• The USDA September Stocks in all positions estimates were bearish for corn and soybeans, and neutral for wheat. NASS revised the 2017 US soybean crop upwards by 19.1 million bu (4,411 million bu) amid the larger stocks total. US corn stocks at 2,140 million bu came in 138 million bu above the average trade estimate. The stocks total will add to new crop ending stocks. US wheat futures are expected to gain on both soybeans and corn heading into the Chicago close. The US estimated the final 2018 US all wheat crop at 1,884 million bu, up 7 million from August. The winter wheat crop was cut 5 million bu with the spring crop raised 9 million bu. The durum crop was also slightly larger which allowed for the modest US wheat crop recovery. Compared to 2017, the 2018 US all wheat crop was up 8% with yield at 47.6 bushels/acre. The HRW crop was pegged at 662 million bu.

• The US SRW wheat crop was 285.6 million bu with soft white wheat at 216.8 million bu. The production total was in line with trade expectations and the focus of the marketplace will totally shift to world prices and US export demand. US final all wheat production at 1,884 million bu is considered neutral. US September 1 wheat end stocks of 2,378 million bu were slightly above the average trade estimate of 2,355 million bu. The stocks total implies a Q1 feed/residual use rate of 200 million bu, up 30 million from last year, but below the 5-year average of 279 million bu. The diminished US harvest likely curtailed the Q1 residual, but the feeding rate was larger than expected.

• The US September 1 corn stocks estimate of 2,140 million bu was 138 million above the average trade estimate and considered bearish. The Q4 US corn feed/ residual use rate is calculated at just 595 million bu, down 92 million from last year, and 103 million bu above the 5-year average. The heavy movement of corn off the farm during the late summer likely produced the reduced feed/residual use. Corn in the hands of commercials is often more accurately counted. Adding the additional old crop US corn old crop stocks would raise 2018/19 US corn stocks near 1,900 million bu assuming no change in yield or demand within the Oct WASDE.

• The 2017 US soybean crop was raised 19.1 million to 4,411 which pegged 2017/18 US soybean end stocks of 438 million bu. Such stocks are up 43 million bu from the September WASDE and will elevate 2018/19 soybean end stocks to 883 million bu assuming no change in WASDE demand and or yield.

• The September Stocks report added to the new crop supply of corn/soy. The report is seen as bearish and Chicago futures are lower at midday. The wheat report was neutral and rising world prices will offer support. Wheat values are now a function of US export demand and world price differentials.

• The central US GFS weather forecast calls for cool/wet weather across the NC Midwest for the next 10 days. Short waves will be pulling across the Plains/Midwest every 2-3 days which will slow the pace of harvest. Progressively colder temperatures will be pouring southward into mid-October. The cool/wet weather offers no chance to accelerate the Midwest corn/soy harvest.

• The USDA September Stocks report is bearish with an extra 138 million bu of corn and 43 million bu of soybeans found. US 2018 all wheat production came out broadly as expected. It is going to be tough to pressure December corn below $3.55 amid building US export demand. But a US corn yield decline is demanded in October for lasting bullishness. Soybeans lack a demand story amid China’s absence. The only real story going forward is US wheat should world demand shift as expected.

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Weekend summary 128September 2018

• Quiet and firm trade unfolded on Thursday, with fund short covering continuing to offer support ahead of the USDA report. Funds bought 4,000 soybean futures on Thursday. The weekly US Export Sales report showed that soymeal exports for last week were at a ten week high of 278,000 mt. Cumulative exports for the year are now 20% larger than a year ago and record large 11.9 million mt. The cumulative FAS total is in line with the Sep WASDE export forecast of 13 million mt. With a little over two weeks of data left to be reported, there remains 882,000 mt of sales outstanding, half of which will likely be rolled into a new crop position. In soybeans, export commitments are 16% behind last year at a three year low. The average estimate for soy stocks in Friday’s report is 400 million bu or 5 million over the Sep WASDE, with analysts looking for NASS to lower the 2017 crop size by 3 million bu. Without a China trade resolution, we hold to a view of selling rallies. Nov soybeans will likely struggle against $8.80 where we expect farm selling will be uncovered.

• Dec corn crawled to a new two-week high on fresh fund short covering. The market on Friday will of course be a function of Jun-Aug feed/residual, but we continue advise using any USDA-inspired weakness to add to forward coverage. Work suggests final 2017/18 US corn end stocks will be close to the USDA’s Sept forecast 2,002 million bu. US corn export sales for the week ending Sep 20 totalled 67 million bu, the largest weekly total since March. Total US corn export commitments rest at 719 million bu, up 60% on the year and the highest since 2007. Exports account for 30% of the USDA’s forecast, with just three weeks of the crop year having passed. Generally US export demand rises seasonally into November. The USDA’s forecast therefore appears too low based on sales to date, and relatively high wheat, barley and other origin corn prices. US Gulf corn is offered $.04/bu below Argentine. Harvest will be slowed in the NW Midwest amid cool temperatures and coming rain. Rallies are needed to pry supply from the producer following heavy selling in August. And recall that world stocks in 2018/19 of 157 million mt (vs. 194 in 2017/18) already assumes normal S American weather.

• US wheat futures ended mixed, with Chicago and KC lower and spring wheat slightly higher. EU futures ended flat for a second consecutive session. Funds have sold 8,000 futures this week, and maintain a net short position in Chicago. Sept 1 US wheat stocks are estimated at 2,400 million bu, up 140 million on last year, one of the largest totals since the late 1980s. This has kept new buying limited in the US despite rising cash prices elsewhere. We note that Russian fob is up another $2/mt, reflecting a $5/mt rally on the week. Russian wheat is no longer overly cheap relative to other origins for November and beyond. US export sales totalled 24 million bu, the largest of the crop year (so far) and 6 million above the pace needed to hit the USDA’s target. Australian soil moisture remains dire. Cumulative precipitation is down 1.5” (22%) from last year, while yield is projected higher. We wonder if Aussie production will exceed 17-18 million mt, vs. USDA’s 20. World cash markets appear to have posted a secondary bottom.

• A mixed opening produced a new round of fund short covering in Chicago corn, soybeans and wheat this morning. The soybean market has been the upside leader on technical considerations amid a lack of producer selling. The soy market continues to be local, but think global in terms of the big premiums offered from Brazil. Moreover, Chinese soymeal values have started to advance. China has been able to secure its normal amount of soybean arrivals for September, and the US/China trade spat has not impacted the Chinese feed/livestock markets. Chicago soybean futures continue to hold in a broad trading range. We look for a mixed to higher close as funds exit short positions in corn and soybeans. The surprise has been that the rally has not uncovered much producer selling. Most are squirrelling away as much of their harvest as possible in the hope for basis appreciation and a US/China trade settlement.

• Chicago traders estimate that funds have bought; 2,100 contracts of corn, 1,900 contracts of wheat, and 3,400 contracts of soybeans. In soy products, funds have bought 2,400 contracts of meal and 800 contracts of soyoil.
  

• FAS US weekly export estimates on Thursday range from; 400-500,000 mt of wheat, 1.2-1.4 million mt of corn, and 775,000-900,000 mt of soybeans. The USDA announced the sale of 650,387 mt of US soybeans to Mexico as end users there extend their forward coverage.

• US President Trump indicated that China is trying to interfere with the US Mid-Term election because the US has been tough on China with trade. No examples have been offered, but that news could be another incident that could keep the parties from the negotiating table until late November or December.

• Brazilian corn loadings remain seasonally slow and research suggests that WASDE should further cut their Brazilian 2018/19 export estimate by 2 million mt. The further reduction of S American corn exports looks to boost US corn exports to a record large 2,500-2,600 million bu.

• The central US GFS weather forecast has come around to the thinking of the EU overnight forecast with tropical storm Rosa coming ashore across N Mexico and pushing inland into the SW US. This allows a series of weak storm systems to push through the Midwest, with heavier rains forecast for the Central US in the 11-15 day period. Cold Canadian air pushes southward into the northern tier of the US with regularity with snows indicated across the W Plains during the 11-15 day period. This is a cold forecast for the Central US during the first half of October. The cold and increasingly wet weather looks to slow the ongoing Midwest corn and soybean harvest.
  

• Corn is taking a break from its recent four day run with traders waiting to buy wheat following Friday’s NASS report. The US Central Bank is expected to raise lending rates . The US$ is stable at midday. A further hike is expected in December with 2-3 hikes expected in 2019. Long term without a trade agreement between the US/China, the grains should gain on soybeans. We are bullish of corn/wheat on Chicago corrections. Getting past Friday’s NASS report will clear the way for fresh grain gains.

• Chicago futures at midday are mixed, and more or less little changed from the overnight close. Wheat’s inability to push above major moving averages has triggered modest fund selling. Beans have maintained support amid strength in crude and a country-wide strike in Argentina, which initially pushed spot meal to a two-week high. Argentina’s largest union plans to cease work for the next 24 hours in protest of President Macri’s handling of the economy and amid runaway inflation. Compensation to offset inflation is demanded. The strike has affected operations at the port of Rosario, and strike duration is key. It is unlikely that this will affect soy complex trade flows longer term, but the recent demand for US soybeans from Argentina has kept Nov beans above $8.10. Argentina’s Central Bank head has also resigned this morning, and this won’t much help investor confidence. The Argentine Peso is down 3% today, and the forward curve again suggests Argentine farmers are better off holding beans, at least into the end of 2018.

• With the month almost over, we estimate Chinese soybean imports from all origins in September at 6.8 million mt. At this point a year ago in Sep, Chinese imports of beans were estimated at 6.4 million, so there does not yet seem to be any major shift in China’s total appetite just yet. Recall the Chinese government recently pegged new crop Chinese soybean imports at 83 million mt, down roughly 10 million on the year. It is of course very early in the crop year, but the USDA is not expected to change its total bean trade forecast. Trade barriers will no doubt slow further Chinese demand growth, but a collapse in total soybean imports is not expected. EU milling wheat looked to end €1.50-2.00/mt lower on a rising €uro and as EU exports suffer (like the US) on record Russian shipments. However, premiums elsewhere in Europe remain firm. The domestic market there is scrambling to find feed, and in many places the domestic market is outbidding exports. The outlook for Russian wheat cash prices is positive amid a rising Ruble and seasonal trends in interior values.

• The GFS weather forecast is very wet in E Australia in the 11-15 day period, but confidence so far out is low. The GFS’s Aussie rainfall forecasts this season have largely failed to materialise. September rainfall across the whole of the Aussie wheat belt will range from 0-30% of normal. The central US GFS weather forecast is much wetter and cooler across the entire Central US in the 7-15 day period, but confidence in this too is low. In the near term, cool temperatures are expected into early next week. Meaningful precipitation will be confined to the Southeast. The extended forecast will be watched, though, as cumulative precipitation of 2-5” is offered to the whole of the Plains and Midwest Oct 4-9. Snowfall of 6+” is forecast in CO, NE, the Dakotas and Southern Canada.

• Better US export demand needs to be seen before wheat takes out chart-based resistance. Row crops await final US stocks on Friday.

• Chicago grain futures pushed higher in early Chicago trade with soybeans holding in the red but being well off their lows. The market retreated at midmorning on rumours that US Deputy General Attorney Rosenstein was heading to the White House to be fired. The DC political uncertainty is something that the markets are watching with value of the US$ becoming key to valuations. Rosenstein will be meeting with President Trump on Thursday. The DOW sank to 200-point loss on the Rosenstein news. The US Central Bank is expected to raise interest rates on Wednesday to 2-2.25%, the highest level since April of 2008. The Fed is expected to raise rates again in December and three more times in 2019. The volume of Chicago morning trade has been modest and the market will be pensive ahead of Friday’s NASS Small Grain and September Stocks estimates. We believe that prices this week will move following Friday’s NASS report.

• Chicago brokers estimate that funds have sold 3,200 contracts of soybeans, while buying 4,600 contracts of corn and 3,100 contracts of wheat. In soy products, funds have sold 2,900 contracts of soymeal while buying 4,400 soyoil US export inspections for the week ending September 20 were; 49.7 million bu of corn, 25.5 million bu of soybeans, and 15.0 million bu of wheat. For their crop years to date, the US has shipped out 116.7 million bu of corn (vs 84 million last year a 33% gain), 85 million bu of soybeans (down 28 million or 25% loss), and 239 million bu of wheat (down 110 million Bu or down 32% from last year). The US corn export pace remains impressive, while soybean exports disappoint.

• The Argentine Ag ministry released new balance sheets on Friday. Their soybean stocks total was reduced from 8 million mt to 4 million via reduced carry-in and bigger export demand. This compares to the USDA at 15.8 million mt. The difference between the Argentine and USDA soybean balance sheets is growing. The big question is which one do you believe. Crushers within Argentina are raising their import forecast of US soybeans to 1.75 million mt (65 million bu). Argentina will continue to export its own soybeans to China at a $1.95 fob premium and import soybeans and re-export the products. The additional Argentine demand for US soybeans reflects the changing trade flows that is being produced by the $2.40/bu export price differential. The Argy soymeal exports will offer new competition for US soymeal.

• The central US GFS weather forecast is wetter/colder across the North Central Midwest, but drier across the far Western Plains. We note that some very cold air filters southward in the 11-15 day period with snows across portions of the Nebraska, S IA and WC Illinois. Our confidence in this snow is low, but its worth mentioning that under this chilly pattern, that the chance of Midwest snow is on the increase. This would be more important to soybeans, and less so to corn. A frost is likely across North Dakota late week, with 11-15 day period taking that chill across much of the NW Midwest with the sub 30 degree line as far south as S NE and S IA. A series of storm systems are evident from this weekend forward that will produce showers across the Midwest with regularity. The cool/wet weather is likely to string out harvest progress.
  

• Funds are (in our opinion) too short of corn amid the cool/wet Midwest weather forecast and talk of variable yields is likely to spark a recovery to $3.70-3.75 basis December. Wheat is expected to follow, with users hoping for a bearish USDA stocks report on Friday to make new purchases. Soybeans appear to be stuck in a range of $8.10-8.85 basis Nov futures.

• Managed funds on Tuesday extended their net short position in corn, wheat, soybeans, cattle and hogs by 79,000 contracts to 118,000. This mostly occurred on corn, wheat and soy oil. This is also the second largest net short on record for mid- September, and we expect the speculative community to be a bit more cautious with additional new shorts moving forward. Until favorable weather can be confirmed in S America in Dec/Jan, downside risk is limited.
  

• It was much quieter and lower volume day of trade through Friday, with soybeans consolidating gains. Soybean bears were disappointed that a much deeper correction did not unfold, and strength in the corn market offered late week support. The Commitment of Traders report showed that through Tuesday, funds were net short 82,200 futures contracts and net long 12,400 in options. The combined net short position of 69,800 contracts was the most since January. Hedgers have been covering positions through the summer break, and unwilling sellers. This week’s report showed that hedgers held a rare net long position worth 4,700 contracts. Harvest in the Northern Midwest and Plains states was slowed by rain this week, while progress in the Southern and Central regions was able to advance. We look for national harvest progress through Sunday to have reached 12-15% complete. Initial resistance for Nov beans is just above the market at the 50-day moving average.
  

• Dec corn rallied another 5 cents. Exporters Friday sold 121,000 mt to unknown destinations, and the world fob lineup still heavily favours Gulf corn over all other feedgrains. We mention Dec corn settled exactly at its 20-day moving average, and so a high closer next week will turn the charts more bullish. Managed funds on Tuesday were net short 141,000 contracts, close to expectations but which rivals sizeable short positions of recent years. Hanging over the market remains the potential loss of US soybean area in 2019, but work continues to suggest that corn is cheap at current prices. Crude ended steady, and continues to hold support above $70/barrel. Ethanol blend margins are incredibly profitable. Commodity indexes ended the week higher, and we wonder if more investment will be put to work in raw materials into late year. Watch chart patterns early next week.
  

• US and EU wheat futures ended narrowly around unchanged, and breaking news is lacking. However, as previously reported, Aussie cash prices this week have found new rally highs. Frost/freeze early in the week and ongoing dryness across much of the Aussie wheat belt is cited. Even higher prices lie ahead as the market sorts out domestic feed use requirements. The 10-day forecast keeps meaningful rain in Australia isolated to the coasts. Managed funds were net short 1,000 contracts in Chicago, and so were net short for the first time since mid-July. Having cleared excess market length, we expect the market moving forward to focus more upon rising world cash prices and tight major exporter stocks/use. The transition from a supply-driven bull to a demand-driven bull is occurring. Russian exporters remain aggressive with offers in spot positions, but deferred Black Sea prices are rather elevated.
  

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Weekend summary 21 September 2018

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Fund positions disaggregated data

• EU livestock farmers continue to struggle in their search for feed. The late summer has not helped with the dire drought ongoing which has left farmers short of forage. The USDA’s projected EU grain stocks/use match the previous low in 2013. The EU will have to work hard to import corn and export less wheat.although EU wheat exports to date are down 41% and show no sign of increasing as domestic prices are high in relation to the global marketplace. EU wheat exports might reach 18 million mt, which is some 5 million below the WASDE forecast. Combined lost EU and Australian wheat demand should be pushed to the US from November onward.

• Fund buying in the summer row crop markets supported early soy buying, while rumors that Argentina had secured as many as 10 cargoes of US soybeans fueled a rally into the close. Argentina was also rumoured to have sold 10-15 cargoes of their own soybeans to China, and replaced them with cheaper US supplies. Two weeks into the 2018/19 crop marketing year, the US export outlook is murky. Sales in the last two weeks have been routine even without Chinese buying. However, US soybean export commitments are 1.4 million mt under last year and at a three year low. Historically, there is a moderate relationship between early year commitments and annual exports. The current USDA forecast is well over the trend forecast. Without Chinese exports, future USDA export forecasts are likely to be unchanged or lower. Early harvest yields in the E Cornbelt have been good, but the market awaits more results from IA and MN. The MN harvest has been brought to a standstill by another round of rain. Longer term, it is the export outlook that will drive US prices. A US/China trade deal is needed for any lasting rally, but prices are cheap and some macro traders are fearing inflation.

• Dec corn rallied 7 cents and tested chart-based resistance at $3.57. Exports sales through the week ending Sep 13 were a healthy 54 million bu. We note that exporters need to average just 35 million per week to meet the USDA’s annual forecast. Otherwise, there is not much market-specific news. Speculative investors view corn as being too cheap (and we agree). Funds bought an estimated 28,000 futures contracts. Gulf corn is the world’s cheapest feedgrain, basis fob and holds a discount of $3-5/mt into Asia vs. Argentine. It remains that European feed operations are struggling to find supply, and we expect EU corn futures to rally to levels that make imports attractive. Dec corn is hovering at the same levels of last year in late Sept while US and world stocks are much tighter. Crude has maintained support above $70, and the incentive to produce/consume biofuels worldwide will be rising as crude’s rally is structural. A US 2018 corn yield of 178 bushels/acre would justify a rally in December corn to $3.75-3.85.

• US and EU wheat futures ended slightly higher. There is not a lot of fresh news available, but drought will continue to deepen across the EU, Australia and regions of the Black Sea. What needs monitoring are chart patterns with futures pushing against major chart-based resistance. A solid weekly close is needed, but the issue ahead is whether bull flag patterns are forming. The EU market is on the cusp of breaking out to the upside. US weekly US wheat export sales totlaled 17.2 million bu, not exciting, but the largest in five weeks. White wheat sales were the largest of the marketing year as importers worry about Australia’s availability. Better US exports are needed to attract consistent fund buying, but following further Aussie yield loss this week, we are confident that this demand is in the offing. A bullish wheat outlook is advised, until it’s confirmed world producers have added 12-14 million acres in early 2019, fair value lies between $5.00-6.50 basis spot Chicago. Highs are projected in Q1 2019.

• Interestingly, the S American corn export pace is not keeping up with the USDA forecast. WASDE has been progressively cutting their S American corn export forecasts, and raising the US. Research argues that this trend will persist and that combined S American corn exports could still drop another 2-3.5 million mt. The US corn export outlook therefore appears bright. US Gulf corn is priced at $151/mt, back near its 3 year low. Gulf fob corn is extremely cheap when compared to feed wheat and barley. 2018/19 US corn exports look to be record large above 2,500 ` million bu.

• Chicago soybean contracts closed up 15-16 cents on Wednesday. A rally in the wheat market along with rumors that Argentina booked several cargos of US soybeans fueled the recovery. Funds were buyers of 7,000 soybean and 4,000 soymeal contracts. Argentine fob soybean basis has followed Brazilian offers higher as Chinese buyers scour the globe for non-US alternatives. Argentine soybeans are offered at $1.95 over Chicago vs Brazilian beans at $2.60. The US Gulf is offered at just ten cents over. Brazilian exportable supplies are nearly exhausted. Argentine traders are taking advantage of wide fob spreads to sell their soybeans to China, and replace with significantly cheaper US product for crush. If the products are exported, Arg crushers will avoid import taxes on the beans and export taxes on the meal and oil. Profit margins are large. Initial targets for Nov soybeans are $8.50 and then the 50-day moving average near $8.60. Large carries and weak basis will continue to encourage US farmers to store newly harvested crops.

• Dec corn rallied 2.5 cents on surges in neighbouring wheat and soybean markets. Chicago corn futures are deeply oversold, with funds’ short position having largely digested record US yields, a secondary seasonal bottom is due. We mentioned above the coming boost in US corn export demand, above what is already occurring, but US domestic use is also strong. Cash corn basis across the Plains rests at a steep discount to wheat. US ethanol production through the week ending last Friday totalled 309 million gallons, up 9 million on the week and up 2% from the same week a year ago. Ethanol stocks fell slightly amid a modest increase in export disappearance. Most important for biofuel markets is the ongoing rally in crude, which today hit $71, basis spot WTI. US crude stocks fell yet again to new multi-year low. Gasoline has recovered to $2.02, basis spot. Weekly export sales are estimated in a range of 40-45 million bu. Midwest corn yields are becoming more variable as the harvest pushes ahead. Questions about an IL corn yield of 214 bushels/acre persist. Chicago corn is, in our view, below value.

• US and world wheat futures rallied moderately for a second consecutive session. Of note is that a weekly close above $5.24, basis Dec Chicago, which breaks a downtrend line going back to August 7. The same is true in Europe, where a higher close on Friday will attract a flurry of spec interest. Funds bought 8,000 wheat. A complete lack of precipitation is forecast into early October across Central and Western Europe, Australia and much of E Russia. World futures did endure what we like to view as a correction in August, but outside the US, a very modest one. Note too that Dec Black Sea futures are inching towards contract highs. Deferred cash prices in Russia also suggest supply and demand there will be tight come December and beyond. Egypt’s tender results Tuesday validated the return of rising world fob cash wheat prices. Russian exportable supplies are in retreat and the EU is never going to come close to exporting what WASDE expects. We are bullish of wheat for a Q1 2019 top.

• Spring has arrived in Australia, but to big disappointment not much if any rain. The map reflects rainfall as a percent of normal during the usually wettest month of the year, September. Broad areas of Australia are enduring the second year of dire drought which has rallied feed wheat prices to $8-11/bu. Unless rain falls during October, livestock producers will have no choice but to cull herds and pay extremely high feed prices to maintain a breeding herd. It’s becoming dire for the entire Aussie ag sector.

• Limited news and the fresh announcement of additional US tariffs on imported Chinese goods weighed on Chicago soy trade. US cash markets remain weak in a mix of large crops and the lack of Chinese demand. The carry from Nov to Jul widened to $.5075/bu as Chicago attempts to get farmers to store as much of their crop as possible. Soyoil led the soy complex lower as Asian palm oil markets fell sharply. Argentine soyoil exports have remained slow through the late summer, and by month end the cumulative total will likely be the slowest pace since 2002. The problem for world vegoil markets is large Indian import taxes that have slowed palm oil and other vegoil imports. This continues to pressure world prices. Malaysian palm oil futures fell to an 8 week low overnight, and the 2% drop pulled Chicago soyoil to similar losses. Big crops and the lack of China demand continues to pull soy prices lower. But with cash basis at historic low levels and Chicago spreads at full carry, we expect farmers will opt to store as much of the new crop harvest as possible. November futures are testing key support at $8.10, and it could take big S American crops before November falls below $7.80.

• Dec corn fell to new lows as President Trump opted to activate 10% tariffs on $200 billion bu worth of Chinese goods. Because of the ongoing US-China tariff battle, Informa this pegged 2019/20 US corn acres at 93 million. Assuming trend yield and consumption, record consumption can be absorbed assuming normal weather in other major exporting countries next year. Funds sold 7,600 corn contracts on Tuesday. Argentine fob corn basis has stabilised, and otherwise, Gulf corn is cheap relative to all other feed grains. Note that EU corn futures have been unchanged for three consecutive weeks, and rest at a lofty $70/mt ($1.80/bu) premium to Chicago futures. Even Ukraine feed wheat, which is reportedly abundant, is trading $20/mt above last year and $40 above US corn. Funds are estimated to be net short 140,000 contracts in Chicago. The market is deeply oversold. We can not become bearish ahead of harvest, and as combine reports  need to be both consistent and record large. Corn is fundamentally undervalued, spot corn is down $.08/bu from a year ago. Further downside risk is political in nature, and doubtful below $3.40 basis December futures.

• US and world wheat futures ended modestly higher. World cash markets followed. Most importantly Egypt bought 375,000 mt of wheat at an average fob price of $228/mt. This is up $5/mt from its tender last week and compares to $197 in Sept of last year. All but one cargo was sourced from Russia. Turkey has released a tender for 253,000 mt of milling wheat, which closes next Tuesday. World demand is solid. The pace of Russian exports aside, quality issues are at the forefront of the Black Sea market. Quality will be monitored acutely by the Russia Government moving forward. Recall a much larger percentage of Ukraine’s crop is feed. Australian frost/freeze this week has been documented, but more significant is a trend of complete dryness, which likely persists into October. The 10-day forecast is void of rainfall. Wheat should continue to trade independently from row crop trade issues. Major exporter production will fall amid ongoing weather adversity in Australia. Net fund length in Chicago has been liquidated. The market has also recovered only modestly from nearing oversold technical levels last week. We continue to favour a bullish wheat outlook.
  

• It was a lower start to the week with futures focused on the deepening Trump trade dispute with China and the onset of a record large US soybean harvest. Funds were estimated sellers of 4,500 soybeans, and 3,000 each in the soy products. US soybeans are quickly maturing. NASS reported that 67% of the US crop was rated as good or excellent, down 1%. National US harvest progress was pegged at 6% complete versus expectations of 5%. Most of that fieldwork has been done in the Delta States, with LA at 51% and MS at 33%. In the north, ND led harvest progress at 10% and MN had 7% of the crop cut through Sunday. Chicago soy fell as President Trump promised to announce new tariffs against China after the close of business Monday. This would likely derail high level US/China trade talks to be led by Treasury Sec Mnuchin. That negotiation was to start next week. China will not negotiate in good faith with the US a tariff gun pointed at them. Support rests at $8.10 November and with spreads near full carry, US farmers will store their crop.

• Dec corn fell 4 cents on concern that the Trump Administration would ramp up its trade dispute with China. This would more directly impact soybeans, but corn is following in sympathy. Funds were net sellers of 6,800 contracts of corn futures. We would highlight the ongoing strength in world energy markets, with ethanol blending margins historically high. Brazilian ethanol prices continue to move seasonally higher. Like recent years, sizable US ethanol exports are expected beginning in Oct/Nov. A story is developing for US ethanol exports. NASS pegged US harvest at 9% complete, vs. 6% on average. It is important that daily harvest yield reports are highly variable. Such yields do not validate the NASS 181.4 bushels/acre yield, but additional harvest progress is needed. US farmers were active sellers of old crop corn in late August. However, most look to store as much of the new crop harvest as possible. Unless fund managers want to put their foot on corn futures, it will be difficult to find aggressive new sellers. This is not the time or place to become bearish of corn. December corn futures are below value at this time in our opinion.

• Modest fund liquidation continued despite overnight frost/freeze in Australia and as other world markets rallied. Matif in Paris ended €0.50/mt higher, basis spot. Black Sea futures rallied $1-3/mt, with the best gains occurring in deferred months. Gulf wheat’s position in the world market has improved. It is clear the US market’s recovery will be led by the world cash market. Russian wheat exports continue at a record pace (at multi-year high prices). We expect Russian spring wheat yields to be down sharply amid snow and cold weather. Russia’s domestic wheat market continues to surge, particularly across the interior of the country on a shortage of quality of supply. Egypt’s GASC is in for early and mid November shipment. Amid the wheat quality checks by Russian authorities, we expect that offered fob prices will be higher. Another round of freezing temperatures will impact SE Australia overnight. The GFS weather model features expanding snowfall in early Oct across Siberia, where spring wheat harvest is significantly delayed. US winter wheat planting is 13% completed vs. 14% on average. Declining Russian/Australian/Canadian production is further tightening world exportable supplies. Buying further price breaks is our considered view.