Author Archives: simon

6 November 2023

Posted on November 6, 2023 by simon

• HEADLINES: Soyoil surges on oil share buying and building California demand; Saudi buys 700,000 mt of Black Sea wheat; Private Brazilian soy crop estimates.

• It is green across the Chicago grain complex with soybeans being the upside leader. January soybeans have rallied to their best price since September 15 and are up $1.00/bu from an October 12 low. Corn/wheat futures have traded both sides of unchanged, but until December corn is able to exceed Friday’s high at $4.8125, the market appears unwilling to push for fund short covering.

• Wheat has been a “me too” market with a weekend sale of 700,000 mt of Russian/Ukrainian wheat offering early support. More and more, world wheat buyers are completing private trade deals that make wheat pricing opaque. There were two Saudi buyers that approached Black Sea sellers on the weekend to complete the purchase.

• Soyoil has rallied to sharp gains on the rise in energy values and oil share spreading as traders focus on the California mandate that private/state trucking fleets fully shift over to renewable diesel on January 1.

• California uses 99% of the US’s renewable diesel production which along with a Marathon plant is expanding production by 66% due to new soyoil refining capacity and the Redeo California Phillips 66 Plant coming online in early 2024, there is a landscape of rapidly expanding US biodiesel production. A higher Chicago close is forecast as the market adds weather premium for Brazilian adversity.

• Chicago brokers estimate that funds have bought 5,700 contracts of soybeans, 3,200 contracts of corn, and 2,200 contracts of wheat. In soy products, funds have bought 5,800 contracts of soyoil and sold 2,100 contracts of soymeal. The soyoil market will confirm a trading bottom with a close above Friday’s high at $0.5132 basis December futures.

• The USDA confirmed the sale of 126,000 mt of US soybeans to China in the 2022/23 crop year. The sale helped to confirm that China booked upwards of 400-500,000 mt of US soybeans late last week for February/March shipment.

• We cut our 2023/24 Brazilian soy crop estimate to 157-158 million mt due to the ongoing drought across the northern two thirds of Brazil and the acute flooding to the south. We had started out the crop year forecasting a Brazilian soy crop at a record large 161-162 million mt. We now estimate that 20% of Mato Grosso farmers will have to replant soybeans due to poor germination. Northern Brazilian farmers are closely following daily weather forecasts trying to find a day of rain. The forecasts are arid and if replanting cannot occur by the middle of November, they may be forced to switch to full season cotton or corn. Northern Brazilian farmers claim that they have never endured such early season dryness. The weather impact on Brazilian corn/soy production will be rising after November 15.

• US weekly export inspections for the week ending November 2 were 21.0 million bu of corn, 76.6 million bu of soybeans, and just 2.6 million bu of wheat. For their respective crop years to date, the US has sold 216 million bu of corn (up 41 million from last year) 448 million bu of soybeans (down 23 million), and 264.3 million bu of wheat (down 97 million). Other than China’s purchase of US SRW wheat, the US wheat export inspection total will be struggling.

• The S American GFS weather forecast is dry with below normal rain across Northern Brazil into November 20 with another two episodes of heavy rain for Southern Brazil that starts on the weekend. Heat will be centred on Northern Brazil with highs in the 90’s/100’s. Southern Brazil will be more seasonal with 70’s/80’s. The Brazilian weather pattern shows no sign of change which raises the worry for Brazilian crop yields/production.

• Brazilian weather is gaining in market importance due ongoing heat/dryness across Norther Brazil. Saudi bought 700,000 mt of Black Sea wheat with Algeria/Jordon seeking Dec/January supply. The USDA November report will cause a pause in the premium add for Brazilian weather, but if the pattern holds into mid-November, the big fund short position in corn is at risk. Climate scientist fears a stuck Brazilian weather pattern into November. It is a supply driven bull market. We look for 91-94% of the US soybean crop and 84-85%of the corn harvest to be completed.

3 November 2023

Posted on November 4, 2023 by simon

• HEADLINES: Soybeans rally on building S American weather concerns: Dec Chicago corn scores short term reversal; US dollar plunge adds to winter export potential: Wheat extends recovery; US dollar index key to direction.

• Chicago soybean futures gained 21-24 cents on Friday, leaving January soybeans up 32 cents for the week and above all major moving averages confirming a bullish trend.

• However, soyoil fell to a 6-month low under pressure from rising soymeal and oil share spreading. US soyoil offers have been unchanged for months at 6 cents over Chicago, while S American offers have rallied sharply to 7-8 cents under. The spread to the US Gulf has narrowed to 14-15 cents, or the tightest since June. With US vegoil consumption to exceed production by a record amount, the US market will be mindful of S American prices to ensure that the US does not become export competitive.

• Chicago soybeans are focused on Brazilian weather. In the north, planting has been slowed due to extreme dryness, while historic rains have fallen across Southern Brazil.

• Chicago has had a record large Brazilian crop dialled in, but weather is a concern, and Chicago is adding premium. A test of $14-14.25 January is now expected with even higher prices possible depending on Brazilian weather and crop production potential. Soy is a supply driven bull market with Nov/December weather being key.

• Chicago corn futures ended sharply higher amid soaring soybeans/meal price and as the US dollar index scored a key downward reversal. Index funds on Tuesday were net long only 237,000 contracts, vs. 344,000 in June, and key into late year is whether additional US dollar weakness attract institutional money into the ag space. Fundamentally, Dec corn below $4.70 is undervalued. A range of $4.70-5.10 is probable until more is known about S American crop potential.

• Midwest cash ethanol prices this week fell $0.05-0.30/gallon. However, margins are still profitable amid strength in the cash DDG market and as spot cash corn in IA/IL sits at $4.60-4.7/bu. US Gulf corn is the cheapest reliable origin into February. There is no need for the market to decline to encourage increased consumption, which is important.

• Brazilian weather is most important in the long run. Soybean seeding in Mato Grosso is now 83% complete, vs. 93% last year. However, soy replanting will be widespread and there are extensive reports of producers in Brazil planning to abandon safrinha production amid reduced margins and weather uncertainty.

• End users are recommended to secure cover on corrections lower. Positive seasonal trends stay in place through winter. March Chicago upside is pegged at $5.15 in the near term at $5.30-5.40 by Jan/Feb.

• Global wheat markets ended higher again amid moderate short covering. Concerning Brazilian weather is a threat to food markets as a whole, and unwanted rain in the south of Brazil will further harm wheat quality. Yet, most important was Friday’s reversal in the dollar. Currency movement early next week must be followed closely. Index funds hold the smallest net long position since records began in 2009. US dollar index weakness changes this trend as a new year begins. Managed funds on Tuesday were short 102,000 contracts in Chicago vs. 92,000 the previous week.

• Other news is lacking. Markets worldwide lack fresh input. Yet it is known that the drawdown in physical supplies lean supportive global cash markets into spring when new crop N Hemisphere yield potential can be better assessed. Chicago will continue to gain on KC. Quietly, lengthy dryness has returned to a vast swath of the US HRW Belt. French planting progress warrants close watching over the next 2-3 weeks.

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

Weekend summary 3 November 2023

2 November 2023

Posted on November 2, 2023 by simon

• HEADLINES: January soybean futures fail at 50 day moving average; US export sales of corn, wheat, and soybeans unexciting; China buys Gulf US soybeans for February.

• Chicago grain futures are mixed at midday with corn/soyoil/soymeal weaker with soybeans/wheat firmer. Financial markets reflect a “risk on” mentality with the US stock market up 350 points, the 10-year note yield down to 4.65%, and the US dollar sharply lower. The Brazilian Real has rallied to 4.95:1 US$ with Brazilians on a national holiday. A fall in the US dollar could entice new demand in raw material markets, but the drop today does not confirm a lasting trend. A bearish US dollar trend would occur with a close below 105.10 in the spot US dollar index. The US dollar index is trading at 105.95.

• Soybean futures have been the Chicago stalwart with January futures testing the 50-day moving average at $13.31. A settle above this resistance is needed to confirm a shift to a more bullish technical trend. Soymeal futures are down on disappointing US soymeal weekly export sales while funds are piling into new net short positions on soyoil. December soyoil futures fell near $0.49 support.

• Chicago brokers estimate that managed money has bought 3,300 contracts of Chicago wheat and 4,100 contracts of soybeans, while selling 2,400 contracts of corn. In the products, funds have sold 3,100 contracts of soymeal and bought a net 900 contracts of soyoil. Open interest continues to rise in soyoil arguing for a new net short position. Soyoil OI gained 6,668 contracts on Wednesday.

• US weekly grain or soy export sales were non inspiring (except for sorghum with China (again) booking significant US tonnages). For the week ending October 26, the US sold 10.1 million bu of wheat, 29.5 million bu of corn, and 37.1 million bu of soybeans. US sorghum sales were an impressive 14.9 million bu with crop year sales rising to 115.2 million bu (up 102.4 million from last year or 800%).

• US corn sales for the crop year to date are 719 million bu (up 150 million or 26%), while US wheat sales are 417 million bu (down 30 million or 7%), while US soybean sales at 855 million bu are down 329 million or 28%. The US soybean export pace continues to lag, but the US has shipped our more soybeans than last year through October 26. We would not expect that WASDE will adjust their 2023/24 wheat, corn, or soybean export estimates in next week’s report with so much of the crop year ahead and pace analysis suggesting no change.

• There is strong cash talk this morning that China has purchased 6-10 cargoes of US gulf soybeans for February/March. The sale has some traders considering why China would pay the hefty US premium other than US soybeans are often used in their reserve. Moreover, the purchase allows China optionality if Brazil’s soybean harvest is delayed by the acute dryness across Northern Brazil. We look for USDA to confirm new Chinese demand either Friday or Monday.

• Although there continues to be talk that China is asking for US wheat offers, we cannot confirm a sale. The Chinese interest has been discussed in recent days based on Chinese buying group being in Kansas. We believe China has interest in US wheat, but not on a US wheat futures rally.

• US soymeal sales at 86,400 mt were below trade expectations. The US has sold 5.6 million mt in the crop year that started on October 1, which is up 1.7 million or 42% from last year. Demand bull markets need to be fed, and US weekly export sales argues that price is causing hesitation in forward purchases.

• The GFS weather forecast is like the overnight run with below normal rain across Northern Brazil with another round of heavy rain for Southern Brazil of 2.50-5.50” over the next 36 hours. The Southern Brazil rain will produce new flooding. The N Brazilian rain starts to fall late Monday and continues through Wednesday with totals of 0.5-1.50” before another lengthy period of dryness. The Brazilian weather pattern shows no sign of change into mid-November which will again raise crop production worry.

• Brazilian weather is gaining in market importance due to heat/dryness across N Brazil and excessive rain across S Brazil. China has purchased a massive amount of Brazilian corn/US sorghum. Brazilian corn/soybean production estimates are key to longer term Chicago price direction. A 5% yield loss of 2024 Brazilian corn is 6.5 million mt and 8.0 million mt of soybeans which have significant ramifications for US export demand.

1 November 2023

Posted on November 1, 2023 by simon

• HEADLINES: KC wheat rallies on fund short covering with traders pointing to China: Corn drops on chart-based selling ; GFS midday weather forecast offers more rain for S Brazil starting tonight.

• It has been another mixed morning in Chicago. Wheat/soybeans are higher with corn weaker in a continued choppy trade. Private crop yield/production estimates are due from StoneX and S&P Global/Markit in the next few days with the USDA November Crop Report due out on November 9, next Thursday.   The November WASDE may be the last USDA Crop report if the US Congress is unable to agree on 2024 Budget pact. The December USDA report does not update US corn/soy yields, but it does seasonally start to peg Brazilian crop sizes depending on prevailing weather trends. Traders will look to Brazil’s CONAB for monthly Brazilian crop assessments if the US government is closed due to political budget differences. We would assume that a 3–4-week closure of the US government would push the January Crop Report backwards into February.

• Chicago brokers estimate that managed money has bought 1,900 contracts of Chicago wheat and 5,300 contracts of soybeans, while selling 5,700 contracts of corn. In the products, funds flat in soyoil and sold 1,900 contracts of soymeal.

• Russian war planes dropped explosives into Black Sea shipping lanes according to Ukraine, but no explosions are damage were incurred. Ukraine indicated that Russia is regularly dropping sea mines or other explosives into their nascent shipping channel. However, cargo traffic continues. The corridor was shut for 3 days last week on the promise that Russia would act with warplanes, but this week’s bombardment does not appear to be slowing down transits. Yet, traders will monitor the situation closely.

• Brokerage firm StoneX slashed their Brazilian corn production estimate to 128 million mt vs a prior forecast at 139.2 million due to drought across N Brazil and flooding across SE Brazil. The reseeding of soybeans will cut the window to seed winter corn in late February and March. However, StoneX held their 2024 Brazilian soybean crop forecast at 164.1 million mt.

• We would currently agree with a 127-128 million mt total Brazilian corn crop but argue that adverse weather will tug the Brazilian soybean crop to 158 million mt or less by mid-November without a change in the overall pattern. An even deeper cut in the Brazilian soybean crop could follow if the pattern is unchanged on December 1.

• The US ethanol industry produced 309 million gallons of ethanol last week, up 3 million gallons on the week prior and the largest weekly production total of this crop year. US ethanol stocks declined 16 million gallons to 883 million gallons. US gasoline consumption was 8.7 million barrels/day, equal to 2022.

• There have been rumours that China may have purchased US HRW wheat with a delegation from COFCO in Kansas today. However, we cannot confirm a cash purchase at this time. KC wheat has found a bid on rumours of Chinese demand.

• Talk is also noted that a 50,000 mt sale of US soymeal was switched back to S America on price late Tuesday. An intercompany exporter switch is possible if the soymeal was sold optional origin. Here too, no confirmation is offered.

• The GFS weather forecast is like the overnight run with below normal rainfall across Northern Brazil with another round of heavy rain for Southern Brazil of 2.50-6.50” in the next 48 hours. The heavy rain across Southern Brazil will produce additional flooding with some areas of RGDS enduring nearly 40” of rain since September 1. The unwanted rain extends north into Santa Caterina and S Parana. The rain starts to fall across N Brazil late Monday and it will continue through Wednesday before another lengthy period dryness unfolds. The below normal rainfall and above normal temperature trend is worrisome across N Brazil.

• Brazilian weather will be gaining in importance due to an abnormal weather pattern of hot/dry across N Brazil and excessive rain across S Brazil. Paraguay is also included in the inundating rain. The line of too little and too much rain is readily defined. Otherwise, world soybean exports from the 3 primary shippers is estimated to be record large through November. NASS will be out with its October 1 crush report after the close that will define 2022/23 US soyoil end stocks. Our worry over S American weather is growing and all should pay close attention.

31 October 2023

Posted on October 31, 2023 by simon

• HEADLINES: Soybean/soymeal futures recovery while wheat/soyoil values hold lower; Brazilian weather focus increasing in Chicago; GFS weather forecast delays rain across N Brazil into Monday.

• Chicago futures are mixed at midday with soybeans/soymeal/corn futures higher and soybean/soyoil/wheat futures lower in moderate volume. As the calendar shifts over from October to November, the focus of trader’s is increasingly on Brazilian weather and impact on their 2024 soybean/corn crops. S American weather will loom large in daily price determination from here forward.

• We note that Brazilian soybean seeding is just a few days behind the 5-year average, but that some fields will have to be replanted. However, January soybean futures will have to rise above the 50-day moving average at $13.35 to alter prevailing sideways trends. Buying first notice day in November soybeans in the later stages of harvest makes good sense amid the weather uncertainty surrounding the Southern Hemisphere crop. We look for a mixed Chicago close with the volume of trade needing to expand to sustain a rally. Otherwise, Chicago will continue to chop sideways for a few more weeks.

• Chicago brokers estimate that managed money has sold 2,600 contracts of wheat, while buying 3,700 contracts of corn and 4,700 contracts of soybeans. In the products, funds have bought 2,400 contracts of soymeal and sold 1,900 contracts of soyoil. The length in soyoil is down under 8,000 contracts, but the story in renewable diesel will be building into the end of the year.

• The USDA reported that Mexico purchased 239,492 mt of US soybeans in the 2023/24 crop year. There are also rumours that China was back this morning asking for US Gulf soybean offers and US SRW wheat offers. China appears to have interest in securing US SRW wheat between $5.50-5.60/bu.

• Census will release final US September crush rate and soy product stocks as of October 1. The average September crush forecast is record large at 175.0 million bu with soyoil stocks falling to 1,600 million pounds.

• Census total would be off another 161 million pounds, the lowest total backwards into 2012. Either WASDE expands its 2023/24 soybean crush rate or reduces US soyoil food use to accommodate the larger US biofuel demand. 2023/24 US soyoil supplies and stocks are going to be exceptionally tight into Q1 2024. A year ago, US final crop year US soyoil end stocks were 1,991 million pounds, a far larger total. NOPA members estimated their final member soyoil stocks at 1,108 million pounds. Chicago values have not reacted to tightening US soyoil stocks, but to the expanding US export demand for soymeal, and unwinding of the oil share spread. Soyoil values have been driven more by spreads than actual stocks.

• EIA indicated that August US soyoil use for biofuel fell 75 million pounds to 1,197 million pounds vs July. Canola biofuel oil use was down 18 million pounds with cornoil up 5 million pounds. The big monthly gain came from beef tallow use which was up 199 million pounds or 79% with yellow grease use in biofuels up 128 million pounds or 26%. There was one less processing day in August vs July.

• The GFS weather forecast is drier across Northern Brazil with another round of heavy rain for Southern Brazil of 1.50-5.50” in the next 72 hours before a welcome drying trend develops for 4-6 days. The drier weather across Southern Brazil is welcomed, but additional heavy rain is forecast to return in the 9–15-day period. Below normal rain will fall across Northern Brazil through the weekend. The midday GFS forecast pushed back the rain development into early next week. Northern Brazilian rain from late Monday into next week Friday is estimated in a range of 0.75-1.50”. Thereafter, another 4-5 days of warm/dry weather returns. We see no real change in the S American weather pattern into mid-November. Our concern for Brazilian corn/soy crops is rising.

• Brazilian weather is gaining in importance due to an abnormal weather pattern of hot/dry across N Brazil and excessive rain across SE Brazil. Some areas of SE Brazil have received more than 35.00” of rain since Sept 1 and flooding is widespread. Chicago values will watch Brazilian weather forecasts closely to add or subtract premium. Look for Chicago short covering into the USDA November crop report on 9 November. Seasonal price trends are for a rally into Thanksgiving.

30 October 2023

Posted on October 30, 2023 by simon

• HEADLINES: Chicago down following crude oil ahead of US Central Bank meet; Southern Brazilian flooding worsening; GFS midday weather forecast offers a drier Southern Brazil in November.

• Chicago futures are lower at midday. Corn and soybean futures are slightly lower with US hard wheat futures mixed. Other than the soy product trends on the oil share spread unwind, Chicago has had difficulty sustaining a break or a rally since late summer. The choppy/sideways Chicago price trend should persist.

• The bulls claim that the US harvest is nearly completed, and that higher prices are needed to pull supply from the farmer. The bears cite diminished US export demand and future record S American crop potential. Both sides are right (as of today), which is leading to sideways trade. In fact, Friday’s big winner is today’s big loser, soymeal. US soymeal export sales as of mid-October are the second largest on record. However, tomorrow the EIA will provide US biodiesel production including renewable diesel demand for various fats and vegoils. There are budding demand bull stories for both soy products.

• Chicago brokers estimate that managed money has sold 3,300 contracts of wheat, 4,500 contracts of corn, and 3,900 contracts of soybeans. In the products, funds have sold 4,600 contracts of soymeal and bought 1,900 contracts of soyoil. Managed money and index funds are on the sell side of Chicago. This needs to change for a longer-term bottom to form and a sustained rally.

• FAS/USDA indicated that for the week ending Oct 26, the US shipped out 20.9 million bu of corn, 69.5 million bu of soybeans, and 7.0 million bu of wheat. The wheat and corn exports were below trade expectations while soybeans were in line.

• For their respective crop years to date, the US has exported 194.7 million bu of corn (up 28.8 million or 17%), 365.6 million bu of soybeans (down 10.6 million or 3%), and 261.4 million bu of wheat (down 93 million or 26%). The US looks to export a near equal number of soybeans in the first 2 months of the crop year vs last year (400 million bu) which makes any annual projection of US soybean exports of 1,650 million bu or less statistically difficult.

• Rainfall across Southern Brazil keep adding up and is historically unprecedented. Key areas of SW Parana have now received 33-40” of rain with widespread areas receiving 27-36.00” of rain in the past 2 months. And the forecast calls for another 1.50-5.50” of rain before the end of the week.

• Flooding is widespread according to reports and farmers are facing yellowing corn and the need to replant soybeans. Northern Brazil has received all the weather attention due to an unusual drought, but it is the southern third of Brazil where months of heavy rain is taking a real toll on Brazilian summer row crop yield and production.

• Chinese pork values are down 7% in a week, one of the largest ever moves as farmers liquidate herds following an autumn festival holiday that failed to produce improved demand. China’s hog oversupply has been evident for a year and farmers are just giving up. ASF is not the culprit according to Asian sources. ASF has been in the background of Chinese agriculture for years and new hog hotels have been able to build supply and manage the disease. ASF hot spots often develop, but the big fall in price is due to herd liquidation/margins.

• The GFS weather forecast has trended drier across Northern Brazil with another round of heavy rain for Southern Brazil of 1.50-5.50” before a welcomed drying trend. The drier weather across Southern Brazil is welcomed amid weeks of above normal totals. Near to below normal rain will drop across Northern Brazil with increased totals forecast to start next weekend. The extended range forecast has been inconsistent for Northern Brazilian rainfall and the intensity of a high-pressure Ridge aloft. Our bet is for continued below normal N Brazilian rainfall into mid-November.

• We look for the US soybean harvest to reach 85-87% with corn to reach 72-75%. The US harvest is in its final stages this week. Chicago soymeal futures will stay extremely volatile with little hope of expanded Argentine offers into May of 2024. We stay bullish of US soy products with the grains to chop in a broad sideways range. US crude oil being down $3/barrel has added to the bearish mentality.

27 October 2023

Posted on October 27, 2023 by simon

• HEADLINES: Soybean meal surges, forces November soy to test $13.00/bu; GFS weather forecast wetter in Mato Grosso.

• Chicago futures are mixed at midday, with meal scoring newer rally highs and forcing Nov soy to test $13.00 as options expire. Meal in recent weeks has done the legwork in boosting crush margins, and despite mediocre US soy export demand, it is just tough to be bearish of soy cash prices given processor profitability. We should expect meal to enter a new phase of increased volatility at high prices, but most important is that physical Argentine soy supplies won’t be fully replenished until spring. We would also pointy out that crush margins in Brazil are working to boost product output there.

• Spot KC wheat has fallen to new lows for move. Corn is caught between. Mato Grosso soy planting progress will be published after the close. The details of this report this week and next are important.

• Spot Paris milling wheat is down €1.50/mt at €232, testing the lower end of the recently established range. The EU cash wheat market continues to probe for export demand following sluggish shipments to date. The lack of drought across the US Southern Plains, and additional soil moisture improvement in TX and eastern OK, has weighed on wheat futures. Recall NASS will publish its first national winter wheat crop rating on Monday.

• We would estimate today’s CFTC report showing managed money short a net 110-112,000 contracts of corn, vs. 109,000 last week, short 104,000 contracts of Chicago wheat, unchanged from the prior week, and short 1,500 contracts of soybeans, vs. 2,000 the previous week. We estimate fund length in soyoil dropped to just 5-8,000 contracts vs. 21,000 the previous week.

• Funds have not been net short of beans since Q1 2020, and we views it as premature to count on record Brazilian production in 2023/24.

• Soy’s story, in the US, centres on a clear need for crush capacity expansion. But grains lack a story, with corn/wheat volume as of midday exceptionally low. Ukrainian grain flows resuming and Russian wheat offered $20/mt below comparable EU origin weigh on recovery efforts, but funds’ sizeable shorts in corn and wheat suggest bearish news has been digested. Grains lack direction.

• Crude at midday is up $1.20/barrel at $84.40. The US dollar has retreated slightly from morning highs.

• The GFS weather forecast has trended wetter in Mato Grosso beginning Nov 7. The GFS forecast is in better alignment with overnight EU solution in allowed high pressure ridging to lose its influence on the Central/Norther Brazilian climate in early Nov. Rains eventually fall across tropical latitudes of Brazil, and weather-based focus next week turns to actual amounts and coverage. Otherwise, the GFS forecast is consistent in projected additional needed rains in Central Argentina but unwanted excessive precipitation of 3-10” in RGDS and Parana in S Brazil.

• We see nothing to disrupt positive corn/soy seasonal trends into at least winter. Debate will centre on the extent of recoveries, and this will be a function of S American weather exclusively Dec onward. Wheat is subject to Russian cash pricing, but Chicago gains further on KC amid each market’s respective export potential.

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

Weekend summary 27 October 2023

26 October 2023

Posted on October 26, 2023 by simon

• HEADLINES: Row crops weaken slightly; Wheat maintains geopolitical premium; Export sales decent but key is timing of harvest in S America.

• Chicago futures are mixed at midday, with wheat adding modest geopolitical risk and corn and soy retreating from early morning highs amid crude’s correction and hope for improved rainfall in Central Brazil. The EU and GFS weather models are very much at odds over Brazilian precipitation beyond Nov 4. The EU model hints at normalisation, while the GFS model (and Canadian) carry dryness into the first week full week of November. Brazilian weather to date has had limited impact on price discovery and yield potential but gains in importance considerably beyond the next 10 days. Row crop balance sheets aren’t yet at a point where supply dislocation can be ignored (like in 2016 and 2017), and so the market’s path diverge massively based on weather performance in S American in late autumn/winter. Dryness in Mato Grosso, as well as excessive rainfall in Rio Grande do Sul will both be focal points. Note that soy seeding typically begins in earnest in RGDS in November.

• Spot WTI crude is down $1.50/barrel at $83.80. Crude has been somewhat volatile between $83-85. $90+ requires confirmed disruption of supply in the Middle East, but we would remind that strength in energy prices to date has been largely a function of expanding US exports and historically tight crude stocks. We see value in spot WTI below $80.

• US export sales in the week ending Oct 12 were decent. Exporters in the period sold a net 53 million bu of corn, vs. 35 million the previous week. Assuming sales erode June onward amid trend yields in S America, Work suggest that weekly demand of 44-46 million bu into late spring validates USDA’s forecast. Exporters sold 51 million bu of soybeans, vs. 50 million the previous week. All wheat sales totalled 13 million bu, vs. 23 million the previous week but 3 million above the pace need to meet USDA’s target. Meal sales were a sizeable 559,400 tons, vs. 479,000 the previous week. Already US meal export commitments account for 40% of USDA’s annual forecast , with 11 months remaining in the marketing year. Argentine crush doesn’t improve until new physical soy supplies are available in Mar/Apr. Demand for US meal continues throughout winter.

• We would also note sorghum sales in the week ending Oct 12 totalled 7.5 million bu, including known Chinese purchases of 2.6 million.

• FAS announced exporters sold 110,000 mt of US soy to China this morning.

• We expect the pace of US export sales to stay reasonable into winter, but an extension of US exporters’ window of opportunity is needed. Key is the timing of 2024’s shift in purchases from the N Hemisphere to S America. This will be entirely a function of the pace of Brazilian soy plantings over the next 2-3 weeks Seeding dates matter this year as it appears Argentine producers will again seed a near-record amount of second crop corn, which isn’t harvested until May.

• The US economy in Q3 grew by a larger than expected 4.9%, which shows resilience, but market sentiment remains hyper focused on elevated interest rates for a prolonged period of time. Equity markets today are focused on future consumer spending. The Dow at midday is down 190 points. Equity markets worldwide have struggled since mid-October. US dollar strength has been a weight on raw materials.

• The GFS weather forecast is consistent with morning output in calling for a stagnant pattern of dryness in N Brazil and excessive rainfall worth 3-8” in RGDS and Parana in S Brazil into Nov 5. Light/scattered rain in C Argentina this weekend chip further away at drought.

• Markets are waiting on their next tradable story, which we would maintain centres on S American weather beginning in November. The choppy nature of the marketplace persists this week and next.

25 October 2023

Posted on October 25, 2023 by simon

• HEADLINES: Back and forth Chicago trade persists as soymeal rejects key resistance; Amazon River shipping to slow on flow; US weekly ethanol production up 1%.

• Chicago grains have moved lower at midday on the prospect of rain across parched Northern Brazil and a further fall in energy values. Israel is reporting that it is holding back on its Gaza invasion until the US can set up missile defence systems across the Middle East. This sparked selling in crude oil.

• Yesterday, soybean/soymeal futures rallied sharply while soyoil enduring selling. Today, it is soyoil that is posting strong gains while soybeans/meal decline. Chicago is in a wide-ranging choppy trade that is frustrating. It does not take much volume to shove Chicago in one direction or the other. The market’s back and forth is causing fits to fund managers with end of year strategies in play. Index funds will be rebalancing their portfolios with the cheapness of grain (vs. last year) causing them to be significant buyers.

• One cannot underplay the importance of S American weather in world grain pricing. The USDA is forecasting that S American will produce an additional 50 million mt of corn/soybeans in 2024, which if correct, would maintain bearish market trends. However, if there is any adversity, a significant upward adjustment in price will occur with world exporter stocks/use ratios so tight. US corn and soybean exports for the crop year to date are keeping pace with last year.  This is why we continue our mantra, “Don’t chase rallies or breaks.”  The time for a more sustainable rally will likely emerge in early November.

• The USDA/FAS reported that China secured 126,000 mt of US soybeans for delivery in the 2023/24 crop year. Cash wheat traders are discussing the potential that China could secure additional US SRW wheat if December Chicago wheat futures fell to $5.60 or below.

• Chicago brokers estimate that funds have sold 5,400 contracts of corn, 5,900 contracts of soybeans, and 4,500 contracts of wheat. In the products’, managed money has sold 5,400 contracts of soymeal and bought 3,200 contracts of oil.

• EIA reported that US produced 306 million gallons of ethanol, up 2 million gallons or up 1% on last year. US ethanol stocks rose 12 million gallons to 899 million gallons, which is down 4% from last year. The US consumed 8.86 million barrels of gasoline/day which is steady from last year. US ethanol production margins are at their best levels in 9 years at $0.67/bushel. We believe that WASDE will raise their annual US ethanol grind estimate by 25-50 million bu in coming monthly reports.

• The Brazilian Amazon drought continues to worsen with shipping and barge companies warning about draft restrictions and slowed movement of grain due to record low water levels. Corn is the Brazilian grain that is most at risk to rising costs and supply chain delays.

• The GFS weather forecast is as dry as the overnight run with limited rain across North Central Brazil for the next 10 days with regular heavy rainfall to batter Southern Brazil. This is the same “stuck” weather pattern that has persisted since early August and shows no sign of change. Showers of 0.2-1.50” will fall across 50-60% of North Central Brazil over the next 4 days. The rain will help seed germination where totals are greater than 0.75”. Across RGDS, Santa Caterina and Parana, frequent heavy rainfall will tally 3.50-8.00” which will add to flooding woes.

• High temperatures will hold in the 90’s/lower 100’s across North Central Brazil with highs in the 70’s/80’s across the cloudy south. The S American weather pattern is abnormal and our drought worry for N Brazil stays elevated.

• S American weather during November and December will key longer term Chicago price direction. Our worry about Brazilian weather is growing and elevated. Our market stance stays one of a bottoming of price and a further firming of cash basis. However, whether you are a bear or a bull, price action since late August has been back and forth and frustrating. Research shows that soyoil and soybeans are undervalued relative to the weather and demand risks ahead.

24 October 2023

Posted on October 24, 2023 by simon

• HEADLINES: Chicago mixed at midday with soybeans gaining on the grains; Soymeal pushes to new rally high; GFS drier for Northern Brazil into November 4.

• Chicago grains are lower and soybean/soymeal firmer at midday. The volume of trade was active following the opening but has since slowed. Corn and wheat markets continue to trade in broad ranges while soybeans find support at $12.70-12.80 relative to November soybean futures. Soymeal is gaining on soyoil with the oil share spread falling to 37.7%. The oil share spread unwind has been sizeable which has contributed to the Chicago soymeal rally.

• We note a weakening trend of cash soymeal in Latin American which is producing the bear spreading of the Dec/March soymeal futures. Yet, domestic soyoil basis is starting to firm as end users reach seek forward coverage. A year ago on this same date, December 2022 soyoil futures closed at $71.87/pound with renewable diesel demand half of what it is today.

• And soyoil stocks as measured by NOPA/Census were far larger. NOPA as of October 1, 2023, reported member soyoil stocks at a 9-year low. Crude oil and heating oil prices were similarly priced which leaves one wondering on the downside price potential of soyoil. Argentina is exporting far less soymeal, but they are also exporting 2.2 million mt less soyoil. If there is a bearish point to soyoil it is that other vegoils can replace the lost Argentine exports. Yet, a 20 cent drop relative to last year on more bullish fundamentals appears that there is upside in Chicago soyoil futures when seasonal lows are confirmed.

• Chicago brokers estimate that funds have sold 5,100 contracts of wheat and 4,200 contracts of corn, while buying 1,600 contracts of soybeans. Funds are net sellers of 2,000 contracts of soymeal and 4,100 contracts of soyoil.

• In the first trade mission in years, China, and the Iowa Soybean Association along with US Soybean Export Council signed frame contracts for an unspecified tonnage of US soybeans. The press release claims that China booked billions of dollars of US soy, but neither the contract timing nor performance of the purchases were specified. Such frame contracts are largely ceremonial, but the legal departments of several US exporters will report the China sale to FAS/USDA which could produce a sizeable daily export sale over the next 48 hours.

• WTI Crude oil futures have not been able to sustain an early day rally with values down $2/barrel at midday at $83.50 basis December. Energy futures are retreating to prices that equate to October 9, the Monday following the start of the Hamas war against Israel. There were rockets launched at Iraq’s Ain al-Asad air base which is housing the US military. The geopolitics of crude oil will continue to produce sizeable market volatility in energy. But the war must spread beyond Gaza for spot WTI crude to push above $90/barrel.

• The midday GFS weather forecast is drier across Northern Brazil and Argentina with heavy rain forecast for S Brazil/Paraguay. The pattern remains stuck. Scattered showers are forecast for Mato Grosso/Goias from Wednesday into the weekend before dry weather returns. Rain totals are estimated in a range of 0.25-1.50”, about half normal totals. Southern Brazil is forecast to see 2-7.00” of rain which rekindles flooding worry. And Argentina has a chance of rain mid next week with totals of 0.15-1.00”

• Extreme heat across Northern Brazil exacerbates soil moisture loss with highs ranging from the mid 90’s to the lower 100’s. Southern Brazil and Argentina are forecast to see seasonal 70’s and 80’s for daily highs.

• It is too early for Northern Brazilian weather concern, but the existing dry pattern needs to change by November 10 for soybean seedlings to recover.  Some climate experts see a N Brazilian summer drought in November/December and January. Soymeal is scoring new rally highs with key resistance at $432.60 basis December. Corn and wheat look to trade in a broad range until the US corn harvest is 80% completed.