• Early selling in November soybeans found support at the 100 day moving average that pared back losses and left November 2.25 lower for the day, but 7 over the early morning low. Soybean oil had support under the 50 day moving average, and meal was lower on meal/oil spreading. Early Brazilian soybean planting is now underway, though producers across the country will likely wait for better rains to develop over the next several weeks. The question for this year is the extent that Brazilian producers will expand soybean acreage. Soybean area has increased every year for the last decade, and the USDA estimates another 2% expansion this year. In US$ Chicago is 1% higher, but 2% lower in Reais. CONAB’s initial estimate for soybean area is still a month away, but at the start of the year, producers are facing below normal soil moisture and lower prices.

• December corn fell another 3 cents as ongoing Central US warmth should accelerate crop maturity, and as there are signs of better rain chances in Southern and Central Brazil beyond the next 10 days. We view the recent break as mostly chart-driven, and major technical support and resistance lies at $3.45 and $3.55, respectively. The EIA’s weekly energy report, due Wednesday morning, should include steady (and record large for the week) ethanol production, but key will be the pace of non-domestic ethanol disappearance. So far, non-domestic use has shown no signs of slowing despite Brazil’s approved tariff on imports from the US. Brazil’s ethanol market continues to rally, and US production and blending margins remain elevated. S America’s cash corn market has been stale in recent weeks. Argentina is still the world’s low cost origin,  and by $.20/bu. However, feed wheat does not look to displace as much total corn demand this year. It may be premature to lower US corn exports below the USDA’s projected 1,850 million bu. We would note that downside risk in S American corn, and world feed/milling wheat prices, is limited.

• Wheat futures worldwide did very little today, but cash markets are noticeably firmer following Egypt’s latest tender result. Egypt secured 175,000 mt of wheat from Russia, which is not surprising, but at an average fob price of $197/mt, a full $10/mt higher than its last purchase in late August. The Russian market continues to find demand, and amid limited export capacity fob prices there continue to rise. Russian wheat, again, the world’s driver of price in August to November, is still offered well below comparable EU origin, and so a collapse in value is not imminent, and Russian wheat is competitive up to $196-198/mt, vs. quotes this evening of $188 (note that Egypt again is paying a steep premium amid phytosanitary issues). The point is we doubt much downside risk exists in even US futures. Rain is needed in Australia, E Ukraine and S Russia.

• Chicago soybean futures eased on Friday on pre weekend harvest hedge selling. Soybeans rallied a sharp $.40/bu following the USDA September crop report on end user pricing and short covering. November soybeans failed to exceed resistance at $9.80, but the market did forge a (bullish) weekly upside reversal. This will be noted by fund managers early next week. Traders/fund managers are not believing the USDA’s September soybean yield of 49.9 bushels/acre amid record soybean pod weights. They argue that unlike recent years, the acute Midwest dryness limited top pod formation/fill. Managed money is net short 4,408 contracts of soybeans, net short 32,000 contracts of soymeal and long a record 100,000 contracts of soybean oil. The huge fund soybean oil length is a market risk, but cash soybean oil basis continues to improve on sliding US stocks and strong demand from biodiesel producers. A modest correction could occur, but we doubt that December soybean oil can drop below $.335. Soybeans closed higher for the fourth week in a row and forged a bullish reversal. Midwest soybean yield data and S American weather will drive Chicago price action into early October.

• Corn traded in just a 3 cent range, with again limited news and outside influences noted. Crude ended mixed, but similarly uneventful, and amid warming temperatures harvest will expand northward rather quickly in the next several weeks. Combine yield data will drive short term direction. Managed funds through the week ending Tuesday were short 119,412 contracts in Chicago, up some 10,000 from the previous week, which is the second largest net short as of mid-September since record keeping began in 2006. Funds’ net position this evening is pegged between 115-120,000, the point being new bearish info has to emerge to attract new selling. Longer term, our view is that trend/above yields must be confirmed in S America for spot futures to trade below $3.40. It is far too early to say much about S American potential, but do highlight a rapidly building La Niña, and La Niña events in 2008 and 2011 pulled Argentine corn yield 14% below trend, it is certainly something to watch. Nearby, choppy trading and narrow ranges are expected.

• Larger than expected N Hemisphere (Russia namely) wheat crop size has been digested, and the market’s focus is shifting quickly to S Hemisphere prospects. Australia will stay nearly completely dry into late month, and yet more frost scares are possible in NSW this weekend. Freezing/near freezing lows will be widespread. Aussie and Argentine crops are being downgraded, but there is just too much wheat in exportable positions currently, and until late 2017/early 2018, Russia will stay aggressive. Russian interior prices fell again this week, posting new three year lows. S Russia replacement costs are pegged at $155/mt, which is likely to keep Russian fob offers into October stable at $182-187/mt, basis spot. As such, for the US to stay competitive, Chicago and Kansas futures must trade in a range of $4.30-4.60, basis December.  Managed funds are short a net 83,745 contracts in Chicago, broadly unchanged on the week, and lofty European prices will push demand to the US beyond autumn

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

Weekend summary 15 September 2017

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

Fund positions disaggregated data

• Soybean futures regained all of their September Crop Report losses and poked above the early September rally high at $9.77½  November futures closed above its 50 day moving average at $9.735 with the next upside price target is a weekly downtrend line that crosses just under $10.00. Strong and record large world soybean demand has prevented spot Chicago futures from falling below $9.00-9.20 support since early 2016, and we see no reason for such a break now with US farmers initially finding disappointing yield trends. Just a few fields are being cut in Central IL and Southern IA with results 4-11 bushels/acre below last year. Small bean size and fewer four pod beans are being tagged as the reason for the early yield drag. Traders will listen to the combines in the weeks just ahead to decide on whether the NASS 49.9 bushels/acre yield is correct. Our bet is a yield of 47 bushels/acre.

• Corn futures ended slightly higher, as actual yield data is just weeks away. Following the flood of bearish news since early August, combine reports must confirm NASS’s expectation to renew any bearish sentiment. Crude is again approaching $50/barrel, and a push to produce elevated levels of gasoline lies in the offing following two devastating hurricanes. US gasoline stocks through the week ending Sep 8th were down a hefty 8.4 million barrels to 218.3 million, a new 1½ year low. US ethanol production and blending margins remain firm. However, US corn export demand continues to suffer, particularly to traditional destinations such as Mexico. Reduced yield prospects continue to battle against the loss of export demand, and we are maintaining a more neutral outlook. Seasonal lows have likely been scored. Fundamentally, the next bear leg will hinge upon favorable S American crop establishment, which is far from certain. Argentine planting progress is delayed amid ongoing rain.
  

• Wheat futures ended mixed in the US (additional profit taking is noted in Minneapolis), and higher in Europe, although London was hit by a stronger Sterling due to expectation of an interest rate hike, and so far seasonal trends seem to be intact. In spite of record production in Russia, the fob market there is up $6/mt from early September, and in each year since 2012 a fairly noticeable recovery has occurred in value in the Sep-Nov quarter. S Hemisphere production is also gaining importance, and weather in Argentina and Australia is far from ideal. Note that we would expect the second half of the crop year to be very different from the first in terms of US export demand, and following the recent break in KC futures, only Russian origin is cheaper than Gulf HRW through November. The EU market is losing its share of world trade. Still no rain is offered to Australia through the next ten days. Fortunately excessive heat is absent, but a pattern shift is needed very quickly to salvage yield potential. Vegetation health continues to erode across NSW and Queensland (which account for 35% of total Aussie production), and without rainfall by late September, an Aussie crop below 20 million mt becomes much more likely. Too much rain has fallen in Argentina, and the Buenos Aires Grain Exchange is now indicating declining crop conditions and lost acreage there. Sustained rallies will be rather difficult as there’s just too much wheat in the Black Sea. However, we do maintain that seasonal lows have been scored.

• Call us old fashioned if you like, but the assumption may be wrong and we continue to argue that water is one of the main ingredients to grow a trend or above trendline yield US corn or soybean crop. The map below reflects percent of normal rainfall since June 1st, the real start of the growing season. 40% of the Midwest and Plains received less than 60% of normal rain since June 1. Historically, such lack of water produces a below trend yield. NASS continues to say above trend, and we will have to await actual harvest yield data to solve/end this debate. 

• Soybeans traded higher overnight, and extended gains through midweek trade. The market broke lower at the report release on Tuesday on a larger than expected yield/crop size, but further review of the USDA’s assumption of a record heavy pod weight has cast doubt on September estimates. At the close November soybeans were 10 cents higher and back above the 100 day moving average. Crop size and yields were the key numbers in Tuesday’s WASDE report, though the USDA also made significant changes to the soybean oil estimates. Following the Commerce Dept’s ruling against Argentine and Indonesian biodiesel imports, the USDA raised their estimate of 2016/17 soybean oil for biodiesel demand by 50 million lbs to a record large 6,050 million lbs. Soybean oil demand for biodiesel in 2017/18 was increased by 1,050 million lbs. This means that 31% of US soybean oil production will be used for biodiesel versus 28% in 2016/17. Our view for the soybean market stays bullish, as we look for a US soybean yield closer to 47 bushels/acre, while we expect Chinese demand to develop on corrections ahead of harvest.

• Corn traded higher overnight and was positive through most of the day, though late day selling put December through to May contracts back to unchanged at the close. The latest update to the Brazilian corn lineup shows just over 1.7 million mt have sailed in September, with another 3.2 million that are scheduled to sail by months end. If realised, total exports of 5 million mt would be just under August exports, but still more than double last year and the largest September export figure on record. Cumulative Mar- Feb exports at just over 15 million mt would also be a record shipment pace. Brazil is in the process of shipping out a monster crop, though the USDA has already accounted for slower US exports in its balance sheet, with US trade to fall 19%. We remain neutral corn, with downside risk limited ahead of harvest. The market awaits actual harvest results to determine if the USDA’s yield is still too high.

• Wheat futures were mostly higher with the Chicago Sep contract up 6 cents; the KC Sep contract closed up 5 cents while the MGE old-crop contracts were up from 2-3 cents. In the September WASDE, despite strong exports to date and competitive prices, USDA did not raise its projection of US exports primarily because of the record size of the exportable surplus of wheat from the “Black Sea” exporters. In order to achieve the USDA’s projection for combined record exports of 56.6 million mt, these countries will have to, on average, export a record quantity in each of the ten months remaining in the Jul-Jun marketing year. Global wheat prices appear to be bottoming and will rally if problems arise with Black Sea logistics or on further losses in the Argie and/or Aussie crops.

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

September 17 USDA reports contemplation

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

Weekend summary 8 September 2017

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

Fund positions disaggregated data

• World currency markets remain dominated by a falling US$ and strength elsewhere, as signs of economic growth reappear in emerging markets and as political uncertainty in the US does no favours for the US$. The graphic below shows that, in the last 12 months, the Russian ruble has rallied 12%, the Brazilian real is up roughly 5%. Even China’s yuan has recovered from early-year losses. Purchasing power in major importing countries is rising, albeit slowly, and the rally in major exporting currencies may work against further acreage expansion in 2018.

• Chicago markets have been somewhat more mixed today with the grains losing more than soybeans. Hurricane Irma continues to threaten although key crop regions appear, at present, to be spared some of the horrors experienced elsewhere.

• Europe has confirmed that it will allow imports of biodiesel from Argentina, which will act to replace lost US demand. A major shuffling of biodiesel/soybean oil trade flows is in the works, but work suggest lofty soybean oil prices are likely a longer term phenomenon. Argentine soybean crush will be salvaged, Argentine meal exports will be sustained, and oil’s share of crush is expected to rally further.

• The US$ has fallen to a fresh 2½ year low at 91.60. The €uro, ruble and Brazilian real are stronger, and despite ongoing political chaos in Brazil, former president Dilma is now accused of having run what is essentially an organised crime operation. Assuming today’s change in Brazil’s currency, cash corn in S Brazil is now pegged at $2.55/bu.

• The European Central Bank has again opted to leave interest rates unchanged. A rise in jobless claims in the US has tempered ideas of a further rate hike here in 2017. Russia this week has indicated it is planning some kind of rail subsidy, perhaps eliminating the current rail tariff altogether, aimed at accelerating grain exports. This, of course, will lower real transportation costs, which will help the farmer there, but won’t change Russia’s export capacity unless the subsidy is crop specific, namely if wheat shipments are favoured, it will provide more incentive to export wheat at the cost of barley and corn. More will be known about this subsidy after this week’s Russian Grain Union meeting.

• Australia’s forecast is still very dry through late September, and recall ABARES releases its September Aussie crop report next Tuesday. Trade estimates on Aussie wheat production range between 21-23 million mt, vs. the USDA’s 23.5. A much wetter pattern in late Sep/early Oct is needed to prevent further losses.

• Back and forth trading is expected into next week’s USDA and ABARES crop releases. We would caution that only slightly more objective yield data will be available to NASS than was available in August, and so major changes will likely await the October report, and actual yield data in late Sep will take priority.