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

Wheat: 223,800 mt, which is within estimates of 100,000-550,000 mt.
Corn: 1,679,200 mt, which is above estimates of 1,100,000-1,500,000 mt.
Soybeans: 1,234,000 mt, which is above estimates of 800,000-1,200,000 mt.
Soybean Meal: 181,000 mt, which is within estimates of 175,000-420,000 mt.
Soybean Oil: 22,100 mt, which is within estimates of 10,000-50,000 mt.

• Brussels has issued weekly wheat export certificates totalling 395,005 mt, which brings the season total to 30,956,198 mt. This is 1.923 million mt (1.91%) behind last year.

• In outside markets we have seen a stronger US$, op 0.5% and near the week’s high, and crude oil off $0.75/barrel, which has perhaps stemmed some of the recent enthusiasm that has prevailed in Chicago. However, 60 cent gains in new crop soybeans in less than a week cannot be described as a non-event by any stretch of the imagination!

• We have seen variable fundamental input today with US weather forecasts improving noticeably although there corn belt remains rather wet through next week. Soybean and corn export data (above) was better than expected and Brazil’s CONAB confirmed further cuts in yield to both corn and soybean crops. Wheat led the way lower early today on what we fundamentally believe to be a story that lacks any bullishness.

• CONAB lowered its Brazilian corn production estimate nearly 4 million mt to 76.2 million. This is a bit lower than expected, but close to many private trade estimates. Brazil’s exportable surplus is estimated at 23-24 million mt, which is still sizeable but compares to the USDA’s 26 million. Brazil’s shortfall is in part responsible for the recent boost in US sales. Soybean production was pegged at 95.6 million mt, vs. 96.9 last month and 96.2 a year ago. Brazilian soybean basis and ship lineup data suggests Brazil is nearly sold out, and that farmers will be reluctant to sell whatever remains of their crop. On the flip side, the earlier than expected end to Brazil’s soybean loading program will allow corn exports to begin smoothly in mid/late summer. The Brazilian government looks to auction off reserve corn to help livestock operations, but the Brazilian corn market is expected to loosen substantially. The safrinha harvest will be ongoing into August. Argentine harvest progress and yield updates will be released after the close tonight and the soybean harvest progress is expected to reach 85-88% complete with corn harvest estimated at 33-35%.

• US cash basis prices were weaker yesterday with farmers both good and willing sellers on the rally. We have stocks and seeding updates due at the end of the month and markets are far from decided upon actual weather models, conditions and patterns into July/August although the perceived potential for heat and dryness will doubtless linger until disproved. Our view continues to have the large global stockpiles that continue to overhang current S American and US new crop supplies amid a mediocre demand pattern. Weather remains a non-threat in the US into late June when we will start to see the key corn pollination period starting in the Delta, SE and S Midwest.

• The morning saw wheat catching bids on the back of fresh fund short covering whilst corn and soybeans eased a touch on solid crop condition ratings (see above) as well as improved Midwest rain chances in the coming week.

• The rally in wheat has little substance as far as fundamentals are concerned, it all appears to be driven by technicals and fund short covering.

• The longs fund positions in corn and soybeans require an input from US weather if the bullish momentum is to be maintained.

• Russia’s IKAR raised total grain output estimate to 109 million mt, which includes 64.5 million mt of wheat. Note that both figures, if achieved, will be record large.

• The debate over US weather rages on, but there is little question right now that the flow of Gulf moisture to the north will improve next week allowing for a warm/wetter period across the Central US. Immature corn/soybean crops are rooting down, but rains will be required in the last week of June for high yield potential to be maintained. The frost in S Brazil has no impact on their mature corn production.

• An emotional/fear packed morning of Chicago trade with speculators piling into fresh market length as they ponder whether hot Midwest temps this weekend could be the start of the La Niña drought? A slew of private forecasters are using ENSO analogs to forecast a 2016 Midwest drought, speculators understand that it’s time for a real weather market to begin. Whether such thinking is correct has yet to be determined, but there is no evidence that a “dome of doom” is prepared to settle across the Central US in June. The coming heat/dryness this week appears to be a rather normal interlude to the start of summer. New crop corn and soybeans scored new rally highs, while wheat followed on massive fund short covering.

• There appears to be little evidence of any massive flooding or ponding of fields outside of those that abut major tributaries like the Seine River. Most of the European flood damage to crops is modest and at this time we are not looking for a substantial cut in yields. However, the recent cool/wet weather has pushed back the wheat harvest to early to mid July. This means that wheat quality issues will be resolved in the next 3-4 weeks. Amid saturated soils, there could be a larger share of French/German wheat that is now degraded to feed quality. The French/German weather forecast is improved for the flooded areas this week with sunshine/warmth. However, the forecast models have the rains returning next week to the Paris Basin. Sunny, warm and dry weather is now desired for EU and Russian winter wheat crops into harvest.

• Brazilian and Argentine farmers are becoming much more active sellers of newly harvested cash corn with prices at record highs. The corn harvest is starting to more actively advance with some cutting the corn at high test weights to quickly meet market demand. The Argentine soybean harvest should reach at least 85% completed this week with yields holding steady.

• It is all about weather in the US at present, and a week of warm/dry weather during June favors (not harms) crop yields – if the rain returns as forecast.

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

Weekend summary 3 June 2016

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

Fund positions

• Our initial morning thought, which we did not forward was as follows:

New money entered ag markets yesterday, despite a seemingly bearish crop progress update from NASS on Tuesday. In addition to month-beginning money flow, there’s lots of talk on the potential for a shift to warm/dry weather beginning in late June, and for heat to be lasting across the E Midwest in July. Drier weather is noted through the next 10 days, but we are doubtful that it is the beginning of a trend. Soil moisture reserves across the Plains look to buffer heat in the near term, and building a drought will be difficult. Better precipitation coverage is forecast to return to the Central US in mid-June.

• This evening, soybeans are pushing ever higher with nearby Chicago contracts surging up another 4% on what appears to be a combination of technical and follow through buying. Grain futures struggled earlier in the day although wheat managed 2% gains on the day. Talk of Argentine lacking sufficient natural gas to dry soybeans was one bullish aspect we have not preciously encountered! However, switching from S America to US Gulf origin is on the cards (although not yet physically in evidence) and added to upside momentum. Estimates suggest that funds are record long soybeans, possibly as much as 230,000 contracts, some 15,000 above previous highs.  This rally is no longer about weather as near term forecasts suggest slightly wetter and cooler conditions are expected into the next ten days across the E Plains and Midwest.

• The current move higher has forced end users into pricing soybean and meal requirements, adding to bullish momentum. We must be at the back end of the digestive process as far as S America crop issues but the funds must surely need to see confirmation of non-threatening weather into July before letting go of significant position length. June market rallies are far from unknown historically, the question now is how high will this one go. That said, with funds potentially record long, the possibility of a dramatic price correction can not be overlooked in the event of favourable central US weather.

• Corn planting in reported to be 94% planted, up from last week’s 86%, and above the five year average of 92%. Soybeans are 73% planted, better than expected and up from last week’s 56%, and above the five year average of 66%.

• It has been a “Turnaround Tuesday” in Chicago today – even though it is Wednesday! The second trading day of the new, post-holiday weekend has seen markets turn higher in a fairly typical turnaround manner. Soybeans have led the way with premiums in Brazil firming and a rising US Gulf new crop basis. Perhaps Tuesday saw wheat oversold, and corn follow, and today is simply a matter of correction. An additional input could well be the start of a new month, and the new money that flows inwards may well be assisting upside.

• Amid rising crop potential in the US and  Canada, favorable rainfall in Eastern Australia, and even the potential for higher  feed wheat supplies in W Europe, the global cash wheat market continues to work towards levels that attract higher feed use. We are sceptical that a dramatic shift in feed use or diets will occur in the US, but Asian importers will be increasingly eyeing wheat to replace corn, particularly following the recent rally in S American fob price levels. The graphic below charts spot wheat futures’ premium to corn. The looming N Hemisphere wheat harvest is expected to weigh on global corn prices into mid-summer.

• Chicago markets return after a long weekend and it has been wheat that has shown the way lower with front month futures as much as 3% lower on the day. Corn is also lower although not as much (front month down 2%) and soybeans dropped less than 1%.

• It seems that favourable US weather is weighing on the market and news that the wheat harvest in Oklahoma is under way and producing both good yields and quality also impacted prices. Clearly we need to see conditions remain dry to allow progress and to that end forecasts appear to be playing ball right now with conditions looking good into mid-June.

• We are in a position where weather premium is currently in the process of being removed from current pricing as weather outlooks, regardless of which model is used, can be described as unexciting!

• Corn planting data will be released later tonight, but expectation is that we will see corn at 94-95% planted and soybeans at 70%. Corn condition is expected to be 71% good/excellent with wheat ratings steady to higher.

• We are at a stage in the season where weather, which has largely been an incidental issue in the past few months, will become a much more significant determinant of pricing. Crop critical weather will be watched closely and July (corn pollination) weather will be important to say the least. Weather will be less significant for wheat given global supplies.

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

Weekend summary 27 May 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: 344,700 mt, which is within estimates of 300,000-700,000 mt.
Corn: 1,627,300 mt, which is within estimates of 1,250,000-1,750,000 mt.
Soybeans: 606.900 mt, which is within estimates of 600,000-1,000,000 mt.
Soybean Meal: 187,200 mt, which is within estimates of 100,000-275,000 mt.
Soybean Oil: 34,600 mt, which is within estimates of 50,000- mt.

• Brussels has issued weekly wheat export certificates totalling 755,414 mt, which brings the season total to 29,879,121 mt. This is 1,92 million mt (3.0%) behind last year.

• Favorable weather, and vegetation health at or above last year, has been well documented across Europe and the Black Sea. Warmer weather is desired across W Europe as the crop begins the grain fill stage, but damaging cold is not projected. Weather across the Black Sea regions will be nearly perfect through the first week of June. We project a moderate hike in combined EU and Black Sea wheat yield in the next one to three USDA WASDE releases, and amid lacking demand growth, surpluses will continue to build. Already the USDA projects combined EU, Ukrainian and Russian production to exceed domestic use by 67 million mt, vs. a surplus of 70 million in 2015/16. It looks like the EU/Black Sea wheat surplus could reach a record 71 million mt in 2016/17 with normal early summer weather.

• The full combined balance sheet is below. Notice that despite an 1.3% drop in area, total EU & Black Sea supplies will be a record large 283.7 million mt, up 4 million from the USDA’s estimate amid a 1 million mt production gain in Russia, a 1 million mt gain in Ukraine and a 2 million mt boost in Europe. Domestic use is projected slightly below the USDA, as EU feed consumption will likely be cut amid larger available corn supplies. End stocks are projected higher by a like amount. Combined exports (if achieved) at 71.5 million mt are the largest on record, which amid steady/weaker global trade will leave little room for US export demand growth. New crop cash prices are already weakening, and it’s left to the US Gulf market to follow if the US’s share of world wheat trade is to be increased.

• World cash wheat prices have turned lower this week, but additional downside risk remains into the N Hemisphere’s spring wheat harvest. The attached graphic shows French fob prices for the last three years, and a fairly strong seasonal trend appears. World wheat markets typically bottom in Aug/Sep, with June to August losses since 2013 ranging from 8-10%, which in 2016/17 projects a seasonal bottom at $157/mt. Interestingly, this also aligns with major exporters’ stocks/use analysis. At this price global wheat will also better compete with corn for feed consumption. The next leg down in US futures will be led by world cash markets. A weaker trend is expected over the next two to three months, and US futures should find a more lasting bottom at $4.00-4.20, basis spot Chicago.

• The International Grains Council (IGC) has released its most recent crop estimates which forecast 2016/17 global wheat output at 722 million mt, a 5 million month on month increase, down from 736 million mt last year. Global corn output was forecast at 1,003 million mt, an increase from 998 million mt last month and also a year on year increase from 971 million mt. Clearly grain supply appears to not be lacking according to the IGC!

• Today has seen a suggestion that Chinese soybean meal is actually very close to calculating into the west coast of the US and this has sparked something of a profit taking move in Chicago in advance of the long weekend holiday break. The $160/ton rally in spot Chicago futures is historic in a non-drought year and from a technical perspective the market is severely overbought and in dire need of correction, but a top is not evident at this time.

• Brazilian and Argentine farmers are smiling! The price of soybeans in Reals or Pesos reached record highs this morning. As we have previously reported, interior and port prices for soybeans and corn have never been higher in local currency in S America. The high corn price is causing domestic livestock producers to ration feed demand, but in the case of looking forward to 2017, producers would seem likely to expand. Importantly, Brazilian farmers are selling ahead. We have heard reports of record forward Brazilian soybean sales for the new crop growing year with a crop that ranges from 102-110 million mt. Its appears to be good times for S American agriculture.

• Headlines:

• Soybeans follow as July soybean meal pushes to a new rally high.
• Spot corn rallies to eleven month high, holds premium to wheat in Plains.
• Wheat follows corn and soybeans higher, but only slightly.

• Fund flows continue with July soybean meal pushing ever higher and soybeans recover with double digit gains. Funds appear to have been piling in from the opening bell and only easing the pace around midday, it was suggested that some may have been trading up to their limits on soybeans and are turning to spread trades as a means of holding even larger positions. Corn and wheat were dragged along despite record large world wheat crop hanging over the market.

• Commercials, and ourselves, are questioning quite what is going on in Chicago! The rally in soybean meal can only be described as “HUGE” and the July premium over December (close to $40/ton) is difficult to digest with US 2015/16 stocks at or around 400 million bu. Bulls may well suggest it is down to Argentine meal quality not meeting consumer specifications. However, whilst some are reported to not be meeting 46.5% protein specs, end users are negotiating contracts at lower levels (44-45.5%) and discount prices are trading.

• China has announced it will be auctioning some 2.2 million mt of state reserve corn and rice on Friday, corn accounts for 2 million mt. Prices are expected to be cheap on an historic basis, attracting feed buyers and it is noted that the sale will be of 2012 crop year output. It is expected that weekly auctions will continue into October.

• The Russian Ag Minister has increased the 2016 grain crop estimate to 106 million mt, some 4 million above the latest USDA number. The increase was put down to favourable growing conditions. Whilst there was no specific crop breakdown, private estimates suggest the 2016 wheat crop to be record large at 63-64 million mt, with harvest starting in two to three weeks. Currently Russia has only one or two million mt of export sales on the books as buyers shy away from commitment ahead of what is looking like a very big crop, not only in Russia but globally.

• Ukraine followed suit with 2016 wheat output forecast at 23 million mt (by the weather office), well above last year’s 17 million mt. Harvest will start in early July. Corn crop estimates are also rising in the face of favourable weather, and estimates are in the 28-29 million mt region.

• As we have seen before, this current market is all about the funds. There is a rumour that some Chicago option trading firms are in financial trouble being short soybean crush and spreads. Weather is good across US and northern hemisphere, but no one cares! It is all about “Risk On” and when this turns to “Risk Off” (we know not when) watch out for fireworks and potentially massive volatility. As “seasoned market veterans” we prefer to watch weather, supply and demand, but have to admit we are wrong at this time as the world awaits the harvest of record wheat and corn crops and another year of massive stocks.

• It is interesting that Brazilian interior prices (in Reals) are reportedly higher than they were in the 2012 drought, new crop planting is some months away yet producers are incentivised to expand acres (some suggest as much as 4-7%). In a time where US and world stocks are large by any measure it feels strange (wrong?) that the market is telling producers to produce even more. It is expected almost universally that US and S American growers will respond accordingly.