• Once again ag markets have crawled off session lows (10 cents in the case of March soybeans) as end users take advantage of breaks. Soybean crush margins have surged since late January. US ethanol margins are profitable, and concern over world weather patterns persist. US exporters this morning sold two cargoes of old crop corn to Japan, and close attention will be paid to Saudi Arabia’s barley tender over the weekend to gauge global minor feedgrain prices.

• The midday GFS weather forecast has again failed to include any pattern change in S America or the US, and temperatures this weekend in La Pampa and Buenos Aires are forecast a bit higher, and high readings Sat-Sun should reach 96-97℉.

• There is also talk of early harvested soybeans in Brazil yielding less than expected, particularly in Goias and Mato Grosso, which historically combine for 40-45% of total Brazilian bean production. Also, white mould has been reported in the state of Parana. Harvest in Mato Grosso is just under 30% complete, and so more data is needed, but new yield results will be followed closely, and perhaps this year’s Brazilian bean crop won’t much exceed 112-113 million mt, vs. private estimates as high as 116-117.

• Argentine soybean crop estimates are now centered at 44-46 million mt, vs. the USDA’s 54 million, which aligns well with previous La Niña based drought years. As such, it is possible that S America’s total soybean crop is no bigger than 156-159 million mt. This is down 7-10 million from the USDA’s forecast and down 13-16 million from last year. The point is that we caution against turning bearish beans until there’s much more clarity on Brazilian potential.

• This afternoon’s CFTC report is expected to show a managed fund short in corn worth 55,000 contracts, down 28,000 from the previous week; a fund short in wheat worth 80,000 contracts, down 3,000; a fund long in soybeans worth 14,000, vs. a short position of 10,000 the previous week; and a net long in meal of roughly 77,000 contracts, up 25,000 on the week and the largest since 2012. Meal spreads need close watching, but until Argentina’s crop size is better known, end users look to stay anxious.

• The best chance for rain in Argentina exists next Tues-Wed as scattered showers work across Central and Northern Regions. However, totals next week in Cordoba and Santa Fe, both major producing provinces, are pegged at/below .25”, and thus not nearly enough to alter soil moisture. Thereafter, complete dryness resumes into March 2-3, after which confidence in any outlook is low. Brazil will be favorably dry for the next 48 hours, but above normal rain returns next week. Harvest is Central Brazil has been a bit slower than normal.

• The trade is well aware how important Monday night’s S American weather forecast is. We doubt that forecasts will change much, and climate work suggest dryness and above normal temperature will persist in Argentina well into March.

• It has been another session that uncovered end user demand/buying interest on breaks, with corn unchanged, but with wheat and beans up 3-8 cents at midday. NOPA crush was a bit below expectations but still record large for January and the pace of US crush remains on pace to meet the USDA’s target. Export sales were generally in line with trade guesses, though it is clear the US corn market is boosting its share of world trade. The macro environment is also favourable, crude has recovered all of its overnight losses, the US$ is still hovering at weekly lows, and the DOW jones is up 80 points.

• For the week ending February 8, US exporters sold a net 78 million bu of corn, vs. 70 million the week prior; 11 million bu of wheat, vs. 14 million a week ago; 24 million bu of soybeans, unchanged on the week; and 231,000 short tons of meal, vs. 177,000 a week ago. For their respective crop years to date, the US has sold 1,417 million bu corn, down 14% from this week a year ago; 776 million bu of wheat, down 12%; 1,647 million bu of soybeans, down 13%; and 8.4 million short tons of meal, up 8% from last year and the highest since 2014/15.

• We would note that to meet the USDA’s forecast exporters need to sell an average of just 22 million bu of corn per week. Even sorghum sales continue at a decent pace, and total 2017/18 sorghum commitments remain some 60% ahead of last year (vs. the USDA’s projected 8% increase), and China was reported to have secured two cargoes last week.

• NOPA crush data for January totalled 163.1 million bu, vs. trade guesses of 164-165 million. Year to date NOPA-member crush stands at 794 million bu, up 2% from last year and record large. Crush rates in the months ahead will likely be expanding further amid the world’s need for meal, and very positive margins across the interior US. We calculate the spot crush margin in Central IL at $1.50/bBu, vs. $1.22 in January and $.90/bu a year ago. Soy oil stocks on Jan 31 totaled 1.73 billion lbs, vs. 1.52 a month ago, which leans a bit market negative.

• NOAA’s longlead weather forecast this morning, as expected, features ongoing heat and dryness across the Southern and Western Plains. La Niña should weaken by summer, but this transition is likely to sustain extreme drought across a majority of the US HRW Belt through May 31. Wet weather will be ongoing through spring across the southern and eastern Midwest.

• It is far too early to place much confidence in the summer outlook, but we do mention NOAA’s forecast at present indicates above normal temperatures across the whole of the Central US through Jun-Aug, and an elevated risk of dryness west of the MS River. Much depends on the actual performance of La Niña over the next 90 days. Precipitation will stay absent from the Plains through March 2.

• The midday GFS forecast includes another round of light/spotty showers in Cordoba and W Buenos Aires Feb 22-24, but is otherwise unchanged. Even in the 6-10 day period, coverage will be limited and cumulative totals there will exist in a range of .50-1.25”. This would no doubt be welcomed, but much more is needed to ease drought there. Otherwise, Argentina stays hot/dry over the next two weeks. Well above normal precipitation will be ongoing in Brazil through the period. The pace of soy harvesting/safrinha corn planting will need to be watched closely.

• End users are using breaks to extend supply coverage, and it is still too early to quantify yield loss in Argentina. Improved world weather is needed before turning bearish.

• It has been a firm morning of trade in Chicago grain and oilseed markets at midweek following light overnight correction. Soybean meal continues to lead markets higher with March meal trading $2-3 higher, while March soybeans have cleared Tuesday’s high and traded at the best level since early December. Moreover, the spot soybean chart is back above major trendline resistance. Corn has inched higher behind the soy markets, while the wheat markets have been set back 3-5 cents on chart related selling overnight, though funds returned as buyers at the morning open.

• Fund buying in the soybean and meal market has been less intense than earlier in the week, but markets found good demand on the overnight break. Chicago brokers estimate that funds have bought 6,000 contracts of corn through the morning, have been flat for the day in wheat, and bought 6,000 contracts of soybeans. In the soy product markets, funds are thought to have bought 3,000 soymeal contracts, and have been flat in soyoil.

• The EIA reported ethanol production for the week ending Feb 9 was off 4% from the previous week and totaled 1,016 thousand barrels per day. This was the lowest weekly total since the start of the year, and the second lowest figure since early October. The decline was a bit of a surprise given good ethanol margins, and traders wonder whether the lower figure is because plant(s) were forced to shut down for maintenance. While production was lower, US blenders used 882,000 barrels/day, which was the largest usage in seven weeks, and ethanol stocks were drawn down 3%. Estimated ethanol plant margins this week are holding positive across the Midwest, with an average Cornbelt plant margin of $0.13/gallon. DDG prices have  eased, but average close to $150 across the Cornbelt, or the highest since July 2016.

• The GFS weather forecast at midday offers little relief for Argentine crops. Little or no rains are expected to fall over the next five days, while the model shows better chances in the 6-10 day forecast. Most of the Argentine soybean belt is expected to realise less than an inch of rain over the next ten days, and accompanied by temperatures stretching into the upper 90’s later this week. Crops continue to roll backwards, which is quickly shifting world corn and soymeal demand.

• The corn and soy charts look to be confirming technical breakouts, and markets are expected to add premium, at least until the Argentine weather forecast show widespread soaking rains.

• Soymeal continues to pace the Chicago advance on declining Argentine crop prospects amid threatening weather forecast amid months of declining soil moisture. Chicago traders have been stung before on just in time rains, but with the Argentine soy crop in the reproductive stage, the time for rain is immediate, and a needed soaking rain is not in the offing. Private Argentine soy crop estimates range from 45-47 million mt on soybeans and 34-36.5 million mt on corn, which is slowing producer cash selling (along with Carnival). Also, there is talk that RGDS soybean yields could also be impacted via the dryness while Parana soy yields, are less than last year in the early stages of harvest. Too much rain and too little sunshine is the reason for yield shortfall across Parana. However, Brazilian traders are now discussing a 114-115 million mt final crop estimate from CONAB. We maintain that Chicago summer row crop futures have reached a new point in where the losses in the Argentine crop surpasses the gains in Brazil, tipping the balance in favour of the bulls.

• Chicago traders report that funds have bought 1,900 contracts of wheat, 3,300 contracts of corn, and 4,500 contracts of soybeans. In soy products, funds have bought 2,400 contracts of soymeal while being flat in soyoil. The US NOPA crush report will be out Thursday with a strong December crush rate of 166.5-168 million bu and soyoil stocks of 1.629 billion lbs. The report will confirm strong domestic crush of US soybeans and the best board crush margins at $1.36/bu since mid 2016. The US crusher is seeing strong domestic and export interest for soymeal and short bought end users chase the rally. These users are going to have to get covered into late spring or early summer before a top is set. The next upside price target for spring meal is $171-176 basis March futures. Argentine crushers struggle to secure cash beans from bullish Argentine farmers. The USDA Outlook Forum starts next week with WASDE to release their new and updated 2018/19 Balance Sheets on Friday morning. We look for WASDE to adjust their 91 million acre corn and soybean balance tables from their initial November estimates, but to hold on their bullish view on 2018/19 US soybean exports amid the Argentine soy crop shortfall. Russia has shipped out a record 3.0 million mt of all grain for their ports during January. This was up 26% from last year, and included 2.2 million mt of wheat. The export pace for Russian wheat to date calls for a 2017/18 full year exports figure of 36-36.5 million mt.

• A close above $10.045 March soybeans turns the trend upwards on the charts with an upside target of $10.40, last summer’s high. Corn and wheat look to follow amid parched Plains weather. December corn futures will find resistance as it nears the $4.00 level as US farmers look to advance new crop sales. Note that meal spreads are tightening on demand.
  

• It was a quieter inside day of trading for the soybean market, with prices correcting ahead of the weekend. Soymeal finished firm, which lifted crush spreads to new highs, while March bean oil went out at the lowest price since June. The March spread ending the week at $1.26/bu, which on a spot basis was the highest since June 2016 (Argentine crop problem). On a seasonal basis, the spot spread is at an all time record for mid-February. The previous record was set in 2015, when the spot spread reached $1. The meal market continues to add premium to soybeans on concerns that steep crop losses will cut into crush rates and meal exports. Soybean harvest in Mato Grosso advanced by just 9% this week to 29% complete, versus 46% last year and the 5 year average of 32%. The afternoon EU weather model keeps Argentine rains largely North of key soybean areas. The lower 2/3rds of the soybean belt looks to see less than an inch of rain over the next 10 days, while high temperatures reach back into the upper 90’s late next week. Crop concerns are escalating with time.

• Spotty showers will occur on the weekend in Central Argentina, but widespread soaking rain, which is now required, is not indicated. It’s almost too late for a pattern change to materially impact corn yield following cumulative Oct-Jan precipitation of just 65% of normal. Dry weather returns to Argentina in the 4-12 day period, and should this arid forecast verify, drought will be confirmed. Without a very quick and major pattern change, it’s likely that final corn yield in Argentina exists some 20-25% below trend. This implies a crop of just 31-34 million mt, and corn exports of no more than 21- 23 million mt, vs. 26 million last year. There’s evidence to suggest La Niña will weaken, and fade by late spring, but in the meantime, there is no change in the overall S American weather pattern. Chicago spot corn futures will uncover strong support under $3.60 amid the smaller Argentine corn crop. The loss of 8-11 million mt of Argentine corn makes the size of the Brazilian winter corn crop more important!

• US wheat futures closed down from 6 to 13 cents. The largest losses came in the HRW contract with the March contract off 9.25 cents. The jury is still out on when and how much moisture is due for the US Southern Plains. At this point any “Rain on the Plains” can only help. The downside to the market’s bullish enthusiasm over the Plains Drought is that there is plenty of other wheat to meet exporters needs. Today, it was announced the Russia recently made sales to Indonesia and S. Korea, far from their tradional markets in the Mideast. 

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

Weekend summary 9 February 2018

Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions disaggregated data

• It’s USDA report day, and there is a little something for everyone. At face value this morning’s data is bearish soybeans and wheat, and bullish corn, but all markets at midday at trading fairly steadily. In fact, beans are up 4-6, corn is up 1-2, and wheat is down 5-7, but has crawled off its lows. USDA cut US soybean exports another 60 million bu and raised end stocks by a like amount. No other changes were made, but so far the downward adjustment is fair given the pace analysis of sales and shipments. US corn exports were raised a hefty 125 million bu, more than expected, and cut end stocks by 125 million to 2,352 million. US corn stocks/use at 16% is now very little changed from last year, and further hikes in exports are possible if Argentine weather fails to improve in the next 15-20 days.

• CONAB also lowered its forecast for safrinha corn acreage this morning, thus lowering total crop size, and without near perfect weather in Brazil, and amid rather cheap corn offers at the US Gulf, the market is well positioned to boost its share of world trade even more. US wheat exports were lowered 25 to 950 million, which like beans is a function of pace analysis. The rally in wheat is also working to slow potential export demand rather noticeably, and we’ve mentioned this week the wheat market is not at all being driven by demand. However, this week’s drought monitor showed yet further expansion in extreme conditions across the S Plains, and the major forecasting models are not in agreement on the potential for isolated showers in OK and KS in late February.

• World crop ending stocks were lowered across the board. As expected, USDA cut Argentine corn production 3 million mt to 39 million mt, and additional cuts lie in the offing. Brazilian corn production was left alone. Brazilian bean production was raised 2 million mt, which is completely offset by a 2 million reduction in Argentina. Chinese imports are unchanged at 97 million mt, vs. 93.5 last year. Total S American production is pegged at 166 million mt, vs. 172 last year.

• Price action today makes clear the market is more concerned about La Niña-based drought in the US, Argentina and S Brazil, and that safrinha corn seedings this morning was lowered 700,000 hectares places more burden on Apr-May rainfall in Central Brazil. We maintain that price breaks are buying opportunities amid less than ideal world weather patterns, and as the macro landscape is relatively improved compared to recent years. We estimate that managed funds this afternoon are still short 95,000 contracts of corn, 97,000 contracts of wheat and 30,000 contracts of soybeans.

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

Feb 18 USDA contemplation

• The DOW opened lower and recovered strongly in the morning hours as investors saw the break as a new buying opportunity. The DOW is back above 25,200, and this has offered a peg of support to raw material markets. We would also note that Goldman continues to push commodities as a buy based on their opinion on an expanding world economic (GDP) outlook. We agree with this view, but it’s not the kind of fundamental that causes commodities to rally each and every day. Whether new index fund investment shows up on the roll today will be closely monitored. We look for a mixed Chicago close with traders positioning short soybeans against long grains.

• CONAB will be out Thursday morning with their Brazilian corn and soybean crop estimates. We expect that they will raise their Brazilian soy crop by 1.5- 2.0 million mt and their corn crop by 500,000-1.0 million mt. We peg the soybean crop at 111.6 million mt and the corn crop at 93.0 million mt.

• Chicago brokers report that funds have bought 1,700 contracts of soybeans, 3,500 contracts of corn, and 2,200 contracts of Chicago wheat. In soy products, funds have bought 2,500 contracts of soymeal and sold 3,700 contracts of soyoil. Fund managers are back to spreading long meal against short soyoil.

• There have been rattling’s that China may target US soybeans for tariffs if the current trade environment does not improve. We suspect that it’s just tough talk (as of today), but ag interests are worried following the unexpected US sorghum anti-dumping announcement on Sunday. Trade uncertainty leaves Chicago vulnerable to a sharp price declines on rumors. We hope and doubt that China will act against US soybeans, unless the Trump Administration takes a sharper aim against China’s manufactured goods.

• Funds are pushing the wheat market higher on short covering ahead of the USDA February crop report. Corn is trying to follow, with traders expecting a bearish USDA soybean report, which is capping rallies. The weekend rains for Argentina are a big deal as crops there are in need of immediate moisture.

• The sharp DOW recovery amid drier Argentine weather forecasts offered early Chicago support with corn, soybeans and wheat trading in the green. The volume of trade is active and a higher close is expected. The USDA Crop report is Thursday and some covering ahead of the report is occurring. Historically, the February report does not offer much excitement. Traders will be focused on changes in S American crop sizes and the amount of increase in the 2017/18 US soybean balance sheet due to a decline of 50 million bu of US soybean exports and a 25 million bu bump in the crush rate. US domestic meal and DDG demand is very strong, with rising basis levels, even amid the record large US soybean crush pace. Research expects a modest reaction to the USDA report with trader’s then returning their focus on S American weather and the potential for US competition in the months ahead.

• Chicago brokers report that funds have bought 3,700 contracts of soybeans, 6,500 contracts of corn, and 3,200 contracts of Chicago wheat. In soy products, funds have bought 3,800 contracts of soymeal and 1,700 contracts of soyoil.

• IMEA raised their estimate of the Mato Grosso soybean crop to 30.98 million mt vs 30.6 million in November. The increase was less than expected. CONAB will be out later this week and we are expecting a 1-1.50 million mt increase in soy production to 110.5-111.4 million mt. Such production is just below last year’s record at 114 million mt. CONAB will be reluctant to forecast a record large Brazilian crop until more harvest data is available. We see the Brazilian soybean crop at 111.7 million mt. There is no evidence of moisture for the parched Central Plains for 2 weeks.

• It has been a day of short covering ahead of the USDA February report on Thursday with the forecasts offering less Argentine rain following the weekend. Meal and corn should be the upside leaders on declining Argentine crop yields. The US equity market has stabilised, for now, but we doubt any rally can be sustained.