Author Archives: simon

6 September 2017

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  • We have seen another session in Chicago where prices have been broadly in positive territory. Soybean oil is flirting with multi-month highs on the back of suggestions that lower than expected oil content in soybeans as a consequence of cooler finishing temperatures this growing season. Crude oil remains on the up, gaining another $0.80/barrel whilst the US$ tests the 92 point index level, below this there is little technical support until 90, so we may be at a pivotal point.
  • Brazil’s CONAB this morning projected first crop corn seedings to decline, which is not surprising given very weak interior cash prices there. Cotton and soybean acreage is forecast to expand modestly. Note that cash corn in Parana (a major producer of both 1st and 2nd crop corn) this morning rests at $100/mt ($2.55/bu), vs. $160/mt ($4.10/bu) on this week a year ago. Strength in Brazil’s currency has exacerbated losses in Chicago markets.
  • StatsCan published its July 31st stocks report, which included all-wheat stocks of 6.9 million mt, vs. 5.2 million a year ago, and canola stocks of 1.3 million mt, vs. 2.1 million. These numbers are generally in line with USDA’s annual balance sheets, but also confirm that year-end Canadian canola stocks will be a very tight 200-250,000 mt. Some degree of canola rationing will be needed in Canada this year, and the market’s premium to soybeans, $50-55/mt, persists. Note also that the Canadian dollar has posted new two year high this morning.
  • It is another macro-themed day, aided a bit by further soil moisture loss into the end of the growing season. Whether lasting bottoms have been scored will hinge upon the direction of yield updates in next week’s WASDE, and ou opinion is that we have to wait on actual combine data before there is any real clarification on US crop size. We do mention that S America’s corn market bottomed in late July, and Black Sea wheat prices have stabilised as harvest there surpasses 60%.

5 September 2017

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  • Today’s market opening saw a strong start with an open chart gap in Nov ’17 soybeans, which spurred additional buying. Funds have been active buyers upon their return from the holiday weekend and also were active in December corn as they cover net short positions, and wheat has joined in for the trip!
  • The CRB Index has rallied strongly with crude oil up $1.50/barrel in the face of strong global demand and uncertainty over hurricane Irma, which if hot on the heels of the damage already done by Harvey.
  • The USDA September Crop Report will be released one week from today. The trade is generally looking for increased yield/production based on good/excellent condition ratings rising through August. However, producers would argue that the great variability of the crop leaves some doubt on this analysis with USDA field surveys to gain in crop size importance. Russia has now harvested 67.8 million mt of wheat and 17.5 million mt of barley. The yield to date is record large at 3.84 mt/ha (57 bushels/acre vs last year’s record 47.1 bushels/acre). The Russian wheat yield seems impossible, being well above the US. However, Russia has had extremely favourable weather and really advanced their agronomics of wheat farming. Russia’s massive wheat crop will have an export tail well into early 2019.
  •  It has been a macro day with the CRB Index rallying sharply with gains noted across the commodity spectrum.Hurricane Irma is a dangerous storm and it looks likely to make landfall in FL. The storm’s sheer strength is causing some issues for the forecast models.

31 August 2017

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  • US export data has been released as follows:
  • Almost like clockwork we have seen Chicago markets in grains and soybeans post a strong recovery as producer liquidation of cash stocks and September futures contracts came to an end. A push lower for December corn triggered fund short covering as well as fresh buying. By midday December corn had traded through a full nine cent range with some 190,000 contracts changing hands. November soybean futures caught the support and made ten cent gains in strong volumes. Our feeling is that, just like last year, season lows are being or have been set. However, the strength of any rally will depend upon harvest yield data as well as Chinese buying demand.
  • The StatsCan August update held few bearish surprises and was thus viewed as supportive. The 2017 Canadian wheat crop was estimated at 25.5 million mt, 20% below the 2016 crop and slightly below trade expectations. Canola output at 18.2 million mt is down 7% from last year and under average expectations of 18.6 million mt. Stock estimates will follow next week but the Canadian canola market appears ready for action going forward; a combination of tight old crop stocks and reduced new crop supplies would suggest a demand rationing price rally is in the offing.
  • Australian reports of frost/freeze damage are growing as another hard freeze impacted New South Wales and Victoria overnight. There have been four hard freezes that is catching a wheat crop in the boot and late boot phase. It will take time to make a better assessment of the crop impact, but the forecast remains cool to cold with limited rain for another two weeks. This late winter weather pattern does not appear to be changing.
  • Chicago markets have become technically very oversold and have bounced from what we expect to be seasonal lows. Corn and soybeans are pacing the rally while spot month liquidation in Minneapolis wheat futures is holding back Chicago and Kansas wheat values at present. The Midwest dryness will trim yield potential, and our bet is that a bullish surprsie could be offered in the September report. 

30 August 2017

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  • The US$ this week has hit new lows for the move, while the €uro rests at multi-year highs. This is an important development, longer term, for seeding in 2018 and beyond, and currencies, along with flat price, are now offering much less inventive to expand acreage in S America, among other places. A close below 91 point is viewed as further bearish, and currency action in the next few weeks needs close watching. 

  •  September corn has reached $3.30/bu while December corn futures have fallen near $3.45. November soybeans are trying to test support at $9.30 while wheat is holding near unchanged. The market maintains a bearish feel with the charts technically oversold, but still heading lower. Bottom pickers have not been rewarded, and the market may have to get beyond first notice day to spark a recovery. US elevators report that farmers are still existing stale cash basis contracts in corn and soybeans. The selling from these elevators and ethanol groups should be completed by Thursday. A portion of the decline is based on fund selling and the ongoing liquation of long cash connected contracts.
  • Stats Canada will release its August crop report Thursday morning. We expect Stats Can to reveal Canadian wheat production at 24-25 million mt, with canola production estimated at 17.8-18.5 million mt. USDA pegs Canada’s wheat and canola harvests at 26.5 and 20.5 million mt, respectively. Canola futures this week have followed the soybean market to very marginal losses, but canola maintains a premium of $55/mt to soybeans, vs. a slight discount on this week a year ago. EU wheat farmers are voting with their actions to curtail cash related selling. Although the spring grain harvest is underway in Russia, cash sales here are also declining amid low prices. A trend of reduced farmer sales is a theme that likely to persist into October. Producers are unwilling to take a loss and sell cash grain/oilseeds at these depressed levels.
  • A new tropical storm has formed in the Atlantic and it is named Irma. The storm is expected to take a westerly route and then turn west southwest on Friday. The exact storm path thereafter is up for debate with many of the computer taking the storm in different directions. Following on the heels of Harvey, we are sure that the media will be paying close attention to Irma next week. Delta farmers are at risk from heavy rains with crops ready for harvest. The Delta corn harvest has been accelerating while soybeans are close behind. Gulf exporters are counting on the Delta soybean harvest for nearby supply.
  • Cash connected and fund selling is keeping pressure on Chicago at midday. A year ago, Chicago markets bottomed on Aug 31st as basis contract selling ended for old crop. Field surveys argue for smaller US corn and soybean yields from NASS.

29 August 2017

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  • US crop condition data was released last night as follows:
  • Tuesday has seen a mixed Chicago market with neither the bulls or the bears able to capture the upper hand. We would suggest that there is something of a feeling of “bottom picking” season right now but it will likely be the impact of what is happening in the Russian market that dictates price direction in the next few days and weeks. S American corn exporters will continue to attract record demand, but traditional importers (Mexico, namely) no longer have much incentive to replace US corn with S American origin, particularly with Brazilian corn offered at or near parity with the US through December.
  • Egypt secured 235,000 mt of wheat for early October delivery from Russia and Ukraine. Egypt paid $187/mt basis fob ($7/mt basis C&F below the last tender), which is generally in line with fob quotes Monday evening, and which confirms the Black Sea quality wheat market at $178-183/mt into November. US prices are a shade higher on the back of Harvey’s impact, but on paper US wheat is still very competitive.
  • Crude oil is down $.60/barrel at midday, spot gasoline futures have rallied further to $1.76, EU wheat futures have settled weaker, though amid a new 2½ year high in the €uro, European cash grain markets will be little changed this evening. The market is largely ignoring new lows for this move in the US$, but we view it as important longer term.
  • The market in recent weeks have been digesting larger than expected global supplies, Russian wheat has been especially surprising. Funds’ next move will hinge upon NASS’s September yield estimates, while the US wheat market is working to boost its share of world trade to a multi-year high. 

24 August 2017

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  • US Export data has been released as follows:
  • The Black Sea will produce record amounts of wheat this year, and producers there are planning to expand again next year. The record high yields and current depressed price is producing considerable profitability. The chart below reflects wheat profitability of some of the world’s largest producers. Notice the big profit gains that are being scored by Ukraine farmers of nearly $56/acre compared to just $4/acre for the US farmer. The trend to fewer US wheat acres will consequently likely continue in the years out amid high costs and low returns. 

  • Soybean and product markets traded higher through Thursday. Soybean meal led markets higher as funds unwound long oil/short meal spreads, and strength in the product markets lifted November soybeans to the best close since the August USDA crop report. Chinese end users were targeting new crop soybeans under $9, and were unwilling to chase the market higher on the summer rally. However, with November beans $1 under the summer high, China has been an active buyer. The market anxiously awaits the results of the Farm Journal Crop Tour, but after a more than $1 break from the summer high, a yield under 48 bushels/acre would confirm an early seasonal low. The FJ Tour yield is expected this evening.
  • Fresh news in corn is once again absent, and the market anxiously awaits Farm Journal’s official US yield forecast, which we have noted is a fairly good indicator of NASS yield changes in September. Export sales were unexcited, though we do mention that as S American exporters find record demand, cash basis there continues to inch higher, and Brazilian and US origin are again offered at parity on nearby delivery. Competition for world trade will be very steep into late year, and while the Gulf market is better positioned to compete with S America, export demand will likely not be a feature of the 2017/18 crop year.  Brazil has approved a 20% tax on ethanol imports from the US. US ethanol shipments to Brazil in the first half of the year are record large, and on the margin this will slow demand. Still, US crude demand is much stronger than in recent years, ethanol production margins remain elevated and even blending margins have rallied substantially since mid-month.
  • US wheat futures ended higher, EU futures ended steady, and chart action suggests a seasonal bottom was scored this week, and certainly the time is right. US export sales were in line with trade estimates, though over time we look for a decent boost in demand, and amid strength in the €uro today US Gulf wheat is still highly competitive through late autumn. Recall that, amid an adjustment to abandonment, spring wheat production in Sep will likely be lowered another 15-25 million bu and the goal is still to slow US HRS demand. US wheat at current prices will continue to find non-traditional interest, with Gulf wheat this evening cheaper than all but lower protein Black Sea origin. Despite ENSO trending toward a weak La Niña by late autumn, the near term rainfall outlook in Australia has failed to improve. Guidance on September’s pattern still indicates normal/above normal rainfall, but operational models are void of moisture through September 7th. Critical growing stages are due very soon thereafter, and precipitation since July 1 in S Australia, New South Wales and Queensland rests at just 25-50% of normal. A demand-led recovery lies in the offing, and Russian exports so far have not kept up with the USDA’s annual forecast.

23 August 2017

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  • It’s tough to be a Brazilian corn farmer right now. Recent information  indicates that the winter corn crop is being sold at cash corn prices not seen in years. Notice from the chart below that interior Mato Grosso prices are $1.66/bu which is producing substantial losses. The negative margins will very likely restrict Brazilian corn planting in 2017/18 as farmers will be unlikely to plant a crop that does not offer a profit. Tough times due to the rising Brazilian Real and sliding Chicago futures prices. 

  • It was a mixed trade across the soy complex today, with soybeans trading on both sides of unchanged before ending firm. In the product markets, soybean oil was sharply higher, leaving a gap on the daily chart, while soybean meal slumped to new lows on spreads against bean oil. Last week’s Commitment of Traders report showed that funds had been big sellers in the soybean oil market, liquidating 29% of their position in just one week. However, fund buying in soybean oil has been unrelenting in the last week on anticipation of the biodiesel announcement. Funds have been estimated buyers in the last six consecutive days of 24,000 contracts. If correct, our guess is that funds are now holding a long position of 70,000 soybean oil contracts, or the largest since late January. The question now is whether hedgers use the rally to add to sales, or will they hold onto supply in anticipation of much stronger cash demand. Markets in the last half of the week will be focused on the crop tour yield results, which will offer insight into potential figures from NASS in September. The big debate remains on yield, but pod counts from the PF Tour are currently disappointing.
  • The results of the Farm Tour are far from clear, but NE’s yield (165, vs. a 5-year average of 163) was better than anticipated, and so far the newswires are void of any big disasters. We maintain that the market is probing for a bottom, and ethanol use remains something of a bright spot for the market. S American basis is stronger again today. Weekly US ethanol production last week totalled 309 million gallons, down 2 million from the previous week but well above the same week a year ago. Plants have responded to the surge in production margins, and ethanol stocks are down slightly amid improved export demand. US crude stocks fell for an 11th consecutive week and are now 6% below last year. There is talk of more US ethanol production capacity being invested in to come on line in 2018.
  • US futures ended near unchanged, while EU futures ended modestly higher. Along with strength in the €uro today, EU cash markets rallied $1-2/mt, further boosting their premiums to Black Sea and US origin. Algeria closes a tender for optional origin wheat on Thursday, and it is probable that US HRW will be included. Note that Algerian purchases of US wheat are extremely rare. Certainly, Gulf wheat is priced to boost US exports by 75-125 million bu. Black Sea cash prices are slightly weaker yet again, but on the margin the decline has slowed this week. HRW is offered at parity with similar quality Black Sea origin, while US 10.5-protein HRW is the world’s cheapest. Global wheat stocks excluding China are below last year. Research suggests that the US’s share of world wheat trade will rise as the EU, Australia and Canadian wheat exports suffer. While the post-WASDE break has exceeded all our expectations (and by some way), seasonal weakness will have run its course by September, and we continue to advise patience. More of the trade is beginning to acknowledge Russia’s infrastructure issues and inability to export more than 30-32 MMTs of wheat.

21 August 2017

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  • US crop condition data has been released as follows:
  • November soybeans saw an “inside day” of trading for November soybeans, that left the market just below unchanged at the close. The indicator here being possible indecision and lack of follow through, time will tell. The weekly Crop Progress Report showed good/excellent crop ratings declined in 7 states, increased in 7 states, and were unchanged in 4 states. The largest decline for the week was in LA (-4%) and the largest increase was in SD, which increased by 8% to 42% good/excellent, or the best score since mid-June. On a national basis, 60% of the US soybean crop was rated good/excellent vs. 59% last week. 87% of the crop was setting pods vs. the 5 year average of 85%. Producers have limited sales on the books, and last week’s Commitment of Traders report showed that hedgers preferred to use the recent break to re-own the crop. We look for firmer trade this week ahead of the Farm Journal Crop Tour yield results later this week.
  • December corn fell another 3 cents on additional rains fell across IA in the last 24 hours, and as fresh demand news is still lacking, something that is typical of mid- August. Crop conditions were unchanged, and the entirety of the market awaits Pro Farmer’s yield result on Thursday evening. The results so far been highly variable (compared to last year’s uniformity). US good/excellent ratings on Sunday were pegged at 62%, unchanged from the prior week and which still suggest a yield no better than 169 in the USDA’s September Report. However, rather than crop conditions, it is now a matter of waiting for combine data, and the Pro Farmer’s tour, as history shows it is a pretty reliable indicator or even waiting on NASS’s September estimate. Crop conditions are unexciting, and concern now rests in the E Corn Belt, where moisture deficits will advance in the next 10 days. Marginal downside risk exits, but amid yield downgrades in the US, Ukraine and S Russia major exporters stocks/use should tighten further in WASDE autumn reports.
  • US wheat futures ended modestly lower, as Russian harvest updates suggest yet further upward revisions to crop size. We are somewhat dubious of a Russian crop size of more than 80-81 million mt, but data does suggest the USDA is still too low with its current (record) 77.5 million mt estimate. We also mention that higher estimates will simply spill into end stocks as logistical constraints will cap exports at 30 million mt (or nearly same as last year), but in the near term the markets must contend with the surplus. Spring wheat harvest as of Sunday reached 58%, vs. 51% on average, due of course to a smaller crop and accelerated maturity. Spring wheat futures led Monday’s decline as, along with Kansas futures, funds maintain sizeable net long position in high protein futures. We suspect many of these are passive index fund longs which are counted in managed money due to the manager discretion. Russian fob offers are unchanged at $183-187/mt for autumn delivery. The Russian market is not falling as fast as US futures. The cheapest offer made to Iran in its latest tender are from the US, and while no doubt there’s too much supply chasing too little demand in the near term, the US market is quickly working to find demand. US sales and exports continue to impress. Recall US Gulf wheat in recent years has never been the world’s cheapest in August. Based on Russia, the major exporter balance sheet has loosened in the last 30 days. Like 2016, a bottom should be found soon and a normal post-summer recovery is awaited. The abundance of Russian wheat will just have to be stored into 2018.