• Monday morning in Chicago saw prices in the red as weather models confirmed a further six to eight days of dry and mild weather. Soybean yield reports continue to stay mostly above or at expectations and C Illinois corn yields showed signs of improvement in the last half of last week. It seems that we will see further pressure as harvest ramps up and expands and we may well be witnessing the funds unwinding their net long position in soybeans, albeit slowly and maybe even reluctantly.

• Soybean meal has made new lows for this move and more DDG’s will doubtless compete for feed demand in coming months adding more pressure. EU prices in wheat and rapeseed dipped in sympathy with their bigger cousins in Chicago.

• We saw no further US soybean sales announcements today although the break will likely see a resumption of pricing and purchases as the week progresses. Chinese crush margins are reported to be at record highs for a spot position and they will doubtless want to lock in as far forward as possible if history is anything to go by. A “Turnaround Tuesday” is possible tomorrow, but still there is just too little available for the bulls to push values higher, with a vast majority of the Midwest harvest due in the first two weeks of October. Interior cash basis levels have been in retreat since early last week, as producer become more comfortable with yield estimates. Recent rallies in corn and soybeans have prodded supplies from farmers and end user/exporters remain unwilling to chase rallies higher.

• The only meaningful weather threat remains in Australia, where additional soaking rainfall is projected across Victoria and New South Wales through this weekend. The trade there is now more closely watching for quality issues. Early week trading recently has been mostly about yield estimates and combine reports. Understandably, it is difficult to find support amid ongoing record soybean yield data. Substantial demand lies below the market, and we maintain that range-bound trade will likely persist.

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Weekend summary 23 September 2016

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Fund positions

• Brussels has issued weekly wheat export certificates totalling 482,344 mt, which brings the season total to 6.43 million mt. This is 1.24 million mt (23.8%) ahead of last year. Barley exports for the week reached 84,012 mt, which brings the season total to 1.18 million mt, which is 2.12 million mt (63.3)% behind last year.

• Midday saw Chicago markets mixed with corn lower, soybean higher and wheat stuck somewhere in the middle. Moderate to (in places) heavy rains are expected to hit the W Cornbelt over the weekend, and radar images are already showing clusters of storms in E IA and W IL, although weather models do show some disagreement over how much rain may actually fall. The detail has low levels of confidence and this will have to be watched to ensure that any risk issues are not missed. Rainfall levels of 3 to six inches should not be ignored at this stage in the season because they may just lead to quality issues later on.

• Delta soybean yields have proved slightly disappointing and any ongoing wet weather pattern may prove an obstacle in bridging tight old crop to abundant new crop supplies, and short term may impact cash premiums.

• The US$ is lower after the Fed failed to raise interest rates and price support has been noted at last week’s low, but it has to be said that the Fed’s refusal to move rates is being seen as disappointing. Crude oil is $1 higher with gasoline and ethanol following.

• Egypt’s GASC has reported that it received four offers in its tender today with prices in a wide range and we would expect that they will have to pay up, at a premium, until the market is confident on the ergot policy resolution.

• In summery, unlike Argentina this spring, follow up heavy rains are not indicated, and so heavy yield or quality loss is not expected. We maintain that traders need to stay nimble through harvest. Next week’s weather forecast, and weather precipitation in early October, will be key to price direction.

• The US wheat farmer excluding Government payments, is facing its largest net loss per acre in nearly three decades. It is  forecast that US wheat farmers at current new crop prices will be facing losses exceeding $110/acre. Such losses are sizeable and reflect the reason behind the dramatic shrink in US wheat seeding since the mid 1990’s. This means an additional push into US corn and soy acres or other minor oilseed crops. Wheat is not a crop favoured by US farmers this autumn.

• We have seen Chicago markets mixed to lower with corn and soybeans trading lower as wheat attempts to rally on news that Egypt has (at last, and for now) approved ergot levels of 0.05%, the generally accepted international trade tolerance level. This will free the way for exporters to feel somewhat more confident in making offers to Egypt going forward. It is expected that Egypt will tender once again following the “cancellation” last Sunday in the face of zero offers.

• Corn and soybeans have sagged on improving US  prospects and harvest acceleration as well as a slowdown in fund purchasing which has been a feature in the last few days. There is a view that the Stocks and Small Grains report, due for release on Friday 30 September, will be somewhat bearish with wheat likely to replace corn in feed rations through the June-August quarter. This data release and the October WASDE reports are likely to keep a lid on either rallies or breaks.

• US wheat exporters are getting more interest from overseas buyers as quality becomes more important and other world exporters struggle with protein and sprout damage. As we have been suggesting for some while the outlook for US soybean and grain demand is solid.

• It has been a day of waiting for the US Central Bank decision and it remains hard to get overly bullish on corn or soybeans at these levels with harvest dead ahead and yield trends improving. We maintain a trading view of buying sharp breaks and taking profits on rallies. It’s too late to be overly bearish due to large US crops. US farmers will probably store as much crop as possible and GASC looks to return as more routine buyer of world wheat. Unfortunately, we doubt that rallies can be sustained and one has to be quick to take profits when offered.

• The latest IRI (International Research Institute for Climate and Society) probabilistic forecast for world temperatures between January and March of 2017 argues for heat invading much of Brazil and portions of Africa. Temperatures have a much better track record of being correctly projected when compared to precipitation, but the model data does argue that there should be a few good weather scares for Brazilian crops during the heart of the growing season.

• It is difficult to find any fundamental reason for a 20 cent gain in soybeans, which has eased back into the close, and the drag along for the grains is similarly hard to explain/justify although the grains have made less significant gains. Further strong gains in Dalian palm oil futures and global vegoils was the catalyst. November soybean futures pushed above technical resistance of 20, 50 and 200 day moving averages, which spurred further buying whilst December corn pushed against recent highs. The CBT Index has rallied sharply with the broader commodity price rally, which is likely to be triggering buying interest.

• There is a question over rains in the W Midwest and parallels being drawn with what happened in Argentina in April, although it is too early to suggest that we may see a similar pattern. However in a market that is looking for a reason to bounce, maybe this is one such reason. The rains are widespread and far less than those in Argentina – watch this space.

• Harvest in the E Midwest and Delta is picking up pace and the yield trend in corn remains variable, and we are informed that it correlates well with where, or where not, fungicide was used. In soybeans yield remains impressive and record large in many cases.

• It is probably best to describe today’s price action in Chicago as “a macro day” with funds adding to length across most commodities. It remains difficult to turn out and out bullish in soybeans and corn with the main US harvest directly in the headlights and with yields potentially improving in corn and at record levels in soybeans. We may well see further fund buying as they tend to follow three day patterns (and this has been day two), but we are reluctant to chase this rally. Big demand is supporting the current price upside and we would be surprised if big yield/output does not cap it before too long. It remains a choppy marketplace.

• The latest modelling does not expect that La Niña will strengthen or persist into 2017. The current La Niña is one of the weakest and shortest lived on record. Notice that  in the IRI ENSO modelling argues that La Niña will die by late year with a neutral ENSO forecast into July. This would reduce the chance of a dire ‘17 Midwest drought and any sharp rise in CBOT agri prices. However, the Pacific Decadal Oscillation is shifting to a warm phase (cold since 2012) which along with warmth in the Atlantic argues for elevated dryness worry.

• Today began with Chicago markets higher with the soybean complex leading the way on rising global vegoil prices whilst grains saw things a touch easier. Cash corn movements in the US remained limited with few willing or happy to hold long positions ahead of the advancing harvest. The bulls appear happy to take short term profits on rallies and the market appears to have the feel of one unable to sustain either rallies or price breaks as the trade continues to estimate the actual new crop size. We expect the choppiness to continue until some certainty can be found.

• It was interesting to note that Egypt’s GASC received a grand total of zero offers in its latest, unusual, Sunday tender. Clearly the zero tolerance on ergot contamination and a couple of rejections are weighing on the previous willingness of exporters to make offers. There will soon be a time pressure upon the Egyptian government to make a change, and act upon it, if the country is not to endure a tightening of stocks. At the same time the global supply position on quality wheat is fading due to adverse weather and the feed wheat stockpile appears to be growing.

• “Buy the humps and sell the dumps” is the best message to trade the Chicago according to one commentator today! This is a big crop/big demand marketplace with CBOT prices continuing to chop. It’s premature for a sustained recovery with the US harvest dead ahead, but on the other hand, buyers are waiting for breaks to buy. Slowly the markets are forging a bottom, but it will take time unless the US soybean yield ends up being above 51.5 bushels/acre. This is no time to make new sales and become bearish as we maintain the downside price risk is becoming limited.

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

Weekend summary 16 September 2016

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

Fund positions

• Brussels has issued weekly wheat export certificates totalling 455,784 mt, which brings the season total to 5.95 million mt. This is 1.35 million mt (29.3%) ahead of last year. Barley exports for the week reached 71,672 mt, which brings the season total to 1.09 million mt, which is 2.09 million mt (65.7)% behind last year.

• US export data was released as follows:

• Chicago has seen mixed trade with the grains and soybeans trading in opposite directions. Soybeans picked up a bid whilst the grains sank on fresh fund related selling. Buyers remain reluctant to chase the rally with harvest immediately ahead whilst farmer sellers are reluctant to sell at current levels – stalemate and choppy, rangebound trade anyone? Yield data and buyer aggression will determine if, and by how much a rally develops in October, and we are still of the opinion that a low has been (or will be) formed during September.

• Wednesday saw a quieter day of trading in Chicago soybean futures, which left them slightly weaker with products mixed. Meal traded quietly,just above the monthly lows whilst oil slipped to a five week low before ending about unchanged. The theme of big crop and big demand is still intact, and this will likely see markets continue to trade a broad range. Both crush and export programmes are expected to be record large in coming months, while record yield and revenues (well above insurance values) look as if they will work to cap rallies.

• Corn managed a slight rally despite weak energy markets. E Midwestern yields appear variable although this appears to be improving as work moves further north but currently it is failing to match 2014 (prior record) levels. It feels very much as if we are at, or have been at, the low end of the trading range although it must be noted that the fundamentals are not bullish at this time.

• With the US$ lower wheat ended in Chicago a touch higher amid any real fresh news. We hear that Black Sea offers or quotes are hard to come by, maybe exporters are backing off at current pricing, which may add to or confirm that we have seen the lows. Quality remains an issue in much of the European crop.

• Tuesday saw an interesting start as markets digested Monday’s USDA data and raw materials saw a sea of red as the higher than expected yield estimates encouraged long liquidation, particularly in soybeans whilst the stronger US$ and sharply weaker energies added further pressure. Even wheat participated following better than anticipated Australian output figures from ABARES overnight.

• China is reported to be more active in sourcing soybeans on the break and we would expect to see further activity on these lower prices. Energy pricing is expected to remain weak into 2017 according to the US’s EIA due to a large global supply glut.US crude stocks remain high despite a decline in August yet gasoline stocks are 6% up year on year and ethanol is up just over 10%. The next report is expected to show further stock build underlining the position still further.

• Many are pointing to potential enlargement of corn and soybean acres via Monday’s FSA (Farm Service Agency) loan programme enrolment update. We can assume a normal amount of acres will be added (600-800,000) in October and November and we would anticipate 100-400,000 in the upcoming release. However, more important to overall yield will be a function of pod counts/ear weight rather than acres in our view.

• Tuesday saw soybeans weaker with liquidation featuring throughout, new crop export programmes are off to a very strong start and look to accelerate in coming weeks, potentially cushioning cash basis declines into harvest. Corn was plagued by the stronger US$ and falling energies, which if our comment above holds true, looks likely to keep prices capped. Wheat fell in sympathy with corn despite firm global cash prices despite the fact that there is no shortage of wheat in the world and ABARES latest figures (a touch over 28 million mt vs. USDA’s 27.5 million) attest to that very point. Weaker European currencies may account for the firming cash basis and seasonal global price trends rarely show weakness beyond mid-September.

• It remains that if prices are to see a strong recovery demand has to be found otherwise the more than ample supply position will continue to dominate although we struggle to see major bearish price action at current levels.