• We saw US winter wheat crop conditions pegged at 59% good/excellent, which was considerably above expectation and some 15% above this time last year. Prices have reacted accordingly with Chicago wheat futures some 10 cents (2.2%) lower on the day. There is additional confidence that forecast rains will fall and ease the dry conditions that have added recent weather premium, and it also feels that lower US wheat yield forecasts are a touch early too and more evidence of loss/damage is required to substantiate early rumours.

• Informa Economics have released their latest S America 2015/16 crop estimates  as follows:

Argentina corn 27.5 million mt, 500,000 mt above last month.
Argentina soybeans 59.5 million mt, 500,000 mt above last month.
Brazil corn 83.7 million mt, 1.2 million mt above last month.
Brazil soybeans 100.5 million mt, 800,000 mt below last month.

• The soybean complex has gained today on the back of crude oil price rallying with wheat lower on better than anticipated US crop conditions and corn has been caught between the two.

• It is interesting to note that Brazilian export commitments for the first week of April are record large, US exports declining as a consequence?

• The soybean complex continues to reel from oversold territory in late February, but buying interest is beginning to wane. There is no need for additional acres in the US, and it is difficult to be overly bullish on export prospects amid record S American crops. More important that record Brazilian shipments nearby is that S American soybean exports are expected to be extended into the gut slot of the US harvest. The top end of a trading range is being formed in soybeans and we look for lower levels going forward.

• We looked at early trade this morning and saw low volumes and a mixed approach that suggested markets were searching for fresh news input. Central US weather forecasts look warmer with showers promised for the parched and dry areas within the W Plains and from a purely weather perspective we see a slightly bearish input. Global cash wheat prices also suggest bearishness as Russian and EU farmers look to empty bins/stores before the new harvest arrives and pressure the merchant trade with volume offers.

• Vegoil markets have been pressured higher by Malaysian palmoil but early trade saw prices ease a touch as the June contract failed to make new highs. We await March Malaysian production and stocks data as trade expectations suggest a decline to 1.98 million mt, plentiful on an historic basis but low in recent terms. There is potential for a seasonal “top” to be seen forming right now and this could impact soybean oil and the soybean complex in general if this is actually the case.

• EU/Russian/Ukraine weather forecasts suggest that a mixture of rain and sunshine will aid and assist crop development in the next fortnight and Russian sources hint at 2016 wheat output in the 61-63 million mt range given normal weather into the end of May whilst EU grain and oilseed crops have high output potential as weather conditions remain favourable. Our view is that we are seeing a seasonal top forming in global vegoil prices unless weather conditions intervene.

• Tonight has seen mixed fortunes with soybeans lower and the grains either side of unchanged. US farmers are watching soil temperatures closely, currently they are too low for germination but fieldwork is under way and it is now just a question of timing before planting gets going in earnest. We know from an historic standpoint that when the US farmer wants to plant he can now cover huge acreages in quick time.

• There is a question mark over dry conditions that may be starting to impact Brazilian winter corn output although, although the corn crop is reported to be in good/excellent condition in adequate soil moisture. Latest estimates suggest that even if there is a 4-6 million mt hit to current output we will be looking at a crop of 80-81 million mt, which would still allow for sizeable export volumes.

• We see little in the way of fundamental change in market direction at this time.

• Monday’s Chicago trade shows us to be both lower and slower as we approach the close. It seems that fund support is waning somewhat and we would question their appetite for long positions at this time. Should this be the case our question remains, “Where are the buyers to sustain the current price uplift?”

• We are awaiting NASS’ first weekly crop condition report later today, and this is expected to show US winter wheat conditions to be well above last year.

• There is a possibility of a small (5-15 cent ??) rally in corn should we see weather induced planting delays although we continue look for prices to decline in the longer term in light of global stock levels.

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

Weekend summary 1 April 2016

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

Fund positions

• The USDA’s stocks and seedings reports are viewed as bearish corn and neutral wheat and soybeans – but not that there were any real bullish surprises in any of the data. Below is a table of quarterly stocks, which were above expectations in wheat, but otherwise very close to previous trade estimates.

• Wheat’s feed consumption is expected to be lowered 10-25 million bu in the April WASDE – pushing ending stocks even closer to 1,000 million bu – but no changes are expected in US corn and soybean balance sheets. However, NASS did confirm that stocks of all major crops are well above last year, and that major row crop acreage declined only slightly despite a full year of low prices.

• March 1st corn stocks at 7,808 million bu are just a bit higher than expectations, and work indicates that total disappearance through the first half of the crop rests at 7,553 million bu, down 2% from last year and a number that suggests the USDA’s total consumption forecast is overstated by 50-100 million bu.

• Soybean stocks as of March 1st totaled 1,531 million bu, 20 million below expectations but 204 million above last year. Soybean residual disappearance is estimated at 34 million bu, the first positive number in four years. The differences between corn and soybean stocks and trade expectations is not significant enough to trigger any major revisions within the April WASDE.

• The big surprise of the day, however, is acreage. To the surprise of many, US farmers intend to plant 93.6 million acres of corn, up a full 4.4 million from intentions a year ago and well above trade guesses. The by-state data correlates well with the drop in winter wheat seedings, and with normal weather and trend domestic use, 2016/17 corn stocks will reach well above 2,000 billion bu. Soybean acres at 82.2 million were roughly a million below expectations, but this is likely to be raised 0.5-1.0 million amid corn planting delays in the Delta/Southeast. And stripping one million acres from corn will do little to change corn’s new crop balance sheet. NASS data today confirmed that there are more than enough acres to go around for spring row crop production – supply-driven rallies now await July/August weather.

• Spring wheat acreage at 11.3 million was surprisingly low. Some of this will be buffered by a lack of HRS export demand and huge carryover stocks, but no doubt MGE contracts will continue to gain on KC and CME futures until N Plains/Canadian summer weather patterns are known. Winter wheat acres at 36.2 million are down 400,000 from NASS’s January estimate, with additional losses noted in TX and CO. Acres in KS, NE and OK are steady to higher. US wheat ending stocks will end up at 990-1,000+ million bu, and this will more than offset any loss of production in 2016/17. Note that European wheat futures are down the equivalent of $.10/bu at midday.

• Our immediate view of today’s release is that corn acres are the highlight, not only bearish at first glance but also when compared with trade expectation, the 3.5 million acres surplus will act as a buffer against lower that anticipated soybean acres as well as minor planting issues which may, or may not, arise. Corn price could well test $2.75/bu at or close to harvest.

• US Gulf soybean basis has fallen to four year lows with spot Gulf bids at $.40/bu. This low basis speaks volumes on the availability of old crop US supplies. 2015/16 US soybean end stocks are likely to end up being the largest in a decade at 450-530 million bu. The last time that US soybean end stocks exceeded 225 million bu was 2006, which was the pre-ethanol era. For a decade, US soybean end stocks have never been larger which highlights the supply pressures building in the cash soybean market. We do not expect much change in basis into summer.

• The US$ scored a secondary top in February against the Brazilian Real, just under 4.1 Reals/Dollar and has since declined to 3.6-3.7 over the last several weeks. US$ weakness against the Real has lifted Brazilian soybean offers to near even with the US, while Argentina has the cheapest soybeans for sale. While Brazilian soybean prices have rallied, the chart below illustrates that Brazil continues to undercut both the US and Argentina in the soybean meal market. Brazilian meal today is offered at $44/mt under the US and Argentine meal can be had $15/mt cheaper. While the underlying market fundamentals offer no good reason for markets to move higher, the momentum right now is up and funds continue to buy ahead of the USDA report. We continue (rightly or wrongly) to hold to a view that Chicago soybean (and product) markets are forging a seasonal top.

• Wednesday started firmer at the US$ eased lower on what were perceived as dovish comments by US Fed Chairman Janet Yellen, a rate hike in April looks less and less likely. However, Chicago markets have eased and are in negative territory as we approach the close. It should not be forgotten that N Hemisphere weather is becoming a greater influence and more important, and this has not been missed by latter trade particularly in Chicago wheat markets. Soaking rains across the drier areas of the Plains in the latter part of the next two weeks appear to be growing in forecast confidence at this critical crop development time.

• It seems that the recent rally in US soybean (and product) markets has been about fund flows, palm oil and the weaker US$, this situation has seen the funds pushed out of a record net short into a small net long position in the face of bearish fundamentals. Our thoughts are that April, with planting in the US, will see a return to a more fundamental approach to prices and direction.

• Argentine harvest data is impressive in both corn and soybeans with crop estimates rising. The majority of private forecasters are putting Argy soybean output in the 60.5-62 million mt range with feed corn at 27-27.5 million mt. Bear in mind if this year’s yield equals last year we will see output at 64 million mt.

• We have been witnessing pre-report position liquidation which has taken its toll on wheat prices with corn following. Clearly anticipation of the data release tomorrow and its likely impact on markets is getting to traders!

• Chinese soybean meal values declined to a new eight year low on Monday with their forward soybean crush margin at the lowest level since March of 2014! These extreme negative margins and China’s flotilla of soybeans that are afloat only look to worsen the supply situation. The only aspect of margin that is supportive is vegoil pricing which is tied to palm oil  However, even China’s palm oil import margin has reached negative margins not seen since last September. The net result is that China will most likely pull back on soybean and palm oil imports, suggesting that the current soy rally has about run its course.

• Monday saw a mixed start to the week for the Chicago soy markets with May soybeans reaching a new rally high overnight, and then turning lower at the close. Soybean meal struggled amid weak cash markets while soybean oil found support from firming palm oil. US weekly soybean export inspections for the week ending March 24th were 20.9 million bu, but a new post harvest low. Annual US inspections now total 1,522 million bu and are now 7% behind a year ago.

• Chart based buying has been the dominant feature in Chicago as the trade prepares for Thursday’s USDA March Stocks/Seeding Intentions report. Fund managers continue to reduce their net short positions in corn and wheat, while they add to new market length in soybean oil/soybean futures. Note that soybean oil and soybeans are back to testing their recent rally highs with the RSI (Relative Strength Index) in each at its most overbought position since the wet weather rally last June.

• US vessel line ups show that China has just two soybean cargoes waiting to be loaded in the next week, and no new cargoes are currently indicated for the month of April. The US weekly export pace is going to decline sharply in the weeks just ahead to single weekly digits. Chinese demand for soybeans in either Brazil or Argentina is switching from the US with the harvest glut starting to arrive at Argentine port. Brazilian farmers are reported to have sold more than 70% of their 2016 soybean harvest.

• The key message as we see things is that once funds have stopped their short covering, which will likely happen in advance of this week’s USDA report, there seem to be few (if any) other buyers in the market place right now and we all know what happens when buyers are scarce or absent from a market – PRICES GO DOWN! The current Chicago rally remains highly technical with the market not seeming to care about China’s change in Farm Policy which would end their corn reserve purchase program and push an additional 20 million mt of feed grains back into world trade during the next crop cycle. We would expect that China will also end its soybean purchase program, and that its soybean seeding will be revitalised over time. Research argues that current Chicago corn, soybeans and wheat values are overvalued and that the past three week rally is more technical than fundamental.

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

Weekend summary 24 March 2016

• Today has seen Chicago markets lower (maybe a day later than we would have liked!) in what has been described as “moderate” volume, front month (May ’16) corn is testing an open chart gap formed between March 11 and 14 and May ’16 soybeans having broken through the 200 day moving average resistance are now using that level as support for now. The market is trading technicals rather than fundamentals and that is the point we have been attempting to make in recent days.b Today’s reports have suggested that the funds have been sellers in soybeans, corn, wheat, soybean oil whilst buying soybean meal today.

• There is worry that China may be raising a new pythosanitary hurdle in its latest CIQ (the Chinese Quarantine Agency) demand that it seeks contract certification that the Zika virus does not exist in mosquitoes or larva in soy cargoes. The request has initially been for Brazilian, but most US exporters expect that such certification will also be demanded from the US as the virus spreads across the Southern US in coming months. One Brazilian port is already certifying that cargoes will be Zika free, and exporters are urged to fumigate at discharge to be absolutely sure. The lack of certification at other Brazilian ports may allow Chinese buyers to wash out of cargoes and take a profit at a reduced cost.

• Recent history reflects that Chinese grain/soybean importers have been able to use tougher CIQ demands to their benefit. Recent cases include Canadian canola (residue contamination), GMO US corn, and red beans (dioxin) back in 2004. We doubt that Zika will pose as much as a pythosanitary problem, but there is no doubt that with Chinese soybean crush margins at their lowest level in two years, that there could be a desire to slow future imports (maybe we are just cynical!).

• We note that a cargo of Brazilian soybean meal has set sail for the US, the first this year

• S American and Chinese cash traders now estimate that 6-9 cargoes of Brazilian soybeans have either been washed out or switched (to Argentina) in the past 24 hours, and there is a desire to do more. Soybean oil market length is record large and it is estimate that funds are long nearly 50,000 contracts of soybeans. If Thursday’s US sales report does not hold solid sales totals, we would look for further liquidation into the long holiday weekend. So many cash soybeans have moved in the Midwest, it feels like a second harvest! Research argues that a seasonal high was set yesterday in soybeans with the market make-up now more balanced heading into the March 31st report. Unfortunately, the world is still awash in grain.

• Despite our thoughts yesterday that we would be seeing a classic Turnaround `Tuesday today, Chicago grains (corn and wheat) are all but unchanged whilst soybeans closed in positive territory. Fund buying has continued as May soybean futures pushed above the 200 day moving average, the last time this occurred was August on fear of adverse Midwest weather. Whilst there is no such threat right now it is the technical market status and imminent new crop planting season that has triggered the push higher. We acknowledge the jump in prices yet struggle to accept that the longer term fundamentals have changed materially, consequently believe that some protective measure needs to be put in place to ensure that opportunities are not missed. Matching physical purchases with a put option would give some such insurance and this can be discussed further if desired.

• From an historic perspective we see the rally in soybeans as contrary to supply fundamentals; we have more soybeans in the world today than was the case at the time of the end December or even October highs and harvest is fully under way in S America. Clearly we need to watch the position very carefully in the next days and weeks to look for a confirmation of trend or otherwise.

• Wheat losses in the US due to the weekend freeze fall into a very broad range of estimates ranging between 5 and 60 million bu. We have seen such conditions previously and feel that it is too early to place a substantial output loss as the crop has time to re-tiller and form a new head before maturity and harvest. Again close scrutiny will be the required in the near term. Interestingly global cash wheat prices have not reacted higher with abundant old crop stocks keeping a lid on prices at present.

• On balance we continue to favour a view that suggests we are close to a seasonal high price as the current move higher appears technical and chart based rather than fundamentally driven. Plentiful global supplies should cap upside before too long – unless other factors intervene!