• Chicago markets are starting the week on a slightly firmer note as fund buying continued after the weekend break. Seemingly buying by the funds started in the Kansas wheat market and spread to remaining markets including soybean oil. As we approach not only month end but also quarter end the funds appear willing to shed more of heir net short position than many would have anticipated. Some of the data coming from the Kansas wheat crop suggests losses are inevitable although largely inconsequential in  volume terms when placed into perspective of a globally oversupplied market and record stocks.

• On a slightly different note Chinese soybean crush margins are at their lowest level in two years, some $1.35 below last year. Soybean meal prices are at eight year lows and imports of soybeans in the coming few months will be at record levels pressuring prices with supply. Consequently, we maintain Chicago prices will struggle to maintain the current rally.

• There is an expectation of Chinese reserve stock sales to be announced by 1st April and as much as 50 million mt of corn and 6 or 7 million mt of corn could well be made available – AND it is suggested that the  large volume of stock will not be replenished.

• We would be looking for a very classic turnaround Tuesday tomorrow as Chinese demand for S America soybean and meal supplies is reported to be slowing at the same time Argentina is becoming more aggressive in its export offers. Low Chinese margins and prices combined with huge (potentially record) supplies looks as if we are close to a seasonal high in prices right now.

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Weekend summary 18 March 2016

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

Fund positions

• Soybeans and corn pushed higher yesterday although closing well below the top of the range (uncertainty??) whereas wheat closed convincingly lower and this spilled into European prices as well. A weaker US$ and fund short covering added support to corn and beans whilst Black Sea and French cash wheat offers were still in decline as old crop stocks are looking for homes ahead of what could prove to be another record harvest. Abundant global wheat stocks remains the message.

• NOAA (The National Oceanic and Atmospheric Administration is an American scientific agency within the United States Department of Commerce focused on the conditions of the oceans and the atmosphere) released their latest long range forecast which calls for above normal precipitation across the Plains with cooler than normal temperatures into  midsummer. The Midwest would see near normal rainfall with above normal temps from the N Plains through the Great Lakes. Near to above normal temperatures was suggested for the July/August period, but there was no mention of any lasting Midwest/Delta dryness. The forecast was seen as bearish for wheat with their April forecast calling for near to above normal rains and near below normal temps.

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

Wheat: 372,400 mt, which is within estimates of 350,000-550,000 mt.
Corn: 1,288,500 mt, which is above estimates of 700,000-1,250,000 mt.
Soybeans: 858,800 mt, which is above estimates of 400,000-800,000 mt.
Soybean Meal: 83,500 mt, which is within estimates of 50,000-300,000 mt.
Soybean Oil: 17,500 mt, which is within estimates of 4,000-30,000 mt.

• Brussels has issued weekly wheat export certificates totalling 765,635 mt, which brings the season total to 21,452,755 mt. This is 1.92 million mt (11.55%) behind last year.

• Friday’s COT (Commitment of Traders) report will make interesting reading, to see by just how much the funds have changed positions, and also whether crude oil’s key price resistance at $40/barrel will hold or be breached – which will likely impact agri-commodities.

• Egypt’s GASC has secured 240,000 mt of wheat for April shipment with France picking up half the volume and the balance was split between Romania and Ukraine. The price paid was reported to be $188.86 basis C&F, which is just over $4.00/mt above their last tender on 2 March. Offers were limited to six amid ongoing conflicting signals over ergot content.

• Chicago markets are struggling once again for fresh news and midday saw minimal change, and the run up to the close tonight is little different. Wheat has failed to trade above the week’s high and flirted with 50 day average prices, and has shed 4 cents. Soybeans are all but unchanged as the Brazilian Real plunges and a 100,000 mt old crop sale is announced – mixed inputs resulting in stagnant prices. Recent firming in the Real has pushed trade towards the US but the recent downturn will likely trigger Brazilian farmers into making further sales. However, as Chinese crush margins erode still further demand from China for further soybean supplies remains muted at best.

• US crude oil stocks, as recently suggested, reached a new record volume as of data based upon last Friday, the figure 1,218 million barrels, is 6% above last year but prices rose $1.50/barrel as expected stocks levels were higher.

• Neither the bulls or the bears have a hols on this market right now, the upcoming US stocks and seedings report may provide some pressure one way or the other. New crop corn and soybean prices justify some form of premium given acreage uncertainty and weather conditions at planting and establishment, and at this time the wheat premium over EU and Black Sea has been very reluctant to erode amid uncertainty over W Plains moisture. However, the ongoing big picture of large global stocks continues to dominate and lasting rallies look doomed to failure unless the weather chooses to intervene.

• We have seen something of a weak and unconvincing “turnaround Tuesday” amid further short covering as prices approach the close in negative territory. Soybean meal looks to be technically weak as chart support has given way and lower levels look likely from a purely technical perspective. Winter wheat conditions are reported to be the best in years across Black Sea and much of E Europe. Outside markets have weighed on ags today with the DOW lower at midday, crude oil off $1/barrel with gasoline following (and again below the price of ethanol) and it is expected that US ethanol and crude stocks, due to be reported tomorrow, will remain at or near record high volumes.

• Markets remain in limbo awaiting new and fresh news. The next major input will come from stocks and seedings data from NASS at the end of the month, meanwhile it remains difficult to argue major price moves in the short term. An early to normal planting season in the US looks likely right now, removing one risk area, and the longer range (June/July) forecasts suggest excessive heat in central US is unlikely, again taking threats away from current price uplift. S America’s dominance of exports in the near term suggests to us that fund inspired rallies will be limited and offer opportunities to sell rather than be chased by buyers. N hemisphere weather remains the only likely issue to sustain price rallies – if it turns adverse.

• Stratégie Grains have reported French conditions as beneficial for winter cereal production and spring plantings. The mild winter conditions and lack of damaging frosts have left crops and prospects in a promising position.

• March 1st US wheat stocks report can be downloaded by clicking on the link below:

March 1st 2016 US wheat stocks

• A lot has happened in the last two weeks although nothing that has left us with a dramatically changed perspective on longer term price perspective. We have seen the funds continue their net short positions, indeed growing corn, wheat and soybean positions to record short levels once again as well as giving us one week where the growth in net short reached a record itself. As we know there is an inherent danger in such sizeable positions, discussed here many times, and the risk from any heavy short covering exercise has the potential to move prices significantly as well as causing financial pain to those with exposure. The market today has witnessed such short covering and prices have continued their recent upward momentum, though it should be noted that there has been little, if anything, in the way of fresh fundamental news. Our take therefore is that we are looking at a new “price top” forming in coming days as fund covering reaches its conclusion for now. It has been interesting to note US farmers selling corn on this latest upturn on price, and it is likely this which has limited price upside, cash basis levels have declined. This was the situation last week in the soybean market as funds exited some of their shorts. Dryness appears to be continuing in the US W Plains and this too has encouraged fund short covering.

• The Egyptian Government finally allowed a devaluation of their pound vs the US$ with a 13% weekend devaluation, and they promised to allow the pound to trade more freely which should help reduce the country’s dramatic shortage of dollars. However, the devaluation does make imported world commodities more expensive, including wheat. Many argue that this is just a first step by Egypt on its currency and an even weaker pound relative to the USD is likely in coming months.

• Huge peaceful protests occurred Sunday across Brazil against President Dilma. The protests placed fresh political pressure for her impeachment although it is unknown when, or if, such an impeachment process will start or how long it will take? However, a trucker’s strike never really gathered any momentum and the movement of interior soybeans to port has not been interrupted. Brazil is loading record tonnages of soybeans and waiting times to berth are starting to decline which should start to pressure their fob basis offers.

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

Fund positions

• Interestingly today we saw Chicago markets turn lower following what was seen as supportive USDA seeding estimates. The market decided to focus upon the WASDE price forecasts instead, which were a season cash average of $4.20 in wheat (down $0.80/bu), $3.45 in corn (down $0.15/bu) and $8.50 in soybeans (down $0.30/bu). Prices are clearly well below last season and 2016 US farm income is expected to decline for the third consecutive year – a first.

• For the record, the USDA’s 2016 area figures came in as follows:

Wheat 51 million acres, below estimates of 52.411 and down from 54.644 year on year.
Corn 90 million acres, above estimates of 89.648 and up from 87.999 year on year.
Soybeans 82.5 million acres, below estimates of 83.302 and down from 82.65 year on year.

• Egypt’s GASC secured 300,000 mt of wheat in an overnight tender for late March/April shipment. The purchase included 60,000 mt of French, Argentine and Ukraine wheat (each), and 120,000 mt of Romanian wheat. The French wheat was sold at $175/mt basis fob, which is some $11/mt above replacement. Sellers appear to be more willing to take on the risk of ergot fungus and late payment as this may be one of the last tenders by Egypt in the 2015/16 crop year as their new crop harvest commences in April.

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

Wheat: 486,200 mt, which is above estimates of 200,000-400,000 mt.
Corn: 1,066,300 mt, which is within estimates of 700,000-1,200,000 mt.
Soybeans: 328,600 mt, which is within estimates of 300,000-700,000 mt.
Soybean Meal: 172,600 mt, which is within estimates of 100,000-250,000 mt.
Soybean Oil: 3,200 mt, which is below estimates of 5,000-20,000 mt.

• Brussels has issued weekly wheat export certificates totalling 800,941 mt, which brings the season total to 19,215,804 mt. This is 1,878,151 mt (8.9%) behind last year.

• The bearish market momentum has had little in the way of interruption today, and this does not pave the way for the bull’s immediate return. Our take on price moves is that there is little to suggest corn can make more than maybe 15 cents upturn at this time, unless we see adverse weather conditions arrive to upset things. We would also question whether, or not, the market has fully digested the potential of S American crops at this time as well as what seems to be the largely forgotten issue of slowing (maybe sharply so) US soybean sales and exports, which would be a majorly bearish input as and when digested.

• We have today seen wheat prices slip still further, hitting prices last seen some six years ago and the Chicago market has seen an upsurge in put option purchasing (giving the buyer of the put option the right, but not the obligation, to sell at the strike price – namely a bearish trade) in the May contract. In addition,there has been further fund selling and the cumulative net position will be worth keeping an eye on when this week’s figures are released on Friday evening. There have been many who suggested that fund short positions could not and would not grow in size, and they may be forced to eat their words!

• Financial markets have shown something of a bounce, which may add some support into tonight’s close and crude oil’s attempt at recovery may well help recovery.

• The Paris wheat market saw a dramatic price drop with fresh contract lows once again and physical prices equally weak with fob levels reported at $164/mt. German 12.5% protein wheat is reported to be offered as much as $12 below Russian, and any lingering Black Sea buying interest has evaporated. Feed grade wheat is offered as low as $151/mt with buyers nowhere to be seen.

• In the southern hemisphere we are seeing further non-threatening weather conditions with forecasts suggesting that N Brazil will receive heavy rains in the 8-15 day window, which would favour harvest and boat loading in central Brazil (Santos & Paranagua). Near to below normal rains across S Brazil and Argentina this week with sunshine predicted looks good for Argentine crops, according to some it is almost ideal. At present we do not seem to be looking at S American crops reducing in size.

• In summary, wheat markets continue lower in their attempt to find export demand and a place in feed rations. Corn and soybeans are following but we are yet to be persuaded of their ability to materially break out of the long established trading range. Normal spring planting conditions in the US will see the wheat pressure replicated in soybeans and corn although we will have to wait and see if this becomes the actual position.

• Without looking back into our archives, we recall current Chicago wheat prices are now at our initial downside target levels ($4.30 – $4.40 basis March ’16 futures). Where now?

• Chicago has seen a down day of some magnitude today with wheat pushing to new contract lows with corn and soybeans being dragged lower amid fund selling. S American soybean and corn crops are being talked even higher and weakness in crude oil is adding weakness. The failure of markets to gain sufficient traction to break above recent highs or break out of the range has added to the general weak tone. It has been interesting to witness the willingness of farmers to sell into even limited rallies, which has had the effect of capping upside.

• European wheat markets have reacted in sympathy with prices closing lower amid ongoing concern over potentially burdensome closing stocks in the face of non threatening growing conditions.

• Put simply, consumers appear to be extending cover on price breaks whilst producers extend sales on price rallies. This has had the effect of keeping the market within its range and it will take more definite knowledge of N Hemisphere weather and spring plantings before we see a change of underlying tone.