• We have seen a day where premium has been added to ag markets in advance of the forthcoming September crop report scheduled for release on Friday. It seems early US yield results have failed to excite, whether this is reflective of overall US yields remains to be seen and it will likely take another couple of weeks before we truly know. Fund liquidation has doubtless been going on as “risk off” predominates market sentiment.

• Outside markets have been more supportive today giving US markets a breathing space in which to take some recovery. Crude was down $0.80/barrel, US$ was down a touch and US equities were higher with the DOW up 300 points.

• Crop condition is expected to decline 1 or 2 points when data is released later today, and this is a seasonal function rather than a systemic issue. We will update tomorrow when the data is released.

To download our weekend summary as a PDF file please click on the link below:

Weekend summary 6 September 15

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

Weekly Update 4 September 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: 277,900 mt, which is within estimates of 250,000-500,000 mt.
           This year 277,500mt; Next year 400mt.
Corn: 441,000 mt, which is below estimates of 500,000-900,000 mt.
          This year 112,700mt; Next year 328,300mt.
Soybeans: 1,472,300 mt, which is above estimates of 550,000-950,000 mt.
           This year minus 60,500mt; Next year 1,532,800mt.
Soybean Meal: 204,500 mt, which is above estimates of 50,000-200,000 mt.
            This year minus 13,900mt; Next year 218,400mt.
Soybean Oil: 6,100 mt, which is within estimates of 5,000-40,000 mt.
             This year 4,000mt; Next year 2,100mt.

• Brussels has issued weekly wheat export certificates amounting to  272,705 mt, the lowest weekly figure this year. This brings the season total to 3,617,994 mt, which is 318,084 mt (nearly 8%) behind last year.

• Sticking with the macro picture we see large US crude oil stocks capping rallies as the seasonally slow period for demand arrives. The summer driving season ends with the Labor Day weekend. Research sees the crude oil market in a bottoming pattern with support noted under $42 and rallies to be capped inn the range of $53-55.00. Shale producers have break evens around $50, and there is talk that OPEC may vote to trim production by year end to prevent an even deeper correction. The point is to come away from bearish crude bets and expect a swinging market profile within a general $40-55 range into 2016.

• Egypt has tendered for wheat once again, this time for 11-20 October shipment, and in the million plus mt offers it was Russia who once again secured the entire 170,000 mt business at a price almost £3.00/mt below last week, reported to be $188.02 basis C&F. France offered the cheapest FOB price $174.74/mt in a 400,000 mt plus offer whilst Russia was a bigger seller and more than $4.00.mt basis FOB more expensive – but freight costs pushed the business away from France. Romania and Ukraine were unsuccessful offerors and nothing was on offer from the US.

• StatsCan today released its latest data which showed end July wheat stocks 32% down year on year (20 year highs) at 7.11 million mt, which was above trade expectations that stood at 6.5 million mt. Canola (rapeseed) stocks were put at 2.32 million mt, again above the 1.4 million mt trade estimate but below last year’s 3.01 million mt figure (a four year high).

• Staying with stats, AgroConsult put the Ukraine 2015 grain crop at 57 million mt, a 600,000 month on month increase with wheat accounting for 24.2 million mt (1.7 million mt up month on month). Corn output was less optimistic with the latest update 1 million mt lower month on month at 23 million mt.

• Informa Economics has estimated 2015 US corn output at 13.688 billion bu vs. their previous estimate of 13.412 with yield increased to 168.8 bushels/acre from 165.4 previously. Soybean output was estimated higher at 3.924 bushels/acre compared with 3,789 previously with yield at 47.0 bushels/acre vs. 45.4 previously.

• In other news, China is closed today and tomorrow to celebrate the 70th anniversary of the ending of World War 2, maybe some market respite will follow, maybe not! However, despite closure, the IMF warned that the impact of Chinese lower growth on the rest of the world would be worse than previously thought. They said, “China’s transition to lower growth, while broadly in line with forecasts, appears to have larger than previously envisaged cross-border repercussions, reflected in weakening commodity prices and stock prices. Near-term downside risks for emerging economies have increased.”

• To counter Chinese news, Europe is growing as demonstrated by the Eurozone composite purchasing manager’s index (PMI), which improved to 54.3 in August from 53.9 in July, which signals accelerating growth. Whilst global economic worries have grown recently, the reduced fears of a Grexit have led to an improved European business environment, pushing the pace of growth to its best in just over four years. However, as always the news is not entirely as it may seem on the surface. Growth across Europe is not uniform, on the one hand we saw German PMI jump to a five month high of 55.0 and both Spain and Italy also saw improvement. On the other hand France saw PMI fall to a seven month low of 50.2 and that is a worrying sign of stagnation.

• We have previously mentioned that Russia fears another dry sowing period for winter wheat as dry weather over the past few weeks and soil moisture levels are lower than average for this time of year, according to analysts at SovEcon. There are concerns that the lack of rainfall will delay the planting of winter wheat, which already has a tight planting window. However not all is lost, as spring wheat is yet to be sown for which there is still time for the weather (winter rains in particular) to improve. Despite the dryness, SovEcon have reported that 3.2 million ha of land has been planted to winter grains, which is ahead of last year’s pace.  The South, which is suffering the most from low soil moisture still has some time left before the planting window closes, with 10-25mm of rain forecast over the coming two weeks. However, more rain will still be needed in many areas.

• Late yesterday Int’l FC Stone released their latest production forecasts which showed US 2015 corn production higher at 13.457 billion bu (from 13.381 previously) with yield at 165.9 bushels/acre, up from 165.0 last month. For comparison current USDA numbers are 13.686 and 168.8. They trimmed US 2015 soybean output to 3.791 billion bu (from 3.797 billion previously) with yield increased to 45.4 bushels/acre from 45.0 a month ago. Current USDA numbers are 3.916 and 46.9. Their figures are based on customer (grower) surveys and are based upon final US output not the September USDA report.

• Early trade in Chicago today saw Stone’s figures as mildly supportive, particularly on the opening but focus soon returned to slumping global grain prices as well as further crude losses. Buyers have been noticeable by their absence today. There is a lack of expectation over tomorrow’s weekly US export numbers despite an increasing seasonal pace. Cheaper FOB prices from S American corn and Black Sea/French wheat remain a limiting factor for US exports.

• Global wheat and corn FOB levels continue to slide as evidenced by Ethiopia being offered very cheap wheat in their tender, below yesterday’s reported (cheap) Algerian levels. S Korea has secured S American corn $0.21/bu below US levels for early new year shipment. French export silos are fully stocked and look as if they need to make space for new crop corn and sunflower seed supplies. Consumers the world over see little reason to commit too far forward in the face of such a volume of supply in corn, wheat and soybeans.

• There is a strong argument to take levels of cover higher into the winter, prices are at season lows and in some cases levels not seen for some years. UK farmer selling is likely to slow if prices slip much further, and the potential for a starved market does exist although global supply pressure is likely to ensure prices do not make massive gains.

• Data supportive to our last paragraph does lie in the wings although it is early days. There are reports of dry conditions across key Russian and Ukraine grain production areas and winter planting is taking place in conditions less than ideal for germination. As we say, it is early days and our view is that spring weather is more likely to impact output than dry conditions at planting. Additionally, India’s monsoon rains are seen as falling short of the forecast, which was at only 88% of long-term average. This could make the season the driest since 2009 and restrict crop outputs. Current Indian stocks should be sufficient in key agri commodities such as wheat, rice and sugar but restricted rains could leave a big hole in cooking oil supplies leaving a big import requirement.

• Position risk management is now becoming a more significant issue.

• As the UK returned to work after a holiday extended weekend we witness Chicago markets following the macro signals, the principal one being the falloff in crude prices (down $3.50/barrel back to $45.50 basis Oct WTI) added to which the US DOW was sharply lower, by some 400 points. As corn, wheat and soybeans lacked fresh market news the macros took over as this week heads into an extended US weekend break for Labor Day.

• Currencies continue to play their bit as the Ruble has fallen to 66.4 vs. US$ and the Brazilian Real hit 3.664. As we have reported previously (more than once) the incentive for farmers to extend acres in those regions displaying weaker currencies continues to exist and we see no reason for this to change right now. This will doubtless add to burgeoning global stocks if mother nature plays her part. Russia is about to start winter wheat planting in earnest whilst Brazil will be sowing soybeans in a few short weeks and the incentive to increase acres must seem attractive.

• Algeria’s latest wheat tender is arguably sharply discounted as France (in particular) looks to secure demand ahead of the corn and sunflower harvest and global wheat markets continue to sink in the face of limited demand and the exporter’s full silos. It is simply a case of too much wheat chasing limited demand.

• Funds appear to be shedding length in corn as concerns continue to exist over US demand (domestic and export). Look for the funds having a square position before markets show any major resilience would be our take on things right now.

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

Weekly Update 28 August 2015

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Fund positions

• Last evening saw Egypt’s GASC, once again, tender for wheat, on this occasion the shipment period was 1-10 October and the 13% moisture cap remained in place. Russia was successful in securing the whole of the business, one 60,000 mt cargo at a reported price of $190.07/mt

• We last night referred to the ongoing weakness in the Brazilian Real and the chart below illustrates the point. The Brazilian currency has shed 27% this year and seems to be targeting the prior record of 4.1 vs. US$. The implication is that the Brazilian farmer is enjoying extraordinary profitability despite Chicago soybeans at six year lows. Consequently we would expect Brazilian farmers to expand 2016 soybean acreage, maybe as much as 3-5%, which could see the crop grow as high as 103 million mt given favourable growing conditions. If this proves to be the case we will likely see further growth in global soybean stock, which are already high!

• It seems that Russian wheat output is still understated as current yield data starts to flow from the spring crop harvest. A crop north of 61 million mt, which is above the latest USDA number, looks entirely possible. Indeed, today SovEcon put the Russian total grain crop at 101 million mt with wheat accounting for 61.3 million mt. Exports are likely to also be high and potentially revised even higher as it seems that exporters are not yet hitting either desired or required volumes. The export tariff continues to ensure that Russian export trade remains a “spot” affair, and as the Russian winter approaches it is likely that exporters will want to maximise volumes before logistics become difficult.

• Russia’s total wheat supplies in 2015/16 appear to be heading for the second largest on record, and Russian wheat priced in US$ is incredibly cheap. The graphic below displays domestic prices across the Southern Region (the region that accounts for a majority of Russia’s exportable surplus) vs. quoted fob offers. As of early this week, wheat in Southern Russia is buyable at $149/mt ($4.05/bu), and exporters can sell this wheat into the world market at $181-185/mt for Sep/Oct delivery. This $30-35mtT spread is not uncommon and will allow exporters to remain aggressive with sales into North Africa and the Middle East in the foreseeable future.

• Despite the looming threat of El Niño, the arrival of beneficial rainfall has helped prospects for the Australian wheat crop. The USDA’s current forecast for the 2015 Australian wheat crop stands at 26mt, 10% higher year on year. The rains arrived at a crucial point in the crop’s development with some parts of Western Australia, the major grain producing state, seeing the most rainfall in the past three months. Usually, El Niño brings drought-like conditions to Australia. So far, severe weather has not arrived but forecasters have warned that El Niño could strengthen towards the end of the year. There could also be wetter weather in Western Australia during harvest in November/December, which could potentially downgrade more of the wheat crop to feed grades.

• The International Grains Council (IGC) has today increased its monthly forecast for 2015/16 global corn output by 2 million mt to 968 million mt, which is behind last year’s 1.003 billion mt crop. Global wheat output was also increased by a massive 10 million mt to 720 million mt. Doubtless the information above (Russia and Australia) as well as the improved EU and Ukraine crop prospects (corn excepted) have contributed to their findings.

• Today’s market action has seen some recovery in Chicago corn and soybeans with wheat lagging behind largely as a result of aggressive Russian and E European offers to Egypt. The rally in corn and soybeans is based upon hot/dry E and S Midwest weather forecasts together with an improvement in nearby export demand prospects (at last!).

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

Wheat: 529,600 mt, which is above estimates of 225,000-400,000 mt.
Corn: 854,800 mt, which is within estimates of 500,000-900,000 mt.
Soybeans: 1,325,800 mt, which is above estimates of 600,000-1,050,000 mt.
Soybean Meal: 149,900 mt, which is within estimates of 50,000-275,000 mt.
Soybean Oil: 35,100 mt, which is above estimates of zero-30,000 mt.

• New crop corn and soybean sales were better than expected and have been seen as supportive, as the market has reflected. There is also a sign that China is starting to look at the US as an origin for soybean supplies as S American prices start to become less competitive when compared to US levels.

• Brussels has issued weekly wheat export certificates amounting to  319,410 mt, which brings the season total to 3,399,289 mt. The season to date total is 94,131 mt (2.85%) ahead of last year.

• Russian and French fob wheat prices continue to pace the decline. Both markets have eased to new lows in recent days as evidenced by the chart below. Notice that US wheat remains noncompetitive and that export sales are likely to remain tepid into autumn. Australia is expected to become a more aggressive exporter on currency and supply with a few more rains. US wheat futures are trying to rally, but are unable to carry through amid sagging world wheat values that are looking for fresh demand.

• General market comments:

• The value of the US$ has been directing Chicago grain prices this week amid a lack of other fresh fundamental news or information. EU wheat yields continue to be better than expected which will help the community deal with its corn shortage.

• While the soybean market remains oversold, traders see the good weather of the past week as a reason to suspect better production while global currency developments spark weaker demand concerns.

• In corn, the weak technical picture opens the door for a test of Monday’s lows and perhaps a test of the August 12th lows.

• In wheat the market action is bearish as even the technical correction off of the lows Monday showed a lack of commitment from the bulls. Fundamentals are weak and shallow corrections may continue until the bulls have something more than “oversold” as a reason to buy.

• Despite something of a recovery in global financial markets the Chicago grain room has found selling pressure as world cash markets in wheat, corn and soybeans all ease lower. Tunisia was a wheat buyer today, cheaply, and this has had traders pondering quite how poor global demand truly is right now, and this includes China who are still not pitching in for US soybeans. Ongoing cash market weakness is undoubtedly pressuring futures prices in a spate of fresh export business.

• The weak Brazilian Real (3.6:1 vs. US$) is not helping Chicago markets either. The weak Real is down to political as well as economic drivers with growing numbers calling for the impeachment of President Dilma on account of her knowledge of “backhanders” from Petrobas. As we have stated previously, the weak Real, Ruble and other emerging nation currencies reduces the purchasing power of the consumer but at the same time stimulates agricultural production within each of the nations. This creates a longer term bearish paradox for the now long suffering (???) US farmer.

• China imported record tonnages of grain during July with combined wheat, corn, barley, DDG and rice imports at over 4 million mt. The rising imports are about to collide with another sizeable Chinese grain harvest that will start in September. Amid China’s growing stocks of grain (highest level since China entered the WTO in 2001), the Government continues to look for ways to slow imports through regulation. US DDG and sorghum cash basis has declined in recent days amid concern about a slower Chinese grain import profile this autumn.

• CBOT grain futures will continue to follow macro market developments and how the Chinese equity market reacts to their monetary easing stance overnight. Any actual or perceived weakness in the Chinese equity markets will not bode well for commodity valuations. All eyes will remain on China amid the fear that their economic slowdown is worse than being reported by Beijing.

• It is expected that the Chicago market will hold at $8.50 November soybeans, $3.60 December corn and $4.80 September wheat heading into the Labor Day weekend (5-7 September). However, we remain extremely concerned about the lackluster world grain demand and that EU, Russian and Canadian crops continue to get larger. Even Aussie wheat looks to be all of 25 million mt amid the recent rains across NSW. Aussie fob wheat prices have fallen $20/mt in the past few days as the market shifts from old to new crop bids. The Aussie wheat harvest will start across Queensland in October. Our generally bearish view is maintained, but we would be reluctant (or cautious) to make sales here and anticipate some sort of recovery into early September.

• Chicago saw a bounce this morning following macro market activity, which included a broad rally of US and European stock markets. Commodities tried to follow although volumes have not been huge!. There has been a US$ rally which weakened grains and the soybean complex has found some short covering support. As the DOW rallied 300-400 points today’s grain market reaction does not inspire confidence for a long lasting bullish run.

• China imported record tonnages of grain during July with combined wheat, corn, barley, DDG’s and rice imports at over 4 million mt. The rising imports are about to collide with another sizeable Chinese grain harvest that will start in September. Amid China’s growing stocks of grain (highest level since  China entered the WTO in 2001), the Government continues to look for ways to slow imports through regulation. US DDG and sorghum basis have declined in recent days amid concern about a slower Chinese grain import profile this autumn.

• CBOT grain futures will likely continue to follow macro market developments and how the Chinese equity market reacts to their monetary easing stance overnight. Any actual or perceived weakness in the Chinese equity markets will not bode well for commodity valuations. All eyes will remain on China amid the fear that their economic slowdown is worse than being reported by Beijing.