• The soy markets have soared this afternoon in the wake of lower than anticipated stocks and cautious cuts in 2016 S American output, also what seem to be suspiciously low old and new crop Chinese soybean imports. Clearly those shorts in soybeans are “at risk” is any US crop adversity should prevail.

• On the other hand the wheat outlook is doubtless bearish with the US winter crop, 2016/17 US stocks and global 2016/17 stocks all above expectations. The 2017 Russian crop at 63 million mt vs. 61.4 million mt last year may be ambitious whereas the EU crop at 156.5 million mt (160 million mt last year) looks on the low side given current weather. We would expect an upward revision in the US wheat crop in June and/or July reports.

• The report can only be viewed as bullish and algorithm based trading kicked in – big time – in the immediate post release period taking the soybean market more than 5% higher, hitting fresh rally highs. Corn and wheat followed with some sympathy and it is reported that volume has been huge! The “spike” higher will either be a season peak – or not! A truism if ever we saw one, but the Midwest summer growing season will be a key driver of that!

• One outcome will be that the funds will be encouraged to hang on to their longs until such time as they are proved wrong, and this will be dictated by the market or N Hemisphere weather as time moves on.

• Clearly price and market action is bullish, however it seems that the actual data is little changed from expectation. Global 2016/17 wheat stocks are record large at 257.3 million mt, up 14 million from the current year, and world 2016/17 corn stocks will also be large and equal to the current year’s 208 million mt. Such stock levels should limit price upside. World 2016/17 soybean stocks declining 6 million mt to 68.21 million still leaves plenty of soybeans in the world.

• We now have to live with the current position until such time as we have a better handle on N Hemisphere crop potential in June or July. Doubtless wheat and corn balance sheets are bearish but all eyes are on soybeans today, and they are propping up everything right now, the grains should be lower on basic raw data today!

• We will continue to ponder and pontificate overnight.

To download our USDA recap please click on the link below:

USDA-Recap-10-May-16

• It has today been confirmed that China will start selling soybeans from reserves by selling 100,000 mt each week until the end of 2016. If all the tonnage is sold this will make some 3.8 million mt available to the market, well within the 1.5-5 million mt target set by the Chinese government. According to our information these sales will NOT be rotated or replaced as has been the case in previous years, this is being reported as a reduction in stock levels. That said, it is suggested that the soybeans being sold are three (or more) years old and not up to food grade specification. Clearly, if the information received is correct (and given history, this is not a given) it will impact imports.

• In a surprise announcement the acting speaker of the lower house of Brazil’s Congress has annulled the impeachment process against President Rousseff, which resulted in a 2% drop in the Brazilian Real today. The final impact of the process is unclear as it is the first time such a process has been undertaken.

• As a weather aside, whilst April saw a weakening of the current El Niño it remains the fourth strongest on record and is expected to continue to exert an influence on climatic conditions until mid to late summer.

• Tomorrow sees the publication of the latest WASDE report which is expected to see a bearish stance as far as wheat and corn is concerned, also potentially for old crop soybeans. A complete turnaround by the funds on soybeans would not be anticipated until some time in June when the state of the weather and drought or otherwise in the US is better known.

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

Weekend summary 6 May 2016

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

Fund positions

• It has been lower in Chicago markets today despite early US export sales data supporting soybeans in particular (more on that later). Profit taking and technical weakness has taken over and prices are in the red across all ag sectors. One news feature that is as yet unconfirmed suggests China may well sell part of its soybean reserve in coming days, limiting (potentially significantly) near term export demand as well as potentially triggering cancellations of prior purchases. The US$ has gained again, some 0.6% up, making gains of around 2% on the week to date leaving corrections in ag products almost inevitable.

• Corn has broken through its 100 day moving average and is sitting on its 50 day average, which is acting as support. Soybeans and meal have also posted more modest technical reversals and it will be interesting to see quite how keen the funds are to defend current positions in coming days.

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

Wheat: 318,900 mt, which is within estimates of 200,000-700,000 mt.
Corn: 829,800 mt, which is below estimates of 900,000-1,450,000 mt.
Soybeans: 1,245,800 mt, which is above estimates of 600,000-1,000,000 mt.
Soybean Meal: 152,700 mt, which is within estimates of 150,000-350,000 mt.
Soybean Oil: 10,000 mt, which is within estimates of zero-20,000 mt.

• Brussels has issued weekly wheat export certificates totalling 888,311 mt, which brings the season total to 27,526,368 mt. This is 1.92 million mt (6.14%) behind last year.

• Fresh news is limited, rather a rehash of existing issues, although the Buenos Aires Grain Exchange (BAGE) has come up with a figure of 7.5% of the soybean area that is lost. It is a figure when all said and done, although we will have to wait another couple of weeks before confirmation, or otherwise, can be made. Their harvest will ramp up rapidly in coming days as temperatures and dryness prevail for the next ten days or so.

• US export sales (above) showed the best soybean figure for this particular week on record, although corn and wheat sales were disappointing.

• The old saying that bull markets need constant feeding to maintain life is as true as ever, and we are witnessing a distinct lack of fresh bullish input right now. Early support today from good US export sales in soybeans was followed by news that China may sell off soybean reserves, and it is this that the bull market has to digest today – resulting in losses on the day in the region of 1.8%. Argentine output cannot be traded by the bulls each day and US weather into early June looks favourable with near to normal precipitation and temperatures in the 16-30 day outlook.

• Yesterday we reported that the world is awash in grain – and that new crop US/world corn and wheat supplies appear to be near or record large in the new crop year. The grains lack a supply driver to sustain a rally with China looking to dramatically slow its future feedgrain imports. That is known! What is unknown is S American soybean production and China’s future soybean demand. It is historically unusual that S American soybean production is not better known with the Brazilian harvest largely completed and Argentina active in their harvest. Brazilian soybean yields dipped in the last 15% of the NE Brazilian soybean crop while 13% of the Argentine crop was deluged with over 300% of normal rainfall during the first three weeks of April. The combination of each is leaving the world less certain of 2016 S American production! We estimate the 2016 Brazilian soybean crop at 98-99 million mt, down 1-2 million from WASDE. Moreover, the 2016 Argentine crop was cut to 56-58 million mt from their estimate of 59 million in April. This too would be down 1-3 million mt with crop quality being questioned by world soybean importers.

• The final size of S American soybean crops are being questioned at a time that China appears to be ramping up demand/imports. Notice in the chart below that Brazil shipped out a record 10 million mt plus of soybeans during April – a record. No one expected that Brazilian ship loading and logistics could work so smoothly! The Chinese are amazed how Brazil executed its soybean purchase program flawlessly. Notice that from January, Brazil was able to ramp up its new crop soybean export program. This will not be lost by world soybean buyers in their purchase plans for 2017. Based on vessel lineups on May 3rd, a sharp downturn is expected in Brazilian soybean loadings during May. By all statistical evidence, it appears that the peak in the Brazilian soybean export program was pulled forward by 30 days as Chinese demand wanes. One should not extrapolate April’s Brazilian shipping program to bet that China will take 86-87 million mt in the 2015/16 crop year. Research argues that the loadout and purchase pace will slow rather abuptly into August with Brazil exporting soybeans into October.

• The chart below reflects that China is likely to take 84 million mt of soybeans in 2015/16 and 86 million in 2016/17. The future growth in Chinese soybean imports will likely be curtailed by reserve sales and a less fragmented livestock herd. China’s soybean meal use/head is near that of nearby neighbors S Korea and Taiwan – which is why WASDE forecasts less forward growth in their baseline report. The three unknowns in the soybean complex are: 1) 2016 S American final crop sizes and the quality of 8 million mt of Argentine beans, 2) Chinese demand growth, with their crush margins at the lowest levels in years; and 3) Will Argentina plant more grains and less soybeans during the 2016/17 growing cycle due to existing tax policy? Argentina ended its export tax on grains, but is reducing their soybean export tax by 5% per year, which likely will produce a crop of 55-57 million mt in 2017 as farmers seed more corn & produce a record 38-40 million mt corn crop. The marketplace is trying to prod world farmers to seed more oilseeds and less grain via crop ratios. Neither US nor world soybean stocks are tight, but the unknowns have to be clarified before soybean prices can relent. However, the knowns of big and bigger grain crops will act as a drag on soybean valuations. July Chicago soybeans above $10.50 are not fundamentally justified.

• Intl F C Stone forecasts the Brazilian safrinha (winter)  corn crop at 49.8 million mt, down from 56.6 million mt a month ago due to dryness,which implies a total crop of 77-78 million mt – the lower end of expectations – and the soybean crop at 96.5 million mt a million below last month.

• Chicago soybeans (and meal particularly) have today found support following yesterday’s declines and end users appear to have been active in the wake of yesterday’s cheaper prices.

• It seems the soybean meal market is unwilling or unready to quit the bullish side just yet and consumers appear willing to top up on price breaks. Once cover is taken it would seem logical to anticipate lower prices.

• One of the benefits of a long holiday weekend is the opportunity to think and reflect, as well as enjoying a well earned tipple! Our weekend reflection left us asking, “What do we REALLY know?” Simple, was the eventual conclusion, The World Is Awash With Grain!

• The world has too much grain! Combined 2015/16 world grain stocks are record large in 2015/16 at 450 million mt. The growth in stocks will likely continue in the 2016/17 crop year without a new crop weather problem. The grain rally in Chicago has to be betting on a sizeable supply disruption due to adverse weather! The fundamentals of US and world grains are relatively clear – one of oversupply. The world will likely produce another large wheat crop in 2016/17 with produciton in Russia, US, Australia and even Argentina to expand from last year. The EU wheat harvest could near last year’s record with normal weather. Note that combined world corn/wheat stocks have risen in each year since the 2012 US drought as supply is rising faster than demand. The maturation of world bio-fuel demand and slowing world wheat trade has allowed for vigorous stocks growth. There is no sign that such growth is ending .

• Our projection of 2016/17 world wheat production at 718 million mt is down 15 million from last year’s record of 733 million mt. Much of the decline was due to unfavourable growing weather in Ukraine during the autumn seeding. However, world wheat crops are doing so well under favourable weather conditions that a harvest of 722-730 million mt is becoming more likely. Our 2016/17 world corn estimate is 1,021 million mt, up 49 million mt from last year, a record. The world has no shortage of feed grains. Combined world corn and wheat production rests at 1,739 million mt – also a record. Also, barley beats the 2014 record at 1,738 million mt on additional seeding. The chart below reflects combined 2016/17 world major grain stocks and that a new record high will be set in the 2016/17 crop year.

• Even the US corn balance sheet is likely to expand in 2016/17 with a yield loss of more than 5% needed to justify a stocks total below 2,000 million bu. This would be a US corn yield of just 160.5 bushels/acre or less to produce any justification for December 2016 corn futures to muster a rally above $4.00/bu. The table below reflects our 2016/17 corn balance sheet using a trend line yield of 168.6 bushels/acre, and yields that are 2.5% above and below trend. The 2016 US corn crop is off to an early start in solid soil moisture. Although the market is broadly talking about La Niña, the real world is that a new record US corn yield cannot be ruled out with normal weather into pollination. Our point is that world grain supplies and stocks are abundant and there is little fundamental reason for a further rally.

• The latest US crop condition and progress report showed winter wheat condition at 61% good/excellent, which is 1% above expectation and up from last year’s 43%. Spring wheat is 54% planted, behind expectations of 57% and down from last year’s 69% but above the five year average of 39%. Corn is now 45% planted, behind expectations of 47%, unchanged year on year but above the five year average of 30%. Soybeans are 8% planted, behind last year’s 10% but above the five year average of 6%.

• Informa Economics have released their latest 2015/15 S American crop estimates as follows:

Brazilian soybeans 100.1 million mt, down from 100.5 last month.
Brazilian corn 81 million mt, down from 83.7 million mt last month.
Argentine soybeans 55 million mt, down from 59.5 million mt last month.
Argentine corn 27.5 million mt unchanged from last month.

• In Chicago markets today soybeans and soybean meal had a strong early rally but a stronger US$ and falling crude oil left the rally faltering and failing as the day progressed. The reversal in fortunes is being viewed as “technical” in nature and could well persuade funds to slow, halt or exit fresh long positions, and there is some evidence already that profit taking is under way. Charts also suggest that the grains, wheat and corn, could well have seen season highs although we will have to wait for time to pass before this can be deemed to be fact. The slowdown or halting of the last three weeks’ fund purchase onslaught could well leave the market searching for a new buying force, which if found to be absent will likely point the way lower for prices.

• The ongoing US wheat quality tour is reporting lush crops with high yield potential (see crop condition above) and some are already asking if Kansas may even set a new yield record, the current record stands at 45 bushels/acre from 2010. There are suggestions that the US could produce a total wheat crop close to last year with some three million acres less to be harvested.

• Despite S American crop losses that have been/are widely discussed and digested and Chinese showing limited appetite to chase the recent hike higher in prices, as is also the case in Europe, markets could well be close to or even past their season highs.

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

Weekend summary 29 April 2016

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

Fund positions

• Wednesday’s Chicago markets have seen prices move lower and bullish input has been lacking. It appears that our thoughts that the big drop in open interest suggesting that we were in the final stages of a short covering rally may well prove correct – ti e will prove us either right – or wrong! Fresh buyers appear scarce to say the least, and leave prices open to correction lower in coming days unless we see new buyers step up to the plate – and quickly. The long fund holders appear reticent to add to positions and chase the rally, although it could well be they buy breaks lower to build on positions and use their volume buying power to protect their fresh longs.

• There are a number of unknowns in the soybean market, Argentine crop size and quality, Chinese demand in the face of negative crush margin – can it continue, will the US plant an additional two million acres in the light of higher prices. A few issues that could change the big picture!

• The EU’s crop monitoring arm (MARS) increased its 2016 crop estimates in yesterday’s release; soft wheat yield was increased to 6.11 mt/ha from 5.96 estimated last month, winter barley was also uplifted to 5.97 mt/ha from 5.82 a month ago and rapeseed was also increased to 3.35 mt/ha from 3.31 last month. Clearly early season weather has bee beneficial from a grower’s perspective.

• Chicago markets rallied early but could not sustain the early gains into the close. Fund buying was notyed early in the session.

• China’s Ministry of Agriculture indicated on Monday that it would export 1.7 million mt of corn in the current crop year and 2.3 million next year. The export proposals came as a surprise, but are part of a growing chorus within China that it will try to export corn before the end of 2016. Private sources peg China’s corn exports at 5.0 million mt in the 2016/17 crop year. China has not yet finalised its new farm policy program, but the growing supplies of corn has many expecting that China will shift from being the world’s largest feedgrain importer in 2014/15, to a net feedgrain exporter.

• No one seems to care that China’s Ministry of Agriculture is considering and asking the Gov’t to export corn. It seems today’s early rally was based on the flow from the funds. Farmers are more active sellers from S America while US domestic end users lower their basis or withdraw on the CBOT rally. Tuesday could provide an interesting turnaround if new contract highs cannot be scored. Our view is that new highs will not be scored and that this volatile trade will persist.

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

Weekend summary 22 April 2016

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

Fund positions