• US export data has been released as follows:

• The sales of corn, soybeans and wheat were all above trade expectations and considered supportive to price.
  

• It has been hard to kick the “bearishness” in grains with the charts pointing down and funds piling into larger net short positions. World wheat prices are edging lower following the GASC tender, which is also leaning on corn. The world wheat market is not understanding Russian logistical constraints, and that Asian demand that will not be filled by Australia/Canada this year due to smaller crops. This demand will therefore likely be pushed to the US. There is more to the outlook of world wheat prices than a Russian crop of 78-80 million mt. The 2017 Russian wheat crop is record large, up 5-7 million mt from last year. However, combined 2017 Australian/Canadian crops will be down nearly 20 million mt with the US crop off 15.50 million mt for combined net losses of these three primary wheat exporters of 35-36 million mt in 2017/18. Add in another 1 million loss of US wheat due to greater abandonment of US HRS, and an EU wheat crop at 146.5-147.5 million mt (down 1.5-3.0 million), non Russian exporter wheat supplies will be off 40 million mt.

• US soybean futures are higher on the disappointing rains that fell across IA and Central IL. This fat area of the Midwest remains short to very short on soil moisture and a finishing rain event is demanded to prevent pod abortion. This is no place to turn bearish of corn, soybeans or wheat with the downside price risk estimated at another 5-15 cents. August rainfall will not reach normal levels, and unfortunately will follow in the dry trends of June/July.

• The US Climate Prediction Center called for below normal temperatures for the C Plains and equal chances of above or below normal temperatures for the remainder of the Midwest. Of course, growers will be hoping for another extended growing season. The long range EU and now CPC argues for a near to slightly earlier than normal end of the 2017 growing season. What this would mean for US crop production is extremely uncertain. Nonetheless, we feel that concern for immature crops will quickly grow following the US Labor Day holiday.

• Big volumes are trading in wheat as end users absorb a portion of the fund selling. How wheat closes will be important for its longer term trend. IA total rainfall from May 1 to Aug 16 is well below the 2012 drought year. Crop stress is worsening. Research argues against a bearish stance as seasonal and potential annual lows are being formed in wheat and soybeans. 

• Chicago corn and soybeans have posted new lows with Dec ’17 corn testing $3.70/bu support and Nov ’17 soybeans targeting $9.25/bu. US wheat prices continue to decline as funds sell whilst world cash prices hold firm. End users are scale down buyers, a sensible approach in our opinion, and spec buyers waiting to see how much rain falls before adding any fresh position length. Seasonal low prices are usually made around this time and Chicago wheat prices are now looking cheap particularly when compared to world fob levels. Key is whether, or not, spec liquidation in Kansas and Minneapolis futures is done for now.

• Many are questioning the amount of benefit to yield that will be down to rainfall across IA and IL after recent dryness. In the case of IA, 1st May to 15 August rainfall is some 1.2 inches below the 2012 drought year although temperatures have been lower. Regardless, corn needs water to produce a sensible yield.

• From the ground we are hearing that crop scouts are seeing corn ears with a reduced girth and that soybean plants are starting to abort pods in IA and IKL. Rainfall will doubtless help but we cannot help but remain sceptical over the August NASS corn and soybean yield estimates, September data will prove os right or wrong. The Pro Farmer tour will provide something of an indicator when they get going.

• Chicago is wringing out nearly all the weather premium from price with funds enterning a larger net short position in corn, soybeans and wheat. Funds are still exiting stale longs in Kansas and Minneapolis wheat. Our view has been not to chase this market lower. The wheat market is too cheap relative to fundamentals since Russia will only be able to export 29-30 million mt of wheat, no matter what the size of their crop.

• US crop condition was released after the close as follows:

• Soybeans slipped to new lows in early Monday trading and were mostly 5-7 cents lower at the close, but near the highs of the day at the close, while August soybeans were off 10 cents for the day at contract expiration. After the close, NASS reported that 59% of the soybean crop was rated as either good or excellent versus 60% a week ago. Good/excellent ratings increased in 8 states, declined in 7 and were unchanged in 3. The largest increase for the week was in ND (+7 to 44%), and the largest decline was in MI (-7 to 55%). NASS reported that 94% of the crop was blooming versus the 5-year average of 93%, while 79% of the crop was setting pods, ahead of the 5-year average of 75%. Soybeans are now very oversold, with limited confidence in the USDA’s August yield estimates. We expect the market to turn range bound from $9.20-9.60 ahead of next week’s Pro Farmer Crop Tour.

• Chicago corn futures spent a majority of the session in the red, only to end slightly higher by the close. Dec continues to hold major chart-based support, and still there are many questions surrounding US yield potential. Much better rainfall lies in the offing across the Plains and W Midwest, but will it fall in time is the big question. Work continues to suggest that neither the bulls nor bears will be able to sustain much momentum until combine data is available sometime in early Sep. Good/excellent ratings this week improved 2% to 62%, vs. 74% on this week a year ago. Major boosts are noted in CO, TX, NE, IL and IN, which more than offset somewhat surprising declines in KY and MI. IA ratings are down another 3% to 61% (vs. 83% a year ago). This week’s numbers indicate recent rainfall has stabilised yield potential nationally, which at the least will fuel debate on whether yield is closer to 164 or 169. Only harvest data will provide any real clarity.

• Black Sea harvest data continues to suggest that Russia’s crop may still be understated by 1-2 million mt, though Russia’s exportable capacity will go unchanged. We also mention that hi-pro milling wheat in Russia has fallen only slightly and comparable Gulf HRW maintains a slight discount to Russia, as well as all other origins. The world market has been inundated with this year’s N Hemisphere winter wheat harvest, but US wheat is viewed as cheap at current prices, which are only modestly above this week a year ago. Breaking news is largely absent. US spring wheat ratings were pegged at 33% good/excellent, vs. 32% last week, but harvest is now 40% complete and what is done is done. NASS’s production forecast is still overstated some 20-30 million bu in our view, which is entirely a function of abandonment. We continue to remain concerned about production in Australia and Canada, and consequently Canada’s ability to ship more wheat to the US. 

• It seems that the funds have started their exodus from ag based futures on the back of disappointing market performance and this week’s bearish USDA August report. To last Tuesday, which is the effective data point for the CFTC report, the funds are net long 12,913 soybeans and 67,073 corn, and net short 14,101 wheat. Estimates to the current time frame are always difficult but we estimate funds to be short soybeans 11,000, short wheat 21,000 and flat in corn; whether we are correct or not will never be truly proven!

• Soybeans tested Thursday’s lows overnight, and closed with modest gains on Friday. Many analysts and traders were skeptical of the yield increase given condition ratings, while the weather models hold limited rains and building heat in the extended forecast. The market is well aware of the impact that poor late season rains can have on the crop, and will continue to follow weather and crop ratings closely. Good/excellent ratings are expected to be unchanged or 1% lower on Monday, due to the expansion of dryness, but there are large parts of IA, IL, and now the E Cornbelt that are short to very short of soil moisture.

• Corn futures rallied 3-4 cents as the market is highly skeptical of NASS’s first pass at the 2017 US corn yield. There is little doubt that corn yield will be lowered in September and the debate will be one of degree. There is still more than ample evidence to suggest national yield will be at/below 165 bushels/acre, but we all now wait field/harvest data. Note, too, that the heart of the Corn Belt will be without meaningful rain for another 6-7 days. Crop conditions will consequently likely decline. Moving forward, S American basis and crop conditions will drive price determination, and so far Dec has held major chart-based support at $3.70. We caution against turning overly bullish or bearish right now.

• Chicago wheat futures settled marginally lower, while contracts in KC and Minneapolis fell 7-30 cents on continued fund liquidation. Funds’ net long has hung over the market in recent weeks, and in KC and Minn, funds are still net long. Managed funds in Chicago, however, are net short 12,000 contracts, which will act to slow the recent correction. Interior Russian prices have fallen sharply across the Volga Region but, interestingly, have been steady to higher in S Russia, in spite of a record crop. Note that a majority of winter wheat is produced in S Russia, and a majority of exports originate there. So far, cash markets in Russia have followed normal seasonal trends, which suggest a lasting bottom is imminent. Gulf HRW is currently the world’s cheapest quality origin, and its discount to wheat in the Black Sea and Europe continues to widen. It has been a rather steep correction, but seasonal weakness appears close to ending.
  

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

• Low volumes and mixed trade have been the hallmark of today’s trade in Chicago after an active overnight session that followed the release of the latest USDA report. Corn and soybeans have been mostly in positive territory whilst wheat has seen weakness on the back of fund selling. Global wheat cash prices are holding better as Chicago futures are still struggling on the back of fund unwinding of net long positions, particularly in higher protein wheats.

• We do note that NASS did not change its harvested acreage estimate for 2017 US spring wheat as it did not go back and ask producers how much of the crop they intended to harvester some strange reason That “harvested acre” question will occur with the September Final Small Grains Summary Report on Sept 29th. We maintain that based on history in dry weather years, that Final Small Grains report could well uncover that 1-1.5 million acres will not be harvested, and that will drop the US spring wheat production total to 325 million acres or below. Fundamentally, spot Minneapolis wheat futures should uncover strong support at current depressed prices.

• The US Pro Farmer crop tour starts on 21st August, and should help uncover some clues as to the true picture on corn and soybean yields. It has a pretty good track record on forecasting the figures for the September USDA report, so worth keeping an eye on. The upcoming Tour becomes more important, in our eyes, given the question marks we have raised over the latest data release. Traders and producers are disgruntled with USDA’s August Crop estimates, but they thinking ahead to the rest of the 2017 Central US growing season. How might the weeks remaining compare to recent years? Will the growing season be extended and will there be any hurricanes that push northward from the Gulf? We note that 40% of the N Dakota soybean crop had not entered the pod phase as of last Sunday. A normal/frost freeze event in the Dakotas is a 2017 production risk as is the just pollinated replanted corn in IL/IN. We understand and appreciate the gloom and doom that prevails, but our confidence in USDA August yield estimates is pretty low.
  

• Minneapolis wheat is currently lower on fund liquidation, KC and Chicago wheat are following. Corn and soybean futures are slightly higher on end user pricing. China is likely to become more active in making forward soybean and product purchases. Market volatility rates will be declining with traders listening to private reports from corn/soybean fields. 

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

Weekend summary 11 August 2017

• Pre-report positioning has been the order of the day with corn, wheat and soybeans trading either side of unchanged in reducing volumes. Risk off is the attitude as the August USDA report and its uncertainty looms. History shows us that it is the August release that can, and frequently does, spring surprises, and we suspect that tomorrow will be no exception. The US corn yield will likely be the focal point, but an increase in US 2016/17 soybean export estimates of 35-50 million bu should not be overlooked. For today, we doubt that either breaks or rallies can gather much traction.

• Traders are also discussing the “sabre rattling” between the US and N Korea, and the potential for military action. Historically, commodities are “safe havens” amid such skirmishes. However, complicating the US and N Korean “war of words” is that both countries hold nuclear weapons. This raises the stakes with strategic drone strikes complicated by the close proximity of S Korea. China appears to be supporting the US’s political stance against N Korea, which has halted any real forward movement on US trade issues. US exporters are reporting that China has become more aggressive in asking for US fob soybean offers and making purchases in the past 24 hours. The USDA has reported the cancellation of 130,000 mt of 2016/17 soybeans this morning.

• We are somewhat surprised the US$ has not rallied sharply on the N Korea situation. The inability of the dollar to advance argues for future weakness. The midday GFS weather model has raised our concern for podding in Midwest soybeans and late filling corn due to rapidly drying soils. The EU model forecast was already dry. Any US soybean yield below 46.5 bushels/acre will offer sizeable upside market price risk.

• US crop condition rating updates were released last night as follows:

• We have seen a mixed morning in Chicago with some weakness in the grains with soybean and products firmer. Short covering in grains appears to have slowed or ended and some of the “faster moving” funds are exiting soybean short positions. All and sundry appear happy to de-risk and reduce position size ahead of Thursday’s USDA report. There still appears to be a bearish mentality in corn and soybeans due to seasonal considerations and prior year performance, whether this is justified will be evident in coming weeks. However, what is true and not in dispute, is the ongoing dryness in the Midwest that has prevailed since mid June, and this could well transform the historic and seasonal picture.

• US corn, wheat and soybean stocks and stock/use ratios are both in decline, much different from recent years. The last time that an August rally evolved was back in 2012 when dryness struck the W Midwest causing reduced corn and soybean yield prospects. Until there is an improved weather outlook for Midwest crops, the downside CBOT price risk appears to be limited. There are 61 million acres of US corn and soybean ground that is short to very short of soil moisture. This is nearly double the amount of farmland that was dry in the past few years with crops in IA and C IL in immediate need of rain. 

• The cool Midwest temperatures have helped diminish crop stress, but the time has arrived for rain. Corn and soybeans in some of the drier areas of IA are rolling leaves in the afternoon, even with high temperatures in the upper 70’s to the lower 80’s due to a lack of moisture. The point is that unless the Central US weather pattern changes quickly to feature rain, US crop ratings and yield estimates will be in decline following Thursday’s USDA August crop report.

• China imported a record 10.1 million mt of world soybeans in July with the crop year total pace exceeding the USDA annual forecast of 91 million mt with just 8 million needed to be taken in August and September. We are raising our 2016/17 Chinese soybean import pace to 93 million mt, up 2 million from the WASDE forecast. The 2017/18 WASDE Chinese soybean import forecast of 94 million mt, would only be up 1 million from the current year. It appears to be too low by 2-3 million mt. If WASDE were to raise its 2017/18 Chinese soybean import pace to 96-97 million mt, it would have to raise 2017/18 US soybean export estimates by 25-50 million bu to 2,175-2,200 million bu. This will be worth keeping an eye on in Thursday’s report.

• Updates from Canadian producer sources reflect a deepening and spreading drought across the Prairies. The yield losses are rapidly building. The all wheat crop estimate has fallen below 24 million mt with canola (rapeseed) below 18.5 million mt.

• Demand for world soybeans remains astounding and USDA will likely raise US exports in an old crop position by 35-50 million bu. Arid weather conditions for Midwest crops is causing new worry with soybeans now being the crop most impacted. The downside price risk in Chicago corn, wheat and soybean futures is limited amid declining US and world crop production totals. End users may well be hoping for a bearish USDA report, but may well find themselves running out of time.

• Chicago markets have traded mostly firmer to start the week in moderate volumes as traders eye up Thursday’s USDA report. Early higher prices were tempered on discussions over potential for improved corn and soybean crop ratings later today. Many are expecting (hoping?) for a 1-2% increase in soybean ratings and a 1% improvement in corn. We maintain our view that change, if any, will be towards lower ratings as the Iowa crop hit a wall in terms of short soil moisture. Producers report that IA corn is tipping and that soybeans look good from the roadway, but just aren’t growing and producing a canopy. Iowa’s need for rain is immediate and although cool temps are helping, the soil moisture shortage is causing a more rapid maturation rate.

• Note that world wheat prices are steady to firm to start the week and have been slow to follow the US futures decline. Russia is harvesting a record large wheat crop of 74-75 million mt, but Russia’s problem is not the size of their harvest, but that their logistics will prevent them from exporting more than 28-30 million mt of wheat, similar to last year. Consequently, the world will likely find that 40 million mt of reduced world exporter wheat supplies will translate into steady to better US wheat export demand.

• In summary, reports from the fields show huge yield variability in corn and historically short soybean plants. The midday weather foreacst is too dry for the heart of the Midwest. Iowa crops are hitting a wall in terms of soil moisture and the need for rain is now immediate. Soybeans are just too cheap relative to their fundamentals and declining stocks.