• From a longer term weather perspective the latest NOAA (National Oceanic and Atmospheric Administration) ENSO   (El Niño Southern Oscillation) forecast calls for El Niño lingering across the Equatorial Pacific this summer. This is much different from the dire La Niña warnings of October and November. El Niño continued to strengthen amid world oceans that are their warmest on record. It is expected that the world weather forecasting community will lower their expectations of a dire Midwest drought in coming months as La Niña now looks to be put off until Q4.

• Longer term, the climate forecasting community has become less aggressive on El Niño’s decline through the next six months. El Niño has doubtless peaked, but the odds of La Niña being established by summer are falling rapidly. The graphic below display a host of model projections into October, and notice the median projection features a weak but lingering El Niño into autumn. As such, it’s premature to discuss a hot/dry US growing season in 2016.

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

Wheat: 76,500 mt, which is below estimates of 200,000-400,000 mt.
Corn: 252,900 mt, which is below estimates of 400,000-600,000 mt.
Soybeans: 638,800 mt, which is within estimates of 400,000-700,000 mt.
Soybean Meal: 46,500 mt, which is below estimates of 50,000-150,000 mt.
Soybean Oil: 3,500 mt, which is within estimates of zero-20,000 mt.

• Brussels has issued weekly wheat export certificates totalling 397,143 mt, which brings the season total to 13,979,514 mt. This is 1.474 million mt (9.54%) behind last year.

• Chicago markets have found some stability ahead of the usually exciting January report scheduled for release next Tuesday and limited market movement is anticipated between now and report day. Barring surprise corn or soybean residual use figures we would expect focus to return swiftly to slow US exports and generally favourable global weather conditions.

• Global political tension levels have moved up a notch today in the wake of N Korea’s successful test of a Hydrogen Bomb. Anxiety levels within Asian and global financial markets have increased as the world debates what or if to do anything. The Chinese Yuan continues to depreciate with the Central Bank sets its value lower each day of this new year and it appears that investors are losing confidence in Beijing’s economic abilities.

• Informa Economics’ latest data release shows their estimate for the 2015/16 Brazilian corn and soybean crops unchanged month on month at 81.3 million mt and 101.4 million mt respectively. Their estimates for Argentinian corn are 1 million mt higher month on month at 22 million mt, whist the soybean crop is left unchanged at 58.5 million mt. Informa have also reduced their estimate of the Indian 2016/17 wheat crop by 4 million mt to 85 million mt.

• General market commentary:

Soybeans are oversold but with declining crude oil levels soybean oil is relatively overbought.
Corn markets have more selling to absorb in Brazil and Argentina remains active.
Wheat markets are responding to lack of weather issues from key exporters and this is keeping the trend down

• Argentine fob corn prices have fallen to multi-year lows with offers at $151/mt with bids below $150/mt. This is now lower than the late summer lows of 2014 when Chicago spot corn futures fell to $3.20/bu. The US corn market is overvalued relative to the world which is why a pig producer is willing to import Argentine feed wheat into the SE US. Until there is a bottom in Argentine corn offers, Chicago corn will likely struggle to rally.

• Chicago markets saw an early decline but when Mar ’16 corn failed to breach $3.50/bu key support a short covering rally ensued. The market is only too well aware of the extent of the fund net short position and is consequently wary of a spike higher, and with the January USDA report scheduled for 12 January reduced exposure is the order of the day and this will likely lend some support or even a modest bounce ahead of publication.

• Global grain markets show little sign of vigour, Argentina’s corn and wheat offerings are steadier whilst French and Black Sea wheat offers are weaker. Global importers and consumers are showing little interest in adding to forward cover with books already well filled into spring and early summer.

• In summary, fund short positions offer the opportunity for a bounce but end users are unlikely to chase any rally in the face of current fundamentals and improving S American weather prospects.

• Last night saw the publication of the holiday delayed CFTC report which showed a significant expansion in the overall fund cumulative net short position in wheat, corn and soybeans. Our archives (which go back to the start of 2012) show the largest cumulative net short position with both wheat and soybeans at individual record short levels. Whilst it should be noted that the large net short fund position does not engender a bull market we note that there seems to be no compelling fundamental to spur a rally. However, the fund short does raise a cautionary note ahead of the January 12th USDA Crop report. Research argues that the large net short fund position will cause Chicago prices to trade sideways into the January report – with the report to determine valuations in to February.

• Brussels has issued weekly wheat export certificates totalling 354,519 mt, which brings the season total to 13,582,371 mt. This is 1.652 million mt (10.84) behind last year and leaves a requirement of a minimum weekly export total of over 711,000 mt to hit the latest USDA export total.

• Trade in Chicago has been somewhat slower today with some slight gains showing across all three key ag commodities as we approach the close. Regardless of fund positions, which are stemming the enthusiasm of the bears to push much lower for now, global FOB prices continue to soften and fundamentals argue this is correct – for now,Argentina continues to lead the way lower in searching for grain and soybean demand. It is rumoured that Argentine low protein wheat has traded into SE USA, and whilst confirmation is lacking it appears that the calculations work. Despite the recent export tax reductions/removal and Peso devaluation in Argentina there remains much unsold soybean supply in the hands of farmers who are reported to have only sold 2-3 million mt. It is estimated that as much as 15-16 million mt of old crop supply remains to be sold and with Brazil still in place to record a record crop we could well have greater pressure to see before prices eventually bottom out.

• Today’s first full working weekday back saw some sharply lower prices in Chicago as US and global equity markets traded lower. A firming US$ and ongoing concern over global economic growth prospects carried into the new year from 2015. In addition, an oversupplied world crude oil market created disappointment with political tensions high between Iran and Saudi Arabia not translating into a bullish price impact. New Year price tone remains stubbornly bearish with the only safe haven appearing in the form of gold and slowing global growth being the main drag on ag commodities.

• CBOT wheat and corn fell to fresh contract lows and Mar ’16 soybeans within 8 cents of its contract low. Continuation charts suggest support lies at $3.49 for Mar ’16 corn and $4.51 for Mar ’16 wheat.

• Wheat prices for Black Sea weakened as many celebrate the orthodox Christmas and New Year holiday, and if USDA export estimates are to be reached in either Black Sea or EU sellers will have to become more aggressive with price. Unless this is we will be facing record milling wheat stocks in the EU assuming a normal 2016 harvest.

• Brazilian exports in December were reported as soybeans 730,000 mt (vs. 1.44 million mt Nov and 140,000 mt last year), soybean meal 1.04 million mt (vs, 1.13 million mt Nov and 870,000 last year) soybean oil 163,550 mt (vs. 111,720 mt Nov and 65,130 last year). Corn exports in December were reported at 6.27 million mt, record large  (vs. 4.76 million mt Nov and 3.4 million mt last year). Exports across the board were larger than generally anticipated by the trade.

• Fund selling has continued and tonights holiday delayed CFTC report is expected to show an increase in fund short position, we will update our charts tomorrow.

• Overnight rallies in Chicago markets have failed once again leaving closing prices a touch lower in what seems to be low volume trade. Consumers appear reluctant to follow any upside and Argentinian aggressiveness in wheat pricing to Egypt has surprised many. Many are questioning whether corn and soybean sellers will follow in their aggression in coming weeks as global exporters chase the few buyers that choose to raise their head above the parapet.

• Egypt’s GASC purchased 120,000 mt of wheat in a snap tender for 21-30 January shipment at an average price of $190.94/mt basis C&F with Argentina the seller – a first this season, but not totally unexpected given the Peso devaluation. Offered levels were some $8-10 below others and delayed payment of Letters of Credit is a hot topic today. The price is considered a season low and probably reflects the competitive nature of global grain pricing right now. Corn pricing is also expected to be equally aggressive and competitive in coming weeks so a “watch this space” approach would not go amiss at this time.

• Today’s Chicago markets started higher but turned lower in somewhat more active volume in the grains, corn and wheat. The soybean complex is seeing a reduced volume as traders vacillate over N Brazilian weather forecasts and exactly how much January rain will materialise. It seems that if grain prices are to move lower, and convincingly, we will need to see the rainfall that N Brazil needs.

• Farmer selling has been evident in the US today and this has reflected in Chicago prices this afternoon, and it feels somewhat bearish at this time. As we suggested yesterday, a loss of 1-3 million mt of soybean output in Mato Grosso/Goias does not seem to be hitting the market adversely at this time.

• Brazilian corn export volume commitments have reached a record 33.8 million mt and look likely to exceed 34.5 million in the crop year. Continued offers from both Brazil and Argentina look as if they will certainly “dent” US export prospects in nQ1 2016. The Dec-Mar US export window is being squeezed and reducing as each day passes and S American fob offers remain below US Gulf levels. US corn end stocks should be revised higher in the January USDA report.

• Chicago markets are trading lower into the close at the start of the holiday week as grains lead the way down, albeit modestly. Some early buying was fund short covering inspired and once filled farm selling pressure from both N and S America prevailed. Improved rainfall prospects for Brazil in the 10-15 day window added to downward pressure and it seems funds have joined the sellers in today’s last hour or so of trading.

• When all said and done the potential loss of 1-3 million mt of soybean output in the Mato Grosso and Goias regions of Brazil is now accepted to be of limited significance and unlikely to change the overall bearish outlook. It would take an extended and widespread drought across Brazil to make such a change. On the other hand too much rain may create a fungal rust problem that could lend support, however neither position is tenable at this time but we maintain a “watch Brazilian weather” position to ensure timely decisions can be, and are, made.

• January’s WASDE report may well contain firework inducing data as has been the case in previous releases. Soybean imports by China in December based upon vessel loadings and lineups will fall (sharply) from last year at 4.9 million mt. We know Chinese imports tend to bottom seasonally in January and then increase through to July  however the December slowdown (if validated) will keep WASDE from increasing their estimates in January’s report. It appears that China has all but filled its Jan/Feb requirements from the US at this time.

• Market action in Argentina is slow, and it is estimated that their farmers could well be sellers of 8-10 million mt in the next quarter. Once exchange rates for the Peso normalise it is expected that farmers will become regular sellers in the New Year, which will likely reduce early demand (and price support) for Brazilian soybeans.

• Of note, and worth watching, is the lack of snow cover across much of the Black Sea wheat growing region. With cold temperatures forecast the potential for winterkill could be greater than normal. That said the GFS weather model for all of Europe and Russia remains warmer than normal.

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

Weekly Update 18 December 2015

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

Fund positions

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

Wheat: 320,200 mt, which is within estimates of 250,000-450,000 mt.
Corn: 677,600 mt, which is below estimates of 700,000-950,000 mt.
Soybeans: 1,023,800 mt, which is within estimates of 900,000-1,300,000 mt.
Soybean Meal: 108,600 mt, which is below estimates of 150,000-300,000 mt.
Soybean Oil: 10,200 mt, which is within estimates of 5,000-25,000 mt.

• Brussels has issued weekly wheat export certificates totalling 1,105,722 mt, which is more the second largest weekly volume this season. This brings the season total to 12,488,841 mt, which is 1.409 million mt (10.14%) behind last year.

• Chicago grain prices have continued to weaken during the morning with the Argentine Peso priced at 13.90 vs. the US$, a devaluation of nearly 30%. Combined with export tax reductions of 20% in corn, 23% in wheat, and 5% in soybeans, Argentine farmers have to be smiling at the end of the week. They are showing their glee with sizeable cash grain and soybean movement this morning. Doubtless Chicago is feeling the cash connected Argentine selling on rallies.

• The strong US$ and fall in crude oil to new 2015 lows is keeping the entire commodity complex under pressure. Some commercial traders are wondering if the long only index fund holders are finally bailing on their strategy of holding commodities as a hedge against their equity holdings. Index fund holders are looking at losses of over 60% since 2013 and most have had enough! The index funds will continue to sell commodities on liquidation for tax loss purposes heading into 2016, which could pressure commodities on rallies for another two weeks.

• China priced 424,000 mt of soybeans this morning, which was reported by USDA. China has been a buyer of the soybean break which is offering some support. Additionally, China is enjoying positive crush margins and they are securing Chicago soybeans on a scale down basis. However, China has nearly booked its import needs from the US through January and will soon turn attention to Brazil which is offering soybeans below the US after early February.

• Data releases today included Informa Economics who lowered 2016 US corn acres to 88.926 million acres from 90.1 million previously and soybean acres were also reduced to 84.537 million acres from 85.3 million previously.

• Stratégie Grains forecast the 2016 soft wheat output at 143.6 million mt,a decline of some 6.4 million year on year, and the first decline since 2012. Planted area was down around 100,000 ha at 24 million and yield forecast was also reduced from last season. Export prospects were more upbeat with a forecast of 27.6 million mt, some 800,000 more than previously estimated, and this would represent a 16% year on year decline. Ending stocks, estimated at 18.4 million mt remain at substantial levels.

• Chicago markets have continued to ease lower with January ’15 soybeans trading below $8.60/bu support and March ’16 corn testing last week’s $3.70 low. Interestingly, wheat has been trying to hold on fund short covering but it too has turned lower in sympathy with corn and soybeans. Volumes are unimpressive with many reluctant to enter into new net positions in advance of the holidays and, more crucially, the Fed’s expected rate hike due later today.

• The Real has fallen sharply today, back around 4.1 vs US$. The fall is based around political uncertainty and ongoing pressure on President Dilma to resign or face impeachment. Brazilian finances remain under scrutiny with deficits on the rise and a test of the summer lows of 4.2 vs US$ is possible. Any such test will help the Brazilian farmer maintain profitability and the fall in the Real is more than offsetting Chicago’s fall in soybean prices (so far).

• Rumours continue to grow on Argentine devaluation being imminent, possibly later today, which together with the Fed’s announcement later on today is creating nervousness in markets. The potential for Argentine grain and soybean exports to grow, and maybe sharply so, looks very real today.

• Overall an Argy devaluation looks as if it could further damage US export competitiveness leaving it in a difficult position, consequently our cautiously bearish stance remains.