphere supplies and the looming nature of the new crop growing season. Ongoing climate chaos is noted this year following incredible warmth in the Central US in Feb, only to be followed by massive snowfall in northern areas. The transition to La Niña leaves forward weather/supply less predictable. Choppiness continues into NASS stocks/seedings data next Thursday.

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

Weekend summary 22 March 2024

21 March 2024

Posted on March 21, 2024 by simon

• HEADLINES: Chicago mixed with volume in retreat on the break; Key is the close and whether May corn can settle above $4.42, the 50-day moving average.

• Chicago values are mixed at midday. May corn futures failed to accelerate through the 50-day moving average while selling in soyoil futures pulled soybean prices lower. A close above the 50-day moving average in May corn ($5.42) is needed to confirm a new leg up. Otherwise, Chicago is holding in a sideways trading pattern with neither the bulls nor the bears able to gain more than a day or two of traction. The Chicago close is important today with the bears nervous as chart patterns continue to improve.

• Chicago brokers estimate that managed money has sold 3,200 contracts of soyoil and a net 900 contracts of soybeans. The funds have purchased a net 2,600 contracts of corn, 300 contracts of wheat, and 1,300 contracts of soymeal. Managed money trade is slowing at midday.

• US weekly export sales were better than expected in the summer row crops. The US sold 46.7 million bu of corn, 18.2 million bu of soybeans with net wheat sales cancellations of 4.0 million bu. China purchased 11.2 million bu of US soybeans last week and shipped out 22.3 million bu. China has now secured 812 million bu of US soybeans with just 838,000 mt of open purchases remaining to be shipped.  There are 55 million bu of US soybeans sold to unknown destinations, but the risk of sales cancellation or switching in the coming months is far less than in recent years. Based on the sales and shipping pace, we estimate that USDA’s soybean sales pace is too high by 25-40 million bu. US soybean sales through March 14 are down 340 million bu or 19% from last year due to the long Brazilian export tail from last year’s record harvest that cut into early season US sales.

• US corn sales at 1,641 million bu are up 266 million from last year or 19%. There is 691 million bu of open US corn sales that has yet to ship with Mexico holding nearly 300 million bu of that total. Mexico is unlikely to switch US corn purchases to S America on logistical costs. China made no new US corn purchases, but China’s US sorghum purchases are record large at 181 million bu.

• Chinese wheat cancellations were included in this week’s data which produced net sales cancellations of 4.0 million bu. US SRW wheat sales were cut by 8.7 million bu while HRW/HRS sales increased by 4.2 million bu. The US has now sold 676 million bu of wheat for the crop year, up 20 million bu from last year or 3%. China shipped out 1 cargo of US SRW wheat last week and another vessel is expected to load this week. China has 21.5 million bu of US SRW wheat sales on the books that is expected to ship prior to the end of the crop year.

• Indonesia’s biodiesel consumption in the first 2 months of 2024 rose by 16% to 2.17 million mt. It is now mandatory that 35% of Indonesian biodiesel supply is blended with palmoil. 4.5 million mt of palmoil will be used in 2024.

• Season US weather forecasts were released by NOAA today. They reflect summer Plains dryness and Western and Southern US heat. It is far too early to be accurate in the forecast as El Niño rapidly transitions to La Niña.  Our bet is that the Central US will endure extreme heat, just like the winter.

• Dry weather holds across S Brazil and Argentina for the next week with limited rainfall. We note that Parana is in that dry trend which could cause new stress on winter corn production. Otherwise, near to above normal rain falls across N Brazil with totals 3.00-8.00” and locally heavier amounts. The rains across Northern Brazil will help replace soil moisture for the winter corn crop. The drier weather is needed for NE Argentina and Southern Brazil due to recent heavy rainfall and regionalised flooding. The dryness across Parana must be monitored as the monsoon starts its seasonal retreat in April.

• Two steps forward and one back best explains Chicago price action in recent weeks. Gold and the US stock market are pushing to new record highs. As a host of asset prices rise, Wall Street types are looking at grains and trying to measure the opportunity with a new Northern Hemisphere growing season ahead. In fact, several macro funds have been dipping their toes in the grain markets, but a real investor story requires a few supply shocks via adverse weather. A late day Chicago rally will encourage the bulls that additional short covering could evolve heading into the weekend.

20 March 2024

Posted on March 20, 2024 by simon

• HEADLINES: May Chicago soybean futures push above 50-day moving average; Brazilian Dec-February weather; Future Mexican corn import demand.

• Chicago values are mixed at midday with the grains weaker and soybeans firmer. There was solid volume on the morning reopening, but activity following the first 30 minutes dried up. Grains have a mixed tone while soybeans feel supported at midday with the charts providing clues for the close.

• Traders are watching to see if May soybean futures can close above their 50-day moving average at $11.9625. Soybeans have been flirting with the 50-day with rallies above and breaks below over the past 5 trading sessions. However, May soybean futures have been unable to close above this resistance. The last time that May soybean futures were able to close above the 50-day moving average was back on December 11. The chart pattern that is forming is a bull flag with breaks to support at $11.70-11.80 uncovering fund short covering. Key for Chicago going home is whether May soybeans can finish above $11.96.

• World wheat futures are under pressure from the sizeable amount of wheat offered to Egypt’s GASC in today’s tender. We counted 34 separate offers for the May 5-15 shipment period which reflects the abundance of Russia/European old crop supply. The cheapest fob wheat offer was Bulgarian wheat at $232.50/mt. US/Paris wheat futures are in decline on the remainder of large old crop wheat availability. World wheat futures declined based on this availability. However, new crop supplies are becoming more important with each passing day. The ongoing wet weather pattern for W Europe and dryness across the Black Sea is gaining attention, but it is far too early in the growing season to cut yield or planted acres. That becomes possible in April/May with a static pattern.

• Chicago brokers estimate that managed money has sold 5,100 contracts of wheat and 3,100 contracts of corn, while buying 3,600 contacts of soybeans. In the soy products, funds have bought 3,000 contracts of soymeal and 1,200 contracts of soyoil. Funds are holding sizeable net short positions in soybeans/soymeal.

• We have been reflecting on the record large 8.2 million mt disparity of public crop estimates between CONAB and USDA on the 2024 Brazilian soybean crop. We have no way of knowing which is correct, but we are attaching seasonal temperature and rainfall anomalies for the growing season broken down into 2 quarters, Sept-November and December-February. All that can be said is that this year’s 2023/24 Brazilian growing season was the warmest on record and one of the driest. Under this growing weather, USDA is forecasting Brazilian soy yield to (50.2 bushels/acre) be down just 3.7% vs trend and down 6.9% from last year’s record.

• US weekly ethanol production totaled 308 million gallons, up 5% from last year and on pace for WASDE to raise their 2023/24 US corn grind to 5,400 million bu. Amid the inclusion of E15 year round across the Midwest, the 2024/25 US corn grind could reach a record 5,475 million bu. Seasonally, ethanol prices rise into June.

• The US ag attaché in Mexico released their balance sheet on Mexican corn demand, imports, and usage for the 2024/25 crop year. The report expects that Mexico will import a record 22 million mt of corn in 2024/25 on surging feed demand. This would be a record 865 million bu of corn that would come mostly from the US. In coming years, Mexico could become the world’s largest corn importer.

• The US Central Bank will update their interest rate policy near the Chicago close. We expect that they will keep rates higher for longer based on stubborn inflation and the difficulty of the last mile to getting inflation beat down to their 2.0% target. Watch the US dollar and how it reacts to the US Central Bank policy. We look for US weekly export sales to be poor for wheat on the already announced daily Chinese cancellations. Soybean sales will be poor on competition. US corn and soymeal sales should be solid. Note that US soymeal continues to be shipped with limited switching to Argentina with a record 3.4 million mt of open US meal sales on the books.  March corn futures have now traded at $4.39 for the past 10 trading days. We look for additional short covering into the USDA March 28 Stocks/Seeding Intentions report.

19 March 2024

Posted on March 19, 2024 by simon

• HEADLINES: Chicago markets are slow and mixed at midday; Wheat rallies on Black Sea dryness and fund short covering; Brazilian Real weakens.

• Chicago values are mixed at midday with corn/wheat higher while soybeans sag on the rise in Brazilian cash soybean sales due to the faltering Real. The Brazilian Real has been recently edging lower vs the US dollar with the rate being 5.035:1$ which has helped boost Brazilian cash soybean harvest sales. The Real had risen to 4.9:1$ in early March. The Real vs USD weekly chart reflects a building triangle formation with resistance at 5.08:1 USD. Brazilian farmers are sensitive not only to Chicago prices, but the value of their currency since world soybeans are traded in dollar terms.

• Corn and wheat futures are higher on managed money short covering and the rally in Paris wheat futures. Traders argue that old crop fundamentals are largely known and digested below €195/mt May Paris and $5.25 May Chicago. Chicago futures held a key monthly chart uptrend line late last week when China announced that it was cancelling US SRW wheat purchases. The new Northern Hemisphere growing season ahead and developing soil moisture shortages across the Black Sea are gaining attention. Moreover, Russian wheat exports are forecast to rise to a record 3.1-3.2 million mt in March. A new Northern Hemisphere growing season will bring supply uncertainty.

• Chicago brokers estimate that managed money bought 2,600 contracts of wheat and 4,200 contracts of corn, while being flat of soybeans. In the soy products, funds have sold 1,400 contracts of soymeal and bought a net 900 contracts of soyoil. Fund managers are trying to reduce their net short position heading into the NASS/USDA crop report on March 28.

• Egypt continues to honour wheat purchase contracts despite the IMF imposed currency float on its currency, the Pound. There had been rumours that Egypt may want to renegotiate existing Russian wheat sales, but that does not appear to be the case. The expanded $8 billion dollar loan to Egypt should allow their budget to run effectively into mid-2025. And a deal with the Emirati Sovereign Wealth Fund suggests new Egyptian investments of $35 billion could be made by the end of April. It appears that Egypt is in a vastly improved financial condition with a war raging across Gaza amid new loans/investments.

• One debate that will not die is the 8.2 million mt supply difference between the March CONAB and USDA soybean crop reports. Such a March supply difference is record large and the bulls and the bears keep looking for whom to trust. The 8 million mt difference has a sizeable impact on 2023/24 US soybean exports as the CONAB crop forecast would shorten the tail on the 2023/24 Brazilian export season. One fundamental that appears to be missed is that Brazil’s expanded diesel blend of 14% soyoil will require additional Brazilian soybean crush. We believe the Brazilian 2023/24 soybean crush rate at 58 million mt due to the need to produce soyoil to blend with diesel.

• The forecast is wetter across Northern and Central Brazil than the overnight GFS run with some areas seeing 10-day accumulations of more than 5.00”. The near to above normal Northern Brazilian rainfall will help restore soil moisture ahead of the April pollination. The Argentine forecast is drier with any heavy rainfall pushed southward into Uruguay. Extreme heat will be lacking outside of Paraguay and MGDS in SW Brazil. As a sidenote, the GFS weather forecast followed the EU model’s lead and curtailed Plains and W Midwest precipitation totals and shifted heavy snows to MN/WI and N MI.

• It is another quiet Chicago trading session with few traders wanting to enter fresh risk ahead of the March 28 Stocks/Seedings report. We see the late March NASS report as providing price fireworks amid the wide range of estimates of US corn/soy and spring wheat seeding. And quarterly stocks reports are always fraught with risk. The 20-day moving average crosses at $5.55 basis May Chicago wheat futures, a level that would also produce a double bottom on the charts. Arctic cold across the Canadian Prairies keeps wheat traders alert to determine the southward push of sub-20-degree readings that could damage S Plains jointing wheat. Otherwise, Chicago is about short covering that occurs on breaks.

18 March 2024

Posted on March 18, 2024 by simon

• HEADLINES: Wheat bounces from early session selling on rising Russian fob offers; Soybeans sag on weak Brazilian premiums; GFS midday weather forecast is wet for N and C Brazil.

• Chicago values are mixed at midday with wheat futures rising while the soy complex sags. Soyoil has been the downside price leader as Friday’s rally stopped just short of $0.50/pound basis May and selling returned. Chicago traders are awaiting the EPA update on their GREET model and how it will impact corn and soyoil demand to produce green fuels. The EPA has not provided any timetable of when a GREET model announcement will be made, but several sources suggest that it could be released prior to the middle of April. Oil share pushed out to 42.5% last Friday, its best level since mid-September. Key support now rests at 50-50.5% on any correction.

• The Russian/Ukraine war is broadening amid the weekend drone/missile attacks on Odessa and interior Russian oil refineries. World grain traders fear that the expansion of the war could involve key Russian ag export ports like Novorossiysk which could cause disruptions to Russian grain trade at some point. No attacks on Novorossiysk have occurred to date, but the shorts are taking a more cautious approach in positioning heading into the end of the quarter/month and coming key USDA reports on March 28. Wheat bears are fearful of waking up to a Ukraine drone attack on Novorossiysk, and world grain markets that are in a panic short covering mode.

• The Russian/Ukraine war has held a bearish influence on world grain values as Ukraine established an export corridor through the Western Black Sea into Istanbul. However, Russia’s constant bombardment of Odessa is causing worry as to Ukraine’s grain export capabilities.

• Chicago brokers estimate that managed money bought 3,100 contracts of wheat and 500 contracts of corn, while selling 2,800 contracts of soybeans. In the soy products, funds have sold 2,500 contracts of soyoil and bought a net 600 contracts of soymeal. The fund related trade is in decline at midday.

• US export inspections for the week ending March 14 were 48.8 million bu of corn, 25.2 million bu of soybeans, and 11.1 million bu of wheat. The US has shipped out 909 million bu of corn for its crop year to date (up 217 million or 31%), 1,314 million bu of soybeans (down 305 million or 19%), and 504 million bu of wheat (down 94 million or 16%). We maintain that WASDE needs to raise its US 2023/24 corn export estimate by 25-50 million bu and cut soybeans 15-25 million bu in March. US wheat exports appear to be correct following recent week cancellations by China.

• China will auction off 226,000 mt of 2019/20 soybeans with no origin being specified on Tuesday. It is rumoured that the state (Sinograin) decided to go ahead and crush 1.0 million mt of recently imported soybeans, rather than place them in the reserve. This could diminish future import demand by a like amount. China appears to be cautious in the purchase/placement of new crop Argentine soybeans into their state reserve.

• China’s corn import pace is record large and WASDE will have to raise Chinese corn imports in their April WASDE report. We hve China importing 16.5 million mt in the crop year through February. Pace analysis would argue for China corn import pace of 31-33 million mt which seems too large. All that is known today is that China’s import pace will exceed 19.0 million through March, with China an active buyer/importer of Ukraine corn in recent weeks.

• Stabilising Russian wheat export prices and a new growing season is spurring short covering from long time wheat bears. Dryness across the Black Soils area of Russia is interesting but non-threatening today.  Close attention must be paid to future Black Sea weather including Eastern Ukraine where dryness has lingered since January. Wheat appears to have the best world fundamentals heading into a new growing cycle, but soybeans will struggle on rallies until 85% of the Brazilian soybean harvest is completed. Brazilian rain in the next few weeks will boost winter corn and replenish soil moisture. We doubt that corn/soy breaks or rallies can be sustained until after the March 28 USDA report.

15 March 2024

Posted on March 16, 2024 by simon

• HEADLINES: Soybeans recover and close firm on Friday: Chicago corn ends firm on strength in cash markets; Brazilian rainfall unlikely to be lasting: US wheat ends lower for third day; Russian/EU markets stable.

• Soybean futures were under follow-through technical pressure in early trade on Friday, but the early selling was countered by a larger than expected NOPA crush that supported higher prices. Soyoil paced Friday’s rally despite larger than expected NOPA stocks.

• The February crush reached a new record high of 6.42 million bu/day. US capacity has expanded, and the February data suggests that the US could theoretically crush nearly 2,500 million bu/year if needed. This total will dramatically expand by the end of 2025.

• May soybeans marked the third consecutive higher weekly close and finished just below the 50-day moving average. A close above $12.00 will likely trigger another round of fund buying, with the next targets near $12.80 and $13.00. Key support is offered at $11.70-11.80 May.

• Brazil’s market shed premium on Friday as rain blankets a majority of the safrinha Corn Belt Mar 23-28. Confidence is high with respect to this brief pattern change, but newly released long range guidance allows warmth/dryness to return in April. Brazilian crop risks stay elevated. We would also note Argentine fob basis rallied $0.08/bu overnight. US Gulf and Argentine origin are offered into the world market near parity for early spring. Chicago at $4.30-4.50 is not overvalued.

• Managed funds have pared their record net short position in the last three weeks. Funds’ short on Tuesday at 252,000 contracts remains historically large, and only stays in place amid normal Brazilian weather. Our best bet is that Brazilian production falls below 115 million mt, which leans bullish of corn until Midwest summer growing weather is known. Upside is pegged at $4.70-4.75. Spot EU corn settled at an equivalent above $5.00/bu for the first time since early February as feed markets seasonally bottom.

• May Chicago wheat ended slightly lower amid a lack of breaking news and as the US dollar index again bounces from key chart support. Importantly, Russia’s market is stable after rallying $5/mt on Thursday. The EU market ended slightly higher. Spot Chicago is fundamentally undervalued below $5.30, and downside risk between now and harvest is limited. The weather forecast is paramount from April 1 onwards. Regular April rainfall is needed across the US Plains, W Canada and across most of Ukraine and Russia.

• Managed funds on Tuesday were short a net 79,000 contracts of Chicago wheat vs. 66,000 the previous week. But it is the fund short of 36,000 contracts in KC that is in danger of being covered ahead of the US growing season. Plains crop ratings are improved year on year as of mid-March, but downgrades will be rapid if soil moisture loss is extended into April. This week’s Russian low in fob wheat could be important longer term.

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

Weekend summary 15 March 2024

14 March 2024

Posted on March 14, 2024 by simon

• HEADLINES: Chicago expectedly retreats following early soybean rally; Brazilian farmers reward the rally with large cash sales; GFS midday weather model wetter for S Brazil.

• It has been a vicious trading session into the midday hour with early chart-based buying in soybeans/soymeal sparking a sharp morning rally. Soybean futures rallied to more than 20 cent gains with soymeal up $8.00/mt before hedge related selling emerged. Wheat and corn prices sagged on the cancellations of Australian wheat and errant rumours that French purchases are also being postponed/cancelled. Chicago wheat futures have fallen back to last week’s low, but end user demand is offering support below $5.30 May Chicago.

• The Brazilian farmer leaned on the rally with new cash soybean sales which has pulled values into the red. We doubt that any bull or bear trend can be sustained until after the USDA Stocks/Seeding report later this month. This is one of the most important reports of the year, which is followed by the spring seeding season. There are wide private opinions on US corn/soybean seeding intentions and farmers are still changing their crop mix as they ink revenue insurance policies. Key support is offered below $5.25 May Chicago wheat, $4.285 May corn, and $11.80 in May soybean futures. Soyoil will be the bullish stalwart on setbacks due to the narrowing of palmoil/soyoil spreads. While great crop debate will persist across Brazil on disappointing soy yields.

• Chicago brokers estimate that managed money has sold 7,200 contracts of wheat and 6,500 contracts of corn. Funds have bought 1,200 contracts of soybeans, 2,900 contracts of soymeal, and 1,400 contracts of soyoil. Brazilian farmers were sizeable sellers of cash soybeans on the morning rally with some brokers estimating hedge related sales of over 1.2 million mt.

• There are rumours that China has cancelled 500,000 mt of French wheat. We cannot confirm the rumour and are doubtful. China has cancelled 500,000 mt of US SRW wheat which was announced in the daily USDA sales report. We understand that China private and JV buyers of world wheat are seeing losses and are unable to pass those losses along to the government as it has in the past. The buyers have decided to cancel the sales which are being announced. As the wheat market heads even lower, there may be additional cancellations.

• US weekly export sales for the week ending March 7 were 3.1 million bu of wheat, 50.5 million bu of corn, and 13.8 million bu of soybeans. US soymeal sales were 209,000 mt with soyoil sales at 11,200 mt. The soyoil sales were at a marketing year high. For their respective crop years to date, the US has sold 680 million bu of wheat (up 28 million or 4%), 1,595 million bu of corn (up 342 million or 27%), with US soybean sales down 355 million or 19%). WASDE needs to adjust US soybean export forecasts down another 15-25 million bu in their April report. No change is due in either US corn or wheat annual export forecasts.

• The midday GFS weather forecast is consistent with morning output. Improved rainfall impacts Mato Grosso/Goias across Brazil. 10-day rainfall totals of 2-3.00” are forecast. Soaking rainfall of 3-6.50” is forecast for Southern Brazil and far NE Argentina. Such rain will produce regional flooding with soil moisture levels already saturated. There is a risk to the developing and nearly mature soybean crop that needs to be closely followed. Otherwise, enough rain looks to drop across the remainder of Argentina for favourable crop development with the early corn harvest underway. Strong and in some cases record Argentine corn yields are being reported.

• Until the markets are past the key March 28 USDA reports, values will chop sideways in a somewhat unpredictable pattern. The shorts are trying to cut their market risk while the bulls and end users will not chase a rally without real adverse new crop weather. The first weather risk to monitor is Brazil’s winter corn crop and if the extended range forecasts are correct in an early withdrawal of the monsoon in early April. Our message; “Don’t chase breaks or rallies until after the Easter Holiday”.

13 March 2024

Posted on March 13, 2024 by simon

• HEADLINES: Chicago chops, above session lows; Crude higher on tightening balance sheet; Brazilian weather stays concerning.

• Paris milling wheat stays weak on reported Chinese cancellation of French purchases. Chicago markets off lows amid rising energy markets, searing heat in Central and Northern Brazil next two weeks. Soyoil stays firmly above 50-day moving average, and tests 100-day moving average, following newer seasonal highs in palm oil overnight.

• Chicago futures are lower, but off session lows, at midday as end user buying absorbs early speculative selling. More attention is being paid to weather pattern stagnation across Brazil’s safrinha corn belt, as well as the coming lengthy period net drying across the US Plains and far W Midwest. Central US fields will be fit to plant much earlier than normal, but the trade is beginning to debate the longer impact of record US winter temperatures, which correlate with summer heat, and net drying across an area encompassing NE, the Dakotas, MN and WI into late month. Weather plays a greater role in price discovery moving forward.

• US ethanol production in the week ending March 8 totalled 301 million gallons, vs. 311 million the previous week but up 1% year on year.

• We believe that the USDA must raise its 2023/24 US ethanol grind forecast 15-25 million bu in its April WASDE, and economics are improving as Midwest ethanol swap prices rise and ethanol’s discount to gasoline is sizeable. Ethanol blend demand rises steadily into late summer.

• Spot WTI crude at midday is up $1.60 at $79.10/barrel as the US’s season of increasing stocks comes to an end. Commercial crude stocks on March 8 were 447 million barrels, down 1.5 million from the prior week and 7% below last year. Unlike 2022, when reserve stocks were being pumped into the marketplace, US crude and gasoline stocks move lower into Aug/Sep. Fair value in crude is seen at $76-82, which on balance lends support to biofuel markets and corn/soyoil. Crude prices tend to peak in May-Jun.

• The major forecasting models are at odds over the placement/intensity of rainfall in Mato Grosso over the next 7-10 days but agree that sweltering heat and complete dryness continue across Mato Grosso do Sul, Parana, and Sao Paulo. High temperatures there on Tuesday were in the mid/upper 90s. Similar readings persist into March 20.

• The midday GFS weather forecast is consistent with morning output. Regionally heavy rainfall impacts E Mato Grosso, Goias and NE Brazil. Soaking totals of 3-4” are forecast in RGDS in southern Brazil. A pattern of below/well below normal rainfall and lingering heat continues in central Brazil throughout the next 10 days, with GFS forecast 11–15-day guidance trending drier. The failure of rain to appear in central/northern Brazil in late March triggers a more robust period of short covering in Chicago corn futures.

• Spot Chicago soy at $11.50, spot corn at $4.00-4.10 and Chicago wheat below $5.80 have fully digested the flood of bearish input thrown at markets in late 2023. It is now a blank canvas, with both the bulls and bears at the mercy of weather forecasts/actual conditions moving forward. Focus stays on Brazil nearby as safrinha corn begins pollinating in April. Excessive rain in RGDS in S Brazil will also be watched as soybean harvesting has yet to begin there.

12 March 2024

Posted on March 12, 2024 by simon

• HEADLINES: Chicago soyoil pushes above key 50-day moving average; May corn tests resistance at $4.45 and above; GFS weather forecast drier for Central Brazil at midday.

• No new daily China wheat cancelations of US SRW: Widespread debate on which Brazilian crop size estimate to trust, CONAB or USDA. Short covering featured across Chicago with sizeable purchases of soybeans as May tests $13.00 and May soyoil jumps above the 50-day moving average at $47.03. Look for resistance above $4.48-4.52 May corn in a test of the January lows.

• It has been a firm morning in Chicago with soyoil and soybeans breaking above initial chart-based resistance. CONAB is finding that its March Crop estimate is getting more trader “windage” that it might normally receive by coming out after the USDA report. Normally, CONAB releases its monthly crop estimates on the same day as WASDE, which means that the USDA report supersedes the Brazilian forecast. The several day delay in releasing CONAB’s monthly forecast has offered it a crop platform to be debated by the trade. Questions abound on who to trust in estimating the Brazilian corn and soybean crops.

• The 8.2 million mt CONAB soybean crop difference with USDA has important impacts on 2024/25 US soybean exports on the size of the Brazilian soybean export tail. And if the Brazilian corn crop is 112.7 million mt, it too will serve as boost to US corn exports in the September-January timeframe.

• Chicago brokers estimate that funds have bought 4,900 contracts of corn, 5,200 contracts of soybeans, and 2,400 contracts of wheat. In the products, funds have bought 3,200 contracts of soyoil and 1,300 contracts of soymeal. Oil share is back testing 41% as May futures try to close above the 50-day moving average for the first time since early September.

• Increasingly, producer surveys are suggesting that US farmers will plant more soybeans, cotton, and other minor crops since corn/sorghum/spring wheat just do not offer much profit enticement. In the Delta it is all about cotton and soybeans, with farmers really cutting back hard on their intended corn acres due to cost and margin. In the Northern Plains, it is the same crop theme in that corn is too costly with profit margins that are close to breakeven. As farmers ink farm revenue insurance coverage, analysts are questioning whether 2024 US corn seeding will drop closer to 90 million acres with soybeans rising to 87 million acres or more. Heading into the March 28 report, we expect that it is corn that will see the additional short covering due to all the producer and insurance industry talk of fewer seeded acres.

• US Consumer prices rose 3.2% in February, slightly more than expectations that were calling for a gain of 3.1%.  This was the second straight month of firmer than expected inflation which will likely keep the US Central Bank on hold through its June meeting. The risk is not one of the US Central Bank raising rates further but holding them higher for longer. We believe that US Central Bank will only cut its lending rate by 1 or 2 times later this year.

• The midday GFS weather forecast is drier across Central Brazil with limited rainfall for Paraguay, MGDS and Parana with heavy rainfall impacting RGDS and far NE Argentina with 10 day totals of 3.50-6.50”. Our confidence is rising with respect to the coming lengthy period of below normal rainfall and above normal temperatures across a majority of Brazil’s safrinha corn belt. There are hints of better rains across N Brazil in late March/ April, but the strength of Brazil’s monsoon will begin to wane thereafter. Also, closely follow Southern Brazilian rain and the potential for flooding with soil moisture already saturated across RGDS. The Argentine weather forecast leans favourable to yield/crop production into April.

• Key today will be whether May soyoil can close above the 50-day moving average at $46.95 for the first time since September. Funds are short an estimated 58,000 contracts of soyoil futures as of yesterday’s close. May corn came close to testing its 50-day moving average at $4.48 while May soybeans neared psychological resistance at $12.00. Chicago values should consolidate recent gains, but any setbacks will be well supported amid concerning Brazilian weather for late soybean and winter corn production.