• Chicago futures have spent the morning trading both sides of unchanged. There was an increase in selling across Chicago when President Trump (in a meeting with US manufacturing executive) announced that the US should be considering a border tax. The market is listening to trade matters and how protectionist the US could become from under the Trump Administration. However, the charts are up and the corn/wheat charts look bullish with funds still holding a sizeable net short position. As long as soybeans hold above last Monday’s open chart gap, funds will continue to be a buyers of breaks.

• President Trump has signed an order backing the US out of the TPP Trade Deal (Trans Pacific Partnership) that covered 40% of the world’s economy and 12 nations. The TPP was called a disaster for US manufacturing sector by President Trump. The actual signing sparked selling in Chicago as the Chinese worry about additional political friction heading into their New Year’s Holiday. The Chinese speculator has been liquidating long positions since the start of the year due to their political concern about US/Chinese relations.

• The market is trying to understand the Trump discussed US border tax and its implications in terms of US inflation. A US border tax would spur a dramatic increase in US inflation rates. The precipitation outlook for Argentina is dry for the next ten days, and although La Pampa received soaking rains, some key areas of Buenos Aires were missed. There is an open weekly chart gap on soybeans with a downside price target of; $10.42-10.53. Funds are likely to remain buyers of the grains due to their short positions and bullish chart set up. An uncertain S American soybean crop supports March soybeans below $10.40.

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Weekend summary 20 December 2017

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

Fund positions

• Thursday was a dull day in the Chicago soybean markets with an inside day and lower close on profit taking. Old crop soybean meal took the complex lower and it seems funds were net sellers on the day. It is noteworthy that EU imports of soybean meal are running behind last year with last week at 385,992 mt and the cumulative figure from October standing at 5.4 million mt, which is only 91% of last year’s figure.

• Corn markets eased higher for another post-harvest high as weekly ethanol production hit another record, and was much larger than expected. Additional momentum would appear to be necessary to ensure the uptick remains in place, and a close above $3.68 could well trigger buy stops and fund short covering and/or additional buying. Argentine corn planting has reached 95% complete, a pretty normal figure for this time in the year, and BAGE estimates only 290,000 ha (6% of the total area) to be significantly impacted ny flooding, which is less that was feared by many.

• US wheat prices fell somewhat in an effort to maintain world trade share; Russian cash prices are unchanged through to April and it is important to point out that there is little bullish input in this market at present. Climatic estimates contain no real threats anywhere in the main wheat growing areas of the world through to early springtime. With potentially increased Black Sea acreages it will require adverse weather somewhere to draw down global stockpiles.

• As mentioned above, weekly ethanol production in the US continues to impress with another record set in the week to last Friday. This implies the USDA’s estimate is too low at this time but the graphic below shows seasonal production drops sharply from mid-winter into mid-spring. Doubtless there is a correction in the offing and reduced production margins will likely pressure grind rates in the next few months.

• Chicago markets saw soybeans extending gains on technical trade; whilst a touch weaker overnight on profit taking gains were in evidence by the close. Funds were buyers of both soybeans and meal although flat in soybean oil. China appears to be crushing soybeans at a record pace and uncertainty over S American crops is keeping price spreads tight, particularly from an historic perspective.

• Chicago corn ended a touch lower and momentum is necessary to keep the rally going! Argentine weather remains a concern throughout the latter part of January but there appears to be clear evidence that corn demand will be stressed if prices continue to rally. Ethanol margins have collapsed as cash corn prices have risen and ethanol and DDG prices have dropped. This will likely trigger some changes!

• Wheat prices in Chicago have consolidated somewhat and global cash markets are a touch weaker. It seems the rally in US prices is somewhat overdone given current fundamentals. US export growth is required to draw down on stocks, which remain large to say the least! EU cash prices are a touch easier despite futures contracts making gains this week. A stronger Rouble and sufficient storage will help protect Russian farmers from having to sell, which could keep a price floor in evidence. Otherwise wheat fundamentals lack fresh input, other than global surpluses and until the N Hemisphere crop breaks dormancy we will see a lack of direction unless dictated by corn.

• Brief update this afternoon as the US is celebrating another holiday – Martin Luther King Day and markets there are closed.

• On Saturday Egypt’s GASC purchased another 235,000 mt of wheat, for mid-February shipment, Russia securing 175,000 mt and Romania the balance of 60,000 mt. Season to date purchases now stand at 3.41 million mt and this tranche cost an average of $199.81/mt basis C&F (the Romanian purchase came in at just over $200/mt), which is around $2/mt more than their last purchase partially attributable to rising freight costs. Noticeable absentees from the offer lineup included EU (France in particular), US and Argentina.

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Weekend summary 13 December 2017

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Fund positions

Our considered view of the January USDA report can be downloaded by clicking on the link below:

January 17 USDA contemplation

• US export data was released as follows:

• Brussels has issued weekly wheat export certificates totalling 338,080 mt, which brings the season total to 14.37 million mt. This is 393,186 mt (2.66%) behind last year. Barley exports for the week reached 110,386 mt, which brings the season total to 2.27 million mt.

• The 2017 USDA January Crop Report was considered slightly bullish for US corn/soybeans amid falling 2016 production, while Chicago wheat prices rallied on a 10% fall in US winter wheat seeding. US 2016/17 corn stocks also declined 48 million bu on a hike in US ethanol production and fall in the US yield/harvested acres. The big surprise was the drop in 2016/17 US soybean end stocks to 420 million bu, a drop of 60 million which accounted for the smaller US production. The smaller US old crop harvest is going to accentuate the importance of S American crop sizes and production in the weeks just ahead. Chicago will likelyl not fall into a lasting bearish price trend until large S American crops are confirmed. The USDA data will likely maintain Chicago prices within the prior range without adverse S American weather. NASS dropped their 2016 US corn yield by 0.7 bushels/acre to 174.6 bushels/acre with harvested acres falling 100,000. The US 2016 corn yield and production is record large at 174.6 bushels/acre and 15,148 million bu.

• 2016/17 US corn end stocks fell to 2,355 million bu, down 48 million from December based on a 78 million bu fall in the US 2016 crop, an increase of 25 million bu in ethanol, and a 50 million bu cut in feed/residual use. December 1st US corn stocks at 12.4 million bu came in 100 million above trade estimates, and 1.2 million bu above last year. The change allowed for US corn average cash price to be raised by 5 cents/bu to $3.40. World 2016/17 corn stocks were lowered 1.4 million mt to 221.0 million mt. Brazilian corn production was left at 86.5 million mt, Argentina at 36.5 million mt, while S Africa held at 13.0 million mt. The lower world corn stocks were mostly due to US adjustments in production.

• US 2016 soybean production was lowered by 54 million bu due to a 300,000 acre decline in harvested acres and a 0.4 bushels/acre drop in yield. US soybean imports were cut by 5 million bu leaving total 2016 production to fall 59 million bu. With the addition of 1 million bu to the residual, total 2016/17 US soybean stocks fell 60 million bu to 420 million with the average US farmgate price raised to $9.50. The US January S&D argues for US soybeans to hold between $9.50-10.50 into spring. World 2016/17 soybean end stocks fell 82.3 million bu with much of the decline coming from the US. The 2017 Brazilian soybean harvest was raised to 104 million mt, while the Argentine crop held steady at 57 million. The 2016 Chinese soybean harvest was raised to 12.9 million mt from 12.50 million mt. Many would argue that the Argentine soybean crop estimate is too large by 2-5 million mt.

• We calculate September-December US wheat feed/residual use at -32 million bu with US corn feed/residual use at a record large 2,269 million bu. US soybean residual use is calculated at 197 million bu. The US corn and wheat feed/residual use totals were below trade expectations, and slightly bearish. US 2017 winter wheat seeding fell by a larger than expected 3.7 million acres to 32.8 million. Kansas planted 1.1 million acres less than 2015, while Texas and Oklahoma seeded 500,000 acres less. The 2017 NASS wheat seeding data argues total 2017 US wheat harvested data will be just 40 million acres. US 2016/17 wheat end stocks were raised to 1,186 million bu. US feed/residual use was lowered by 35 million bu to 225 million bu. We would expect another 10-15 million bu in its feeding estimate. This would leave 2016/17 US wheat end stocks at or just above 1,200 million bu which is more than enough wheat to cap rallies in spot Chicago futures at $4.30-4.40. We see nothing in the USDA January report that is going to kick prices out of the current sideways trend. Only adverse weather can lift spot Chicago corn futures above $3.75, spot Chicago soybeans above $10.60, and spot Chicago wheat futures above $4.40. Longer term, the “big crop” vs. “big demand” scenario will shift more to just a big crop with prices to drift lower into the US spring planting season. Adverse Argentine weather forecasts have to be monitored as their key reproductive period of the growing season comes from late January into March.

• It has been a lower day pretty much across the board today in Chicago markets, Paris too, with London wheat bucking the trend by moving higher in what we see as a currency driven move.

• The imposition of Chinese import duties on US DDG’s, improved rain prospects for both the Plains and N Brazil and a slowing export demand from China have all conspired to trigger long liquidation and selling in Chicago ahead of the USDA report tomorrow. Corn, wheat and soybeans are all lower with wheat falling below key technical support levels. The day’s tone has been bearish to say the least.

• Needed moisture is forecast for the US Plains where the dormant HRW crop will benefit and the limited stress it is enduring will ease. Market chatter is suggesting that EU wheat is being imported into the US on the current rally although we are unable to confirm this. Global wheat prices are starting to slide in the face of unsold Black Sea supplies and an aggressive export programme out of Ukraine. Once again we appear to be facing wheat supply pressure as export demand is being sought. Adverse weather is required in the Black Sea region if the US market is to break through technical price resistance.

• Our concern is that tomorrow’s USDA report will not push corn, wheat or soybeans out of their recent price ranges. As previously reported, the big unknown remains the fate of the Argentine soybean crop and whether flooding in the north or dryness in the south will significantly reduce their output in 2017.

• What one day takes, another day gives back! This morning’s weather news in S America showed the two models (EU and GFS) to be in agreement with an expansion of rainfall across C and N Brazil whilst maintaining an unwelcome pattern of showers across N Argentina. Shorter term dryness concerns across Goias and Minas Gerais in C Brazil will ease somewhat although longer term patterns may well change and concerns would rise accordingly. Weather models do suggest that dryness will return to around 25% of the NE Brazilian agricultural belt in the second half of January. Only Bahia in the far NE of the country, which accounts for around 5% of soybean production, will be left drier than normal in the coming ten days or so according to forecasters. Clearly Brazilian weather has improved when compared with late December but too much rain will continue to fall across the northern half of Argentinian agri belt in the remainder of January leaving question marks over unplanted acres and lost output.

• Chicago markets are mixed with less than an hour to go, soybeans are holding onto gains whilst the grains, corn and wheat are in negative territory. The trade is attempting to comprehend and balance the S American weather and its overall impact upon soybean output with Brazil seemingly positive at present whilst Argentina is struggling.

• CONAB estimated their 2017 Brazilian corn harvest at 84.5 million mt, up 700,000 mt from their December forecast, and up 17.5 million mt from last year. WASDE projected the 2017 Brazilian corn crop at 86.5 million mt. We note that the WASDE December forecast had the 2017 Brazilian soybean crop at 102.0 million mt and the Argentine 2017 soybean crop at 57.0 million mt. Most S American market watchers now place the Brazilian soybean crop at 104 million mt and Argentina at 52.0 million mt, which on a combined basis is still short by 3 million mt from the December WASDE forecast. January’s WASDE offering will make interesting reading when released on Thursday.

• Our view right now is that it is far too soon to project a big drop in Argentine soybean output given the chances of a drier spell for the wetter north of the country and better rainfall chances in the drier south. Until we see a confirmed adverse weather situation in S America, Argentina in particular, we would tend to pull away from a bullish stance.