Author Archives: simon

23 August 2023

Posted on August 23, 2023 by simon

• HEADLINES: Blast furnace heat expands across the Midwest; Pro Farmer tweets point lower on IL/IN yields; 100,000 mt of soymeal sold to unknown, more to follow.

• Chicago ag markets are higher at midday. Recent price direction has been determined by the Pro Farmer Crop Tour with yields being above last year on both far sides of the Midwest (OH/IN and SD/NE). The better yield news produced pressure to Chicago values on Monday and Tuesday. Today that trend appears to be changing with discussions of a sharp fall in US corn/soybean crop condition ratings on Monday. There is no doubt that the ongoing hot/dry weather is taking a sizeable toll on Central US corn and soybean yields.

• Pro Farmer tour participants are uncovering yields/pod counts in IL/IA that are below last year and the 3-year average which is supporting today’s Chicago rally. Futures are recovering with traders myopic on US yield potential. The reason for their US supply focus is that Brazil is exporting record tonnages of corn/soybeans which has stolen the US export thunder. However, world grain and soybean demand is record large, it is just that Brazil is fulfilling the sales/exports due to availability/price. The trade keeps bad mouthing export demand, and they are right to bad mouth US demand, but world trade is record large in wheat/soybeans. When the US crop yield is determined, the next phase of the marketplace will unfurl amid massive world demand and a sizeable increase in US 2023/24 grain and soy export potential.

• Chicago volatility stays acute, and it does not take much buying or selling to have a significant price impact. Acute market volatility will persist into yearend. Our advice all summer has been “don’t sell sharp breaks or chase sharp rallies.” That same advice will persist into the US harvest. US and world wheat prices can seasonally rally, but it is the wrong time of year for corn/soybeans to sustain a recovery with a new harvest dead ahead.

• Chicago brokers report that funds have bought 3,200 contracts of Chicago wheat,  4,500 contracts of soybeans, and 5,700 contracts of corn. In the products, managed money bought 4,200 contracts of soymeal and 2,800 contracts of soyoil.

• FAS reported the sale of 100,000 mt of US soymeal to unknown destinations for the 2023/24 crop year. We believe that a series of US soymeal sales are ahead with Argentina no longer offering soymeal after October 1.  Argentina has not been able to import enough Brazilian soybeans to maintain existing crush capacity and the US is now in the hot seat to fulfil world protein demand going forward. The meal sales will add to US soy crush margins and keep US soymeal sales totals at a record.

• The US produced 308 million gallons of ethanol last week, up 6% on last year. The weekly total keeps USDA’s annual corn grind of 5,215 million bu in reach.

• India will announce that it will ban sugar exports for the first time in 7 years with the halt starting on October 1. India exported 6.1 million mt of sugar in 2022/23 and 11.1 million mt in 2021/22. The absence of India as a sugar exporter means that Indian food inflationary pressures are building. Look for India to import sizeable tonnages of food grains/vegoils for a population of 1.4 billion.

• The midday GFS weather forecast is consistent with a few light showers noted over the SE Midwest in the 1–5-day period before there is no rain in the 6-10 day forecast with temperatures reaching back into the 90’s to lower 100’s for much of next week. The heat/dryness will produce acute crop stress on corn and soybeans and in some instances, premature death. The extended range forecast does offer a few SE Midwest showers from September 4-6 with totals of 0.2-0.8” on coverage of 65-70%. Until then there is no chance of meaningful Central US rain.

• Brazilian corn/soybean export sales and line ups are massive. China keeps securing Brazilian corn with vessel line ups suggesting tonnages of at least 8 million mt. Brazilian export logistics are full amid the demand. And India has a real problem with food inflation and a sputtering monsoon that leaves them as large food importers in the months ahead. We maintain that longer term lows are forming.

22 August 2023

Posted on August 22, 2023 by simon

• HEADLINES: Chicago weakens on US dollar strength, negative macro input; Egypt buys Romanian wheat.

• Chicago ag markets are weaker at midday. It is not Pro Farmer’s findings, but rather macro market weight, with the US dollar index finding a newer 11-week high, which pulls money from global raw material markets. The US$ is perched against initial chart-based resistance and key is whether support can be found above 104 points. Spot WTI crude is steady/weaker. The Dow is down 125  points. Weakness in the Brazilian Real and Russian Ruble is also noted. Wheat’s most recent break has been centered on the return of exporter profitability there as fob quotes rise and currency weakness weighs on replacement costs across S Russia’s export corridor.

• Egypt’s GASC this morning purchased just one cargo of Romanian wheat at fob price of $256/mt.

• Russian wheat was offered in bulk but at the long-discussed new floor price (for public tenders) of $270/mt. Russian origin despite large supplies is no longer the cheapest. We also note that two cargoes of Ukrainian wheat were offered, and broadly competition for near-term wheat import demand remains sizeable. Egypt has covered supply needs through mid-October. Additional Egyptian/major importer tenders are anticipated on breaks.

• US exporters sold 112,000 mt of US corn for 2024/25 delivery and 112,000 for 2025/26. Why Mexico is inching into coverage two years out is uncertain.

• There is an otherwise lack of breaking news, and it is all about supply into the beginning of the Northern Hemisphere harvest. The return of meaningful rainfall and lasting mild temperatures in the Central US is unlikely prior to mid/late September, barring tropical storm/hurricane activity. Updated 16-30 day guidance keeps in place a pattern of abnormal heat/dryness. Extreme heat will stay centered on the Central Plains.

• There is still no hint that needed rain arrives in Central Argentina in the next two weeks. FAS’s updated subsoil moisture maps this morning feature zero water in Cordoba and La Pampa, and minimal water in northern Buenos Aires and Santa Fe. Argentine wheat crop ratings are projected to drop another 1-2 points on Thursday to just 18-19% good/excellent. It is early in the season but ratings now are no better than last year. Recall Argentine wheat yield in 2022 was 30% below trend.

• Southern Hemisphere weather takes on more importance beyond the next 10 days. ABARES will publish its next 2023 Aussie grain production estimates on Sep 5.

• The midday GFS weather forecast is consistent with the morning run in calling for only briefly cooler temperatures this weekend/early next week and an ongoing lack of precipitation into the first full week of September. Amplified high pressure ridging currently aloft the Plains/W Midwest will be forced south and west Sun-Tues. Ridging expands thereafter, and while extreme heat ends on Friday, high readings in the 6-15 day period will be routinely in the mid/upper 80s Central US-wide. Evaporation rates stay elevated. There is a chance of light/scattered showers across the Great Lakes Region Mon-Tues, but arid conditions persist elsewhere.

• Volume remains tepid. Open interest remains deflated. The looming N Hemisphere harvest keeps new buying limited/absent seasonally into late month, but amid record large global soy and wheat trade and recovering corn demand, recoveries lie ahead. The US soy balance sheet becomes unsolveable if yield is trimmed another 0.5-1.0 bushels/acre. The ongoing rise in Brazilian fob corn premiums suggests importers are capitalising on the recent correction in value. Sales are not advised here.

21 August 2023

Posted on August 21, 2023 by simon

• HEADLINES: Chicago shrugs off Central US weather threat; Market hopes for larger Ukrainian exports.

• The wild back and forth of ag markets continues, with wheat and corn lower and soybeans slightly higher at midday. Central US weather threats have been dismissed, for now, in favour of record August Russian wheat exports and funds’ unwilling to exit short positions ahead of Pro Farmer’s tour of the Midwest next week. Variability is being found in OH this morning, while there is little doubt yields in SD will be up year on year following dire drought south/southeast of SD in late summer 2022. Key will be ear checks and pod counts as the two legs of the tour converge in IL on Wed/Thurs.

• Black Sea headlines since last week have been a battle of escalating military tension within the Black Sea and hope that Ukrainian stocks will be granted safe passage to the world market by late 2023. Romania’s Prime Minister suggests 60% of Ukraine’s surplus may be moved through Romania. The European Commission is “considering’ providing a subsidy to move Ukrainian grain through eastern EU member states. Otherwise, there is nothing concrete available, and most importantly nothing surrounding details of allocating funds, but wheat markets worldwide are unfazed by Black Sea execution risks. Russian export margins remain profitable.

• More and more Russian wheat business will be that of private Government to Government deals, likely including any Indian business, and so the details of quantity, timing, freight and fob costs will be somewhat opaque at best. Russia’s interior cash wheat market is up $2-4/mt this week. Recall seasonally the market there rises into Dec-Jan.

• We also note that still no pattern shifts are advertised in the Southern Hemisphere prior to Sep 2-3. Complete dryness stays in place across Cordoba in Central Argentina and across New South Wales and Queensland in eastern Australia. Sep rainfall is key in determining yields there, and work suggests that in Argentina Sep rainfall of 2-4” is needed to salvage potential. S Hemisphere wheat yield loss is a growing threat.

• US export inspections through the week ending Aug 17 featured 19 million bu of corn, vs. 18 million the previous week, 11 million bu of wheat, vs. 10 million the previous week, and 12 million bu of soybeans, vs. 15 million the prior week. We note the previous week’s shipments were revised upward 2 million bu in corn, 4 million bu in soybeans and 3 million bu of wheat. Old crop corn and soy exports are unlikely to be revised amid stable late-season shipments. Weekly wheat inspections moving forward must average 13 million bu per week to meet USDA’s annual target.

• US exporters this morning sold 159,350 mt of new crop soy to unknown destinations and another 112,000 mt of new crop corn to Mexico. Unlike a year ago, US/Brazilian corn is not prohibitively expensive which bodes favourably for re-stocking among the principal importers.

• Stats Canada’s model-based production estimates will be published on August 29. Downward revisions are no doubt expected, but unfortunately official Stats Can data won’t be available until autumn. Canadian-centred markets continue to add premium. Spot canola this morning is firm along with Nov Chicago soy. Dec Chicago oats are up $0.03/bu and testing the highs of mid-July at $4.65.

• The midday GFS weather forecast is consistent with morning output. Dangerous heat persists Central US-wide into Fri/Sat. Temperature moderation occurs briefly thereafter, but a pattern of above-normal temperatures remains most probable into the opening days of September. Heat peaks across the C Plains on Tues-Wed, with highs reaching 103-105 from TX to far western IA. Temperatures peak in the heart of the Midwest Thurs-Fri, with highs from 96-101 offered to IA, MO, IL, IN and KY. And there is just no precipitation of note indicated throughout the next 10 days. Expect changeable 11–15-day guidance as activity in the tropics ramps up. Currently no major tropical storm/hurricanes are expected to make US landfall nearby.

• Pro Farmer dominates row crop price discovery this week. We maintain that actual yield potential won’t be known until combines begin to role. Seasonal/annual lows will be forged by early Sep. US soy yield loss of 0.5-1.0 bushels/acre is a big deal.

18 August 2023

Posted on August 18, 2023 by simon

• HEADLINES: Chicago extends overnight gains; Exporters sell corn to Mexico; Tropics more active.

• Chicago ag markets have extended overnight rallies at midday as few want to add to existing short positions amid escalating attacks in the Black Sea, following a drone attack in Moscow overnight, and as blast furnace heat impacts the Central Plains/W Midwest next week and possible confirmation of Indian wheat imports linger in the background. Stable crude and a recovery in the US equity market is also noted. Following extreme volatility, Dec corn is set to end modestly higher on the week. Nov soy is up 35 cents. Dec Chicago wheat has cut its losses to just 13 cents. Recall seasonal lows are very often scored in the second half of Aug/first part of Sep. We would still caution against chasing daily large daily moves, but it makes increasing sense to use correction to extend longer term supply coverage.

• Other breaking news is limited. Exporters this morning sold 112,000 mt of corn to Mexico for 2023/24 delivery. Mexico’s President has stated he would accept any resolution from third party trade panel regarding the future of GMO corn imports from the US. Key is whether the trade panel sides with the US and Canada on Mexico’s commitment to the US-Mexico-Canada Agreement signed in 2020.

• We also note that Brazilian corn fob premiums for Sep-Oct delivery rallied $0.10-0.15/bu overnight, with Brazilian corn on fob basis offered $0.05/bu above US Gulf origin for immediate shipment. North Hemisphere feed crop harvests keep global interest in corn imports somewhat subdued in early autumn, but along with sustained profitable ethanol margins it is clear Dec Chicago corn at $4.80-5.00 is not overvalued. Additionally, Dalian corn in China’s premium to US Gulf origin remains perched above $4.00/bu, vs. $2.60 a year ago in mid-August.

• A warm west Indian Ocean and cool east Indian Ocean, what is known as a positive Indian Ocean Dipole, is likely to sustain adverse heat and dryness in both western India and key parts of Australia. Recently released climate guidance suggests a continued failure of India’s monsoon in western production areas, with soy, peanuts, and rice to be most impacted. Southern Hemisphere weather patterns will be more closely followed beginning next week amid worsening drought in Argentina and building dryness in New South Wales and Queensland in eastern Australia. Despite Russia’s dominance of wheat exports and newfound exporter margins there, there is still no tolerance for additional supply dislocation. Unwanted rain will fall across the Canadian Prairies in the second half of August, with spring wheat and canola harvests imminent in Saskatchewan.

• The midday GFS weather forecast is consistent with the overnight forecast. A moderation in extreme/threatening heat occurs beginning next Sat/Sun as high-pressure ridging shifts south and west. However, the details of North America’s upper air pattern in late August will hinge upon the development and path of tropical storms, with activity in the tropics rising somewhat quickly.

• In the near term, heat bakes the Central Plains/W Midwest Sun-Tues and moves into the principal Midwest during the second half of next week. And there is just not a lot of rain in the forecast between now and Sep 1. Tropical storms/hurricanes will be key to US weather beyond the next 10 days.

• There is no sign that volatility ends as the bears highlight economic fragility and the bulls highlight ongoing supply threats. Pro Farmer results next week dominate daily price discovery. A seasonal bottom occurs by early Sep, which is normal.

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

Weekend summary 18 August 2023

17 August 2023

Posted on August 17, 2023 by simon

• HEADLINES: Chicago mixed; Soy adds premium ahead of US heat and rising global oilseed markets; Funds sell wheat; Indian wheat imports probable.

• Ag markets are mixed at midday, with corn up slightly, soybeans up 13-15 cents amid upcoming Central US heat and dryness and rising global rapeseed/canola prices, while fund selling persists in both US and European wheat markets. Volume is again tepid as next week’s Pro Farmer estimates are awaited, but work suggests bottoms are close at hand. Following independent tours of IA and IL, Pro Farmer is expected to find soy pod counts measurable below last year. Corn yield potential is decent but record yields are off the table, and overall we view the market’s corn/soy yield expectations as a bit too high.

• Newswires are again reporting that India is in talks to purchase 8-9 million mt of Russian wheat to build stocks and cool food inflation.

• Cash connected sources indicate 7 million mt is indeed in the works, with price, logistics and timing still yet to be worked out. Indian imports of even 3-4 million mt would be a big deal and would displace the same amount of Russian origin shipped to other destinations, at a time when S Hemisphere production and export potential is in retreat. Argentine wheat crop ratings will be published after the close. Recall Argentine wheat good/excellent rating last week was a disappointing 21%, vs. 18% the prior year. Ratings below 20% in early Sep hint strongly of sizeable yield loss relative to trend. Wheat is undervalued.

• Rampant inflation in Argentina is also sparking questions over producers’ ability to finance 2023/24 production. The blue Peso, which is used by the population, this week has surged to 780:1. Early planting in Argentina lies just ahead, and long-term research continues to suggest that it will be difficult to solve corn supply issues on a lasting basis amid a lack of acreage expansion in Argentina, Ukraine and the US. The Central Bank’s devaluation of the official Argentine Peso this week, Argentine beef exports were suspended initially, with the government now working to negotiate a cap on prices. There is a risk that similar measures are applied to grain/oilseed.

• US export sales in the week ending August 10 featured 37 million bu of corn (both crop years combined), vs. 36 million the previous week. New crop soy sales totaled 55 million bu, unchanged on the prior week. US wheat sales were 13 million bu, vs. 21 million the previous week, but 2 million above the weekly pace needed to meet the USDA’s forecast. We note a Chinese delegation will make its way to the Midwest next week. There is no word on whether frame buying contracts will be signed, but new crop soy sales will stay at 50+ million bu into late autumn.

• Spot WTI crude at midday is up $1.40 at $80.80/barrel. Sub-$80 has so far been short lived. The Dow is flat.

• The midday GFS weather forecast is little changed and maintains a pattern dominated by expanding and intensifying high pressure ridging. Light showers are forecast in MI and OH in the next 12-24 hours, but a pattern of complete dryness will be established elsewhere. Temperatures in the Central Plains peak Sun-Tues in the low 100s. Temperatures in the Midwest peak next Thurs-Sat in the mid/upper 90s. Maximum pod size is needed to counter reduced pod counts, and beyond Sep 4-5, weather plays limited role in yield determination. Heat/dryness in the second half of August is concerning.

• India’s need for wheat imports, S Hemisphere weather issues, still-uncertain US yields and global economic fragility argue that extreme volatility continues well into 2024. It is the wrong time of year to add to sales. An autumn recovery lies in the offing.

16 August 2023

Posted on August 16, 2023 by simon

• HEADLINES: Chicago recovers as US heat/dryness extended into early September.

• Global ag markets are in recovery mode this morning, with volume still rather tepid, as contracts worldwide reach or come close to oversold territory. Nov Chicago soybeans maintains a neutral chart-based trend. Major technical healing is needed in wheat and corn. Dec corn’s major moving averages are clustered around $5.18-5.20 and Dec Chicago wheat is around $6.85-6.90, but we continue to caution against adding to short positions here as the timing of normal seasonal bottoms approaches. Key in the near term will be the verification of 10–12-day US weather forecast, which maintain rapid drying across the entirety of the Central US. This is likely to weigh on pod weights. Note that Pro Farmer’s extensive tour of the Midwest kicks off Monday.

• Oilseeds have added considerable premium to grain markets, and not just in the US. November rapeseed in Paris has rallied €15/mt since Monday. November canola in Canada has rallied 4%. Unfortunately, a much wetter pattern lies ahead in far southern Canada and across the N fringe of Canadian production areas as expanding high pressure pumps Pacific moisture into the region. Rain in Canada is now unwanted as harvest begins. There is no room for canola quality loss.

• Our message is that amid the seasonal soaring of Brazilian soybean fob premiums and rising rapeseed/canola futures, US soy is the world’s cheapest oilseed. Board crush margins are nearing $3.00/bu. China still has large tonnages to buy for autumn/winter delivery, while coming Central US heat threatens a 50+ bushels/acre US soy yield.

• EIA data this week leans supportive corn and crude but explains the recent erosion in Midwest cash ethanol prices. US ethanol production in the week ending 314 million gallons, vs. 301 million the previous week and right at the level needed to meet the USDA’s 2022/23 industrial corn use target. Production has expanded counter-seasonally as margins return. US ethanol stocks on Friday totalled 984 million gallons, up 23 million from the prior week and adequate to meet near-term demand. Spot ethanol in the swap market has $2.20/gallon last week to $2.13 currently. US crude stocks less reserves were 440 million barrels, down 5 million week on week. Note that total crude stocks, including reserves, are a concerningly low 788 million barrels, vs. 886 million last year and 1,057 million in mid-Aug 2021. A lasting break in energy values is not anticipated.

• The midday GFS weather forecast is almost exactly unchanged from this morning’s release. The model does intensify Gulf storm activity in the 6–10-day period, but US landfall is not indicated into Aug 26. Otherwise, a pattern of compete dryness and soaring temperatures lies ahead, and importantly the GFS forecast maintains that heat stays in place across the C and E Midwest into next Sat-Sun. An expansive and abnormally strong high-pressure ridge will be anchored aloft the C Plains/Midwest Sat-Fri. Ridging returns to the Delta and S Midwest Aug 29-30. The second half of August will be defined by heat and dryness. Temperatures across the C Plains peak Sunday. Heat migrates into the principal Midwest beginning Tuesday.

• Every ton of produced, or not, matters immensely, which keeps volatility elevated. In fact, we expect volatility to be extended well into mid-2024. Sales are on hold, with autumn recoveries forecast. Soybeans remain the bullish leader, and crop condition changes over the next two weeks are critical.

15 August 2023

Posted on August 15, 2023 by simon

• HEADLINES: Speculative selling presses Chicago lower; NOPA crush data leans supportive beans, oil; GFS weather forecast drier at midday.

• Chicago ag futures are lower at midday, with wheat finding a newer low for the move and spot Chicago corn trading at the lowest level since winter 2021. Momentum-based selling continues, and fundamentally the catalyst has been last week’s improvement in corn, soy, and spring wheat crop ratings. Volume remains rather tepid. Macro markets provide weight as the Dow drops 300 points and crude falls $1.90/barrel at $80.60, the lower end of the recently established range. There has not yet been pushback from the end user community, but producer bin doors will be shut as new crop corn/soy well below revenue guarantee provides no incentive to sell above what is absolutely needed. We would note that RSI in all major crop markets is at or nearing oversold, which along with normal seasonal trends suggests this is no place to turn bearish. We guestimate funds’ short in Chicago wheat at a sizable 80,000 contracts this morning. Funds are short an estimated 45,000 contracts of Chicago corn.

• NOPA’s July crush data leans bullish beans and oil, and Dec Chicago soyoil at midday is up 0.7%. NOPA member crush in July totalled 173.3 million bu, vs. 165 million in June, up 3 million bu year on year and a record for the month. Meal has fallen along with corn. USDA’s 2022/23 soy crush forecast of 2,220 million bu is about right, but soybean disappearance and even meal stocks imply expansion in crush is needed in the long run, hence the recent surge in futures/cash crush margins.

• NOPA soyoil stocks on July 31 totalled 1.53 billion lbs, down 163 million from June and down 157 million from last year. Soyoil consumption in July was 2.23 billion lbs, and consumption exceeded production for a third consecutive month. Implied soyoil disappearance was also record large for any month, and it will be a challenge to prevent additional oil stocks erosion in Aug and Sep as crush rates slow seasonally. Soyoil remains a demand-led bull market.

• Paris milling wheat futures ended €3.00/mt lower. Paris corn has been weak in 14 of the last 16 sessions. The EU grain market is well supplied, and larger than previously expected Ukrainian production exists just east of the region, and debate is ongoing as to just how much Ukrainian supply will be allowed to flow into eastern Europe this autumn. Relative calm in the Black Sea (conflict-wise) has allowed for new selling there.

• The midday GFS weather forecast is warmer in the 11–15-day period and keeps in place a pattern of above-normal Central US temperatures into Aug 29-30. Otherwise, the outlook is consistent. A rapid expansion of high pressure ridging aloft Fri/Sat fuels at least 10-12 days of complete dryness and extreme heat across the C Plains and W Midwest Sat-Thurs. The GFS forecast is still viewed as overdone with its temperature forecast, with highs of 110-116 offered to much of the Central US, but the Canadian and EU models do agree that readings of 100-102 impact TX, OK, KS and NE early next week. Highs between 94-98 blanket IA, MN, WI, MO, and IL next Tues-Wed. Confidence beyond 10-12 days is low as tropical storm season begins.

• Seasonal/momentum trends have been compounded amid low volume/open interest and as it remains that every bushel produced or not has an outsized impact on global stocks/use. Broadly favourable July/early Aug US/European weather has triggered the return of fund liquidation. But US crop-finishing weather is important. Better selling opportunities lie ahead beyond summer in our opinion.

14 August 2023

Posted on August 14, 2023 by simon

• HEADLINES: Markets widely mixed at midday; Wheat stays volatile on Russian currency; GFS weather forecast maintains blast furnace heat in Central US.

• Chicago futures are widely mixed at midday, with renewed fund selling forcing new lows for the move in wheat, soybeans rapidly adding weather/supply risk and corn caught in between. Volume remains somewhat deflated, which exacerbates daily moves, and there remains a general feeling of exhaustion within the speculative community.

• The Russian Rouble today has traded a 7.4-point range as the currency’s scoring of a new 17-month high sparked an emergency Central Bank meeting. The Rouble at midday is now quoted slightly stronger than last week, but general weakness in the Rouble since spring along with rising Russian fob wheat prices have allowed exporter margins to resume. Interior wheat prices valued in Roubles in southern Russia are unchanged this week. Wheat in Southern Russia valued in US dollars is down $4/mt, and this has allowed Russian export margins to expand. July-August Russian wheat shipments will be record large, and large Russian supplies linger in the background. EU and US wheat markets fear extremely high competition from Russian origin continuing well into early 2024. Risk premium has been shed, and we believe this is the weakest time of year for wheat (and corn and soy) seasonally.

• And wheat risk management stays challenging. One targeted missile strike halts a measurable percentage of Russia’s export capability, while any return of a Ukrainian export corridor frees large tonnages of Ukraine stocks into the world marketplace. Unfortunately, there is no sign that wheat market volatility ends any time soon, though our guess is that, like normal years, a lasting low is scored by late Aug/early Sep.

• US export inspections through the week ending August 10 featured 16 million bu of corn, vs. 15 million the previous week, 11 million bu of soybeans, vs. 10 million the previous week and 7 million bu of wheat, vs. 11 million the prior week. Corn/soy shipments will limp into harvest, but pace analysis suggests further USDA adjustments are not necessary. Recall official US census corn exports through June are 16% above cumulative weekly inspections. Cumulative US soy inspections through August 10 are a very normal 95% of USDA’s annual forecast. Wheat shipments were disappointing, but given better than expected sales in recent weeks, a seasonal uptick lies ahead beginning in late Sep/Oct.

• Exporters also sold another 416,000 mt of new crop beans to unknown destinations, which is expected to be China. Soy crush margins there have been solid, and ongoing strength in meal market provides further evidence that Chinese soy demand is understated. Physical meal trade has been active at Chinese ports in recent days.

• Macro markets have done little since this morning’s open, with crude down $0.90/barrel at $82.30 and the Dow up 1 point.

• The midday GFS weather forecast is unwavering in calling for near complete dryness into the final week of August as well as blast furnace heat throughout much of next week. The GFS forecast is no doubt overdone with its temperature forecast, with high readings Sun-Wed pegged as high as 110-116 across the Central Plains, MO, IA, MN and western WI, but abnormally hot weather does lie ahead. Expansive high-pressure ridging will define the North American climate in the second half of August, and temperatures across the Plains and W Midwest most likely reach the mid/upper 90s and low 100s. All models agree on a real lack of precipitation nearby. The GFS forecast extends hot/dry conditions into August 29.

• Physical supplies will be adequate in late summer/early autumn, and EU/Black Sea stocks remain elevated. However, sourcing wheat from the US, Canada, Australia, and Argentina will be arduous amid tight supplies. This leans supportive markets there. And US soy stocks become untenably tight if US heat/dryness is extended into early September. The US weather forecast is concerning.

10 August 2023

Posted on August 10, 2023 by simon

• HEADLINES: Brazilian FOB corn premiums rally, US Gulf competitive: World grain prices rally; GFS weather forecast hot in the 9–12-day period.

• Chicago futures are higher at midday in thin volume as traders adjust risk ahead of Friday’s USDA August Crop Report. The bears are taking profits which is providing some lift to midday valuations. Few traders are willing to place large new bets on what NASS/USDA will say with this being the first survey-based estimate of the crop year. NASS has asked farmers to gauge their yield potential which will be supplemented with field visits in September. NASS abandoned field surveys in 2020 due to COVID and cost cutting and have continued to mostly use farm responses to gauge yield. We anticipate a strong response to Chicago valuations post report on Friday. And remember that most world traders won’t respond to the USDA report until Monday as they will be already enjoying the weekend.

• Chicago brokers estimate that funds have bought 1,600 contracts of wheat,  2,200 contracts of corn, and 2,800 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soymeal while selling 2,400 contracts of soyoil. Fund managers are also unwinding profitable oil share spreads.

• Brazil’s CONAB estimated the 2023 soy crop at 154.0 million mt and corn at 130 million mt. Both crop estimates are below private industry and WASDE forecasts. The USDA estimates the Brazilian corn crop at 133 million mt and soybeans at 156.0 million mt. Private industry has pegged the Brazilian corn crop as large as 139 mmy. However, yield data with the harvest beyond 70% points to a final crop of 131-132 million, which is still under WASDE. Some argues that industry total corn production estimates above 133 MMmillion mtTs are too high. We do not expect that WASDE will change their Brazilian corn/soybean crop estimates tomorrow.

• World feed prices are rising while Chicago and US cash values decline. This dichotomy is important to understand and its impact on future US corn export demand. September Brazilian fob corn is offered this morning at 82 cents over September Chicago futures with the US Gulf at 60 cents over. Stated another way, Brazilian September corn is 20-22 cents more per bushel vs US corn to world importers. This is the first time since January that US corn is competitive in the world market which will act to underpin futures.

• And US SRW Gulf fob wheat is priced at the same level as Russian 12.5% wheat for the first time in more than 1.5 years at $255/mt. The two wheat classes are not comparable for a miller, but in terms of the US SRW wheat becoming competitive in the world market, it is priced $8/mt below French fob wheat at $263/mt. Again, the point is that non-US wheat values are rising on tightening supplies and record large world wheat trade. The key question is whether US SRW values need to decline further amid tightening 2023/24 US wheat stocks.

• US export sales for the week ending August 3 were 20.9 million bu of wheat, 55.2 million bu of soybeans and 35.9 million bu of corn (both crop years combined). US corn and soybean export demand is seasonally improving based on the newfound price competitive position of US and PNW offers.

• The midday GFS weather forecast is slightly wetter across the Midwest through Sunday with a drier trend thereafter. Any heavier rain will be confined to MI/IN with 10-day totals of 0.5-2.00”. Otherwise, rain totals will range from 0.1-1.00” on 55-65% coverage. Starting Monday, a drier pattern unfolds with warming temperatures. A high-pressure ridge builds across the lower 48 with expanding warmth. Highs will range from the mid 80’s to the mid 90’s with limited rain. The 11–15-day forecast offers extreme heat under a strong high-pressure ridge with readings in 90’s/100’s.

• Due to strong world demand and falling non-US grain production, we see any bearish NASS August Report as providing a buying opportunity. We see world grain prices rising amid Chinse/Indian shortages.

9 August 2023

Posted on August 9, 2023 by simon

• HEADLINES: Chicago mixed with all eyes on USDA Friday: US weekly ethanol production declines; GFS weather forecast slightly wetter W Midwest.

• Chicago futures are mixed at midday in declining volume. Risk aversion for Friday’s USDA crop report is the theme with traders fearful of a strong market reaction as farmers offer (to NASS) their first measurement of US corn/soy yields. Also, FSA will be offering their first update on 2023 US farm program participation this Friday.

• The combination of the first NASS/FSA crop reports of the season will help define 2023 US summer row crop supplies. The August and September USDA crop reports have produced sizeable Chicago reactions in prior years due to their importance in measuring the US grain/oilseed crop supplies. A choppy trade is expected to continue into the Chicago close on position squaring amid the worry about a sharp rally or decline on Friday.

• Chicago brokers estimate that funds have sold 3,100 contracts of wheat and 1,900 contracts of soymeal, while buying 2,000 contracts of corn, and 2,400 contracts of soybeans and 1,900 contracts of soyoil. None of the fund selling or buying has been very sizeable.

• The USDA reported that 251,000 mt of US soybeans were sold to China for the 2023/24 crop year.

• There are cash rumours that China purchased 2 cargoes of US HRS wheat. The buyer is said to be Hong Kong Mills. And private Chinese importers have likely cleaned up the Texas Gulf sorghum market (in past 12 hours) as Chinese corn prices rallied and import profit margins enlarged. Look for Chinese private buyers to be active in booking US sorghum on any drop in Chicago corn futures. We do not expect China to book US corn until the Brazilian winter corn supply is cleaned up. Interior Brazilian corn/soybean premiums have been rising on a near daily basis for the past week on strong Chinese and SE Asian demand. Cash connected sources report that US corn will have an export opportunity from December and beyond off the PNW.

• US weekly ethanol production was 301 million gallons, unchanged from the same week last year. To reach the WASDE annual use estimate for the 2022/23 crop year, the next 3 weeks must average 314 million gallons per week. Notice that seasonally, US ethanol production tends to decline during late August before ramping up again with the new crop harvest in mid-September. We expect that WASDE may trim US corn ethanol production by 5-15 million bu in their final assessment.

• The midday GFS weather forecast is slightly wetter across the W Midwest and similar in the E Midwest vs the overnight solution. Any heavier rain will be confined to OH/IN with 10-day totals of 0.5-2.00” with reduced amounts of 0.25-1.25” for the W Midwest. Ridge riding storm systems will pass across the Central Plains and the southern half of the Midwest with regularity over the next 60 hours. One such system is noted over Missouri this morning. Thereafter a drier pattern unfolds with warming temperatures. A high-pressure ridge builds across the lower 48 with broadening warmth. Highs will range from the mid 80’s to the mid 90’s which will push crop maturity. So far there is no indication of any tropical storm systems across the Atlantic. The season for hurricanes is ahead, but the shear across the region is strong.

• The volume of Chicago trade is one of the slowest of the year as traders prepare for Friday’s USDA crop report. We remain bullish of soyoil in breaks on tightening supplies of vegoils. It is rising prices in China/India in terms of grains/oilseeds that will produce better demand once Brazilian corn/soybean supplies are exhausted. This is no place to turn bearish with commercials to raise basis bids to attract farm selling.