• Chicago markets have seen some fund short covering that has elevated both corn and soybean prices above last week’s highs in volume tat is best described as uninspiring. Wheat has not followed and is trading in negative territory with less than an hour to go. It seems that a high volume of in the money March soybean put options have expired worthless (when they should have realised the holder a profit) and traders are asking why this is? A mistake or oversight, albeit an expensive one, seems the most likely answer at present.

• Fundamentals in the corn, soybean and wheat markets have not change dover the weekend or today, bearish oversupply and flagging demand patterns continue to point bearish, although lower prices seem tough to achieve due to historically low physical prices creating a floor in prices that seems difficult to break through. Holders of bearish positions are just not seeing prices move lower and therefore profits are not accruing, as a consequence many are simply tired of their position and exiting ahead of the upcoming USDA Outlook Forum conference.

• For those looking for relief in the form of a switch from El Niño to La Niña it seems that disappointment is going to be the order of the day! It seems that El Niño will persist into late 2016 as the Southern Oscillation Index (SOI) suggests a second wind to the phenomenon.

• Argentine old crop soybeans have been priced at a $25-30/mt premium to new crop for some while. The premiums have some suggesting that Argentine old crop soybean stocks are lower than projected by USDA. There appears to be no statistical evidence that Argentine soybean stocks are lower and we are not looking for the USDA to make any adjustment in coming WASDE reports. Argentine farmers are holding old crop soybeans due to the forward Peso price curve and knowledge that the Government will cut the soybean export tax by another 5% in December. The forward Peso rate a year from now is 18 compared to today’s rate of 15 peso/US$. This means that farmers can make 25% on holding any cash soybeans. This is why Argentine farmers have been slower sellers of cash soybeans – not that cash stocks are not there!

• Current price direction in Chicago seems (to us) unsustainable for long as there is too mush supply chasing after too little demand.

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

Weekend summary 19 February 2016

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

Fund positions

• Chicago markets have been thin and mixed with corn making an early attempt to rally whilst wheat and soybeans remained in the red. As we approach the close all three markets are trading a touch lower and it feels as if fund short covering has been somewhat slower paced than in the last few days.

• We continue to view S American exchange rates as conducive to acreage expansion going forward, despite rising input costs and this has the potential to weigh on prices looking forward. Current year output has the potential to grow on the back of actual yield date, which is revealing better than anticipated results in Brazil as well as improved weather conditions across Argentina, Paraguay and S Brazil. Rainfall across Argentina in the last couple of weeks has nearly replenished soil moisture levels and last year’s yield has the potential to be at least equalled.

• Rangebound trade has not excited the trade and we have to wait for US plantings and spring weather before the next key direction can be clearly defined. Meanwhile, S American crops appear to be getting bigger as threats diminish. Upside remains limited at this time  – unless we see fresh bullish input.

• The start of the week saw some short covering, which prompted modest price gains and Wednesday has been no different with outside markets continuing to offer support if it were needed. Crude has seen a $2/barrel hike with the US$ marginally lower and equity indexes up as much as 2%.

• Argentina raised its biodiesel export tax to 3.9% from 1.6% as a revenue raising exercise as shipping to the US remains active, and the jump is not thought to be sufficient to alter current flows.

• Uncertainty remains over wheat output in India with latest estimates at 88-92 million mt being higher than expected but the trade anticipates lower production with a 75-95 million mt range. With global supplies at their current level this is not thought to be, or become, a significant issue at this time.

• Technical chart patterns have become somewhat more supportive than previously, and this may continue to lend a degree of strength to prices. As an example we are looking at May ’16 soybeans trading above key moving average price levels although we should not forget the potential pressure from the current and ongoing S American harvest which will continue to dominate the market for the next few months.

• In summary at the midweek point we see the bulls and the bears in a tussle for supremacy in a market that is frustrated by a clear lack of market moving input. Our considered view is that we will see more clarity as we reach March when US planting intentions, weather and S American yields will all be more evident.

• There has been evidence of some active short covering in Chicago markets today which has seen prices higher on something of a bounce, which the technical trade may well view as corrective, relieving something of the oversold situation. At the same time we have seen energies tick lower and some value buyers picking bargains in equities that have seen some gains. However, it is probably fair to say that there is a lack of fundamental justification for higher ag commodities at this time and farmer selling as prices rise seem to back this up. We doubt the sustainability of the current rally.

• It is noted that vessels are arriving in Brazil, as much as 3-6 weeks early for new crop loading, with suggestions that there is little work for them elsewhere. Panamax rates are now below $2,500/day and no-one wants to get to the back of the queue when there are charters available.

• NOPA crush data was deemed bearish with January soybean crush at 150.45 million bu vs. 157.7  million bu in December and 162.7 million last year. This is the lowest figure since 2011 and the big surprise was that soybean oil stock surged to 1,526 million lbs, up 298 million from last year and 45 million up on December’s figure. It would seem reasonable to assume USDA estimated crush figures remain on the high side and that US soybean end stocks could potentially grow still further pressuring price gains.

• It was reported that Egypt rejected 8,000 mt of Canadian wheat on ergot contamination issues. This is clearly remaining an issue and warrants observation going forward.

• The US markets have been closed today due to the President’s Day holiday which as one wag put it, “is where we honor (sic) the greatest hoodwinkers who have ever lived and breathed and prospered in America.” We could not possibly comment! Consequently markets have been quiet and global equities have been sharply higher to start the week on some short covering and reduced levels of concern over European Bank liquidity. Crude oil has seen gains and the US$ is a touch stronger whilst gold has eased back around $29/oz to $1,210/oz earlier today.

• Matif wheat gained in early trade even with news that India’s government estimated their 2016 crop at 93.8 million mt, below their target 94.75 million mt. Trade estimates sit in the range of 80-84 million mt making the government estimate appear large!. Egypt’s GASC passed on a weekend wheat tender citing both high prices and lack of offers as the basis for their decisions – doubtless the ergot debacle remains high in the mind of potential sellers.

• Brazil’s soybean harvest is gathering pace and farmers are selling on the back of good yields as well as sliding Real, any uplift in Chicago will likely see fresh selling impetus in S American selling.

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

Weekend summary 12 February 2016

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

Fund positions

• Low volume and mixed has been the tone of early Chicago trade with the grains trading either side of unchanged while soybeans have traded mostly in the green. Volume has been extremely light and for now, Chicago does not appear to be paying much attention to the sinking world financial markets.

• The US DOW is reflecting a 330 point loss amid the weakness in Asian markets and talk from a prominent hedge fund that the potential Chinese banking crisis could be five times worse that the US subprime loan crisis of 2008/09 based on all of China’s leverage and lack of credit diligence. They (hedge fund) noted in a letter to investors, that Chinese loans are made as political favours not on sound banking/credit diligence! Do not underestimate the potential impact of this looking forward.

• WTI crude oil prices have fallen back near their prior lows at $26.19/barrel.  Currently, WTI March Crude oil is down $1.18 at $26.27/barrel and traders are holding their breath that the recent lows hold. A close in new contract lows would set a downside price target of $20/barrel and further pressure the CRB Index, and expand the talk of deflation. With US ethanol stocks at record levels, this new drop in crude will not bode well for the biofuels with unleaded gasoline trading at $.95-.98/gallon.

• Additional rain is forecast to drop across Argentina and S Brazil in the next few days as the soybean harvest speeds ahead across N Brazil. Following another 1-3.00” of rain across the drier areas of Argentina, soil moisture should be in good shape for corn pollination and soybean bloom/podding. The rains return in the 11-15 day period across N Brazil which would be ideal for just planted winter corn.

• Soaking rains are forecast to fall across the S Plains late next week and weekend. The moisture would maintain high rated crops and provide an added boost to soil moisture. Climatologists are no longer is expecting La Niña in 2016 as the Equatorial Pacific remains historically warm.

• S American markets will slowly return today with soybean/corn hedge pressure expected into the US’s three day weekend. US financial markets are closed on Monday for the President’s Day holiday as the Brazilian harvest advances.

• European fob wheat is steady with a weak undertone while palmoil values could be peaking from the bearish undertow from crude oil. If crude oil falls to new lows, we fear that Chicago grain and soybean futures will follow.

• After yesterday’s market excitement (tongue in cheek comment) we have seen US wheat futures recover from technically oversold levels whilst corn and soybeans sit near unchanged. Matif wheat has enjoyed a modest bounce off its contract lows but let’s be clear, there is nothing in the way of fresh bullish news to substantiate any lasting price uplift.

• US agri crop sales reporting announced a sale of new crop corn to Japan but nothing else, and we are starting to see global soybean complex demand in transition to S America. Brazilian and Argentine beans for April and further forward delivery are offered in the $321-$328/mt range, the lowest in years and this is as much as $20/mt below US Gulf levels. Both S American countries will start to battle it out for global volume sales once harvest really gets going in March

• France’s Farm Ministry has pegged new crop wheat seedings at a 5.2 million ha, an 80-year high, and a sizeable crop is in the making amid a lack of winterkill and adequate precipitation.

• Since late last summer, and following the USDA’s reduction in US grain demand and US soybean crush, the markets have digested a flood of bearish input with limited reaction noted today. Fresh news, however, continues to lean a bit negative, and we maintain that it’s critical to view semi-lasting bounces as limited in duration whilst everything else remains unchanged. Downside risk remains given “normal” weather.

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

USDA Recap 9 Feb 16

To download our USDA commentary as a pdf file please click on the link below:

Feb 16 USDA contemplation