Author Archives: simon

20 October 2023

Posted on October 20, 2023 by simon

• HEADLINES: Early Chicago rally fails with soybeans/corn in retreat; 2 wars have portfolio managers looking to diversify into commodities; GFS midday weather forecast drier for N Brazil.

• Chicago is mixed at midday with the summer row crops lower while wheat holds in the green. And soyoil futures are higher and soymeal is down in a reversal of recent day price action. Spot Chicago wheat is back above $6.00 with December corn futures rising to their highest price since August 2 at $5.095. Chicago corn values rallied following a long consolidation that extends backwards for 11 weeks. Yet, the morning;’ rally uncovered new farm selling with producers yet to harvest 50% of their crop and cash basis (and futures improvement) taking cash bids back to levels that have not been witnessed since July.

• Soybean futures have struggled with profit taking in soymeal noted following a near $60/ton rally. Traders are aware that Argentina could enjoy needed rain later this weekend while Northern Brazil sees showers mid next week. Weather leans bearish of soybeans. Traders are debating whether several large funds entered a long new meal/oil spread position which pushed the oil share trade down to 38%, near a 2-year low.

• Key heading into the weekend is whether December Chicago wheat can close above its 50-day moving average at $5.945. The last time that wheat was above its 50 day was in late July. We estimate that US farmers have harvested 73-77% of their soybeans and 49-53% of their corn crops. US cash soybean basis offers are rising as crushers bid for supply with cash margins near $3.00/bu.

• Chicago brokers estimate that funds have bought 4,000 contracts of wheat and 1,000 contracts of corn, while selling 4,700 contracts of soybeans. In soy products, the managed money has sold 5,300 contracts of soymeal and bought 4,100 contracts of soyoil.

• The USDA did not make any daily sales announcements contrary to rumours on Thursday that China may be securing US corn. We cannot confirm any new sales of US corn to China.

• Risk managers are assessing whether the Israeli war can spread beyond Gaza, upend world energy supplies, and produce a spike in crude oil values. A broadening Mideast cultural war that includes either Iran/Iraq or the Strait of Hormuz could have a crippling effect on Mideast energy production/exports. Wars tend to be bullish of raw material markets if they persist over several years. The Russian war against Ukraine is starting to curtail supplies of metals, energies, and soft commodities like grains. The Israeli war would raise energy values with the result being a fall in equity prices while macro fund managers would seek to diversify into raw materials as a portfolio hedge. Being short of commodities in a long war is an unfavourable portfolio strategy.

• The record low flow of 4 major river systems is unprecedented; 1/ The Danube River, 2/ The Rhine River, 3/ The Amazon River, and 4/The Mississippi River are all posting historically low flows. History shows no precedent for European, S American and the US ag waterways to be this low at the same time.

• The midday GFS weather forecast is drier across Northern Brazil than the overnight forecast. A few scattered showers will slide into Mato Grosso and pockets of Goias during October 25-28 before a new dry spell returns. Otherwise, meaningful S American rain is relegated to Southern Brazil and Argentina. The Argentine rain starts Sunday with the Brazilian rain being pushed backwards by a day to Thursday, October 26. Heavy rain will continue to drop across Southern Brazil. Extreme heat exacerbates soil moisture loss across Brazil with highs ranging from the mid 90’s to the lower 100’s. The Northern Brazilian heat abates late next week.

• US soymeal/soyoil have compelling demand stories into yearend which underpins soybeans on breaks. Longer term, it is soyoil that will dramatically gain on soymeal as Argentine soy crop supplies return to normal. An Argentine Presidential election occurs on Sunday with high expectation that there will be run off of the top two candidates. We expect that the flow of funds will be into raw material markets into yearend with the fund rebalance offering considerable buying in the grains due to low prices. We maintain that in El Niño years that Brazil will not produce trend corn/soy yields.

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

Weekend summary 20 October 2023

19 October 2023

Posted on October 19, 2023 by simon

• HEADLINES: Soymeal rally continues with soyoil in retreat on oil share spread unwind; US SRW wheat sales commitments reach 96 million bu or 66% of annual forecast: GFS drier at midday for N Brazil.

• Chicago grain markets are mixed and slightly higher at midday. December corn and December Chicago wheat futures are up 2 cents, while November soybeans are up 1 cent. Chicago price movement has been modest this morning, but there has been market emotion amid the oil share spread unwind and the bears that see Chicago soybeans as overvalued with rain slated to drop early next week across Northern Brazil.

• It is difficult to gauge how much weather premium exists in November soybean values, but our work suggests that it is modest. Traders have never really grabbed hold of the dryness in Northern Brazil as the area is tropical in nature and it is early to be overly concerned. Moreover, US 2023/24 soybean end stocks will be historically tight with farmers tight fisted with the US harvest pushing beyond 75% complete.

• We anticipate a firm Chicago close with a short covering bounce forecast for Friday. Traders do not want to walk into work on Monday with an escalation of the Israeli war and energy prices ripping to the upside. As an increasing amount of US summer row harvest is completed, the seasonal price trend is supportive of Chicago values into mid-November. Strong demand for US soy products makes a break in soybean futures difficult to sustain with crush margins rising.

• Chicago brokers estimate that funds have sold 7,200 contracts of soyoil and 2,200 contacts of soybeans, while buying 4,300 contracts of corn, 4,600 contracts of Chicago wheat, and 4,200 contracts of soymeal.

• There are rumours that China is back asking for offers on US SRW Gulf wheat and even US PNW corn. We have doubts on the Chinese cash corn rumour since Ukraine corn fob offers are so much cheaper. However, it is difficult to line up freight insurance for Ukraine grain export and a buyer may have to go without. The Chinese grain rumours are offering support to Chicago corn/wheat on breaks.

• US weekly export sales for the week ending October 12 were 23.3 million bu of wheat, 34.7 million bu of soybeans, and 50.4 million bu of soybeans. All sales were at the upper end of expectations. For their respective crop years to date, the US has sold 394 million bu of wheat (down 21 million or 5%), 639 million bu of corn (up 94 million or 17%), and 767 million bu of soybeans (down 351 million or 31%). Brazil is back offering 2-3 cargoes of soybeans for export in November that is competitive with US offers that is capping the Chicago rally.

• The Danube River level is in decline on a regional drought which is causing barges/vessels to cut their loads and drafts. Importers are starting to complain on shipping delays and demurrage costs which could further hit the Ukraine farmer. We are told that the Danube River restrictions are raising transit costs with bids to the Ukraine farmer becoming scarce. The Danube River impact needs to be closely followed as it could disrupt Ukraine exports.

• The midday GFS weather forecast is drier across Northern Brazil. A few scattered showers will slide into Mato Grosso and pockets of Goias during October 25-28 before a new dry spell returns.  Otherwise, meaningful S American stays relegated to Southern Brazil and Argentina. The Argentine rain will be welcomed but is unwanted across S B Brazil where totals since Oct 1 has eclipse 10.0-16.00”. Our primary concern is across the Northern two thirds of Brazil and the dry soils prevail. And extreme heat is exacerbating issues with temperatures ranging from the mid 90’s to the lower 100’s through the weekend. Cooler readings start on Tuesday.

• Fund demand in soymeal and fund selling in soyoil is the theme of the day. Soymeal prices have leaped upwards on import demand. However, end users are actively booking soyoil needs on today’s break and see value below $0.54 December. US SRW wheat sales account for 66% of the WASDE annual forecast at 96 million bu. The market has accomplished its chore of finding demand. Any additional Chinese demand will be highly bullish. Finally, whether it is the Amazon, Mississippi, or the Danube Rivers, all are historically low a worry for importers. World ocean freight costs are at a one year high. Central US cash basis bids are rising.

18 October 2023

Posted on October 18, 2023 by simon

• HEADLINES: Chicago steady/higher at midday; Wheat leads rally; US ethanol production begins seasonal expansion.

• Chicago ag markets are mostly higher at midday in still-thin volume. Wheat has led the way so far, with spot Paris milling wheat up €4.00/mt and testing highs scored in mid and late September. A specific catalyst is lacking but this week has highlighted the developing US export demand story amid competitive prices and China’s recent buying spree. Additionally, Australia’s season will end amid heat and a complete lack of rain into early Nov, which on balance trims yield potential south of Queensland, where peak harvest is still a few weeks off. Soybeans have reversed overnight gains. Raw material market rallies as a whole continue to be challenged by strength in the US$ and rising treasury yields. The Dow at midday is down 220 points.

• US exporters sold two cargoes of soybeans to China, which likely reflect confirmation of early-week rumours. We do note that Brazilian origin isn’t quoted for Nov-Jan arrival, and key is whether Brazilian soy becomes available in early Feb or early March. This will be determined by seeding dates. CONAB late Monday pegged national Brazilian soy seeding progress at 19% complete, vs. 22% last year. We estimate progress as of Oct 22 to be no better than 28-29% complete, vs. 35% in 2022.

• US ethanol production is beginning to rise as plant maintenance season draws to a close, and importantly ethanol stocks are not abundant. US ethanol output in the week ending Oct 13 totalled 304 million gallons, vs. 295 million the prior week and the largest since early September. Seasonally, weekly grind reaches its peak in Nov/early Dec. Additional boosts in domestic corn consumption occur over the next 6-8 weeks.

• Ethanol stocks last Friday were 887 million gallons, vs. 904 million the prior week and down 3% year on year. Residual disappearance, probable exports, have fared well in the face of Brazilian competition, with residual ethanol disappearance in the last 4 weeks of 157 million gallons three times that of last year. This along with profitable margins supports the need for enlarged industrial corn use. Crude stocks less strategic reserves on Oct 13 totalled 420 million gallons, down 4 million from the previous week and 4% below last year. The US energy market is tight.

• The midday GFS weather forecast is slightly drier in Northern Brazil into Oct 28. A few scattered showers will slide into W Mato Grosso and pockets of Goias, but otherwise meaningful S American rainfall into late month stays relegated to far Southern Brazil and NE Argentina. This rain will be welcomed in Argentina but is unwanted in Rio Grande do Sul, where rainfall since Oct 1 has been recorded at 10.0-15.5”. Our primary concern remains cantered across the Northern two thirds of Brazil. Extreme heat is exacerbating issues this week, with max temperatures on Monday in Mato Grosso reaching 103-104. Similar readings are projected into the weekend.

• Breaking news is absent, but our work suggests markets are embarking on seasonal moves higher into winter/early spring. The intensity of recoveries hinges upon S American crop potential, with weather increasing in importance considerably in November. CONAB/Mato Grosso soy seeding progress is data is key in the next two weeks.

17 October 2023

Posted on October 17, 2023 by simon

• HEADLINES: Chicago mixed as soymeal rallies above 200 day moving average; Grain prices sag on ongoing US corn harvest; Northern Brazilian dryness needs to be followed.

• Midday Chicago grain markets are mixed in thinning volume. The grains are under pressure while soybean/soymeal values hold in the green. Soyoil is enduring modest selling pressure on the unwind of oil share spread while Midwest cash basis bids are steady/firm on tightening cash soyoil supplies. Traders are debating historically tight NOPA soyoil stocks amid the rapid buildout/onboarding of additional US renewable diesel production into Q1 2024. It is the tightening of soyoil for food use along with seasonally declining SE Asian palmoil production that should encourage a soyoil rally into early 2024.

• Whether it is the US/EU or S America, farm selling has slowed in recent weeks leaving commercials longer on Chicago than they have been in years. Most US farmers will not make corn/soybean sales until the October revenue insurance price is set, and even then, once the grain is stored on farm, the cash markets will have to pry it away. This is why Chicago breaks will be difficult to sustain.

• Chicago brokers estimate that managed money has sold 2,200 contracts of corn and 900 contracts of wheat while buying 5,400 contracts of soybeans. In the products, funds have sold 3,600 contracts of soyoil while buying 7,100 contracts of soymeal. Soymeal rallied above its 200-day moving average.

• The FAS/USDA daily sales report did not announce any new sales this morning, but there is talk that China has priced 3-5 US soybean cargoes earlier today.

• US soybean products (soyoil/soymeal) have bullish demand stories into 2024. Brazilian hi pro meal is catching a bid this morning on increasing export demand while US soymeal export sales continue to gather steam and are near record large. US NOPA soyoil stocks itemised that domestic demand is record large and likely to grow substantially as Phillps 66 brings their massive renewable diesel plant online later this year or early in 2024 in Rodeo, California. Demand for US soymeal stays elevated until new crop Brazilian soymeal is available in March. Soy product demand limits the downside in spot soybean futures to $12.65 through year end. Note that new US crush capacity does not come online until Q3 2024, or mid to late summer in preparation for the US 2024 harvest. October Chicago soyoil futures did not have any soyoil tendered for delivery, something that has not happened in over a decade. There are only 67 contracts of soyoil registered for delivery today.

• November soybeans have rallied above $13.00/bu on speculative buying. The US farmer is not a large seller at $13.00. The old crop soy/corn ratio sits at 2.65:1 with the new crop ratio at 2.42:1. The new crop soybean/corn ratio is too low to encourage US farmers to seed 87.5 million acres in 2024. We estimate that based on the new crush capacity coming online that the US will need at least 87.5 million acres, which will drop corn seeding back to 90-91 million acres. US farmers are not excited about expanding seedings due to negative margins.

• The midday GFS weather forecast maintains an arid trend across North Central Brazil into October 27. There will be widely scattered showers of 0.25-1.00 from October 25-27, but the coverage of the rain will be less than 40% of NC Brazil. Rain will become more regular for Argentina, while S Brazil holds in an overall wet trend that is causing first crop corn to yellow and further harming HRW wheat crop quality. The drying trend across N Brazil is becoming historic and should the dryness last through early November, it will push back the start of soy harvest until February. Our concern for Brazilian weather is increasing amid the pesky/persistent high-pressure ridge that holds across Northern Brazil.

• Frustration… a word that we hear more often regarding Chicago. The bears are frustrated that Chicago won’t break while the bulls are frustrated that grain rallies can’t be sustained. US ethanol and soy crush margins are highly profitable which is raising cash basis bids. Brazilian weather is concerning, but not yet yield threatening. It is the wrong time of the year to be bearish. Paris wheat and Chicago corn have been going nowhere since mid-August. The Chicago bullish stalwart is soy oil while the grains look to chop.

16 October 2023

Posted on October 16, 2023 by simon

• HEADLINES: NOPA member soyoil stocks fall to 9 year low at 1,100 million pounds, demand bull market unfolding; Northern Brazilian dryness looks to continue; Corn lower on open Midwest harvest weather.

• Chicago grain markets are mixed at midday with corn weaker while soybeans and wheat futures are higher. Soyoil has pushed to heady gains based on NOPA member soyoil stocks falling to their lowest levels in 9 years at 1.1 billion pounds due to record large domestic soyoil demand. Chicago has a firm undertone to price, but an acceleration of the US corn harvest (open weather) and abundance of world feed wheat is capping rallies.

• Soybeans will follow S American weather more closely with Northern Brazilian soy seeding and replanting to become more important in coming weeks. Acute dryness is starting to worry the North Central Brazilian farmer. Chicago will uncover support on breaks with rising Midwest cash basis levels for corn, soybeans and wheat providing a bullish undertow. Seasonally, a post-harvest recovery should unfold into the middle of November.

• The USDA announced the sale of 200,000 mt of US corn to Mexico and 183,000 mt of soymeal/soymeal cake to the Philippines. There is also talk that China booked 3-5 cargoes of US soybeans off the PNW for November. China continues to take record tonnages of Brazilian corn with exports in October estimated at 4.5-4.7 million mt based on vessel nominations.

• Chicago brokers estimate that fund managers have purchased 2,300 contracts of wheat, 3,200 contracts of soybeans, while selling 5,400 contracts of corn and 1,100 contracts of soymeal.

• The US exported 17.1 million bu of wheat, 73.9 million bu of soybeans, and 13.0 million bu of wheat for the week ending October 12. We would note that there were large export revisions for the week ending October 5 with US corn exports at 31.7 (up 10 million bu), soybeans at 51.5 million bu (up 13 million), and wheat at 11.2 million bu (up 1.5 million). For their respective crop years to date, US wheat exports stand at 233.6 million bu (down 102 million or 30%), US corn exports are 154 million bu (up 25 million or 19%), with US soybean exports at 198.6 million bu (up 25.1 million or 14%). US corn and soybean loadings are holding up much better than sales.

• NOPA reported that a record 165.5 million bu of US soybeans were processed in September, up 4.1 million bu from August, and up 7.4 million bu from last year. The crush produced a record amount of soyoil, but US NOPA member soyoil stocks fell to their lowest level in 9 years at 1.108 million pounds, down 12% from August and down 24% from last year. The US continues to use more oil for biofuel than food consumption, and WASDE will be forced to make future adjustments in demand. And as US biofuel demand takes up an increasing amount of US soyoil production, food users will want to make sure that their name is on a processor’s future production just to make sure they have the supply. A demand rationing rally is required with the latest decline in soyoil values only helping the US renewable industry to lock down margins well into 2024.

• The midday GFS weather forecast maintains an arid rainfall trend across North Central Brazil into October 26 with rain totals of 0.25-1.50” (30% of normal). Southern Brazil will endure additional heavy rain with totals of 2.50-6.50”. The S Brazilian rain adds to the flooding potential with corn yellowing becoming more pronounced. The extended 11–15-day period does offer improved Northern Brazilian rainfall, but this is a low confidence forecast. The extended range forecast has not been useful.

• Record or near record heat will also prevail across Northern Brazil this week with highs temperatures ranging from the mid 90’s to the lower 100’s. The heat/dryness has placed a halt on new N Brazilian spring planting.

• The Northern Brazilian weather forecast is worrisome with heat/dryness to linger into November. Midwest cash basis bids have rallied strongly in the past 10 days as US farmers are tight fisted with newly harvested supply amid spot export demand. The most bullish Chicago commodity is soyoil due to record and expanding renewable diesel demand. Corn/soy breaks will be well supported, but a strong rally hinges on worsening Brazilian weather or Chinese demand for US SRW wheat. Seasonally, Chicago values tend to rally into mid-November.

13 October 2023

Posted on October 13, 2023 by simon

• HEADLINES: Chicago mixed at midday; China continues wheat buying spree; Soy export demand remains tepid.

• Chicago grain markets are mixed at midday, with the soy market retreating from Thursday’s dramatic rally on tepid export demand, wheat adding premium on newfound interest for US origin from China, and corn caught in between. Participation rates remain lacklustre. Position squaring dominates price discovery on Friday (profit taking in soy, short covering in wheat), and we would maintain that it is S American weather that is key to direction moving forward. Still no pattern shift is offered to S America into Oct 22, with the GFS weather forecast keeping arid/hot weather in place across C Brazil into Oct 26, and Brazilian/Argentine crop progress data is important moving forward.

• The US dollar index continues its recovery from Wednesday’s lows. US CPI data and a worsening of conflict in the Mid-East sustains a flight to safety. Spot WTI crude oil is up $3.50 at $86.40. The Dow is up 145 points.

• In the week ending Oct 5, US exporters sold a net 36 million bu of corn, vs. 71 million the previous week. Mexico through the period secured only 21 million bu, vs. 45 million the previous weeks. Net soybean sales totalled 39 million bu, vs. 30 million the prior week. Wheat sales were a sizeable 24 million bu, vs. 10 million the previous week and a new marketing year high.

• China was confirmed to have purchased 8 million bu of US origin SRW and was announced to have secured another 7 million bu this morning. We have heard of more cargoes working to China, and also hear that China has secured upward of 15 cargoes of Aussie origin this morning. China’s wheat/feed market buying spree is beginning to change the complexity of those markets relative to current prices. Additionally, China’s commitment to import 10 million mt of wheat annually via its WTO agreement bodes favourably for US demand amid Australia’s short crop.

• For their respective marketing years to date, the US has sold 602 million bu of corn, up 14% on last year, 371 million bu of wheat, down 9% and 717 million bu of soybeans, down 31%. Brazil’s crush industry is outbidding exporters currently, but the tepid nature of US soy sales to date requires an extension of this season’s export window to validate USDA’s forecast. We would acknowledge that US soy export demand is weak, but it is S American weather that determines market share, and the timing of new crop Brazilian exports, moving forward.

• New crop US soymeal exports sit at 4.6 million mt, up 48% year on year.

• IMEA this afternoon will release Mato Grosso soy planting progress. Soy seeding last Friday was 14% complete, vs. 19% the previous week, and reports are widespread that planting has paused amid recent heat/dryness. It is December weather that determines Brazilian soy yields but seeding delays in Oct have a clear impact on Safrinha planting dates and yield potential. A year ago in Mid-Oct, Mato Grosso’s soy crop was 41% planted.

• Also, key is Monday’s NOPA crush data and whether soyoil stocks continue to decline amid rapid renewal diesel production expansion. There has been nothing to indicate a slowing of domestic soyoil disappearance. Exports must be rationed for a second year.

• The midday GFS weather forecast is further east with heavy rainfall across the Southern US in the 6–10-day period. Totals of 1-3” are now advertised in AR, MN, TN and KY, while TX and OK face another 10 days of dryness. Moderate rainfall moves across the Great Lakes and far E Midwest into Sunday, but thereafter threats to harvest will be minimal into late month.

• USDA’s trimming of US corn and soy yields provide additional support for bottoms having been scored. Seasonal trends are positive into spring, but the speed/intensity of recoveries will hinge upon the duration of unwanted dryness in Argentina and Central/Northern Brazil. S American weather dominates price discovery beginning in late October.

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

Weekend summary 13 October 2023

12 October 2023

Posted on October 12, 2023 by simon

• HEADLINES: Chicago rallies on row crop yield cuts; More attention paid to abnormal S American weather.

• Chicago grain futures rallied following the USDA October Crop report as US 2023 corn/soybean yields came in slightly below average trade estimates. The US corn yield was 173.0 bushels/acre, down 0.5 bushels/acre from trade expectations and down 0.8 bushels/acre from August. And the US soybean yield at 49.6 bushels/acre, was down 0.3 bushels/acre from the average trade estimate and down 0.5 bushels/acre from September. Historically, when the US crop yields decline from August through October, they tend to drop even more in November. We would currently maintain a final US corn yield of 171-172 bushels/acre with soybeans at 49-49.3 bushels/acre. There will be further cuts to the 2023 US corn and soybean crops, but they will be modest.

• WASDE estimated 2023/24 corn end stocks forecast to 2,111 million bu based on a 70 million bu cut to the US 2023 corn crop to 15,064 million. WASDE dropped carry in supplies by nearly 90 million to 1,361 million bu.

• 2023/24 US corn demand dropped 75 million with a 25 million bu cut in 2023/24 feed/residual to 5,600 million bu and a 50 million cut in exports to 2,025 million bu. Traders argue that WASDE is still too high with its corn export forecast.

• US 2023/24 corn export demand is a work in progress depending on S American production. The average US cash corn price was left unchanged from September at $4.95. Adverse weather is required across S America if corn is to enter a lasting more bullish price trend.

• US 2023/24 soybean end stocks were forecast at pipeline levels of 220 million bu.  NASS lowered the US soybean crop by 42 million to 4,104 million bu with a yield of 49.6 bushels/acre. WASDE left S American soy crops unchanged with the Brazilian harvest forecast at a record large 163 million mt and Chinese 2023/24 imports at 100 million mt. US 2023/24 soybean exports were cut by 35 million to 1,755 million bu with crush raised by 10 million to 2,300 million bu. We would argue that the US 2023/24 crush rate is too small by 60 million bu which requires an additional cut in US export trade. The point being is that US 2023/24 soybean end stocks will stay historically tight with S American weather growing in market importance with each passing week. WASDE estimated the average farmgate price of US soybeans at $12.90/bu, the same as September.

• If there was a surprise it was that WASDE raised their biofuel use of soyoil to a record 12,800 million pounds recognising that demand for fuel now outstrips food use. WASDE also cut 2022/23 oil carry in by 100 million pounds to 1,761 million pounds. 2023/24 soyoil end stocks were forecast at 1,736 million pounds with the average cash price being $0.63/pound. The US soyoil balance sheet is bullish.

• USDA Wheat data leaned supportive. USDA’s’ 78 million bu hike in US production was known, while 2022/24 US wheat feed/residual use was increased by 30 million bu, more than expected by the trade. US end stocks are now forecast at 670 million bu, vs. 615 million previously, with the bulk of the stocks gain centred on the US HRS balance sheet. US 2023/24 HRS end stocks are raised 35 million bu to 173 million, vs. 158 million a year ago. The year on year increase in stocks has weighed on protein spreads in recent weeks, but spring wheat supplies still aren’t overly abundant. US HRW stocks increased 23 million bu to 256 million in Sep and vs. 234 million a year ago. SRW stocks were lowered 1 million bu to 137 million as larger projected exports more than offset slightly higher final production. Wheat market focus now shifts to the potential for changes in world trade flows.

• USDA raised 2023/24 Russian exports to 50 million bu amid competitive prices. Otherwise, even global data leans positive. Combined exporter production was trimmed another 1.4 million mt amid lower projected crop sizes in Australia and Kazakhstan. Argentine production was left alone at 16.5 million mt, but there is concern USDA will lower its Argentine production estimate by 1.5-2.0 million mt amid ongoing drought and following recent exchange estimates. We also note that assuming Russian exports of 50 million mt in 2023/24, finally the Russian balance sheet normalises with stocks dropping to 8.9 million mt, vs. 14.6 in 2022/23.

• Lower corn and soy yields relative to expectations allow positive seasonal trends to kick in. More attention will now be paid to abnormal S American weather. We estimate funds were short of soybeans this morning. Short covering lies ahead as harvest lows are carved out and concern over S American weather grows.

11 October 2023

Posted on October 11, 2023 by simon

• HEADLINES: Funds add to bearish soybean bet ahead of USDA report; Corn firmer on soybean/corn ratio spread unwind; S American weather to gain into late October.

• Chicago futures are mixed at midday with corn higher while the soybean market sags to test $12.50 while wheat prices drop along with Paris futures. Fund managers are adding to their net short soybean position via the charts while cash rumours abound that China is back asking for US SRW Gulf wheat offers. China appears to be on a mission importing record amounts of feedgrain as their corn harvest is nearing the 50% completion mark. The Chinese demand for Brazilian corn and world wheat has some wondering if China’s corn crop is smaller than advertised or their feed demand is larger. Unfortunately, we will never know by the Brazilian purchases and exports of corn are rapidly growing and China imported a record amount of corn in September.

• Bearish bets are being made on soybeans/wheat ahead of the USDA report. In soybeans, traders are raising their US soy yield estimates based on the nearby trend of improving farmer reported yields while the US wheat balance sheet will reflect the finding of additional crop and feed/residual use. US 2023/24 wheat end stocks are expected to rise due to the 73 million bu of additional supply, with feed/residual adjusted upwards by 25-40 million bu. Midwest corn ethanol producers are buying futures as cash corn is tough to secure with rain looking to slow the harvest across the Northern Midwest for 4-6 days.

• Chicago brokers report that managed money has sold 3,100 contracts of Chicago wheat, 900 contracts of corn, and 5,400 contracts of soybeans. In the products, funds have sold 2,100 contracts of soymeal and are flat in soyoil. Funds sold soyoil early and are trying to cover all their sales at midday.

• The USDA reported that China booked 121,000 mt of US soybeans for the 2023/24 crop year. We hear that China has booked an additional 2-3 cargoes of US soybeans off the PNW this morning. Chinese crush margins have been dropping sharply amid the sharp drop in soymeal futures following their weeklong holiday. The Chinese pork industry is struggling with over supply.

• We understand that farmers in Mato Grosso have halted soybean seeding awaiting a germinating rain. High temperatures are staying in the 90’s/lower 100’s and aggravating soil moisture shortages. The big question is when will the normal Monsoonal flow begin from the Amazon. Today, it is too early to be overly concerned, but by month end the rain needs to drop to avert replanting or pushing back the seeding of winter corn to early to mid-March. S American weather will gain in Chicago market importance following the USDA October Crop report. The October USDA report will determine US corn/soybean crop size for 2023. It is S American weather that will direct world grain and oilseed values into yearend. We believe this is because Brazil’s soybean crop at 160 million mt implies that a 5% yield loss equals 8 million mt. The importance of S American crops has never been higher amid its importance on future US corn/soybean export demand.

• The midday GFS weather forecast is slightly drier for the NE Midwest with the rain that starts today and continues into the weekend. The rain falls across the northern half of Nebraska and eastward into N Illinois/Michigan. Rain totals range from 0.5-2.00” with locally heavier amounts. The remainder of the southern US stays arid with warming temperatures starting mid next week. The C Plains will hold in a below normal rain pattern. HRW wheat seeds will need rain for proper establishment before the onset of colder temperatures in November. We will change to updating S American weather as the US corn/soybean harvest nears/surpasses 50%.

• Is the glass half empty or half full? The trade is clustered around a 173-174 bushels/acre US corn yield and a soybean yield of 50 bushels/acre. NASS pulled and dried down ears in September and any corn yield deviation should not be large. The more difficult question centres around September Central US weather and whether heat/dryness had any impact on US soy yields. We look to 49.5 bushels/acre in October and a final US soy yield of 49.0 bushels/acre. However, it is US export demand or adverse S American weather that is needed to sustain a post report price trend. Fund managers are going net short soybeans.

10 October 2023

Posted on October 10, 2023 by simon

• HEADLINES: Chicago mixed at midday as Egypt secures Russian wheat in private deal; CONAB estimates Brazilian soybeans at 162 million mt, corn at 119.4 million mt; GFS weather forecast at midday consistent.

• Chicago futures are mixed at midday with soybeans/soymeal higher while corn/wheat and soyoil trade in the red. Soyoil futures have been pushed to sharp losses on the ongoing oil share unwind. December soyoil is back to testing $0.50-0.52 cent chart support, a level where the rally started back in June. Corn, wheat, and soybean futures appear to be trading in a broad range awaiting USDA October Crop report and US corn/soybean yield data. Traders have been raising their yield estimates as recent producer reporting has yields improving. The only worry is the S Midwest Group 3 soybeans which were impacted by late season heat/dryness. The volume of trade has been modest everywhere in Chicago except soyoil where 65,000 contracts have already changed hands basis December. It is soyoil where long liquidation is active and ongoing.

• Chicago brokers estimate that managed money has sold 3,300 contracts of corn and 4,900 contracts of wheat, while buying 4,100 contracts of soybeans. In the soy products, funds have sold 6,700 contracts of soyoil and bought 2,900 soymeal.

• Brazil’s CONAB estimated their 2024 harvest at 162 million mt of soybeans and 119.4 million mt of corn. The soybean crop would be record large and 6 million above 2022/23 while corn is down 17.5 million mt vs. the USDA crop of last year.

• The media is reporting that Egypt’s GASC secured 480,000 MTmts of Russian wheat for November/December shipment with payment under a 270-day letter of credit. The price is said to be $265/mt basis fob. No confirmation was offered by GASC, but the sale is being widely discussed by European traders. The sale was private with Russian sources late last week discussing that both parties were in negotiations. The Russian Government must have given approval for the sale at the $5/mt discount that had been routinely discussed this autumn at $270/mt as a floor price.

• The US exported 21.7 million bu of corn, 14.5 million bu of wheat and 60.4 million bu of soybeans for the week ending October 5. The weekly US soybean exports were the largest since February 9. For their respective crop years to date the US has shipped out 128 million bu of corn (up 18 million from last year), 133.5 million bu of soybeans (up 31 million from last year), and 238 million bu of wheat (down 97 million from last year). The US wheat export pace is disappointing.

• We are confused by the soyoil futures decline. Soyoil futures are dropping just as new renewable diesel capacity comes online and US soyoil supplies tighten. The bears argue that D4/D6 RIN values are falling with losses of 9-11 cents this morning with more than a 50% drop since Sept 1. The pressure on D4/D6 RINs is due to their excessive supply and the expansive production of Renewable Diesel across the US. We expect that RIN values will continue to stay at low levels amid the sheer supply that is produced each day. RD producers do not see RINs as key to their current and future production. That was in the days of biodiesel. Weak RIN values imply sizeable RD production.

• We see the drop in soyoil values as a bear trap that will only be realised following Thursday’s USDA October Crop Report. The demand for US soyoil grows sharply into Q1 as sizeable new production comes online. Large amounts of D4 RIN production and lower values are not bearish to soyoil demand.

• The midday GF S weather forecast is slightly further north with showers/storms that starts today and continue into the weekend. The rain falls across the northern half of Nebraska and eastward into N Illinois/Michigan. Rain totals range from 0.5-2.00” with locally heavier amounts. The remainder of the southern US stays arid with warming temperatures starting mid next week. The C Plains holds in a below normal rainfall pattern.

• May-September US rainfall was 2.98” below average, the twelfth driest on record and the driest since 2012. September has been noticeably dry for 4 years running. This should have the biggest impact on US soy yield. It is too early for S American weather to have any impact on summer row crop yield, but that will change in the coming weeks. China has been a massive buyer of Brazilian corn since July.

9 October 2023

Posted on October 9, 2023 by simon

• HEADLINES: Chicago shrugs off energy price rise, bio crop values decline; Key Argentine election on October 22 with Blue Peso rate rising.

• The overnight Chicago grain rally did not carry through to the upside and follow the sharp rise in world energy prices. The bio crops of corn/soyoil have come under the most selling pressure at midday. Soyoil futures have fallen to fresh lows for this decline as corn has retreated 3-4 cents from like gains overnight. Soybeans are back testing last week’s low amid the ongoing Midwest harvest. The volume of Chicago trade is tepid as traders are taking risk off amid the uncertainty of 2 geopolitical war events and a USDA Crop report on Thursday. The mindset of traders is to get smaller, on risk, at least heading into the USDA report. Few are wanting to sell breaks or buy rallies until more is known about 2023 US corn/soybean yield potential. Of course, for farmers the declining Chicago price helps boost their revenue insurance payment that is calculated by the average October corn/soybean price.

• Chicago brokers estimate that managed money has sold 4,600 contracts of soybeans and 5,100 contracts of corn, while buying 2,900 contracts of wheat. In the soy products, funds have sold 3,200 contracts of soyoil and bought 1,800 contracts of soymeal. The charts are staying bearish on soybeans, soy products and wheat. Corn charts are more neutral and basing.

• The US Government is celebrating the Columbus Day holiday and is closed. No daily export sales, weekly export inspections or US Crop Progress/Condition reports will be released today. The US government is back in business on Tuesday and today’s reports will be released then.

• The seasonal soybean buy date is Columbus Day as the US soy harvest pushes beyond 50%. The second week of October has historically been the seasonal low for soy futures. Whether or not this works again this year depends on the USDA report on Thursday and forward Chinese demand for US soybeans. China is back from holiday and watching Chicago weaken without any large US purchases.

• Brazil will be on holiday Thursday with Argentina holding a key presidential election on October 22. The Blue Peso has reached 900:1 as the fear grows that Javier Milei will be elected with his campaign stance to dollarize the Argentine economy to control inflation. There are 130 Congressional seats at risk out of 257 in the election. Historically, the Argentine Congress follows the President in its economic platform. Note that a runoff election is possible if one candidate does not control 50% of the Presidential vote. Tensions are high in Argentina amid the ongoing drought, the financial pressure from the IMF to pay off their debts and the National Election.

• The Kazakhstan wheat crop is estimated at 12.3 million mt, down 25% from last year due to harsh growing weather according EU’s crop forecasting arm MARS. The smaller crop has a big impact on durum with Canada also facing smaller trade.

• The midday GFS weather forecast is slightly further north with showers/storms that start on Wednesday and continue into the weekend. The rain falls across the northern half of Nebraska and eastward into N Illinois/Michigan. Rain totals range from 0.5-2.00” with locally heavier amounts. The remainder of the southern US stays arid with warming temperatures during the weekend. Note that the Great Plains stays dry which is worrisome with soil moisture short and HRW wheat seed trying to germinate. The 10–15-day period is warmer with the Central US weather turning wetter under a trough.

• Surging energy prices have not provided support for Chicago corn/soy futures amid the ongoing harvest and Thursday’s USDA Crop report. Yield data has been variable but is showing improvement in corn/soy. A 61.8% retracement for spot Chicago soyoil futures is $55.35, which the deliverable October futures contract is nearing. Cash soyoil is trading 5-6 cents above October and there have not been any deliveries. The demand pull of renewable diesel continues and shows no sign of slowing when measured by D4 RIN production. S American weather is abnormal with rain needed across Argentina/N Brazil. We now need to get through Thursday’s USDA report.