• Chicago contracts remain in the red at midday, but corn, wheat and soybeans have rebounded from overnight lows. Confidence is increasing with respect to some amount of rainfall benefiting Central and Northern Argentina late this week, but whether follow up rainfall returns in mid-Feb is critical, as is the actual performance of the coming precipitation event. Amid a lingering La Niña we doubt that a lasting pattern shift lies in the offing, and so cumulative rainfall there this growing season looks to stay at some 40-60% of normal.

• Stats Canada released its periodic major crop stocks report this morning, and the data was met with little fanfare. Stocks of major crops in Canada as of Dec 31 were generally in line with expectations, and major changes to Canada’s annual balance sheets are not anticipated. Dec 31 Canadian wheat stocks totalled 23.6 million mt, vs. 24.1 million a year ago.  Canadian canola (rapeseed) stocks totalled 14.1 million mt, vs. 13.4 a year ago and an expectation of 14.3. Combined barley and oat stocks on Dec 31 totalled 8.9 million mt, unchanged from last year and compared to an expected 8.6 million mt. Canada’s grain and oilseed surplus is more than adequate.

• The US forecast at midday is wetter in the far E Plains next week but maintains complete dryness and wildly variable temps across TX, OK, W KS & CO. The issue, longer term, is that ENSO forecasts are reluctant to end La Niña. La Niña looks to stay weak, but its duration is now being pushed into the N Hemisphere summer. It is impossible to say much about the summer growing season, but La Niña does look to maintain its influence on weather in Argentina and the US Plains over the next several weeks.

• The USDA’s pending Feb WASDE report will again confirm ample stocks of grain/oilseeds in the US and elsewhere. We maintain that breaks are buying opportunities amid the risk of further drought expansion in the US this spring.
  

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

Weekend summary 2 February 2018

• Red persists in Chicago this morning with the only green showing in soyoil on meal/oil spread unwinding. Marketing year low US soybean sales and marketing year high US soymeal/soyoil sales have traders debating future US soy crush rates. US domestic biodiesel demand is expected to accelerate amid the warming of temperatures this spring and a strong case can be made for raising US soybean crush rates by 25 million bu and cutting US soybean export estimates by 50 million bu. The USDA February WASDE report is due out a week from today and traders have started debating world crop production and US balance sheet changes. Otherwise, fresh news is rather limited and traders will take their cues from S American weather forecasts going home.

• Chicago floor brokers estimate that funds have sold 8,600 contracts of soybeans, 6,000 contracts of corn, and 4,700 contracts of Chicago wheat. In soy products, funds have sold 4,200 contracts of soymeal and 900 soyoil.

• Technically, March soybeans fell below the 50 day moving average at $9.84 which triggered a slew of sell stops which pushed the market down to the 200 moving average at $9.80. This level also failed to hold, which sparked another layer of selling. End user pricing was uncovered on the break and the market is trying to stabilise. Corn and wheat have followed the complex lower.
  

• The FAS weekly export sales report showed US wheat sales of 10.6 million bu, US corn sales of 72.9 million bu and soybean sales of 13.2 million bu. The US soybean and wheat sales were disappointing, while the corn sales were better than expected. For their respective crop years to date, cumulative US wheat sales stand at 750 million bu (down 11% or 91 million), US soybean sales at 1,602 million bu (down 249 million or 13%) with US corn sales being 1,270 million bu (down 313 million or 20%). We note that the US sold 9.5 million bu of sorghum with crop year sales at 204 million bu, 76 million or 59% better than last year on strong Chinese demand. US cumulative soymeal sales are the second largest on record.

• The weekly US Drought Monitor indicated a worsening drought outlook for the Central US with the GFS weather forecast calling for an ongoing dry weather trend for at least the next three weeks. The drying trend will raise drought worries starting in March with US winter wheat condition ratings in retreat. The S American weather forecast is little changed from the overnight run.
  

• This is the kind of market that you get when you trade changeable and low confidence extended range weather forecasts. It had better rain across Argentina and S Brazil in mid-February or Chicago will quickly add considerable weather premium in price. Amid a weakening US$, we look for new money coming into commodities in the new month. Don’t sell Chicago breaks amid an expanding drought across the Central US and Argentina is the best advice we can offer at this time.

• It has been a corrective morning in Chicago as corn, soybean and wheat futures decline following days of rally. The market had become technically overbought with the RSI (Relative Strength Index) in soybeans reached 62%, the highest since July. The market needed a rest and a correction which is occurring this morning. We note that some argue that Argentina received rain overnight, and it did in the far NW provinces that produce less than 4% of their corn/soybean crop. This rain will have virtually no impact on 2018 Argentine soy/corn production. If a soaking rain DOES NOT appear by February 10, a host of private Argentine soy production estimates will slip to 48-51 million mt. Most Argentine crop sources are pegging their current corn crop at 36.5 million mt with a lack of rain in the first ten days of February pushing that 34-35 million mt. The USDA pegged the Argentine soybean crop at 56 million mt and corn crop at 42 million mt back in early January. Those crop estimates will likely be revised lower in February. We see the morning Chicago lower price action as corrective, not a new bear trend.

• Chicago floor brokers report that funds have sold 6,300 contracts of soybeans, 2,500 contracts of corn, and 5,700 contracts of wheat. In soy products, funds have sold 4,500 contracts of soymeal and 500 contracts of soyoil.

• The EIA weekly report showed that US ethanol production fell to 1,040 barrels/day from 1,062 last week. The grind consumed 306 million bu of corn for the week compared to 312 million bu in the week prior. US ethanol stocks fell to 968 million gallons, up 5% from last year. The ethanol data was seen as neutral to slightly bearish amid the decline from last week.

• World wheat fob offers vary more widely depening on the producer wheat sales. To the surprise of many in the EU, Frech farmers are still clutching onto their wheat store based upon an €8 premium offered by the March-September Paris wheat futures spread. Also, Argentine wheat offers are nearly exhausted by strong exports which has underpinned Russian wheat amid the rally to $196-197. US wheat fob prices will not attract demand due to their stiff premiums.

• The fund short covering has paused with new selling evident overnight. However, US nor S American farmers are selling cash corn or soybeans on the break. Argentine farmers are outright bulls as they watch crop prospects wither. It is the end of the month and short funds are being protective of their profits. Yet, monthly gains are being notched in Chicago corn, soybeans and wheat futures.

• In early 2015, the CRB Index fell below the low that was set back in 2009. A major low was set the following year in 2016, and a secondary low was again set last summer. Since then the commodity index has rallied back through the 2015 breakout. With the US economy growing, many commodity traders are discussing the potential of rising US inflation and the impact that could be felt in commodity markets. Markets will be closely listening to the State Of The Union address, and then again for Janet Yellen’s final FOMC Meeting announcement.

• The EU and GFS weather models are in agreement on a split S American weather pattern for at least the next two weeks. Dryness prevails across Argentina and looks to be sustained into the 15th. The lack of topsoil moisture in Argentina will maintain high temps in the 90s, and at times lower 100’s. The heat and dryness will produce acute stress on Argentine corn and soybean crops. The forecast is warm to hot amid drying topsoil. Highs will reach the mid 90’s to lower 100’s. The excessive heat will prevail into mid February. Additionally, daily heavy rains are ahead for much of N Brazil. This shouldn’t affect later developing bean fields, but weekly totals upwards of 7-12” will slow early bean harvesting, and thus raise questions about safrinha corn acreage in pockets of Mato Grosso and Goias. Also, enduring mud could slow truck traffic northward to export ports. This is a stable summer weather pattern that is concerning for a deepening Argentine drought. We see no indication of a pattern change. The strength of the jet stream amid La Niña looks to maintain parched weather with above normal temperatures.

• The 14 day US weather forecast is unchanged and maintains dry weather into the middle of February. Trace amounts of rain/snow are possible in the Dakotas, but otherwise a pattern of complete dryness and cold temperatures will prevail for the next two weeks. The jet stream will lift northward in the last half of February. Whether moisture falls with this northern migration of the jet stream will be key for spring soil moisture. Starting in early March, the dryness across the Central US will become more concerning for 2018 US spring and summer row crops. A high pressure ridge looks to hold across the SW US with the upper air flow coming out of the Pacific Northwest. Snow totals across the Rockies will be extremely limited and the drought looks to worsen. The dryness is worrisome as sub soil moisture reserves are in fast retreat. The middle of February is highly important for a wetter pattern to develop. 

• Soybean and meal futures continued higher through Tuesday as funds continued to cover their short soybean position and add to their long meal position. The Argentine forecast offered hardly any changes, with very little rain and well above normal temperatures lasting into mid February. Commodity fund traders were estimated buyers of 11,000 soybean, 5,500 soymeal, and 3,000 soyoil contracts.The EIA will release the January Biodiesel Production report on Wednesday, with data for November. Total soyoil use and substitution of other products will be just as important as the actual biodiesel numbers. Corn oil prices have been in decline for over a year, as most ethanol plants have invested in technology and equipment to extract oil from DDG’s. Biodiesel plants prefer soyoil, but have been steadily increased use of alternatives, including corn oil in the last year as the corn/soy spread has slipped to a three year low. Spot futures close through the first of several a major weekly trend lines, and without a change in the Argentine forecast, we expect that breaks continue to find demand from short funds and end users.
  

• A dire Argentine weather forecast mixed with still heavily short commodity funds continued to support Chicago corn trade through Tuesday. Spot corn was back over $3.60 for the first time since August, while most new crop contracts were back $4. Both weekly and monthly ethanol data will be out on Wednesday. The monthly data for November is approximately known, and expected to be slightly better than the October figures, while nearby output is expected to stay firm. Ethanol plant margins for IL and NW IA, have largely stayed profitable over the last year. IA margins spiked lower at the start of the year, but are estimated this week at $.04/gal, with IL plants estimated to be making close to $.13/gal. Our price targets are coming into view, though a much stronger rally could unfold if much needed rains do not soon fall in Argentina. The outlook stays bullish corn.

• Kansas March wheat futures gapped higher today. Yesterday, the USDA released winter wheat crop conditions, that for some states, showed ratings that were the lowest since Jan condition reports first began to be released (e.g. 2006 for KS, 2010 for OK). Funds were thought to have bought 6,500 contracts of Chicago wheat contracts. Yesterday, funds were estimated to be short 112,000 contracts. The Kansas March futures contract closed at $4.70. That is up 17 cents and was the high of the day. SRW futures rose nearly 9 cents, while the Minneapolis Mar contract only managed to eke out a 3 cent gain. On the Kansas nearby futures chart $4.80 is resistance. If the contract closes above that level, the next target would be $5.00 then $5.50. SRW Mar futures closed at $4.58, just shy of our upside target of $4.60- $4.65.

• Chicago corn, soybean and wheat futures have rallied heading into the midday hour with cash connected selling noted on the morning rally. Cash corn movement has been active in the past few days as bids have reached their best levels in months. However, US soybean sales have been waning as producers have likely marketed more than 70% of their 2017 soybean harvest. Funds and speculators have been on the other side of the producer selling based on their continued exodus of short positions. We estimate that funds are still short 175,000 contracts of corn, 76,000 contracts of soybeans, and 112,000 contracts of wheat. Funds may have to get to a flat position heading into spring before the market reaches a seasonal high. We are looking for a higher close, but based the producer sales of corn and soybeans, this is a market that takes two steps forward and one back. A close above $3.605 in March corn and $9.95 in March soybeans will confirm the next bullish chart signals. Our upside price target for March Chicago wheat rests at $4.60-4.65.

• The USDA announced the sale of 132,000 mt of corn to Spain. The sale helps confirm that Latin America has run out of corn and that the US will have the market to itself in coming months. Key will be the Brazilian winter corn crop amid the decline in Argentine production. Everyone is trying to guess if Chinese soybean importers are going to extend their forward coverage ahead their Lunar New Year holiday. In recent years, Chinese soybean buyers have been covering their needs prior to the holiday. However, this year it appears that Chinese buyers have missed the rally and are wating for a correction. Amid the big interior cash meal trade of recent days, crushers are getting short of stock. The pressures are building for China to make new purchases, but few want to chase Chicago. We suspect that most may wait until after the holiday hoping for improved S American weather. However, if the weather does not improve with either too much rain for N Brazil or too little for Argentina in the weeks that follow, these importers may be forced into coverage for March and April. Chinese importers are much closer bought than prior years do to the rising value of the Yuan.

• Russian wheat fob offers have stopped rallying ($193/mt) as producer sales have starting to increase. The world has an abundance of old crop wheat left to sell as the US market sees a sharp rally in prices. The goal of the US market is to price out its wheat due to potential new crop problems. A long lived bull rally is not expected without new crop Black Sea weather adversity.

• Crop loss will accelerate across Argentina in the next two weeks due to hot/dry weather and a high pressure ridge aloft. One needs to remember that Argentina plants two summer row crops, the first being in October/November and the second in December and January. Both crops are suffering under acute dryness, but it is corn that could endure a 20% yield loss or an Argentine crop if 31-33 million mt (vs USDA estimate of 42 million).

• Chicago grain and oilseed futures have been back and forth through the morning, but have stayed higher through the latter part of the day. The overnight trade was accompanied with sharply higher volume, though trading through the day has not found the aggressive follow through buying, though price breaks continue to find end user demand, which has offered support. The midday weather forecast little change to the Argentine forecast out to mid-February. Chicago brokers estimate that commodity funds have been net buyers of 4,000 contracts in corn and have been flat for the morning in the wheat market. Funds were big buyers in soybeans overnight, but sellers of near 5,000 contracts through the morning. In soybean product markets, funds were also similarly large overnight buyers, but turned net sellers of 3,500 contracts through the day, and also sellers of 2,500 soyoil contracts. Despite funds selling through the day prices have managed to hold higher.

• Chinese buyers will go on holiday in 2 weeks, and the US$ index has bounced to start the week, and the dollar is also higher against key S American currencies. However, longer term bearish dollar trends are still in place, both on the index and against the Brazilian Real. For the Brazilian farmer, the rally in prices in Chicago has been bitter sweet, as those gains have been more than offset by changes in currency over the last several weeks.

• Crop loss will likely accelerate across Argentina in the next two weeks due to hot/dry weather and a high pressure ridge aloft. We have lowered our estimate of the Argentine soybean crop to 52 million mt with corn at 36.0 million mt. It is the availability of soybeans for processing/export which is our biggest concern should the Argentine soy crop be less than 49 million mt. Corn prices should follow soymeal upwards.

• Chicago is mixed at noon with soybean/soymeal under pressure with the grains firmer. The meal market is sliding after a nearly nonstop rally over the past nine trading sessions. It appears that funds managers want to bank some profits before the weekend following their recent heady gains. Soybeans have followed the meal market, which has been the case all week long. March soymeal has encountered resistance near $350.00/ton once again. Spot soymeal did score a new rally high at $348.50/ton, but to reach above this level requires the confirmation of an Argentine soybean crop below 50 million mt. Argentine soymeal exports would be constrained on a production level below 50 million, which is a level that world crushers have been monitoring. Corn and wheat prices have been largely supported by rising crude oil prices, improved Brazilian ethanol demand, and the falling US$. Grain/soy spreading has also offered a bullish tailwind. We doubt that a new bearish price trend can emerge in the grains with the specs acting as buyers of breaks.
  

• CBOT floor brokers estimate that funds are net sellers of 4,200 contracts of soybeans and buyers of 4,100 contracts of corn and 2,900 contracts of wheat. In soy products, funds have bought 2,600 contracts of soyoil while selling 4,600 contracts of soymeal.
  

• US Gulf corn is priced at $163.50 this morning against $167/mt out of Argentina and $173/mt from the Ukraine. It is very difficult to find a Brazilian corn offer from February through May. We don’t expect that Brazil will return as a large corn exporter until July. US Gulf corn is cheaper than Argentine offers through June as a result of their declining corn crop prospect. IMEA estimated Mato Grosso soybean harvest progress at 12.3% vs 16.2% last week. The warm and dry weather pattern allowed for farmers to push ahead with harvest. The current pace is right at the 5 year average.
  

• Every market needs a rest and such is the case for soybeans/meal this morning. However, we see nothing that would alter the prevailing Chicago uptrend with S American weather too dry for Argentina and too wet for N Brazil amid a falling US$. The weekly CoT report needs to show a big decline in fund net shorts or additional covering will be witnessed next week. Higher prices likely lie ahead.

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

Weekend summary 26 January 2018

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

Fund positions disaggregated data

• Chicago corn and wheat have traded to solid daily gains while the soybean market trades both sides of unchanged. The volume of Chicago trade has expanded on the rally and the sharply lower US$ is providing a bullish backdrop. Corn is catching a bid on declining Argentine and S African production along with the pop above key resistance at $3.55 basis March. The charts are turning bullish of corn with spot futures trading above the 50 and 100 day moving averages, and soybeans look to test their weekly downtrend line at $9.95 basis March. A close above this level would fuel additional fund short covering. We estimate that funds are still sitting on a record large net short corn and wheat position, while being net short 80,000 contracts of soybeans. Chicago floor brokers estimate that funds are net buyers of 7,300 contracts of corn, 3,800 contracts of wheat, and sellers of 2,000 contracts of soybeans. In soy products, funds have bought 1,200 soymeal and 2,000 soyoil.
  

• Former Brazilian President Lula was convicted of corruption and appears to be going to jail. Supporters are still arguing that a pardon could free him to run for the 2018 presidential election. The news caused the Brazilian Real to rally to 3.18;1 which sparked the Chicago soybean rally as farmers halt sales. The Real could push higher vs. the US$ now that the Lula trial has passed.

• Argentine corn and soybean crop estimates are in decline amid warm and dry weather, and the forecast of additional dryness. We have lowered our Argentine corn crop estimate to 36.5 million mt (compared to USDA estimate of 42.0 MMTs) with a soy crop estimate now at 52 million mt. There are private estimates in Argentina of a soy crop of 48-50 million mt (due to an even farther fall in yield and planted area). Argentina is the world’s largest soymeal exporter with annual crush rate at just under 45.0 million mt. If the Argentine crush rate is confined by a smaller crop, that export demand would likely be pushed to the US. This is the reason for the ongoing rise in US and world soybean crush margins.

• Argentine soybeans have reached 5,000 Pesos/mt today, which has not produced much increase in cash related selling. Spot Argentine corn has reached 3,000 pesos/mt, a new historic high. Argentine farmers are becoming bullish on ongoing hot/dry weather and inflation that is running at over 30%.
  

• A falling US$ along with fresh fund short covering is lifting Chicago corn, soybean and wheat futures. Key is the weekly downtrend line at $9.95 basis March futures. A close above $3.55 March corn should push values up to $3.65-3.70. The US wheat rally will be constrained by slowing US wheat export demand. We hold to a short term bullish outlook.