Author Archives: simon

8 September 2023

Posted on September 8, 2023 by simon

• HEADLINES: Low volume pre-report trade persists; Demand story for US soyoil; GFS weather forecast little changed.

• Chicago futures are mixed at midday with choppiness being the feature. Chicago wheat futures pushed to new lows at $5.905 while November soybeans tested key support just above $13.50, before recovering. Chicago corn has been trading either side of unchanged for most of the morning.

• Chicago volume remains horribly slow as few traders want to add to their risk profile ahead of Tuesday’s NASS US crop data. We doubt that NASS will offer meaningful change to US planted/harvested acres with FSA data substantially complete. Unlike prior crop years, the FSA had collected mostly all the FSA program certification data for the August report. This is why NASS updated US all wheat acres in August and did not wait until the late September final Small Grain Report. The market risk in Tuesday’s USDA report is US corn/soy yields, not planted or harvested acres.

• USDA announced the sale of 121,000 of mt of soybeans to China. We understand that China continues to book US soybeans and was seeking another 2-4 cargoes on the morning Chicago decline. Should Tuesday’s USDA report be bearish, we expect that China will use the break to further add to their forward coverage.

• Chicago brokers estimate that funds have sold 2,900 contracts of Chicago wheat and 4,700 contracts of corn, while being flat in soybeans. In the products, funds have sold a net 2,200 contracts of oil and bought 3,200 contracts of soymeal.

• Stats Canada estimated July 31 all wheat stocks at 3.58 million mt (875,000 mt on farm and 2.71 million mt off farm), 1.5 million mt of canola (493,000 mt on farm and 1.0 million off farm), and 1.27 million mt of oats (789,000 mt on farm and 486,000 mt off). July 31 Canadian wheat/canola stocks were bullish due to their coming in below average trade estimates while oat stocks were slightly bearish. Canada has sizeable new crop wheat and canola export campaigns on the books and is exporting 300-500,000 mt of new crop wheat weekly.

• US weekly export sales for the week ending September 1 were 13.6 million bu of US wheat, 37.4 million bu of corn, and 65.5 million bu of soybeans. For their respective crop years to date, the US has sold 289 million bu of wheat (down 64.4 million or 17%), 410 million bu of corn (down 51 million or 11%), and 586 million bu of soybeans (down 312 million or 34%). Brazil old crop soybean exports had a supply tail that extended into October and reduced the 2023/24 US soybean sales pace.

• We note that global 2022/23 soybean exports are up 10 million at a record 139.6 million mt. In the first 2 months of the crop year, global wheat exports are also record large and up 2 million from last year at 22.0 million mt. World demand is record large on a 3-crop combined basis, it is just that Russia is exporting a record amount of wheat while Brazil is exporting record amounts of corn/soybeans.

• The midday GFS weather forecast is consistent with itself and other models. Another 10 days of below normal rainfall with seasonal temperatures are forecast for the Midwest/Delta. Rain is slated to drop across the Southern and Central Plains early next week with totals estimated in a range of 0.25-1.25”. This rain comes too late to aid corn/soy yield prospects, but it will aid the HRW wheat seeding. Hurricane Lee looks to stay offshore, but its glancing pass will produce heavy rain for Maine/New York. No frost/freeze risk is indicated for either the US or Canada. The forecast allows the US row crop harvest to start and gain speed in the next few weeks.

• Low volume and pre report position squaring is ongoing. It does not take much volume to push Chicago values either way. Long oil share spreads are being unwound. World crop production is declining, but traders want to get past the USDA September report before making any new bull bets. Argentine farm sales of soybeans on the dollar soy program have been slower than expected at 500,000 mt.  We doubt that Argentine farmers sell more than 2.5 million mt by Sept 30 and with Brazilian farmers cutting first and second crop corn seeding intentions, the Chicago risk appears to be to the upside.

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

Weekend summary 8 September 2023

7 September 2023

Posted on September 7, 2023 by simon

• HEADLINES: Chicago sags on risk adjustment ahead of Tuesday’s USDA report; Pakistan secures world wheat; Canada stocks in the afternoon; GFS weather forecast stays dry for Central US.

• Chicago futures are mixed at midday with corn/wheat steady to firm while the soy complex sags. It is all about position squaring into next week Tuesday’s USDA Crop Report and the uncertainty that surrounds US corn/soybean yields. Funds are long of soybeans/soy products and short of grain, which is why the grains are holding while liquidation pressures the complex. We note that cash markets in soyoil are firming on basis while processors are anxious for new crop soybean supplies. The drop in soyoil has taken the market back to key support on the weekly continuation chart against $0.64 spot futures. We look for a mixed close with a rally to end the week ahead of Monday’s weekly crop progress and condition report. We are looking for another 2-3% fall in soy/corn good/excellent ratings as heat/dryness rapidly pushed crop maturity. Central US weather becomes less important to price unless the pattern were to change to excessive wet to delay the Midwest harvest or if a hurricane is pointed at the US Gulf.

• Chicago brokers estimate that funds have sold 5,600 contracts of soybeans, 6,700 contracts of soyoil, and 3,200 contracts of soymeal. In the grains, managed money is flat in wheat while buying 2,300 contracts of corn.

• China has booked 6-8 US soybean cargoes for November on the morning Chicago price break. China continues to import record tonnages of world soybeans with 2022/23 imports to reach 103-104 million mt. China shows no slowdown in purchasing US soybeans, but there is an export tail from Brazil that will cut into September shipments.

• USDA/FAS will release their weekly export sales report on Friday due to the US holiday on Monday. Large US corn and soybean sales are expected.

• Pakistan is showing renewed import interest for world wheat. We hear that Pakistan has purchased 4-6 cargoes of Russian and Romanian wheat. A year ago, Pakistan imported 3.00 million mt of world wheat, just below the record of 3.6 million imported in 2020/21. Export sources expect that Pakistan will import 3.0-3.5 million mt this year (vs USDA estimate of 2.0 million) due to surging rice values and a poor wheat harvest.

• Canada will release their July 31 grain and oilseed stocks totals tomorrow morning. It is expected that Canada will raise wheat stocks from prior forecasts. However, this year’s drought plagued grain harvest and ongoing active weekly exports of 300-500,000 mt of wheat will lower stocks in 2023/24. Canadian durum and spring wheat export demand to date has been active.

• Monthly Ukraine Grain exports are estimated  at 2.1-2.4 million mt as marine trade out of the Black Sea is blocked by Russia’s ending of the Grain Export Corridor pact. This is half of last year’s export pace, and it will force key importers like China/North Africa to seek their corn/wheat elsewhere.

• US ethanol production produced 298 million gallons vs 296 million last week. There was a push of US ethanol production in the last 6 weeks that raised the total corn grind near the WASDE annual estimate. We would look for only a modest downward adjustment on the 2022/23 US ethanol corn grind of 5-10 million bu next Tuesday.

• The midday GFS weather forecast is consistent with its own prior weather run and others. Another 10-14 days of below normal rainfall and seasonal temperatures are forecast for the Midwest and Delta. Rain is forecast to drop across the Southern and Central Plains early next week. The rain comes too late to aid corn/soy yield prospects, but it will aid the HRW wheat seeding. Note that Midwest farmers are waiting for rain before beginning their SRW wheat seeding campaign. High temperatures range from the 70’s to the mid 80’s with hurricane Lee to hold offshore the NE US but produce considerable rain of 2-4.00” for W New York and Maine.

• Chicago volume has been low as traders adjust their risk for Tuesday’s USDA Crop report. Private Crop estimates were not surprising this week and clustered around 175 bushels/acre in corn and 50 bushels/acre in soybeans. Early corn yield reports are disappointing, but producers hope that yield improves in the coming weeks. We see soyoil, soybeans and wheat as undervalued amid expanding demand and tightening supplies. This is no time to fall asleep at the wheel!

6 September 2023

Posted on September 6, 2023 by simon

• HEADLINES: Markets digest plunge in soy crop rating, falling world wheat production; Negative macro input caps rally.

• Chicago futures are higher by varying degrees at midday, with soybeans and KC wheat pacing the midweek recovery. The continued trimming of exporter wheat production and last week’s collapse in soy crop ratings are cited. Corn has followed, but early anecdotal corn/sileage yield reports remain disappointing. Recall annual bottoms are very often scored by mid-September, and as our belief is that lows have been scored given US corn and soy crop ratings are likely to drop another 1-3 points next Monday. Excluding outright crippling drought years, US corn and soy good/excellent ratings in mid-September will exist at the lower end of history.

• Soyoil has fallen slightly as crude’s rally slows and palm oil’s rally pauses, but strength in meal has kept board crush margins above $2.60/bu. The primary issue in the soy complex, and in oilseed markets as a whole, is that yield loss the in US and weak canola output in Canada are colliding with record global consumption and massively profitable processing margins. Supply-based rallies can be absorbed easily. New highs in Nov beans lie ahead if a sub-50 national yield is confirmed. A sub-49 bushels/acre yield makes the 2023/24 US soy balance sheet nearly unmanageable, and it is difficult to understate the importance of weather in Argentina and Brazil between Nov and Dec.

• US meal and oil disappearance will remain well supported amid renewable diesel production capacity expansion and as the US picks up global meal business left by drought in Argentina and meagre crush rates there. We are uncertain what price rations domestic soybean demand prior to late winter.

• Excessive rainfall/flooding in Brazil offers a new threat to exportable wheat supplies, and the midday forecast keeps in place a pattern of unwanted rainfall into Sep 20. Precipitation accumulation in Rio Grande do Sul and Parana in southern Brazil in the last 4 days has been recorded in a range of 3-8+”. Additional rainfall of 3-8” is forecast in this region over the next 10 days.

• Brazil remains a net importer of wheat, but the tonnage of Brazilian exports has been rising in each year since 2020. USDA projects Brazil to export a record 3.5 million mt of wheat in crop year 2023/24, but any rapid loss of quality lowers or eliminates this. USDA’s Brazilian net wheat import forecast of 2.1 million mt may be 1-3 million too low. Note that excessive rainfall is impacting roughly 80% of Brazil’s primary wheat producing region.

• Dec Paris milling wheat is up €3.75/mt at midday. European corn and rapeseed markets have recovered slightly. We note that Sep Matif wheat’s expiration typically marks annual lows in that market, and it is just difficult to be overly bearish of wheat as physical supply availability is peaking currently. Spot crude is up $0.50/barrel at $87.20.

• The midday GFS weather forecast is consistent with morning output. Scattered, and welcomed, showers will dot the southern and western Plains next Mon-Thurs, while arid conditions continue across the E Plains, Midwest and Delta. Heat exits the Midwest overnight but stays in place for another few days across TX, OK, KS, MO and far western IA. Soil moisture loss will be a feature of mid-Sep weather across the bulk of the Central US, and thereafter any shift to wetter conditions will disrupt harvest, which will spread northward must faster than normal. As of now, tropical storm Lee is forecast to stay just east of the mid-Atlantic/Northeast Coast.

• Bullish vigour this morning has been capped by strength in the US dollar, weakness in equity markets and the looming US/N Hemisphere harvest. However, breaks are now buying opportunities as the primary short-term risk is one of lower-than-expected US corn, soy and spring wheat yields.

5 September 2023

Posted on September 5, 2023 by simon

• HEADLINES: Chicago futures mixed with grain/soy spreading featured; GFS weather forecast at midday offers new tropical depression; Brazilian exports soar, US shipments lag.

• Chicago grain futures have rebounded with the grains higher with the soy market staying in the red. The volume of Chicago trade has been modest with end user support noted in wheat/corn on the early break. With no quick solution to the Black Sea Grain corridor stalemate, Chicago grain futures are back to focusing on supply. Soybeans are lower on the hope that the Argentine soy/dollar program will produce renewed farmer selling.

• Initial and early Midwest corn yields are coming in below last year and producer expectations. Small kernel size is being blamed for the poor yields. It is far too early to determine a US corn yield trend, but traders will be keeping a close ear on the ground relative to producer yield reports. We look for a higher Chicago close ahead of weekly good/excellent corn/soybean crop ratings that are expected to be down sharply this afternoon.

• World wheat/soybean trade demand is record large, but it is being fulfilled almost exclusively by Russia in wheat and Brazil on corn/soybeans. The demand is so strong that Brazil’s waiting time to load a vessel has now reached 48 days, the most in a decade, which is causing huge demurrage costs for importers. The massive Russian and Brazilian export programs have left the EU/US seeking export scraps. The difficult question is the timing of when world demand will switch back to EU wheat and US corn.

• Chicago brokers report that managed money has bought a net 2,300 contracts of corn and 1,200 contracts of Chicago wheat, with selling of 3,100 contracts of soybeans. In soy products, fund managers have sold 2,300 contracts of soyoil and 1,900 contracts of soymeal.

• S&P Global estimated the US corn yield at 177.5 bushels/acre and soybeans at 51.0 bushels/acre for the September report. They also added an additional 500,000 acres due to the FSA Farm Program participation data of August. S&P noted that they held a negative bias on the US soybean yield going forward due to poor late finishing weather. We would note that the S&P corn yield would be record large.

• US export inspections for the week ending August 31 were; 18.9 million bu of corn, 13.9 million bu of soybeans, and 11.0 million bu of wheat. For their respective crop years to date, the US has exported 159 million bu of wheat (down 49 million or 23%), 1,466 million bu of corn (down 700 million or 32%), and 1,919 million bu of soybeans (down 174 million or 8%). WASDE is likely 10-15 million bu too low on US 2022/23 US soybean exports.

• Brazilian state agencies are forecasting sharp falls in new crop corn production with IMEA (Mato Grosso) forecasting 2024 corn production at 43.3 million mt, compared with 52.5 million this crop year.

• Negative margins have Brazilian farmers pulling back from seeding expansion in both winter corn and first crop soybeans. The drop in Brazilian new crop corn seeding intentions is important to longer term Chicago valuations.

• The Plains/Midwest/Delta weather forecast is consistent with recent day forecasts with a below normal rainfall trend and moderating temperatures. High pressure ridging holds across the Central US today and then retrogrades southeast with a diminished amplitude into next weekend. This allows showers on the weekend across TN, KY, and SE MO, and then next week across the Upper Lake States. The remainder of the Central US holds in an arid trend. A new tropical depression has formed in the Atlantic Basin which could target the Eastern US shoreline as a hurricane around September 15. Until then, moderating temperatures and below normal Central US rainfall are the features.

• Chicago values are waiting for next week’s USDA Sept 12 Crop Report. Grain/soy spreads are being unwound. Cash basis bids are starting to strengthen ahead of the onset of active corn harvest in 7-14 days. US renewable diesel demand stays strong with the soy correction temporary. Support is noted below $13.50 Nov soybean futures. Seasonal lows are being formed.

1 September 2023

Posted on September 1, 2023 by simon

• HEADLINES: Chicago soyoil higher on demand; Additional US soybeans to unknown destinations; RGDS estimate soybean seeding up 1.5%.

• Chicago grain futures are higher in US pre-holiday trade with soyoil futures being the bullish stalwart. Corn/soybean futures are following with soyoil rising on strong domestic demand. US renewable diesel demand continues to build with this sector completely replacing lost US export demand. Gulf US soyoil stays well above S American and tropical oil offers from SE Asia, which has limited the rally in spot Chicago soyoil to $0.70-0.72.

• However, US soyoil values are becoming a demand driven bull as operating capacity is ramped up, with an upward price trend to persist into Q4. New US renewable diesel refineries are to come online in October/November which adds to the domestic demand outlook. The soyoil market is entering a new demand phase that must be closely monitored and how it plays into the price of soybeans. A firm Chicago close is expected today as values follow the early and late week rally with a midweek dip price trend.

• The US$ is steady following the US Labor Dept reporting a 186,000 increase in non-farm jobs for August. The report was seen as bullish for US equities as the US Central Bank is expected to hold rates steady in their September 19-20 meeting. The FMOC is controlling inflation and not producing a recession.

• The USDA announced that another 198,000 mt of US soybeans were sold to an unknown destination. China stays active in securing US soybeans for Oct-Dec.

• Chicago brokers report that managed money has bought a net 3,300 contracts of corn, 1,300 contracts of Chicago wheat, and 2,600 contracts of soybeans. Funds have sold 2,000 contracts of soymeal and bought 1,600 contracts of soyoil.

• RGDS reported that its soybean farmers planned to expand their 2023 soybean seedings 1.5% from last year. The gain was less than expected and followed Deral’s static soy planting estimate for Parana. Although Mato Grosso seeding looks to expand 2%, there is concern that poor margins will keep soy and first crop corn seeding expansion below current market expectations.

• We do not expect that this year’s drop in Mississippi river water levels will produce the same sharp rise in barge freight rates as the fall of 2022. A year ago, the US was actively shipping old crop corn/soybeans due to the Brazilian 2022 drought and their smaller harvest. This year’s US September export program is substantially reduced with a larger share of barges upriver. The point is that US Mississippi tariff rates will be rising, but the fear of a repeat of 2022’s excessive cost are overblown. Any raise in tariff rates will be borne by the US farmer in lower basis bids. The good news is that US farmers and commercials have an abundance of storage available for the 2023 corn and soybean harvest. Any impact on US corn/soy exports will be modest.

• The Plains/Midwest/Delta weather forecast is consistent with an extended period of little/no rainfall and above normal temperatures. High pressure ridging holds across the Central US into late next week with record heat forecast on the weekend and Monday (90’s to the lower 100’s). There is a chance of rain in the 7–10-day period across the N Plains/Upper Midwest with rainfall totals of 0.1-0.8” on 25% of the crop area. We would predict a decline of 2-3% in US corn/soybean good/excellent ratings on Tuesday.

• It is a new month and crop year, September 1 and 2023/24. The USDA/NASS crop report will be released in 11 calendar days with a slew of private crop estimates available next week. Debate rages in the industry as to US corn/soy yields with the recent hot/dry weather conditions causing a widening range of estimates. Also, S American, and Australian weather starts to play roles in world grain pricing as their new production season starts. China has been a record large buyer of world soybeans, corn, and barley. The industry is understating Chinese and world demand. We continue to argue that world wheat/feed prices are near seasonal lows.

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

Weekend summary 1 September 2023

31 August 2023

Posted on August 31, 2023 by simon

• HEADLINES: Deral says no seeding gain in Parana ; GFS weather forecast adds showers for KS/MO/NE on September 9-10; US export sales expand, but well below last year.

• Chicago futures are mixed at midday with corn/wheat reversing early losses while soybean futures hang in the red on grain/soy spread liquidation. Chicago wheat futures have formed a key reversal up after forging new contract lows shortly after the opening on the September liquidation. Massive deliveries against Chicago September futures sparked new contract lows with a key reversal following. Managed money net short positions in Chicago wheat are now estimated at over 84,000 contracts. Such a massive net fund short in wheat as the Northern Hemisphere harvest nears completion has historically produced seasonal or in this case, a secondary seasonal low.

• Corn and soybean futures are holding key support as the market looks to clarify new crop yield potential. Disease pressures are becoming widespread in soybeans while the coming record heat will pressure the starch accumulations in corn kernels. It is small and light test weight corn kernels that will be the result from the acute dryness since mid-August with 2 separate periods of intense heat. Although traders argue that corn in dent is free from yield deterioration, agronomists worry that corn may lose more yield (than soybeans) as 2% of dry matter is determined daily in corn, even in the dent stage. A sub 170 bushels/acre US corn yield is possible if the GFS/EU weather model forecasts are correct. And corn harvested acres will decline on the need for extra silage.

• The USDA did not announce any US corn, soybean, or wheat sales this morning.

• Chicago brokers report that managed money has bought a net 1,400 contracts of corn and 1,300 contracts of Chicago wheat, while selling 3,600 contracts of soybeans. Funds have sold 3,100 contracts of soymeal and bought 1,600 contracts of soyoil.

• US export sales for the week ending August 24 where 12.7 million bu of wheat, 41.8 million bu of corn, and 39.2 million bu of soybeans. The corn and soybean sales were a combination of both the old and new crop years. For their respective crop years to date, US wheat sales rest at 276 million bu (down 85 million or 30%), US old crop corn sales are 1,598 million bu (down 750 million or 31%), and 1,963 million bu (down 233 million or 11%). The US export sales pace remains bearish due to cheap offers of corn/soybeans from Brazil and the high cost of freight to complete against European and Russian wheat price offers on a CIF basis.

• Deral, the ag statistical arm of Parana, indicated in a just completed farm survey that their producers would seed an equal number of soybeans and 8% less first crop corn compared to last year. The price pressures on Brazilian farmers are real and farmers are responding with less expansion. The theme of less expansion in Brazilian seeding is contrary to prior years and what WASDE is forecasting in terms of a record 163 million mt soybean crop. Also, Mato Grosso will allow producers to seed soybeans before Sept 15, the normal start date to prevent the spread of rust. These beans will be available in late December.

• The Plains/Midwest/Delta weather forecast is consistent with an extended period of little/no rainfall and above to too much above normal temperatures starting tomorrow. High pressure ridging holds across the Central US with record heat forecast on the weekend and early next week (90’s to the lower 100’s). The opening 10 days of September are forecast are as hot/dry as anyone could imagine. There is a chance of rain in the 9-10 day from a ridge riding storm that is forecast to produce showers across NE, KS, and MO. The remainder of the Midwest/Delta stays dry and warm.

• The end of the month is here but new risk taking will hold off until next week. The rapid spread of soybean diseases is something that crop watchers will try to decipher following the holiday. Next week, the trade will pay attention to the dryness enveloping S America and Australia as crop growing cycles start. And China continues to be a big buyer of barley, corn, and soybeans in non-US markets. We believe that seasonal Chicago lows are forming, no new sales are advised with end users to add to forward coverage.

30 August 2023

Posted on August 30, 2023 by simon

• HEADLINES: Month end positioning has been key to price direction; GFS weather forecast hotter in the extended range forecast; Russia to send discounted wheat to Turkish millers.

• Chicago is characterised by low volume and mixed prices at midday. Corn and soy futures are sagging while Chicago wheat holds marginally in the green. The volume of trade is in decline heading into first notice day tomorrow against September futures and the long US holiday weekend. Few traders will chase rallies ahead of the pending harvest while end users are more willing to buy breaks due to poor finishing weather across the Central US. Field assessments will be made over the holiday weekend as producers and NASS enumerators measure US yield potential. We look for a mixed Chicago close with wheat to be the upside leader as funds have piled back into a net short position exceeding 84,000 contracts. The large net fund short and coming time for seasonal lows has captured the interest of speculators. The sharp rise in world rice prices has the other food grains, wheat, becoming of interest to SE Asian importers.

• The Mississippi River is in seasonal decline which is being hastened by the lack of Midwest rainfall during the last 4 weeks of summer. Like last year, the fear is raising barge costs that will hit cash basis bids and could slow US exports on rising FOB costs. Today, fob Gulf corn/soybean offers are near normal and should not have an impact. However, look for strong activity of unit trains running in parallel to the Mississippi River to keep US grain flowing.

• The USDA announced daily sales of 266,000 mt of soybeans to an unknown destination, rumoured to be China. US corn, soybean and soymeal export sales are expected to noticeably increase tomorrow and next week amid all of the newfound demand.

• Chicago brokers report that managed money has sold 3,400 contracts of corn and 2,300 contracts of soybeans, while buying 1,300 contracts of Chicago wheat. Managed money has been flat in soyoil while selling 2,100 contracts of soymeal,

• EIA reported that the US produced US ethanol production averaged 1,007 thousand barrels per day vs 1,048 thousand last week. This consumed 298 million bu of corn and allows the WASDE annual forecast of 5,300 million bu to be close to correct. Seasonally, US ethanol production ramps up in mid-September with the new crop harvest. We expect the seasonal demand to be strong with profit margins sitting at their best levels since 2018.

• There appears to be no willingness of Russia to return to the old Grain Corridor Export pact that they abandoned in mid-July that would allow Ukraine to return to marine grain export trade. The Russians are proposing to Turkey that Russian wheat will be discounted to Turkish millers which is turned into flour and exported to those in need across the world (hopefully at a cheaper price). Qatar is said to provide some of the financing of the transaction. Russia also claimed that it would view any Ukraine grain cargoes as potentially carrying military cargo and subject to inspection/attack.

• The Plains/Midwest/Delta weather forecast is consistent with an extended period of little/no rainfall and above too much above normal temperatures starting Friday. High pressure ridging holds across the Central US with record heat forecast on the weekend and early next week (90’s to the lower 100’s). The extreme heat adds new stress to summer row crops. Crop maturity will be pushed to the detriment of yield. The opening 10 days of September are forecast as hot/dry as anyone could imagine. The drop in the US corn/soybean yield potential will take some time to understand, but seed size will be impacted. A front pulls across the NW Midwest in the last half of next week that produces light showers. Meaningful rain is not forecast/indicated into September 10.

• The end of the month is here, and traders are banking profits on short wheat and long soybean positions. Corn futures are range bound until there is clarity on US yield. It is September when traders will look for increased US export demand, a falling US dollar and the refilling of the cash grain pipelines that are so severely depleted. Seasonal price lows are in the making and consumers should be using weakness for purchases. If US combine reports offer less than expected yields with tight producer holding, a marching bull market can unfold during the harvest.

29 August 2023

Posted on August 29, 2023 by simon

• HEADLINES: Chicago sags in corrective trade with traders debating the yield impact of another 2 weeks of hot/dry Midwest weather; Stats Canada number supportive.

• Ongoing wheat fund selling on the charts along with traders debating the impact of late season heat/dryness across the Central US has dominated Chicago price discovery discussions. Wheat futures have pushed to new lows, while oat futures pushed to new highs. Spot Chicago oats are now trading at a $0.17/bu premium to spot Chicago corn. And soybean futures are consolidating against $14.00 November as sub 50 bushels/acre soybean yields are being bantered around.

• Soybeans will be the most impacted by the coming record heat/dryness, but the degree may require actual harvest data in late September. NASS enumerators are heading to the fields to measure crops and pull ears and pods to determine weight. Recent crop tours have placed the trade on notice that NASS survey yield will come in below their August farmer survey forecast. Note that StoneX will be out with their corn/soybean estimate on September 6 followed by the Markit/S&P group and others later that week. In a price nutshell, it is all about US corn/soy yield potential and the coming Central US weather.

• Chicago brokers report that managed money has sold 5,400 contracts of Chicago wheat, 2,500 contracts of corn, and 2,600 contracts of soybeans. In the products, funds are flat in soyoil while selling 4,100 contracts of soymeal.

• The USDA announced daily sales of 246,000 mt of soybeans and 105,000 mt of soymeal to unknown destinations. China remains active in securing US soybeans while SE Asia is booking US soymeal amid the Argentine shortfall that starts in October. It is difficult to find an offer of Argentine soymeal beyond October due to their lack of bean imports from Brazil.

• Stats Canada estimated their crops at 29.4 million mt of all wheat (down 14% from last year) with the oat crop at 2.4 million mt (down 54% from last year), and a canola crop of 17.6 million mt (down 6%). WASDE sees the Canadian wheat crop at 33 million mt, and a reduction of 3-3.5 million mt in world wheat supplies is coming. Canadian 2023/24 wheat exports will likely be cut to 20-21 million mt, which compares to 25.50 million last year. Oat prices are soaring since the US will need to import every mt of Canadian oats available to avoid dire shortages. Finnish oat quality was curtailed this year due to wet weather conditions at harvest.

• The spot Chicago wheat/corn spread has poked below $1.00/bu premium on the ongoing selling of wheat by fund managers. US SRW Gulf wheat is the cheapest in the world at 8 over December for October or $230/mt. This compares to French wheat at $260/MT for October and Russian 12.5% hi pro wheat at $265/MT. US SRW Gulf wheat is priced to sell and should a GASC tender come forward, US SRW wheat values allow the US to have a rare export chance. Russia appears to be holding their wheat offers near above $260/mt basis Novo while Argentine new crop wheat prices are impossible to find. Our point is that it never pays to be short the cheapest wheat (world) with seasonal lows due this week.

• The Plains/Midwest/Delta forecast is consistent in calling for an extended period of little/no rainfall with above to too much above normal temperatures starting Friday. High pressure ridging holds across the Central US with record heat forecast in the 6-15 day period with highs in the 90’s to the lower 100’s. The extreme heat will add new stress to summer row crops. Central US soil moisture is in sharp decline and crops in the driest areas could endure premature death. The forecast is about as hot/dry as anyone could imagine for early September and the impact will be smaller US soy/corn seed sizes. It will take actual harvest data to understand how the late summer extreme heat/dryness impacted 2023 US summer row crop yields.

• The end of the month is here and liquidation of any stale September length in wheat/corn is ongoing. September soybean, soy products and wheat futures are largely liquidated prior to first notice day on Thursday. It is corn where open interest is historically large at 81,835 contracts. The Mississippi River is declining amid the acute Midwest dryness, but river levels are above last year’s low. Transit costs on the river will be rising, which will hit new crop basis bids. Farmers report that their plans are to sell newly harvested soybeans and store corn. Look for the market to follow the price pattern of recent weeks with a rally to start the week, a mid week break and a recovery to add weather premium ahead of a long holiday  weekend.

25 August 2023

Posted on August 25, 2023 by simon

• HEADLINES: Chicago wheat drops on higher dollar; Row crops steady/higher; Central US heat probable through early September.

• Chicago wheat futures are down 8-10 cents but otherwise US and global ag markets are steady to higher. Pro Farmer’s tour summary is awaited, but the bigger question is just how negative an impact will recent/coming Central US heat and dryness have on final pod and ear weights. Model forecasts have trended warmer overnight, with high temperatures in the 90s to resume across the Central Plains and western Midwest mid-week onward, and there is no indication that soaking rain returns to any area prior to September 8. There is no doubt soy output will be more impacted by late season weather, but even in dent measurable corn yield loss is possible. We note that concern is centred on areas of eastern NE, IA, MN, WI and northern IL, where negative soil moisture anomalies are present today. USDA estimated that very little subsoil moisture was present across the far N Plains, IA, NE, MN and Wi on Aug 20. There are four tropical disturbances present in the Atlantic, but none are forecast to provide moisture to the Plains or Midwest.

• US exporters sold 121,000 mt of soy to China. Egypt was in private talks to secure additional wheat overnight, but no purchase was made.

• Spot cash milling wheat in India rallied another $0.03/bu to $8.45 overnight. Nov Dalian corn in China has recovered 3% from last week’s low and Dalian corn’s premium to US Gulf origin remains perched above $150/mt. The US oat market continues to add premium amid fears Canadian production will drop below 2.6 million mt, vs. 5.2 million last year. Dec Chicago oats at midday sits at $4.99/bu, up $0.38 on the week . Recall oat planted area in Canada in 2023 fell to a new multi-decade low 2.5 million acres. There is a more bullish tone to foreign markets and to minor grain/oilseed markets.

• Volatility will stay present indefinitely. Supply issues are widespread, rain is needed in the US, Argentina, Australia, and India’s monsoon continues to fail in southern and western areas, but the US dollar remains supported above initial chart-based resistance. Federal Chairman Powell from Jackson Hole this morning acknowledged the sticky nature of inflation and that further hikes to benchmark lending rates were not off the table. More energy/food supply is needed, but rising interest rates act as a weight.

• Wheat, as is typical, has been hardest this week by strength in the dollar.

• The midday GFS weather forecast features a tropical storm making landfall in the eastern Gulf, and then traveling along the southeast coast next Wed-Fri. The Plains/Midwest forecast is consistent in calling for an extended period of little/no rainfall. High pressure ridging eases south and westward this weekend/early next week but resumes its position aloft the C Plains and Midwest in the 6-15 day period. This upper air pattern promotes the return of abnormal heat Sep 1-8. High readings of 95-100 will favour TX, OK, KS, NE, SD and western IA. Soil moisture continues throughout the next 10 days

• The risk that national soy yield declines to or below 50 bushels/acre and corn yield drops to 170-173 is elevated. Soy gains on corn in the long run amid the need for acreage in 2024, but it is becoming late in the season to be bearish of ag markets.

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

Weekend summary 25 August 2023

 

24 August 2023

Posted on August 24, 2023 by simon

• HEADLINES: Chicago mixed at midday; Corn reacts to Pro Farmer IL data; Soy adds premiums on massive crush margins; Brazilian crush to slow nearby.

• Chicago ag markets are mixed, but little changed in thin volume at midday. The lack of breaking news and a decently sized IL corn yield estimate from Pro Farmer overnight have weighed on corn and wheat prices globally. Nov Chicago soy has been resilient above $13.50 amid threatening Central US weather, rising minor oilseed markets and incredible processing margins in the US. A choppy end to today’s session is anticipated.

• The spot futures-based soy crush margin remains perched above $2.50/bu, vs. $0.50-1.00 in early summer, with meal adding to value now on weak and falling soy product output in S America. Argentine crush will struggle until 2024’s soy crop is harvested next spring, and a host of Brazilian plants plan to slow/close nearby amid the lack of margins there. Unlike the US, oil supplies are building in Brazil’s domestic market. Record US meal export demand is forecast to stay place into Q1 2024. This is important as already the US is consuming much more soyoil than it is producing. We also note that seasonal trends in canola/rapeseed markets turn decidedly positive in late summer, and seasonal lows in EU/Canadian canola markets have been scored early due to dire drought in Canada.

• Our message is that, while US soy yield and supplies are debated, Nov beans at $15.50 are not overvalued.

• India’s cash wheat market is higher again and in US dollars sits a new multi-month high $310/mt. India still must confirm a nationwide elimination of its 40% import tariff before the market begins to add demand-based premium, but we continues to hear that upward of 7 million mt of Russian origin imports have been worked. Transparency over Indian-Russian deals is unlikely to be found given the likely private nature of the business. Yet, we maintain that the lack of Indian food security is a big deal in the long run. Near zero rain is forecast in southern and western India into Sep 7. In normal years, monsoonal rains begin their seasonal exit in late Sep/early Oct. Time is running out to replenish moisture across a large swath of India’s soy/groundnut production region.

• The Buenos Aires Grain Exchange this afternoon is likely to trim wheat crop ratings another 1-2 points, at which point late August ratings will exist below last year. Recall USDA projects Argentine wheat yield in 2023 to rise 30% year on year. This recovery gets cut in half if dryness is extended into mid-Sep. S Hemisphere weather patterns remain concerning.

• US export sales in the week ending Aug 17 featured 26 million bu of corn (both years combined), vs. 37 million the prior week, 58 million bu of soybeans, vs. 50 million the prior week, and 15 million bu of wheat, vs. 13 million the previous week.

• We note that US wheat sales must average only 11 million bu/week to meet the USDA’s forecast. Some measure of wheat demand gets funnelled to the US market if yield loss in Argentina/Australia surpasses 15% relative to trend.

• The midday GFS weather forecast is not consistent with previous output in extending a pattern of near complete dryness across the Central US into the opening of September. No model has so far indicated any hurricane/tropical storm making US landfall nearby, and upper-level high pressure ridging will dominate the N American climate as autumn approaches. A brief cooling of temperatures occurs Sat-Tues. Normal/above normal temperatures resume thereafter, with highs in mid/upper 80s most probable across the C Plains and W Midwest in the 6–10-day period. Abnormal dryness/drought is building in TX/OK.

• The Dow is down another 160 points and concern over middling global economic growth continues its battle against weather/supply issues. Seasonal bottoms lie just ahead. Elevated volatility stays in place well into early 2024.