• Chicago markets started the day with grains either side of unchanged and soybeans extending their rally on continued strong Chinese demand and an expectation that the USDA figures on Friday will show a substantial reduction in 2015/16 end stocks on the back of increased export demand. The trade is braced for a 2016 US corn yield of 171-174 bushels/acre with some even higher than this, consequently the potentially record US corn crop is weighing on prices.

• Brazil’s CONAB reported a slight reduction in their 2016 soybean and corn crops with soybeans pegged at 95.4 million mt vs. 95.5 million in July with corn at 68.5 million mt vs. 69.1 million in July. Despite the reduction being close to expectation, it should be noted that output is inching ever closer to domestic usage and fob premiums are rising to levels now some $0.40-$0.60/bu above other origins. The positive spin is that with cash corn prices in Brazil reported to be as much as 70% above last year we should anticipate some significant expansion in new crop acreage.

• The markets are now looking for objective N Hemisphere yield data and some indication as to whether, or not, production gains can keep pace with improved export demand  specifically as far as US soybeans are concerned. We would expect the US corn market to stabilise at its multi-year low levels as growth in stocks to use appear to be less than initially feared as the US’s share of global export trade has the potential to improve. As we write this it seems that even high quality wheat is starting to attract attention from major importers with the prospect of a further widening in premiums for milling grades over feed supplies.

• Chicago markets start the week in the green as corn, wheat and soybeans push close to last week’s highs. Big crop mentality continues to overhang the market and cash sellers are around to place a cap on any strong upside. It should not be forgotten that the US corn harvest will begin before too long in the Delta and midwest producers are keen to empty storage bins before new crop price pressure eliminates any remaining old crop premium.

• Friday’s report will be watched closely for record large corn and soybean output, which if absent may well trigger price reaction. There are some who are looking for output some 5% above previous bests although we are, at this time, doubtful of such large upside. The main question is, “How BIG is BIG?”

• Initial crop size is awaited from Friday s report and, again, August is seasonally a weak period for agri markets. However, China’s recent interest in soybeans, along with record soybean export shipments, should not be ignored. We should all keep in mind that the US will be the world’s only soybean supplier through to early 2017, with the Gulf corn market becoming increasingly competitive, and all that comes with it.

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

Weekend summary 5 August 2016

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

Fund positions

• The USDA has today released its weekly export figures as detailed below:

Wheat: 370,500 mt, which is within estimates of 350,000-650,000 mt.
Corn: 1,227,400 mt, which is above estimates of 800,000-1,200,000 mt.
Soybeans: 1,670,400 mt, which is above estimates of 1,100,000-1,700,000 mt.
Soybean Meal: 215,800 mt, which is within estimates of 65,000-300,000 mt.
Soybean Oil: 36,600 mt, which is above estimates of 4,000-30,000 mt.

• Brussels has issued weekly wheat export certificates totalling 420,389 mt, which brings the season total to 2.797 million mt. This is 699,616 mt (33.3%) ahead of last year. Barley exports for the week reached 92,113 mt, which brings the season total to 831,339 which is 53.81% behind last season.

• It has been a mixed, and frankly speaking, boring session so far in Chicago. Good, solid old and new crop soybean export sales have allowed some small gains whilst the grains have languished just below unchanged in the absence of fresh news. Nearby MATIF wheat prices are €uro 2/mt lower on news of recent imports into France from Romania, which are suggested (not confirmed) to be for delivery against MATIF futures.

• We reiterate our view that the market needs to better understand and have confidence in the size of US wheat, corn and soybean crop output prior to turning attention to demand issues. We continue to anticipate a seasonal low price in the next few weeks.

• Chicago soybean markets saw a lighter “inside” day of lighter trading with prices closing firmer on the close. There was little in the way of fresh market news aside from large export announcements and daily weather updates, which continue to project non-threatening conditions into mid-August. Soybean yield predictions are at, or near, record levels, and it is this which has been a key price driver in recent weeks whilst the huge export shipment and sales volumes have been largely ignored. These will likely become a more significant price driver going forward as soybean prices attempt to move up from key price support levels.

• Corn futures settled a touch higher as energy prices rebounded and new crop sales were announced. Thursday’s export sales figures are expected to be high in both old and new crop given a small drop in US Gulf basis levels and a slight hike in Black Sea premiums; the US appears to now officially be the cheapest corn origin through to November, and potentially so into early 2017! Dramatic boosts in export volume are unlikely but a sizeable export programme will doubtless build in time. Crop finishing weather across the midwest appears mixed into mid/late August with plenty of rain in the coming ten days but lingering and potentially damaging heat remains (high 90’s to low 100’s) across some of the region. Crop yields are being forecast as variable although a 168 bushels/acre number is widely anticipated and the earlier 173 plus bushels/acre level looks more remote given the warmth this summer so far. Continued lack of strength appears the theme although the stage seems set for a decent price recovery in mid to late autumn.

• In wheat the European cash markets eased a touch although quality concerns are spilling over into Germany. Russian wheat remains the world’s cheapest, and yield estimates there continue to grow. As we have previously suggested it seems that wheat quality premiums will continue to grow, certainly in Europe. This could bode well for US quality wheat export potential in coming months. The developing La Niña appears a heaven sent blessing to Australian farmers as better than average precipitation fell in July and vegetative health maps suggest better than trend yield potential is on the cards. Forecasts are calling for additional soaking rains on both coasts in the coming 10 to 12 days, which will continue to benefit crop potential. Australian cash fob prices have declined some 6-8% since late June and it feels as if Aussie exporters will be aggressive in holding on to Asian business this season.

• The latest US crop condition report (detail above) has kept pressure on the US summer row crops of soybeans and corn. Added to this the latest FS Stone yield and crop estimates hit record levels and this has added to pressure. Nov ’16 soybeans breached the significant 200 day moving average support level ($9.555/bu), which sparked further selling and new lows have been scored across the big three of corn, soybeans and wheat.

• Chicago markets have been in almost constant decline since late June and the outlook for big crops should not come as a surprise to any readers who have been following our commentaries. There looks to be potential for corn and soybeans to yield as much as 5% above trend given normal weather into harvest. Should this materialise we can see Dec corn futures  prices coming close to $3.10/bu, which equates to some 20 cents of downside. Clearly the market will try and retain some weather risk premium but time is eroding for this to impact yield and output significantly. With current cash prices at two year lows, end users are understandably not shy in adding to forward cover on price dips, and it is this which is a limiting factor to prices declining significantly from current levels.

• Wheat prices are following corn but global levels are rising as N Hemisphere harvest advances. Offers were made to Egypt’s GASC in their latest tender for September shipment, Russia, Ukraine and Romania were evident with France once again noticeably absent. This absence is likely a cause for less aggression seen in offers although 60,000 mt was secured from Russia at a price reported to be $177.09/mt basis C&F. Black Sea producers seem to view storage as their best financial option at present, and we would not disagree with their opinion at this time.

• Funds are still exiting stale wrong bean long positions while US crop sizes keep being talked larger amid non threatening weather. China has purchased another 4 to 7 cargoes of soybeans today out of the US. The tone of the market is bearish but we would continue to advise against becoming overly so at current low prices. September corn futures are approaching the 2014 lows at $3.185/bu while September Chicago wheat has fallen below $4.00/bu.

• A continuation of non-threatening US summer row crop weather is adding to the weaker tone in Chicago markets as is fund selling. Corn is following soybeans and wheat is holding its own as EU crop estimates continue to inspire and weather that is failing to assist harvests in Germany and Poland. The fund short holding in wheat is raising concern levels, in other words if they decide to cover we could see prices spike sharply higher. This would potentially coincide with the end of the US harvest at which time prices tend to turn seasonally higher – watch this space closely would be our thought!

• Recall our previous comments regarding “big crop, big demand”, buying price breaks or selling rallies in wheat may not provide good returns as there is likely to be a better day round the corner! Currently fund length in soybeans (given non-threatening weather) and their short position in wheat are what the market is all about today.

• There are suggestions around the market today that China is about to enact a US DDG embargo on imports later this week quoting dumping activity under WTO rules. With a 9-30% duty this would make a serious impact upon US DDG export potential, and is unlikely to have little, if anything, to do with cheap global wheat prices – or is that just taking a cynical stance once again!

• We continue to believe that US corn and soybean prices are searching for, and potentially close to, a seasonal bottom.

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

Weekend summary 29 July 2016

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

Fund positions

• We currently see Chicago markets best described as “big crop, big demand” and believe that this will be our mantra in the coming few months. We are facing a supply push bear market and a demand pull bull market, both at the same time! Right now we have to comprehend and compute the size of the US crop before any demand pull price rally truly kicks in. Consumers want to gain a better understanding of the US crop size in the August WASDE report before adding to current position length. Regardless of the report contents we would expect additional consumer cover to be taken post report release, with the potential for upward price momentum as a consequence.

• Right now we are seeing corn prices at two year lows with potential for US soybean export volumes to be such that there is little room for S American crop issues. It is our belief that S America needs to produce and harvest a record (or close to record) 2017 soybean crop if global supplies are not to be depleted. One further area of question is whether or not the US has adequate out-loading capacity to cope with the anticipated growth in soybean export sales.

• Black Sea wheat prices have risen a quick $7-9/mt in the past six trading sessions amid improved demand and tightening supplies as Russian and Ukraine farmers do not appear willing to sell their recently harvested cash wheat at current low prices. Additionally, due to the acute French and S German crop quality issues, E European wheat is being booked on small vessels into W France. All of a sudden it’s a race for quality wheat. The rally in world wheat prices is placing US wheat in a more competitive export position. Note also that Russian 12.5% wheat at $168-169/mt spot is still trading $3-4/mt below US Gulf corn. It never makes good sense to be short of the cheapest quality grain in the world at decade lows!

• Egypt’s GASC received 10 offers on an overnight wheat tender that were some $10/mt above their past tender on rising Black Sea offered prices. Including freight, the CIF offers stand at or above $178/mt compared to $168/mt on July 12th. The GASC tender provides yet more confirmation that world wheat prices are rising, even as some raise their estimates of the 2016 Russian wheat harvest to 69 million mt. Seasonal lows are being forged in world and US wheat values!

• This morning saw soybean futures pressured in early week trade as further fund long liquidation persisted, and this dragged corn prices lower in a sympathetic tone. US wheat prices remained higher as funds covered short positions amid reduced and uncertain crop prospects in Europe, particularly in France. Paris future eased a touch, unsurprisingly, on some profit taking following the price surge late last week although traders remain nervous of any further wet conditions that may leave some quality deterioration in Germany, Poland and Scandinavia. There is a concern that the EU crop can ill afford any volume or quality losses as suggestions of some regional French yield losses as high as 30-50% (as yet unconfirmed) and quality standards reported to be well below export specifications.

• On a more positive note, in the US MDA weather forecasting, which utilises satellite technology has suggested corn yields could reach 172 bushels/acre and soybeans as much as 50 bushels/acre. Record corn yields could well be possible whilst soybeans at 2 bushels/acre above previous record levels feels a touch premature, however, it just marks the territory for now and confirms things are looking pretty good! August and early September weather conditions are crucial for soybean yields to be optimised, as we have previously mentioned.

• Funds need to get to flat or square positions in soybeans and meal before we can assume a bottom has formed or can be held. Selling in the grains is slowing and the European quality/yield issue remains a supportive issue, particularly in wheat, which will leave Chicago corrections modest in our view. Today, and current price levels are not the place to become bearish and we await more clarity on August weather conditions with interest.