• The latest US weekly crop condition report shows corn to be 86% planted compared to the five year average of 85%, soybeans are 56% sown compared to the five year average of 52%. Winter wheat is rated 62% good/excellent, above last year’s 45% whilst spring wheat is 76% good/excellent above last year’s 69% (the best since 2010). The crop is 95% planted above the five year average of 77%.

• With favourable Plains harvest weather, the US could post a record combined US wheat yield amid the strong ratings for both winter and spring crops. This morning’s Central US weather forecast offers a nice combination of rain and warmth over the next few weeks. More rain is desired over the SE US, but otherwise, the forecast is favourable. The rains will hold off for another two or three days across the E Midwest, which should allow farmers extra time to seed corn and soybean crops. The W Midwest has virtually completed seeding with Delta activity picking up strongly starting last Sunday. The three week Midwest forecast shows limited concern with a lack of extreme heat or dryness. The EU crop monitoring unit, MARS, left the EU wheat and corn yield estimates unchanged on the week. Favourable weather looks to benefit EU and Russian grains into mid-June. The US$ was firmer this morning with the Brazilian Real encroaching resistance at $3.60 as new corruption allegations are levelled against the new Temer Administration that may force new high level investigations. Amid a lack of fresh demand news, the markets appear to have have set their seasonal highs with the question being the depth of the correction and whether the much discussed heat/dryness will arrive before the Midwest crop reaches maturity?

• We saw early trade lower as Chicago grain/soybean futures eased with China’s Dalian soymeal closing sharply lower in record volume. The speculative unwind is underway in China with metals and now agri commodity futures coming under liquidation pressure as the losses mount for speculators. The Chinese liquidation is expected to spill into Chicago trade with the soybean complex trading moderately lower this morning. Funds are heavily long with the 50 day moving average in November soybeans noted at $9.80/bu. China’s Dalian soybean futures closed sharply lower with the last trade at $419.50/mt, down $21 from the prior day. A record 7.458 million contracts of soybean meal traded with futures posting limit losses at one point. China’s record large soybean imports are leading to a record large crush rate and an abundance of cash soybean meal. The pipeline expanded as sellers absorbed stocks, but now these cash longs are looking to cut their losses and unload it to livestock producers. Often record hog production margins were cited for China’s soymeal rally, but historically there is no relationship between feeding margins and feed consumption. It now appears that much of China’s soybean and meal appetite was due to speculation and a fall in the value of the Yuan.

• Something of a turnaround Tuesday was noted in soybeans and wheat as spec demand once again reared its head in early trade despite Chinese trade (see above). US crush closures for maintenance helped firm spot basis levels but this would appear to be a very short-term issue. The recent soybean and corn “correction” seems to have provoked a “buy the break” mentality by funds, as technicals point higher at this time. Funds appear to have the desire to add to longs in corn, soybean and product positions, although our own technical analysis suggests we are very finely balanced right now.

• The market is currently divided with funds adding to length at the same time that northern hemisphere weather forecasts remain very favourable. Only one will be correct in the longer term!

• We are looking at extended holiday breaks both in the UK and US next weekend and reduced market exposure by traders would not be unexpected. Soybean meal rallied (again) to new highs before easing. Rumours exist, although unconfirmed, that Argentinian crushers are struggling to make 46.5% soybean meal specifications for export, potentially creating a discounted value product this coming season. Questions over a shift to US supplies at higher prices are being met with scepticism!

• Argentine farmers are more aggressive sellers with some 13.7 million mt reportedly sold to crushers, the third largest figure on record., as quality discounts appear to have been removed/ignored. FOB meal offers for 44/15% protein through to October are easy to find but 46.5% offers are thin on the ground to say the least.

• French and Russian FOB new crop wheat offers are once again in decline as forward sales books remain largely unfilled. Many are questioning what has happened to demand and there are few answers to the question. New crop supplies will become available in mid June, and pressure will doubtless come from the supply side rather than from demand.

• Has the upward momentum in soybean meal ended? Charts are turning lower, and in soybeans, and if the speculative onslaught has reached an end we could well see markets decline, potentially substantially, in coming days/weeks.

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

Weekend summary 20 May 2016

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

Fund positions

• Headlines:

• Soybeans close slightly weaker whilst old crop meal pushes to new high.

• Chicago corn settles lower on summer climate forecast.

• Wheat follows corn lower; global cash prices weaken.

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

Wheat: 748,700 mt, which is above estimates of 200,000-650,000 mt.
Corn: 2,013,800 mt, which is above estimates of 1,000,000-1,600,000 mt.
Soybeans: 714,700 mt, which is within estimates of 350,000-750,000 mt.
Soybean Meal: 165,100 mt, which is within estimates of 50,000-350,000 mt.
Soybean Oil: 101,100 mt, which is within estimates of 60,000-130,000 mt.

• Brussels has issued weekly wheat export certificates totalling 957,439 mt, which brings the season total to 29.123 million mt. This is 1.92 million mt (3.39%) behind last year. The remaining weeks of the season will need to see average weekly sales of 562,716 mt to reach the USDA’s latest total export of 32.5 million mt. Given the weekly average over the last 11 weeks, which stands at a lofty 863,153 mt, this looks to be easily achievable and reflects to some degree the competitive nature of EU wheat in the global market place.

• Thursday’s markets saw a corrective style of trade as it seems that China’s soybean meal markets were running out of steam to some degree on top of the latest NOAA summer weather predictions that looked crop favourable across the US. US$ strength on continued expectations of a summer rate hike added to the overall weaker tone. Soybeans were clearly in an overbought condition, in need of a correction, and the question will be how much of a correction is coming?

• The grains, corn and wheat, are sitting at or close to price support, which, if broken, will likely see lower levels. Pricing in the coming few weeks will be all about weather in the US and northern hemisphere, and the outlook in this respect, both short and longer term looks favourable and without threat.

• Headlines:

• Soybeans trade lower on Thursday whilst meal ends mixed.

• July corn rallies for the fifth consecutive session.

• Wheat ends slightly weaker on global production estimates.

• Thursday saw a mixed and uneventful session in Chicago Thursday with profit taking in evidence in the wake of Wednesday’s move higher in soybeans. Further end user buying has been seen on price breaks, which has seen losses being limited.

• A prominent satellite crop forecasting firm has further raised US and world wheat production potential. Russia’s wheat crop is estimated just above 64 million mt, vs. the USDA’s 63, and has potential to reach 65-66 million mt amid a coming warmer temp pattern there. US wheat is estimated at 2,200 million bu, up another 200 million from the USDA’s estimate in its May WASDE. We note that some producers across the Central Plains speak very highly of yield prospects, with some seeing the best conditions in years. The wheat market is always subject to money flow, and influence from neighboring corn and soybean markets, but we reiterate that fundamental input has trended more bearish over the last week. Without adverse weather in the next 3-4 weeks, the sheer size of US and world wheat supplies will weigh on global grain trade.

• Speculative traders will be reluctant to give up their huge net long positions in the soy complex, with many forecasters leaning towards a hot/dry Midwestern summer, the latest climate update is still rather wet through August, and as elevated Chinese hog prices maintain the potential for export demand growth. We would question whether a record large fund net long position is needed amid US old crop soybean stocks of 400 million bu and new crop stocks of 300 million, and stocks/use levels are projected nearly double those of 2011-2014. US and world grain prices will eventually have to be reconciled with massive (record) world supplies. Soybean meal futures in China, which weakened substantially into Wednesday night’s close, will be watched closely overnight.

• As an aside, the US’ EPA proposed raising the mandated blend level of corn-based ethanol to 14.8 billion gallonsl, vs. 14.5 billion previously. Gasoline consumption has been higher than expected since 2015, but there still exists a blend wall just below 15.0 billion. Whether this proposal becomes a final rule will be debated over the next 5-6 months. US ethanol stocks are in seasonal decline, but still remain rather lofty, and at 886 million gallons stocks are 3% above last year and record high for mid-May. There’s more than enough ethanol to meet any change in the RFS mandate, and already the US is on track to produce 14.8-14.9 billion. The EPA’s proposal is therefore not likely to have any material effect on the US corn balance sheet.

• Headlines:

• Soybean meal pushes to new highs pulling soybeans with it.

• Corn inches higher with fresh longs punting on better exports.

• Wheat follows corn and soybean markets to modest gains.

• The morning started with prices green pretty much across the board despite little fresh news input although there was a suggestion that Europe was returning to the soybean meal market; in addition, the continued uncertainty over the timing of China’s reserve sales added to upward momentum.

• Outside markets were supportive with a weaker US$, which reversed early gains and crude oil was once again higher by $0.30/barrel.

• Russian farmers are reported to have seeded some 2.1 million ha of corn vs.1.8 million last year and spring wheat planting has reached 4.3 million ha vs. 3 million a year ago. The next ten days is forecast to have a warmer patter across the whole of Europe and Black Sea regions which will allow corn planting to speed up and aiding wheat development. Recent cooler conditions have slowed wheat growth a touch and we should see some “catch up” in coming days.

• Clearly the soy markets is the “star” at present. US crush margins are positive, there remains uncertainty over quality in Argentina and the USDA has end stocks pegged likely until July or August before we will see any material changes. The grains have followed soy higher but not to the same extent. Our inclination not to chase the soy rally is based upon weak cash basis markets in soybeans, both interior and Gulf. The longer term prices will be dictated by weather more than anything and there is little in the way of threat from that corner at present.

• Chicago markets have seen the third day of spread unwinding, which has seen price support in corn with wheat following, but less so in soybeans. US weather is becoming a more important market driver now that S American crop losses are better known and understood. Cash markets, which area key driver of futures prices, are weak nearby on the back of plentiful supplies. New crop prices carry premiums deemed unacceptably high by consumers, who are not being encouraged to place orders or extend cover further forward at tis time, particularly as cover levels are reported to be reasonable.

• The market is not prepared to give up its recent gains lightly, strength in crude oil, which is at rally highs, and concern over a potential US Midwest drought are sufficient to prevent a tumble in prices.

• It is our view that at some time before long, the USDA will have to take into account favourable weather conditions and the good start to the 2016 season in the US as well as EU, Ukraine, China and Canada. Global cash market prices are awaiting the start of the winter wheat harvest. In addition the El Niño Southern Oscillation  (ENSO) has moved to neutral and it appears that the jet stream should keep the US well watered through the early season. Upside looks limited to us right now.

• The US crop condition report showed winter wheat to be 62% good/excellent, as anticipated, which is up from 45% last year. Spring wheat is 89% planted, down from 92% last year and just below expectations. Corn is 75% planted, 1% behind expectations, down from 82% last year but above the five year average of 70%. Soybeans are 36% planted, down from last year’s 41% and above the five year average of 32%.

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

Weekend summary 13 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: 682,800 mt, which is above estimates of 250,000-525,000 mt.
Corn: 1,255,700 mt, which is within estimates of 1,075,000-1,525,000 mt.
Soybeans: 219,300 mt, which is below estimates of 675,000-950,000 mt.
Soybean Meal: 143,100 mt, which is below estimates of 175,000-325,000 mt.
Soybean Oil: 16,800 mt, which is within estimates of 5,000-25,000 mt.

• Brussels has issued weekly wheat export certificates totalling 639,900 mt, which brings the season total to 28,166,268 mt. This is 1.92 million mt (4.94%) behind last year.

• The feature today has been spread unwinding with the long soybean vs. corn or wheat amid questions over how many acres will move from corn or sorghum back to soybeans. The view today seems to be one of enhanced soybean acres given the potential for better sales prices. One commentator today stated that soybeans are “the new darling” of the market at this time – buyer beware is our retort! Importer are not chasing the market higher and this is something we would like to watch closely in coming weeks, upside momentum in soybeans appears to be on the wane right now. China is a very reluctant buyer with crush margins deeply in the red and this could be sufficient to put the brakes on higher levels at this time.

• Firmness in grains is a direct consequence of spread unwinding vs. long soybeans and should not be viewed too strongly. There is an argument to be made that there is a “top” forming in soybeans as seasonal wether conditions lean favourable for now.

• There have been suggestions that current prices will encourage a switch of as much as a million acres from corn to soybeans in the US this season although this will be hugely weather dependent.

• It seems that Brazil’s Senate has voted to place President Rousseff on trial for breaching budget laws (on a majority vote).  Vice President Temer will become acting president during her trial.

Our May USDA report recap can be downloaded by clicking on the link below:

USDA-Recap-10-May-16

To download our thoughts on the May USDA report please click on the link below:

May 16 USDA contemplation