Author Archives: simon

16 October 2017

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  • US crop condition data has been released as follows:
  • Soy futures were lower to start the week on improved Brazilian weather foercasts that left prices down 8-9 cents. Daily US export sales of just over 8 million bu announced, while soybean export inspections were the largest of the year at 65 million bu. Yet, US soybean exports need to ramp up to 100 million bu or more per week to match last year in October. NASS reported that as of Sunday, US soybean farmers had harvested 49% of their soy crop versus 36% last week, and the 5 year average of 60%. Heavy weekend rains will slow harvest in the first half of the week, but fortunately the forecast for the week ahead stays dry late October. US crop ratings have had diminished importance in what will be the last condition report of the year, NASS marked the crop at 61% good/excellent. November soybeans started the week with profit taking after testing a weekly downtrend line at $10 on Friday. Soybean yields have far exceeded our summer expectations. Without a Brazilian crop problem, the outlook is bearish on rallies with an initial downside price target of $9.60-9.70 as 1st notice day nears against November.
  • A more active Midwest harvest and the continued reports of better than expected yields, along with slowing US export demand pressured CBOT corn futures to a lower close. Funds ended the day as net sellers of 5,400 contracts of futures with December pinned against $3.50. US corn exports for the week ending October 12th were just 12.7 million bu, the smallest total since the week ending November 5th, 2015. The slow export pace does not bode favourably for US corn exports into early 2018. Research maintains a US corn export estimate of 1,725 million bu, down 125 million from the WASDE October forecast. Without any change to yield, such a slower US corn export pace would raise US 2017/18 corn end stocks to 2,465 million bu. NASS reported that just 28% of the US corn crop is harvested, vs 44% last year and a 47% 5 year average. 90% of the US corn crop is mature, down from 96% last year and 94% average. 65% of the US corn crop is rated good/excellent, up 1% from the prior week amid solid yield reports. Producers continue to report better than expected US corn yields across the Midwest. The better yields likely will cause NASS to raise their US corn yield estimate in the November report. It’s remarkable that the 2017 US corn yield could equal 172-173 bushels/acre. Corn lacks any bullish fundamental story amid slow US export demand and solid yields. 70% of the ‘17 US corn crop has yet to be harvested. If December corn starts to technically slide, prices could drop to $3.30 which would push funds to a net short position of close to 200,000 contracts, but, if December is unable to close below $3.45 by Friday, this would portend that much of the bearish news is digested.
  • US wheat futures failed to sustain an early rally effort and closed lower. Fund short covering ended at mid morning and selling pressure returned amid weakening global wheat prices. Australian wheat values dropped on improved weather for Southern New South Wales and Victoria, while traders turned their attention to the Algerian tender and what price French fob values would need to fall to to secure a sale. Funds ended Monday as net sellers of 2,300 contracts of wheat. The US wheat market lacks a bullish fundamental story into yearend. US wheat export inspections for the week ending October 12th were just 11.9 million bu with total crop year exports at 390 million bu, down 10.5 million or 2.5% from last year. US wheat is competitive in the world marketplace, but so far this has not translated into better export demand. The US has planted 60% of the 2018 winter wheat crop vs 71% average. New crop wheat prices are not deemed as attractive to producers. We estimate ‘18 US total wheat seeded acres to 48.5 million acres, mostly due to gains in spring, durum and white wheat seeding. In 2016, the US planted 46.0 million acres of all wheat and in 2015 the US planted 50.1 million acres. So a 48 million acre seeding total is in the middle amid the improved soil moisture profile. Argentine wheat is the cheapest in the world as dry weather has helped the crop with 12.5% pro wheat pegged $14/mt under French wheat. Russian fob wheat has started the week steady at $193/mt while most traders believe the upside is becoming limited in Russian wheat to $200/mt beyond December shipment.

16 October 2017

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  • Early Chicago made today saw some fund short covering in wheat whilst corn and soybean futures ease on the coming US harvest pressure and improving S American weather.Volumes have been well down as fund managers appear reluctant to add to existing positions. It feels as if Chicago has made something of a top on Friday, and additional allies will face new selling pressure limiting upside in the short term.
  • Australian fob wheat prices have fallen sharply to start the week on the rains that have fallen in the past ten days. The rains has stabilized the crop and in some cases, improved yield prospects.
  • Jilin, China’s top corn growing province is cutting their subsidy for farmers to plant corn in 2018 by 13%. The subsidy for soybeans is far better (than corn), but high domestic corn prices may prevent much of a shift away from corn to soybeans next spring. It is rumored that China still has more than 180 million mt of old crop corn stocks (100 million larger than the WASDE forecast) that could be available to the market. The Chinese Government continues to prod its farmers to seed crops other than corn, it is soybeans that looks to be a logical switch. Also, the Chinese Government is reporting that its grain production will hold above 600 million mt, down from last year’s 616 million.
  • US weekly soybean exports have to average closer to 100 million bu/week to reach the USDA annual forecasts into mid November. US corn and wheat exports are just abysmal. Research argues that a Chicago top was scored on Friday and that any bounce back will be a selling opportunity.

11 October 2017

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  • World fob wheat prices have been moving higher, even amid record large production and growing world stocks. Argentina is currently the cheapest wheat in the world, but it is expected that of exports of 9-10 million mt, that Brazil will take 6.5-7.5 million, leaving others to seek 1.5-2.5 million mt. Argentine wheat should score a seasonal bottom in the next three weeks, leaving Russia and the US to fight for future world wheat export demand.
  • Wednesday was an exceptionally quiet day of trading ahead of the October crop report. The October soybean yield estimate is typically much more accurate than previous reports as some actual harvest data is incorporated. Yield reports have been highly variable across the Midwest, ranging from record large to 15 bushels/acre less than a year ago. There is a yield drag on soybeans seeded after May 19. Preliminary Chinese trade data for September will be released overnight. Based on August shipments from N and S America, we estimate that imports could be record large for the month at 8-9 million mt. The US exported just over 1.3 million mt to China in August, while Brazil shipped close to 6 million. Another 1.5 plus million mt were also shipped from Argentina and other S American countries. The seasonal outlook for soybean prices is now bullish into the end of the year. We would expect strong demand to be uncovered on any post report price break under $9.60 basis January.
  • December corn is again testing its contract low, and via the trade’s average guess on US corn yield and ending stocks the market is gearing up for looser US and world balance sheets on Thursday. The trade’s guess on US corn production rests at 14,170 million bu, virtually unchanged from the USDA’s September estimate. We do acknowledge that NASS’s yield in September will likely be close to the final number, and that corn lacks a meaningful story, but funds this evening are very short. We estimate managed funds net short position this week at 155,000 contracts, which is actually a record for the week, and compares to 131,000 just ahead of the October report in 2016. The US farmer certainly is not selling cash corn at this price. Crude has recovered from early week losses, as have ethanol futures, and we note Brazilian ethanol prices are now bid $.40/gallon (27%) above US origin, which on paper offsets Brazil’s tariff on US imports. There is also talk of China importing ethanol amid rising prices and a need to fight winter smog. Fundamentally, a neutral outlook is advised.
  • US wheat futures have fallen to test chart-based support, and price action through the remainder of the week will in large part hinge upon NASS’s updated corn yield on Thursday. Otherwise, little has changed and following this break Gulf HRW is again offered fractionally below Russian origin for Nov/Dec arrival, and as such we caution against turning bearish here. World cash wheat markets this week have followed futures lower, but only slightly. We maintain that downside risk in fob offers is limited. Interior prices in Russia are steady this week amid strength in the Ruble, and the coming pattern shift to wetter weather in eastern Australia is too late to have a material impact on yield potential. The USDA’s world wheat balance sheet is expected to be near unchanged, as any hike in Russian production will be offset by losses in Australia. Like corn, funds are short an estimated 70,000 contracts this evening, and new selling requires fresh, significant bearish input. An ongoing sideways trade is expected in US wheat.

10 October 2017

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  • Soybeans were higher overnight and lightly mixed around unchanged at the close, with November soybeans once again stopping at the contract’s 200 day moving average. Trade news was supportive, with export inspections above expectations and up 22 million bu from last week at 55 million, while the USDA announced sales of nearly 5 million bu to Chinese buyers. Soyoil followed palm oil prices down as monthly Malaysian palm oil stocks were reported at a 19 month high of 2 million mtMTs. After the close, NASS reported that 36% of the US soybean crop had been harvested as of Sunday. The weekly total was slightly behind expectations, and still lagging the 5 year average by 7%. Light rains across the Midwest are forecast  ease on Wednesday, though the forecast shows storms returning over the weekend. However, we expect the US harvest to reach 50% complete by mid-month. Wednesday’s trade will feature final positioning ahead of the October crop report. Seasonal trends are bullish for both Chicago and basis values into the end of the year, and we are positive on any post report price break.
  • December corn ended fractionally lower, and traded in a range of just a 1.75 cents on Tuesday  which is dull even compared to recent weeks. There is little incentive to establish any new large position ahead of the USDA’s WASDE, in which the trade expects a slight boost in yield. We estimate that managed funds are already short a net 152,000 contracts this evening, vs. 143,000 last Tuesday, and vs. 130,000 on this week in 2016. Notice that December corn’s chart-based support and resistance continues to narrow, and now rests between $3.45 and $3.51. A weekly settlement above or below this would seemingly attract the next move. Our opinion is that support will hold as S American weather to date has been far from ideal, and as there is no sign that of an imminent collapse in cash milling and feed wheat prices. Crop progress continues to lag, with maturity over the weekend reaching 82%, vs. 92% a year ago, and with harvest just 22% complete, vs. 37% on average this week. Ongoing sideways trading is expected, but a close eye will be kept on S American weather. Brazilian farmers, via lower first-crop seeding, appear to be betting on an extended wet season next spring.
  • Wheat futures, like corn, are unwilling to move ahead of Thursday’s USDA report. Fresh input today is neutral, though we do mention funds have added roughly 10,000 contracts to their net short position since last Tuesday. The spec community as a whole is leaning a bit bearish heading into the October reports. Winter wheat planting as of Sunday reached 48% complete nationwide, vs. 58% on average. Delays are most noticeable across the S and C Plains, where too much rain has fallen (150-600% of normal in the last 14 days), and seeding in KS is just 27% complete, half of what it is normally in early October. This is also the lowest on record. How this affects final wheat acreage is unknown, but certainly cash prices are offering little incentive to boost area. Egypt secured 170,000 mt of Russian wheat for late November delivery. Egypt paid an average price of $199/mt, basis fob, unchanged from last week. Along with stable interior prices in S Russia, downside risk in the world cash market appears to be limited to $1- 3/mt.

9 October 2017

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  • The morning has been mixed in Chicago with soybeans trading either side of unchanged, while the grains (corn and wheat) are slightly lower. The volume of trade has been modest with most fund managers waiting for Thursday’s USDA report before adding to their positions. Funds are looking at using any post report break to make new purchases as grains and soybeans are seen as cheap with S American weather worries likely to expand and worsen into November.
  • US weekly export inspections included; 30.8 million bu of corn, 32.9 million bu of soybeans, and 25.4 million bu of wheat. The wheat total was above expectations while corn and soybeans were in line with trade expectations. For their respective crop years to date, the US has shipped 364 million bu of wheat (down 8 million or 2% from last year. US soybean exports for the crop year stand at 146 million bu, 21 million or 16.6% above last year. US soybean exports for September are likely to be record large. US corn exports from September 1 stand at a not so good 115 million bu or down 111 million from last year or down 49%. Brazil and Argentine continue to export record totals of corn which is cutting into the US corn export share. We note that the recent rains across the NW Midwest are expected to help refill the Mississippi River and lower barge freight rates. This should help firm basis bids along waterways and in the interior.
  • Brazilian wheat millers are showing concern about their wheat crop amid all of the rain that has fallen across S Brazil (and a likely sharp reduction in crop quality). The Argentine wheat crop is also suffering from excessive water which is likely to impact its quality. The Argy wheat harvest is still a few weeks off, but already, talk is emerging that Brazil will be forced to take US HRW wheat since Russian wheat has not been approved for import. The next 2-3 weeks will be key for the 2017 Brazilian wheat crop, and whether Argentine wheat can supply Brazil with 12% plus wheat. Black Sea sources report that port capacity to load out wheat in key Russian export terminals is now fully booked through to mid December, which is one reason why Black Sea wheat/barley prices are firming. Russian corn will also be available for export by mid November. The logistical pressures are growing!
  • In summary, US interior cash basis levels should improve as producers are not willing cash sellers. Fund managers are hoping for an October post report break to get long. S American weather is concerning for wheat and early soybean seeding. Our concern is that dry N Brazilian weather will persist into November. The funds have liquidated most of their long soyoil/short meal spread, so a US yield above 51 bushels/acre is needed to forge a lasting price decline. CONAB is out with Brazilian 2018 crop estimates on Tuesday morning.

6 October 2017

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  • Soybean prices eased overnight on profit taking, but firm grain prices and improving cash basis supported higher trade through Friday. At the close, November futures were up 4 cents for the day and 5 cents higher for the week. The main feature for next week’s market will be the October Crop Report on Thursday. Soybean yield results around the Midwest have been highly variable, and the average trade estimate keeps yield unchanged at 49.9 bushels/acre. Our bias leans towards 48 bushels/acre.
  • December corn futures rallied very slightly, but again traded in just a three-cent range. End user demand continues on breaks as cattle prices inch higher, barge freight declines and spot ethanol production margins are still good, though have fallen some $.30/gallon in the last two weeks. The very latest weather model runs still lack any pattern change in Central and Northern Brazil, and operational forecasts now stretch into October 22. First-crop corn planting is also being slowed in S Brazil amid soaking rainfall, which will continue steadily for another two weeks, and flood concerns will be rising. It has been a less than ideal start for S America. Aside from a major surprise in NASS’s October production next week, there is just not going to be much to drive the market higher or lower, but longer term our work suggests that highly favourable weather is needed in S America from now until late spring to trigger sub $3.40 spot futures.
  • Wheat ended higher in the US, lower in Europe, and much of this attributed to currency changes. The US$ ended the session lower following disappointing US employment data, while the €uro strengthened slightly. Interior Russian prices were again steady in both Rubles and US$. There is a rather wide spread ($50/mt) between interior and fob prices, but the fact that the interior market has stabilised is important. Russian fob offers this evening are weaker, but only very slightly, and US Gulf HRW is offered competitively. The USDA’s October WASDE will be the first in which Australian production is seriously adjusted, but otherwise we doubt any fireworks lie in the offing.

5 October 2017

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  • US export data has been released as follows:
  • Chicago markets are mostly higher through to midday on expectations of large Chinese demand returning next week together with less than stellar yield reports so far this week. Weekly export data showed better than anticipated volumes for wheat and corn, but lower figures for soybeans. Expectation is that commercial interest in soybeans will grow during October as river water levels rise and Chinese demand picks up.
  • The US$ is higher today and crude oil is also making gains, spot prices reaching $51.00/barrel.  Informa Economics, in its monthly update raised US corn and soybean yields, albeit very slightly. Corn yield is now pegged at 170.5 bushels/acre, vs. 169.7 in September and the USDA’s 169.9. Soybean yield is forecast at 50.0 bushels/acre, vs. 49.9 in September and the USDA’s 49.9. Whether corn yield is between 166-170 bushels/acre won’t much affect the US balance sheet, but even small changes in soybean yield are important. We maintain a yield forecast of 48 bushels/acre, and key will be combine reports from later planted crop in the E Midwest, where in much of IL, WI, IN and MI just 20-30% of normal rain fell in August and September.
  • Russia’s Ag Ministry has pegged the wheat crop there at 81.4 million mt, vs. the USDA’s 81. This is not an official estimate, but we do mention that interior Russian wheat prices last week firmed just a bit. Updated interior prices on Friday will be watched closely. We would expect tomorrow’s CFTC report to include a net fund short in corn worth 145,000 contracts, up 12,000 on the week; a net short in Chicago wheat worth 70,000, up 5,000 on the week, and a fund net long in soybeans of 30,000, up just marginally on the week. Funds’ short position in corn has expanded some 80,000 contracts since late August. US corn stocks are high, and the Oct WASDE won’t do much to change this, but the spec community is already positioned for this.
  • We maintain a broadly neutral outlook, but following last week’s stocks report, a US soybean  yield of 49 bushels/acre (plus) must be confirmed for any break in price to be sustained. Central Brazil will stay rather dry over the next 10 days.

4 October 2017

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  • Early selling in the soybean market found demand, that put soybean prices 2-3 cents higher at the close on Wednesday. Market news has been exceptionally slow this week, and China remains on holiday. In the soy product markets, soyoil was able to build on Tuesday’s recovery, and meal slipped lower on product spreading. The export sales report on Thursday will provide a new fundamental data point for what has so far been a very slow week of trade. Soybean export sales announcements through the week totalled 454,000 mt, and the trade estimates call for a weekly sales in a range of 1 to 1.3 million mt.
  • Dec corn tested its contract low, recovered slightly thereafter, but again traded in just a three cent range. There is still no compelling evidence to support a major move in either direction in the near term, and instead corn looks to be a follower of neighbouring wheat and soybean markets. US ethanol production last week totalled a hefty 297 million gallons, up 4 million on the previous week and compared to 288 million on this week a year. Ethanol stocks, however, were boosted 35 million gallons, which was mostly a function of negative residual use, and so a sharp decline in export interest. Whether this is just temporary will be watched closely in the weeks ahead. Argentine origin is still by far the world’s cheapest feedgrain, but Gulf corn is otherwise offered competitively in Q1 2018. US exports will likely lag into late year, but we simply wish to highlight the rally in Black Sea grain prices. A bearish outlook requires a national US yield of 170 bushels/acre or better, while a bullish outlook demands a S American weather issue. Sideways trade will likely continue.
  • EU and Black Sea wheat markets were quiet and little changed, while US futures fell 5-6 cents, basis Kansas/Chicago, amid the coming shift to wetter Central US weather. This will especially benefit the SRW Belt, which has been extremely dry over the last 45 days, and soil moisture is noticeably lacking. Much of MO, IL, WI and MI will see cumulative totals upwards of 2-3”, and it couldn’t come fast enough as SRW planting typically accelerates in October. Otherwise, fresh news remains lacking. Gulf HRW is, on paper, just $1/mt above comparable Russian origin, basis fob. The EU and GFS weather models are in fair agreement that better rainfall lies ahead for the driest areas of NSW (Australia) beyond Oct 10, but we note that precipitation recorded there in September totalled just .30”, which rivals the drought of 2007.