• Wow, a big two sided day in Chicago markets today and it may well be that some emotion is leaving the grain and soy markets as the substantial overnight rally could not be sustained. There appears to be a reduction in open interest in soybeans and wheat which could well point to an exhaustion rally as fresh fund buying appears to be waning. The key to pricing tomorrow and in the weeks ahead will be tonight’s close and how the funds want to play next week. Markets are extremely overbought and look set for something of a correction, possibly before the end of week close tomorrow.

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

Wheat: 620,600 mt, which is above estimates of 100,000-550,000 mt.
Corn: 1,325,900 mt, which is within estimates of 1,000,000-1,400,000 mt.
Soybeans: 747,400 mt, which is above estimates of 200,000-700,000 mt.
Soybean Meal: 137.800 mt, which is within estimates of 100,000-300,000 mt.
Soybean Oil: 10,700 mt, which is within estimates of zero-20,000 mt.

• For the respective crop years to date the US has sold 17% less wheat than last year, 11.5% less corn and 7% less soybeans. Whether the USDA’s WASDE will amend forecasts, or not, remains to be seen.

• Brussels has issued weekly wheat export certificates totalling 740,653 mt, which brings the season total to 25,998,360 mt. This is 1.92 million mt (6.94%) behind last year.

• We would expect to see profit taking limit gains as the bulls take money off the table, they have windfall profits that should be banked in the absence of a central US drought materialising. Heavy W midwest rains will be welcomed in the wake of many weeks of dry conditions and this will impact market sentiment, it may slow corn seeding but progress has been rapid so far this week and we would expect some 30-35% to be in the ground.

• Argentina’s BAGE forecast their 2015.16 soybean crop at 56 million mt, 4 million mt lower month on month. This compares with the AgMin estimate of 57.6 million mt, which was a month on month reduction from 60.9 million mt.

• Finally, StatsCan put 2016 wheat seedings at 23.85 million acres, a reduction of 260,000 from last year. Canola (rapeseed) was forecast at 19.35 million acres, down 750,000 acres year on year.

• Well, despite our thoughts (hopes) yesterday it seems that the fund buying continues, particularly strongly in wheat and corn and to a lesser extent in old crop soybeans. Prices have moved higher with July wheat breaking $5, December corn close to $4 and July soybeans $10.14. Higher levels indeed!

• Soybean volumes have been huge, record levels yesterday, and attempting to predict when this is going to end is difficult to say the least. The volumes traded point towards market exhaustion, but we have said this before and we would be very cautious of holding long positions at this time.

• Yesterday Brazil announced a reduction to 0% on its corn import levy from non-S American sources in an attempt to stimulate farmer selling by encouraging (US??) imports.

• We would reiterate our previous thoughts that the rally in US wheat values has litte, if anything, to do with wheat fundamentals! One can maybe argue that Indian wheat stocks are down slightly, but key private sources in Russia, Ukraine and the EU are raising their crop estimates while the US HRW wheat crop is entering its reproductive period with an abundance of soil moisture. The world is on track to produce another record wheat crop which will further build stocks. It is hard to fundamentally justify the Chicago wheat rally with FOB world wheat offers little changed. The Chicago wheat rally is all based on fund short covering and the flow of money!

• There have been suggestions that global soybean and grains demand is expanding, yet there is no evidence that this is the case. Exporters are not seeing consumers chasing these higher prices with enquiry, China is, at best, a tepid buyer of soybeans at these prices and farmers appear very happy to make sales at current elevated prices. If we were witnessing a severe drought in EU, US or Black Sea/FSU regions the current market condition would make more sense than it does right now. The flow of money into crude oil, soybeans and grains is best described as “hot money” betting on improved global economic conditions and it will only end when this “hot money” stops flowing!

• We have seen another day of higher levels, and sharply so, in Chicago markets in what appears to be moderate volume. We have seen soybeans move to new rally highs as rumours circulate as to how much the Argentine soybean crop should be cut as wet weather impacts harvest. Funds continue to pile in as gold rose as much as $21/oz, US stocks jumped in tandem with a rally in crude oil. Fundamentally these prices are arguable yet new money appears to continue its inflow and this is what is pushing prices still higher.

• There are suggestions that wet conditions will hit the Argentine soybean crop by as much as 10 million mt, somewhat above the 3 million mt indicated just a week ago. The hardest hit regions of Entre Rios and N Santa Fe account for around 13% of Argentine production, and Entre Rios has received more than 300% of normal rainfall since 1 April with N Santa Fe receiving over 220%. At this time it would seem that a realistic amount of the crop adversely impacted would be in the region of 7-8 million mt, if the damage on this area stands at 33% it would put total loss at 2.5 million mt leaving overall output at 57-58 million mt.

• US farm selling in corn and soybeans had been heavy on this rally as has activity by Brazilian farmers in soybeans. US farmers indicate that the soybean crop is profitable at current prices and there is a possibility that we will see acreage expansion as a result.

• We are seeing a significant change in market ownership as funds have been massive buyers once again, an estimated 42,000 contracts in grain and soybean futures has moved into fund ownership. The charts are extremely overbought with technical resistance being tested, clearly we are at a crucial time from a price perspective. Fundamentals are bearish yet the market is proving us to be totally wrong right now! Global stocks and demand suggest that current prices are way overdone but we should never forget, “The trend is your friend,” and until we see a price reversal to confirm that we are overdone it is little comfort. We continue to look for a “blow-off” top but until that is evident and proven suggest caution is the watchword.

• Friday’s COT report showed that funds had increased their position in Chicago wheat to a record net short of some 152,453 contracts whilst reducing their corn position to a more modest178,054 net short and increasing their soybean position to 72,198 net long. The divergence in the grains’ positions raised a few eyebrows as they tend, in the main, to move in concert. However, today has seen short covering in Chicago wheat, which has led the market higher as corn and soybeans followed. Interestingly both Paris and London wheat markets were only marginally higher at the close reflecting a weakening global wheat marketplace. Clearly we have an unsatisfactory position where Chicago is not reflecting the fundamental outlook for US and world wheat, the rally is driven by funds being too short in the key gut slot of the growing season.

• US weekly export inspections revealed that the crop year totals to date for wheat are 13% lower on last year, soybeans are 7% down and corn also 13% down year on year. The USDA has forecast wheat exports for the full season to be 9% down year on year and we would therefore anticipate a further adjustment in their figures before long.

• Latest weather outlooks suggest a drier period for Argentina, benefitting harvest, and some welcome rain for Brazil’s winter corn in Parana and Mato Grosso Du Sul. Argentine dryness is suggested to last into the first week of May, which would open up a big, and welcome, harvest window.

• Many are trying to gauge the Brazilian winter corn loss due to three weeks of hot/dry weather. However, what many are forgetting is that the biggest fundamental in world feedgrains is not Brazil, but China’s allowing their corn price to freely float which is having a sizeable impact on future imports. China was the world’s largest feedgrain importer of 31 million mt in 2014/15. This means that 1 out of every 5 million mt of feed grain trade was headed to China. Before one decides on where the loss of 5-10 million mt of lost Brazilian corn trade can go, they must subtract China’s absence for 12-18 million mt of total feed grain imports. Additionally, we should not not forget that Ukraine, Russia and Europe will have substantially larger corn harvests on the cards for 2016/17.

• Price charts are showing higher levels and fund managers are exiting their short positions in US wheat yet world FOB wheat prices are (at best) sagging. The Chicago rally has very little to do with the global marketplace and both corn and soybeans are following. A closing price that is lower would likely signal or offer caution of a seasonal price top. Beware!

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

Weekend summary 15 April 2016

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Fund positions

• Morning trade in Chicago sees prices lower (not unexpected) after recent hikes, largely on the back of slowing fund demand. Overnight trade was active with prices steady, rallying in Asia then declining as Europe woke up and hedge fund profit taking. Volumes have, once again, been strong and soybean open interest has hit another record large, and reflects (we believe) the speculator has backed the recent price rally. Has the onslaught of buying now finished? This can never be answered with 100% confidence until some significant time has passed and we can look back and analyse the history, however, looking at the chart pattern we favour an “exhaustion” type peak as volumes were huge and it feels as if fund buying in soybeans and products could well be done for now. There is a possibility that there may be more to do in the grains, corn and wheat.

May ’16 Chicago Soybeans – prices (left hand) cents/bu

• Consider the following scenario from an investor perspective – global economic indicators have been, and are, uninspiring, equity markets have been equally unexciting and soybean prices (among other agri commodities) are at multi-year lows. It would not be unexpected to see money flows into the commodity sphere as a consequence, and this is exactly how we view the recent rally. Given the scenario our next question would be, “If the speculative money is now committed, who or where is the next buyer?” Before we consider an answer, we would suggest that consumer cover, generally speaking, is at pretty good levels because of the historic low pricing we have seen for some while. As prices have risen in recent weeks the end user has backed off because of these good cover levels and consequently we do not see a rush to follow prices higher. If this does become the case and there is a lack of buyers the likely price move will be lower to attract buyers once again. Added to all of this, we should not lose sight of the supply situation that we have mentioned so frequently in recent months. Watch this space, this rally has been about money flows – not fundamentals!

• Away from our fanciful thoughts and ramblings – the recent price rally may well have US farmers contemplating an expansion of soybean acres as for the first time in many months they see a crop that can generate them a profit. Again it will be up to the weather in the next five or six weeks that determines the actual soybean acreage, and corn too for that matter.

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

Wheat: 336,200 mt, which is within estimates of 100,000-700,000 mt.
Corn: 1,247,100 mt, which is within estimates of 950,000-1,300,000 mt.
Soybeans: 466,500 mt, which is within estimates of 125,000-500,000 mt.
Soybean Meal: 196.800 mt, which is within estimates of zero-230,000 mt.
Soybean Oil: 2,100 mt, which is within estimates of zero-20,000 mt.

• Brussels has issued weekly wheat export certificates totalling 1,184,650 mt, which brings the season total to 25,257,707 mt. This is 1.923 million mt (6.95%) behind last year. Interestingly the USDA’s latest update reduced their estimate of the season total EU exports by 500,000 mt to 32 million mt. Given the pace of the last ten weeks exports it now looks feasible for this figure to be achieved.

To download our USDA report resumé as a PDF file please click on the link below:

USDA Report Analysis Apr 16

• Today has seen some sizeable volume trade in Chicago markets with a pattern that looks very much like a “blow-off top” although we will need to see a drop in current price levels to confirm this. There appears to have been a large inflow of new money into Chicago, evidenced by soybean open interest pushing above the 2012 drought year high of 836,000 contracts. This is (in our opinion) what has triggered the latest price rally and once fresh cash inflows slow down/stop the game will be “hunt the buyer”.

• Fund buying in corn has been noted and met by huge farmer selling volume, and farmers are reported “not believe their luck” at the windfall price uplift as seeding starts. Currently prices have elevated to pre-March report levels and have broken through the 50 and 100 day moving averages (basis May ’16 contract).

• Global cash wheat prices appear little changed on the back of today’s Chicago rally and there have been suggestions that if there is much more uplift in US prices we will see French wheat able to trade into SE USA, a position the US will NOT want!

• Rain damage to Argentine soybean crops is the subject of very mixed opinion at present, the latest we hear is that low lying regions are affected and it is possible that damage will be limited to between 1.2 and 3 million mt.

• US and S American weather prospects are improving. Today’s huge Chicago volumes strongly appear to be a reflection of fresh money and (as we said earlier) a “blow off” – we urge extreme caution to those tempted to follow this market on the long side. Doubtless we will see Friday’s COT report showing a sizeable increase in fund net long positions.

To download our summary of today’s WASDE report as a PDF file please click on the link below:

USDA-Recap-12-Apr-16

• Above normal temperatures and near to slightly above normal rains will continue to benefit winter and spring grain crops in Europe and the Black Sea for the next two weeks. The maturity of the EU and Russian winter wheat crop is well ahead of normal, but there is no evidence of any threatening cold temps that would cause concern. European and Russian wheat production is off to a solid start.

• Today has seen Chicago grains fall sharply whilst soybeans an meal have pushed to fresh 2016 highs and we have to say that we currently see no good fundamental reason for the recent soy complex rally. It feels as if funds are taking a long side stab at the soybean market without due regard for the global oversupply position and negative Chinese crush margin situation. We had expected losses in grains as rain across the Plains were well forecast and Midwest corn seeding is likely to advance rapidly in the coming week. We struggle to see the soybean rally lasting as US soybean meal basis prices ease and the abundant S American supply pressures the market.

• It has been suggested that funds are pushing fresh money into the soybean complex on the back of chart technicals and seasonal historic considerations, which tend to see the market turn higher at this time of year. Doubtless there will be some spillover support from political issues in Brazil, the Real rallied to almost 3.51:1 vs. US$. There is anticipation of further impeachment proceedings against President Dilma and if a two thirds majority vote would allow the senate to ask Dilma to step down pending investigation. The Real rally is based upon the vice president taking over and providing an improved economic outlook. Will it, or won’t it happen? A big question with no certain outcome at this time, but one which is pushing bearish fundamentals to one side – for now.

• We see little longer term bullish input at present.

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

Weekend summary 8 April 2016

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

Fund positions