• By our calculation the funds nest short position, updated to last night (and it can not be totally accurate) suggests that they are back at, or close to, last June’s 200,000 net short position. Such a large position, as we head into the crucial S American growing season is a recipe for volatility. Any adverse conditions that develop in December of January would doubtless encourage a sharp short-covering rally. There is no suggestion right now that this would happen, however we would express surprise if we did not see at least one weather scare in the run up to late January’s harvest. We continue to advise a cautionary approach.

• Last night’s close in Chicago saw a price “key reversal” is soybeans, which is often associated with the formation of a bottoming pattern. Both soybeans and meal made fresh contract lows before short covering saw prices close higher.

• Today has seen Chicago grains easier with soybeans just in positive territory as we approach the close. The weekly price chart in soybeans is also displaying a reversal pattern, which appears to be gaining the interest of funds, particularly as we see crude oil, gold and CRB Index all bouncing off recent lows. More optimistic global economic growth and inflation outlooks are also prompting a “bottom picking” mentality, and we all know the old trader’s joke about “bottom picking” etc. etc! The grains are easier on lack of fund follow through although any soybean strength could possibly spill over into grains.

• Black Sea and EU fob wheat prices showed continued weakness on lacking demand and Jordan has for the second time in two weeks cancelled a 100,000 mt wheat tender.

• The downing of the Russian jet by the Turks overnight has fueled widespread speculation as to what will be response from the Russians. Russia and Turkey have battled for decades, so this skirmish is not something new. However, Russia does provide 57% of Turkey’s natural gas supply and if it is shut down prior to winter this would severely impact Turkey’s economy. Moreover, Turkey is Russia’s 2nd largest wheat importer and there is talk of a partial embargo. It seems as if everyone is trying to gauge the Russian response to Turkey’s military downing.

• Finally, one has to remember that most Black Sea trade moves through the Bosporus Straits (ag, energy and even military) at Istanbul so this shipping lane is vital. The Bosporus Strait is hugely important from an ag logistical standpoint and any slowing/blockage is something being discussed by importers and end users this morning.

• Clearly there are some geo-political issues emerging, and these will bear watching.

• Top of the weekend news has to be that Conservative opposition challenger Mauricio Macri won Argentina’s presidential election on Sunday, bringing to an end more than a decade of free-spending leftist populism with a promise to open up the ailing economy to investors. Outgoing President Fernandez’s style and policies appear to have worn thin with the electorate who have backed Macri’s pledges to liberalise and stamp out corruption. How this pans out will be interesting to watch in coming weeks and months.

• Chicago markets started the day somewhat lower on the Argentine news as well as beneficial rain and snow across parts of the US, which is improving soil moisture levels as crop dormancy approaches. Funds were once again sellers, but have this afternoon come back to take cover amid a lack of concrete news from S America. There are suggestions that there may be a one month period of zero percent soybean export taxes with month two at 15% followed by a return to 33%. This would suggest an avalanche of supplies hitting the market in an extremely short period of time with all that comes with such a move – lower prices! The time frame for large volumes to hit the market is realistically governed by such issues as freight availability and internal logistics, but the suggestion of significant stock movement was enough to move the market in early trade.

• Tension is once again growing between Russia and Ukraine as power lines to Crimea were blown up over the weekend and it is not beyond comprehension to believe that further retaliation could include ports and grain shipments. With markets already nervous it would not take much to prompt additional risk premium to be injected into current low prices.

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

Weekly Update 20 November 2015

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

Fund positions

• Brussels has issued weekly wheat export certificates totalling 655,676 mt. This brings the season total to 9,064,414 mt, which is 2,482,607 mt (21.5%) behind last year. To reach the USDA’s latest EU wheat export total of 33.5 million mt it will be necessary for exports to hit an average of just over 740,000 mt for each of the remaining 33 weeks in the season.

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

Wheat: 721,900 mt, which is above estimates of 200,000-400,000 mt.
Corn: 779,800 mt, which is above estimates of 500,000-700,000 mt.
Soybeans: 1,798,100 mt, which is above estimates of 700,000-1,100,000 mt.
Soybean Meal: 247,300 mt, which is within estimates of 150,000-300,000 mt.
Soybean Oil: 37,700 mt, which is within estimates of 10,000-40,000 mt.

• In their latest update Stratégie Grains have raised their estimate for 2015 EU soft wheat exports to 26.8 million mt, an increase of 300,000 mt. At the same time wheat output is also increased by the same amount to 149.8 million mt, maize output is forecast 200,000 mt higher at 57.3 million mt whilst barley output remains unchanged at 60.5 million mt. Stratégie Grains views the pace of EU wheat exports as rising, particularly to N Africa in the light of a weaker €uro, which is improving competitiveness. At the same time domestic wheat consumption in livestock diets is reduced to 54.5 million mt vs. last month’s estimate of 56 million mt due to reduced competitiveness against other grains. Consumption by flour millers was also reduced by ½ million mt.

• Traders and the Ukrainian AgMin have agreed to limit wheat exports from the country to 16.6 million mt this season, according to reports by Reuters. However, the current size of the cap is unlikely to cause major concern as it is above both total season exports in recent years and current forecasts for 2015/16 exports (see chart below). This year, Ukraine has endured a difficult autumn planting campaign and concerns have been raised over the condition of crops for harvest 2016. As a result, the cap is expected to be reviewed in spring 2016 following an assessment of crop conditions. Current season exports from Ukraine have got off to a good start with 5.5 million mt of wheat shipped in the first three months of the 2015/16 season (Jul-Sep), according to data from UkrAgroConsult. This is 22% higher than the same period in 2014/15, while the USDA forecasts total season exports to be 33% higher year on year. Exports from Ukraine are usually weighted towards the front end of the season. On average, over the past five seasons, more than a third of the full season total was shipped by end-September, with an average of nearly 70% of the total exported by end-December.

• It has been a mixed day in Chicago with a noticeably reduced appetite for selling in anticipation of Friday’s COT report showing an even larger net fund short position, which is offering some support (on the back of what would happen if funds cover their short). Added to this, larger than expected wheat, corn and soybean export sales bolstered further support as traders start to believe that current (low) prices are beginning to build and develop demand (we are not too sure on this one).

• S American corn fob premiums are starting to rise placing US Gulf offers at a slight advantage and interest is beginning to switch back to the US crop.

• Ultimately it is hard to remain overly bearish, despite the fundamentals, in the light of the sizeable fund short and multi-year low prices. That said, there is little on the horizon to suggest that there is anything of a lasting rally in the offing.

• We are looking at another “down” day in Chicago as the soybean complex leads prices lower. The market is bracing itself for Sunday’s Argentinian presidential election and all that might come with the ultimate outcome, with many expecting a win for opposition leader Macri. If he is elected there is an expectation of a rapid cut in soybean export taxes and a Peso devaluation. The polls appear to favour Macri but there is an uncertain history of accuracy over Argentinian presidential election polls and there will be an indeterminate period of time before any changes are enacted.

• The funds have never held a larger short ag position than as of today! The chart below reflects non-commercial net ag positions in livestock, grains and oilseeds. Notice that as of last Tuesday, non-commercials held a net short of just over 300,000 contracts, larger than the low going back to June. Funds have been aggressive sellers of a host of commodity markets following the recent strong rally of the US$. Fund shorts by themselves are not a reason to be bullish. What is lacking is a fundamental catalyst to spark any short exodus. The heady fund position argues that sellers should be cautious entering new short positions as we have advised previously.

• Stratégie Grains have reduced their estimate of EU wheat imports in the 2015/16 year by 400,000 mt to 3.1 million mt. Improved competitiveness of EU wheat, particularly in the south when compared with Ukraine. At the same time an increase of 300,000 mt is seen in EU 3rd country exports to 26.8 million mt, mostly featuring N Africa as the destination. Note that this compares with the latest USDA estimate of 33.5 million mt, a somewhat large difference!

• Chicago wheat has fallen below last week’s low in trade today whilst soybeans tested last week’s high. The fall in wheat has seen funds making additional sales and pressuring corn at the same time. Limited farmer selling and a firming cash basis has added to market turmoil but ultimately we are looking at neither bullish or bearish inputs when all said and done – for now.

• In an interesting development, much cooler ocean water has started to build across the western equatorial Pacific – and that cold water is starting to push eastward. The cold sub surface waters of the west look to start moderating El Niño conditions rather rapidly in coming months. This is something worth watching since a fast ending of El Niño would raise the weather/crop risks for S America and the US in 2016. We suspect that funds managers are watching the same El Niño/La Niña developments and could push out of short ag positions if the trend becomes clearer heading into year end. This is something that we will closely monitor in coming weeks. The ending of the current super El Niño seems more certain based on the rapid cooling of the W Pacific.

• The world grain trade has been listening to all of the promises being made by both Argentine presidential candidates. A speedy devaluation and ratcheting down of export taxes are openly discussed by both candidates. Based on the polls, traders expect that Macri will win the election and that speedy reforms will be enacted once he takes office on December 10th. Yet, many respected Argentine economists are advising not to listen to campaign promises! Promises aside, these economists argue that if Macri becomes president, he will likely take a more measured approach in moving to a Peso devaluation and an ending of grain export taxes. This would come as somewhat of a disappointment to the bears that now point to a wall of beans and grains coming to the world marketplace from Argentina.

• Last night’s weekly US crop condition and progress report showed US winter wheat good/excellent ratings were boosted 1% to 52%, vs. 60% last year. The biggest improvements are noted in; CA, IN, MO, OH and OR. Wheat planting has reached 94% complete, with emergence at 87%. Soybeans are reported to be fully harvested and corn is 96% gathered.

• It has been a relatively uneventful start to the week in Chicago markets and this has reflected in Europe as well. It is reported that volumes are low because traders are looking away from ags for better opportunities. As Chicago markets near multi-year low levels  and global farmers hang onto their recent harvest, the market needs to find a fresh bearish input for pressure to remain on still lower price levels. Tonight’s COT report will be keenly inspected to see just how much selling power may be in the hands of the funds.

• Today’s NOPA crush report showed October’s soybean crush to be 158.9 million bu and soybean oil stocks reaching 1.408 billion lbs. Last year’s comparable crush rate 157.96 and the latest number was a touch below expectation. Crush rate to date is record large but US crush margins are in decline.

• One commentator has described the current market climate as “too cheap to sell and no fundamental reason to buy.

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

Weekly Update 13 November 2015

• Chicago markets are doing very little in the post-USDA report trading sessions, perhaps a reflection on the current lack of fresh news, and also possibly a period of reflection on the shock Chinese stock position.

• US farmers continue to be reported as holding on to recently harvested crops causing an increase in cash basis levels.

• Brussels has issued weekly wheat export certificates totalling 448,932 mt. This brings the season total to 8,408,738 mt, which is 2,549,854 mt (23.27%) behind last year, and still well behind the pace required to hit the latest USDA forecast. As a point of interest, our rough calculation suggests that a weekly run rate of over 700,000 mt will be required to reach the USDA’s level and although exporters may be willing and able to supply such volumes there are two obstacles, lack of buyers and strong competition! Alongside this, it is reported that French silos are full and a suspension of futures deliveries may well be on the cards.

• Black Sea weather forecasts continue to contain adequate moisture across Russia and Ukraine in the coming 7-8 days before drier and cooler weather arrives. W Europe looks as if it is scheduled to receive normal/above normal rainfall and any lingering US drought across E KS, MO and IL is all but eliminated as heavy rains are expected across the Plains and Midwest from the middle of next week.

• As we expected, markets are trading in a narrow range and this is likely (in the absence of any fresh news) to continue until early/mid December when S American weather will become the driving factor. This week’s boost to global stocks is likely to cap rallies, despite farmer “hoarding”. Bullish or bearish? It is difficult to take sides at current price levels.

• Chicago markets have given back a little of yesterday’s trashing today in profit taking but we reiterate that it will take adverse S American weather to sustain a price rally. Fresh news is lacking and both the bulls and the bears are looking for fresh input to maintain their desired direction!

• Crude oil has extended yesterday’s losses with spot futures dropping another $1.30 around midday.

• The Ruble has dropped a 2% (quietly) this week and is testing last week’s lows once again.Black Sea weather conditions are appearing to improve with above normal precipitation projected across the whole of Ukraine and Russia’s winter wheat belt into the end of November.

• The Brazilian trucker’s strike is waning as government fines levied on truckers blocking highways bites into the action. There appears to be limited disruption at this time and crop/fertiliser movements are not affected.

• Polls indicate that Mauricio Macri is leading the polls in Argentina, and if elected a devaluation of the Peso will likely free up additional soybean exports and expand corn and soybean acreage in 2016. Our view is that the results of Argentina’s election is somewhat important to longer term price direction.

• Egypt’s GASC tendered for wheat for a second time in as many days and picked up 120,000 mt split equally between Russia and France at a price of $211.63/mt basis C&F, just over $1.00/mt above yesterday’s traded level.