• We start the week with Chicago markets in corn, wheat and soybeans all now trading in positive territory. March ’17 soybeans pushed above $10.00/bu once again and whilst early rallies in the grains failed they have moved higher with an hour of trading to go. Expectations were for soybeans to ease with increased rain chances in N Brazil next week, but the trade seems to have other ideas. It seems that traders are happy to hold long positions into the USDA report later this week, although there is clearly still time for this to change.

• There are those who expect the report to be bearish for soybeans with record US yields and bullish for wheat with the second lowest acreage sown since 1900. One thing we have learned is that trying to predict USDA and CONAB reports is not a game for the faint of heart and is never a certainty.

• China is once again pricing soybeans in Chicago, their first venture in some weeks, and S America is also benefitting from their return to the market. Russian grain export data through to December is reported to be disappointing, and therein lies the possibility that they will become more aggressive in FOB pricing through the winter months.

• The trade is awaiting the Index Fund rebalance (buying) near the close in Chicago tonight. This rebuying could prop up the market heading the USDA report on Thursday. We would anticipate CONAB’s Tuesday morning report to reflect a Brazilian soybean crop of 101.5-103 million mt. This is still a choppy marketplace and we would stand aside until after Thursday’s report. Our market bias remains sideways as the “big crop” vs. “big demand’ scenario remains in place.

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Weekend summary 6 December 2017

• It appears that Ukraine crops are at risk from frost over the next several days with temperatures reaching –20℃ in some areas as the current level of snow cover is insufficient for reliable protection of winter crops. Ukrainian farmers increased the area sown this season to 8.1 million hectares from 7.8 million last year. According to Farm Futures, U.S. farmers planted 34.8 million acres of winter wheat this season which would be the smallest area since 1913. All of the reductions came from hard red winter wheat as low profit margins have curtailed plantings in the Plains, and by way of comparison last year farmers planted 36.13 million acres of winter wheat. March Chicago wheat futures traded to a high of $4.19/bu yesterday which is the highest level since the December high. Declining winter wheat conditions in Oklahoma, Nebraska, Colorado and Kansas along with a weaker US$ added support to prices. The fund rebalancing that begins next week has also given the market support, as current estimates have the index buying at 35,000 contracts next week. The Ukraine 2017 wheat output could fall to 23.5 million mt down from last year’s 26.1 million and the USDA estimate of 27.0 million according to UkrAgroConsult. The market is doing its job, prices are dictating reduced plantings!

• Brussels has issued weekly wheat export certificates totalling 1.04 million mt, which brings the season total to 14.03 million mt. This is 52,076 mt (0.4%) ahead of last year. Barley exports for the week reached 164,246 mt, which brings the season total to 2.16 million mt, which is 3.44 million mt (71.4)% behind last year. Note that this week’s data reflects two weeks exports as no data was released last week due to Christmas holiday breaks.

• US export data is not available today due to the holiday break, and is scheduled to be released tomorrow.

• In Chicago the grains, corn and wheat are firmer today whilst soybeans are trading just in negative territory. March corn is testing December highs whilst March wheat has exceeded December’s levels and is pushing into November’s higher prices. Funds are covering short positions as prices push above key resistance levels with an upcoming USDA report looming, which some are fearing will contain bullish data. Price upside in soybeans will be determined by S American weather in the coming five or six weeks, and as we suggested yesterday, we could see funds adding to long positions across the soybean complex bolstering prices still further.

• There is some widespread debate as to the acreage losses due to excessive wet weather across N Argentina and the acute dryness across S Argentina. Some analysts are citing soy seeding losses of 1.0 million ha. Such a seeding loss would produce production losses in the order of 3 million mt. Others see seeding losses closer to 400-500,000 ha, which is about half of the prior estimate. Our best estimate at this timee is losses of 600,000 ha which could trim production to 54.5-55 million mt. This compares to the December WASDE forecast of 57 million mt. Perhaps the bigger question pertains to the continuation of the excessive rains and its impact on Argentine 2017 soybean yields.

• The two key weather models (EU and GFS) have trended wetter across the dries parts of Goias and Minas Gerais, which account for some 20-25% of soybean output in Brazil, in the coming ten days. Whilst this will relieve current dryness the longer range forecasts suggest dryness will remain an issue. Rainfall of three to five inches per week will be needed to maintain Brazilian yield potential and we do have some concern that there is a building soil moisture deficit.

• US Exporters typically ship 30% of final corn shipments by this point in year; last year 20%; this year 30% of USDA’s target shipped so far.

• US Exporters typically ship 58% of final wheat shipments by this point in year; last year 58%; this year 58% of USDA’s target shipped so far.

• US Exporters typically ship 51% of final soybean shipments by this point in year; last year 53%; this year 59% of USDA’s target shipped so far.

• Chicago traders are starting to take more notice of S American weather with corn, wheat and soybeans all higher at midday. We have previously suggested that S American weather was a likely trigger for price moves, and is appears that we are witnessing just that at this time; whether this is the start of a lasting trend change or not remains to be seen but we would not wish to be short here! In addition, it seems that additional money is moving into the ag commodity space, adding to upward pressure. Today has also marked a noticeable lack of producer selling in both S America and the US. With US farmers estimated to have sold as much as 70% of their soybean crop it remains for long holding fund managers to take their place as sellers, and with early signs that an upward trend may be about to start in earnest we would not hold our breath waiting for this to happen.

• S Korea, which has culled up to 30 million birds in the last six weeks due to avail influenza, has cut its egg import tariff to zero with immediate effect to combat sharply rising egg prices. Prices have risen buy as much as 50%in recent weeks.

• Have we seen the lows in markets, particularly soybeans? Difficult question to answer, and an adventurous trader may well be inclined to jump onto this move with a view to higher prices in the coming few weeks as N Brazil stays dry and Argentina sees excess soil moisture and flooding in some areas, all of which has the potential to limit yields and output. As ever, we would wish for some certainty over likely S American crop output before making a final recommendation, but our gut says higher prices appear likely for now.

• Early gains in Chicago soybean and wheat have eroded in later trade whilst corn is currently in the middle of the day’s trading range. Early New Year fund flows appear to be dominating as some index fund rebalancing is under way and short grain positions are being reduced whilst long soybean positions are less affected. Regardless of the immediate moves we would anticipate new money flows into the ag space on the back of growing global economic growth and inflationary price pressures.

• New Year data suggests that there is a warming ENSO trend in the equatorial Pacific that could produce an El Niño pattern by Q3 2017 although a neutral position is anticipated into mid year. The upshot of this is that weather threats for N America look limited.

• The start to trading in 2017 is giving no sign that the pattern established in the latter months of 2016 is about to change in the short term.

• The USDA has reported on US weekly export volumes as follows:

• Chicago markets have vacillated on the last trading day of 2016 with funds cutting short grain/long soybean spread trades, volumes have not been heavy and prices have moved around quite sharply as a consequence. It has been interesting to hear some fund managers asking about long opportunities in 2017; seemingly after four years that have been largely bearish they are looking at Chicago as cheap and offering opportunity. However, this remains a “big crop” vs. “big demand” market place and it will require a S American weather issue in January/February to change this materially.

• January is a key month for soybean yields in Brazil and the forecast includes reduced prospects of rainfall across NE and NC Brazil. We struggle to become overly bearish as a consequence, and additionally the fact that the US has hit some 87% of annual soybean export forecasts supports this stance. This would appear to not be the point to turn bearish.

• We would like to wish everyone a very happy New Year and look forward to an interesting 2017.

• Chicago market volumes have been light as traders look forward to New Year and soybean futures have been liquidated in advance of first notice day Friday. Corn sagged with soybeans but wheat futures have firmed. Reduced volume markets leave themselves open to back and forth price action, which is something we have been seeing today.

• Chicago will trade normally (hours that is) on Friday and will close until Monday evening. January is the most critical month for weather and soybean yield impact in Brazil. Doubtless the markets will remember this week’s big $0.26 price surge and unless we see a change in the weather outlook and dryness in N Brazil, additional weather premium will feature strongly. Forecasts for S America hold some concerns into late January, and the trade will hang on to this feature until such time as it can truly be discounted.

• Egypt tendered again for wheat, and most offers were from Russia with no Argentine or US offers on the table. GASC secured a total of 235,000 mt with Russia picking up 175,000, the 60,000 mt balance from Ukraine. The average reported price was $197.42/mt basis C&F for early February shipment.

• S American weather is (as we have previously suggested) becoming a key driver of market direction and forecasts are little changed today. NE Brazil is forecast to see little or limited rain in the coming two weeks whilst NC Brazil chances range from 30 to 60%. This is, or should be, the wettest time of the year and with temperatures rising the risk of crop stress will be rising and potentially rapidly so. There is little, if any, evidence that dryness across La Pampa and S Argentina will end soon and it has to be stated that this is not a typical S American January weather pattern. Recall that January is key for soybean yields as stated earlier.

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Fund positions
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Weekend summary 23December 2016

• Chicago markets closed mostly lower with soybeans leading the way! China’s Dalian market saw overnight weakness in soybean meal and corn on account of avian influenza concerns and funds followed the trend. The drop coincides with another week of solid US exports and the funds have added to new short positions in the grains whilst liquidating soybean length. The market has a refreshed bearish feel although US soybean export sales at record large levels and some concerns over NE and NC Brazil will likely prevent an out and out return to bearishness. Also, bear in m ind we have just seen the third day of fund selling in the grains, and this is generally as far as fund selling extends – unless tomorrow proves different!

• Weekly customs export data shows EU wheat exports of 804,900 mt, which brings the season total to 12.987 million mt. This is 240,564 mt (1.8%) behind last year. Barley exports for the week reached 115,279 mt, which brings the season total to 1.997 million mt, which is 3.5 million mt (73.8)% behind last year.

• January is the most important month for S American crop production of the year. We would not want to be a seller of summer row crop futures until more is known about the 2017 Brazilian and Argentine yield potential. January soybean futures should target the $10.00 strike heading into option expiration on Friday. This is not a normal S American weather pattern and has to be closely watched. Our view is not to sell the three day drop in corn!

• Egypt’s GASC tendered for wheat once again, this time for end January 2017 shipment. They secured 360,000 mt with their first purchase of the season from Argentina included in the deal. The deal was concluded at an average price of $197.52/mt basis C&F, with Russia awarded 180,000 mt, Argentina 120,000 mt and Romania 650,000 mt; one of the Argentine cargoes was the cheapest at $196.53/mt basis C&F. Worthy of note is that the overall price average was almost $5.00/mt below the last tender at the end of November.

• Chicago markets are approaching the close with the grains, corn and wheat in negative territory and soybean just in the green. It seems that soybeans have failed to continue to decline as fund managers are reluctant to add to sales today in the wake of recent trades. Much of the recent decline and liquidation has centred on January futures, which will move into delivery next week. Grains are sagging on slowing demand. The month, quarter and year end are all pressing the markets into stagnation as holidays, P&L’s and bonuses rear their heads. European wheat markets are similarly starting to move towards a standstill as traders head for an extended holiday break.

• Rainfall remains in the forecast for much of Argentina in the coming five to seven days and this will likely limit trade to its recent ranges.

• Bird flu continues to expand across SE Asia with the price of eggs and poultry meat rising sharply. The H5N6 outbreak has culled a record 20 million birds so far. Most in SE Asia fear that the cull number could reach as much as 30 million birds if the incidence of the disease does not soon slow. Some are  estimating that such a dramatic cull of poultry could reduce corn consumption by at least 90 million bu.

• Dull is the session with funds selling corn as the market pushes below key moving averages. The soybean market is holding on grain/soybean spreading and modest cash connected buying in soybean oil. The Chicago market just seems to lack conviction ahead of the holidays. Traders are closing out positions as they look forward to 2017. NE Brazil accounts for 15% of the soybean crop with some dryness worries there offering some support. We continue to doubt that rallies or breaks will be able to be sustained into the holiday break.