Author Archives: simon

24 March 2023

Posted on March 24, 2023 by simon

• HEADLINES: Chicago futures soar on spec short covering, Uncertainty over Russian grain flows.

• Global ag markets are sharply higher at midday as Russian comments regarding future wheat exports collide with general uncertainty over the Black Sea corridor during the summer months and the looming 2023 Northern Hemisphere growing season. Short covering has been the theme as wheat and corn pace the rally on a percentage basis. Spot Paris milling is up €12/mt (equivalent to $0.35/bu), with May again priced at a premium to Sep. Rapeseed futures in Europe are up €18-20/mt as that market’s RSI fell to the lowest level since summer 2013.

• Russian statements have been fine-tuned and an outright halt to exports is unlikely. Rather there is support for keeping fob offers above $275/mt (today’s price) to assure farmer profitability, and the previously mentioned reserve stocks lingers in the background. However, the Russian Ag Minister has yet to comment and there is just no way to be certain about Russia ag policy given bans in previous years. A slowing of exports from Russia makes little sense fundamentally, geopolitics stay front and centre indefinitely. A price floor does imply limited downside risk in US/EU wheat futures.

• US exporters this morning sold another 204,000 mt of corn to China for old crop delivery, bringing total Chinese purchases since mid-March to 2.57 million mt. Recent sales to China and others elevate the pace of physical exports in spring and early summer. We would expect this corn to ship prior to the arrival of Brazil’s safrinha corn harvest in July. Spot corn basis in Central IL is up to $0.33 over May Chicago, vs. $0.30 over Thursday and $0.15 over in late March a year ago. March 1 corn stocks data, to be released next Friday, is important.

• Spot Brazilian fob basis overnight fell another $0.05/bu, with Brazilian beans for April-May delivery quoted $55-60/mt below US Gulf origin. The Brazilian market faces record production and logistical (road) issues in major producing areas, which has triggered long-expected concern over producer storage capacity. The Brazilian cash soy market must stabilise before new length is added to Chicago soybeans on a lasting basis. But we would note that Brazil’s ship line-up is rising quickly, and excess stocks should be cleared by late summer. Keep in mind Argentina is likely to source some 8-10 million mt of soy from Brazil, which trims Brazil’s non-Mercosur export potential.

• Other news is lacking, and macro markets lean slightly negative. The US dollar index has stabilised at initial chart-based support. Spot WTI crude is $1.30/barrel at $68.70 with RBOB gasoline following. The Dow is flat, with European equity indexes down 1.5% amid fears of banking sector liquidity there. We look for a strong close today, but still caution against chasing daily moves until NASS stocks and seedings data has come and gone.

• The midday GFS weather forecast is wetter in the western Midwest into late next week but warmer and drier thereafter. Heavy rain is projected this weekend across the Delta and Central/Eastern Midwest. Heavy snow is forecast in NE, SD, IA, MN and WI next Wed-Fri. Moisture equivalent totals in the next 7 days are pegged in a range of 1-6”, with the greatest amounts favouring the mid-South and southern Midwest.

• The GFS forecast is favourably warm/dry in the 11–15-day period. This pattern change will be welcomed, but the EU model must follow with a similar forecast this afternoon. Central US weather takes on more importance beginning next week.

• The world enters the 2023/24 crop year with very tight corn and soy stocks, while adequate wheat supplies have been largely a function of abnormally high yields in Russia last summer. A pause/end in US Fed rates hikes is important. Whether stocks are allowed to build requires an absence of N Hemisphere weather threats and it is premature to count on US yield growth.

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

Weekend summary 24 March 2023

23 March 2023

Posted on March 23, 2023 by simon

• HEADLINES: Funds continue shedding soy length; Corn export sales soar; KC-Chicago spread nears 2011 high.

• Net liquidation continues in global ag markets as funds shed what are still sizeable net long positions in soybeans and meal. We estimate that managed fund length in soybeans this morning sits at 90,000 contracts, with meal length at 110-115,000. Funds have shed nearly 100,000 contracts of net length in soybeans, but additional selling is possible until there are signs of a bottom in Brazil’s fob market. Spot Brazilian beans are offered for April delivery $0.75 under the board, which reflects a new low in basis there. Ultimately, adequate export demand will be found in Brazil and crush in Mato Grosso and Mato Grosso do Sul will be maximised amid the need for meal and slowing crush rates in Argentina. But cash markets are king and Brazil’s soy market remains weak. We also hears of 1-2 cargoes working into the South-eastern US as Brazil’s discount to US Gulf origin reaches $60/mt ($1.60/bu).

• May corn’s failure to trade above its 20-day moving average for any length of time keeps chart-based weight intact. Chart patterns and money flow have dominated daily price discovery.

• US exporters in the week ending March 16 sold a net 122 million bu of corn, above expectations, and the largest total since mid-March 2021. Chinese purchases were known, but sales to non-Chinese destinations were 33 million bu. Recall sales must average only 24 million/week to meet the USDA’s target and we would suggest that US corn exports will be raised within the May or June WASDEs. Exporters sold another 123,000 mt to China this morning. Dire drought in Argentina, and probably final production there of 30-35 million mt, opens the door to sustain enlarged US corn exports throughout spring and early summer. A large Brazilian crop is needed to funnel global demand back to S America July onward.

• US wheat export sales totalled just 5 million bu, vs. 12 million the previous week. Soybean sales totalled 6 million, vs. 254 million the prior week. Both were below expectations. For their respective crop years to date, the US has sold 1,376 million bu of corn, down 34% year-on-year but a rather normal 74% of the USDA’s forecast, 1,818 million bu of soybeans, down 8%, and 656 million bu of wheat, down 5%. The USDA is unlikely to revise US export forecasts in its April report.

• The US dollar index has fallen another 0.3% to 102.1, with initial chart-based support now just under the market. The Dow is up 330 points as equity markets cheer a likely end to Fed rate hikes. Crude/gasoline markets are mixed, but dollar weakness and coming seasonal demand have kept spot WTI crude above $70. The outlook for US energy demand in late spring/summer is positive as retail gasoline prices above $4.00, on a national basis, will be avoided this year.

• The spot KC-CBOT wheat spread at $1.58/bu is nearing 2011’s record ($1.73). Additional upside exists as little/no subsoil moisture exists currently across the HRW Belt and limited relief is projected into the first week of April. Abandonment rates soar if this pattern stays unchanged into mid-April, which appears likely.

• The GFS weather forecast is a bit wetter across the southern Midwest, with two major systems forecast in the next 7-8 days. Cumulative precipitation worth 4-7” is possible in MO, southern I, IN, OH and pockets of KY. Heavy snow is offered to NE, IA and WI next Thurs-Fri. The Southern and Western Plains stay arid.

• The speculative community’s mantra since late Feb has been to get smaller or get out entirely. We view prices of US corn, soy and wheat as undervalued given the need for at least trend yields in 2023. Dryness in the Plains, snow in the Dakotas/MN and inundating precipitation in the E Midwest argue against early planting dates.

22 March 2023

Posted on March 22, 2023 by simon

• HEADLINES: Wheat, soy extend decline; nearby corn, soy spreads continue rally; Spot wheat-corn spread drops to $0.35/bu.

• Wheat and soybeans have extended this week’s collapse based broadly on international cash markets. The Brazilian soybean pipeline is full, with talk of elevators in Parana halting near-term purchases amid full bins. The European wheat market continues its leak lower as exporters there work to clear old crop stocks, while Russian wheat remains priced to sell at $275-280/mt, basis fob, which compares to $300 in late February. Brazilian soy exports have been slow to build since early Feb, but we would remind that basis at Paranagua tends into bottom seasonally by mid/late April and the market there should find balance in the weeks ahead as exports accelerate. Additionally, the Chinese pig market has stabilised following weakness late February’s decline. We maintain that the intensity of speculative selling/liquidation is not aligned with fundamentals. Note that nearby spreads continue to perform, with May-July Chicago corn now at $0.20/bu and May-July soy at $0.22.

• Spot WTI crude is up $0.50/barrel at midday and has crawled back above $70. Spot RBOB gasoline is up $0.50/gallon following a rather steep decline in stocks last week.

• US motor gasoline stocks on March 17 totalled 229.6 million barrels, down 6.4 million from the previous week and down 4% year-on-year. Total gasoline disappearance last week totalled 62.7 million barrels, vs. 60.2 million the previous week and up 4% on the prior year. Retail gas prices are not high enough to discourage driving and a normal travel season is anticipated this spring and summer.

• US ethanol production in the week ending March 17 totalled 293 million gallons, down 5 million from the prior week and 6 million below the pace needed to hit USDA’s target. There is nothing special in weekly/monthly US ethanol data, but stocks have peaked and will be drawn down rapidly over the next 3-4 months. Margins are slightly profitable and a normal seasonal boost in weekly ethanol grind rates occurs in May, June and early July. We are in agreement with USDA’s projected ethanol demand draw at 5,250 million bu.

• This conclusion of this week’s Fed meeting this afternoon will be the most closely scrutinised in months. Rate hikes were guaranteed throughout summer, autumn, and winter, but a trickier balancing act lies ahead. There are various reasons for the failures of Silicon Valley Bank and Credit Suisse, but there is no doubt the falling value of long-term bonds is stressing the US and global banking sectors. The market anticipates a hike in US benchmark rates today of 0.25%, but if the Fed opts to keep rates unchanged a flood of money is likely to enter the raw material space into mid-spring. The S&P 500 is flat at midday.

• The Central US weather pattern looks to stagnate into the first week of April. Heavy rainfall upward of 3-6” is forecast across a band stretching from southern MO to OH this weekend. Additional snow will be scattered across the Central Plains and Midwest March 28-29. Frigid temperatures stay in place across the PNW, N Plains and Upper Midwest throughout the next 10 days. A drier and much warmer climate profile will be required soon thereafter.

• The GFS weather forecast is like the morning run in calling for lingering heavy shower activity across Argentina into the weekend, while meaningful precipitation in Brazil stays confined to Mato Grosso and RGDS in the far South. The outlook remains favourable in that yield loss in Argentina is stabilised, but unlikely to improve, while dryness in Central Brazil facilitates safrinha corn seeding.

• Spot Chicago wheat’s premium to corn has fallen to just $0.35/bu, which is historically cheap. Spring/summer end user coverage is recommended at current levels. There is very little weather premium built into price currently, and the importance of US weather this spring and summer cannot be overestimated.

21 March 2023

Posted on March 21, 2023 by simon

• HEADLINES: Wheat drags row crops lower; Talk of Argentine corn crop below 35 million mt; GFS colder in US Plains.

• Chicago ag markets have leaked lower this morning amid a new round of speculative selling in global wheat markets and on otherwise lack of fresh news. Equity and energy markets remain firm, but Central Banks’ commitment to make depositors whole has been digested. Our bet is that the eyes of all market will be on Wednesday’s Fed meeting wrap up as there is no longer a guarantee that rates are hiked, and as usual Chairman Powell’s commentary will be dissected considerably.

• Wheat markets in the US and Europe just can’t shake weakness in the Russian market, where fob quotes for April-May delivery have fallen to $283-285/mt. Russian origin wheat is again the world’s cheapest. Spot Paris milling wheat has posted newer 18-month lows. Exporters are working to clear remaining old crop supplies at a time when world import demand shrinks seasonally due to looming harvests in North Africa, the Middle East and India. EU corn futures have followed. We also note rapeseed futures in Paris have fallen to two-year lows as that market digests adequate supplies and a probable boost in Ukrainian oilseed/vegoil production in 2023.

• Choppiness will continue until there is clarity on US production potential, which begins with the release of planting intentions next Friday. We continue. to recommend end user coverage on weakness. We hear discussions that final Argentine corn production may drop below 35 million mt, which forces world trade on US and Brazilian exporters throughout the next 12-13 months. Safrinha seeding in Parana this week is 77% complete, and corn to be planted in the next 10 days will pollinate in very late April/early May. A record Brazilian corn crop is probable, but weather there matters over the next 7-9 weeks.

• IHS Markit estimates new crop US corn seeding at 90.9 million acres, vs. 87.5 last year, new crop soybean acres at 88.2 million, vs. 87.5 million last year, and all-wheat seedings at 49.2 million, vs. 45.7 million last year. IHS Markit’s soy acreage number is 700,000 above USDA’s Outlook Forum guess, but corn and wheat are little changed. There is broad consensus that total major crop area this spring will expand 6-7 million acres year-on-year, but like always this will hinge upon favourable spring conditions across the Northern Plains. It is far too early to be concerned about snowpack there, with prevent plant dates still two months away, but updated two-week forecasts feature additional snow and freezing overnight lows. The midday GFS weather forecast projects snowfall upward of 4-10” in the next 72 hours. Frigid temperatures return to the Northern Plains next week.

• US exporters sold another 136,000 mt of corn to China. Weekly corn sales on Thursday are expected in a range of 55-65 million bu.

• The midday GFS weather forecast is consistent with the morning run. Soaking rain begins to replenish soil moisture in Central and Northern Argentina, with a 5-day period of steady rainfall to begin in the coming hours. Cumulative totals of 2-3” will be widespread. The rain is no doubt welcomed, but early harvest efforts will be obstructed. Meaningful Brazilian rain stays isolated to Mato Grosso. Dryness elsewhere is favourable given the need to finish soy harvest/safrinha corn planting in Mato Grosso do Sul and Parana. There is no indication that Brazil’s wet season ends prematurely.

• Lasting direction is unlikely until US stocks and seedings are known. Don’t chase daily moves. There remains a need for weather premium given the importance of US production expansion in 2023.

20 March 2023

Posted on March 20, 2023 by simon

• HEADLINES: Chicago recovers from morning lows as equity markets rally.

• Chicago ag markets are mixed at midday, with nearby corn and soy spreads continuing to perform and with wheat markets again digesting stagnation in Russian interior and fob prices. Russian wheat is still buyable at $290/mt, basis spot, while Russian interior prices this week are unmoved. Ukrainian ports are operational. Concern over Black Sea exports this summer is elevated, but grain is moving today.

• Crude oil markets in the US and London have pared losses, with spot WTI down $0.60/barrel, some $2.00 above morning lows. The Dow at midday is up 300 points as global Central Bank policies give stability to financial market liquidity, and as the US banking sector is likely to draw investments from riskier institutions in emerging markets. Macro markets’ reaction to the rescue of Credit Suisse overnight lean slightly positive but, overall, the macro landscape has become somewhat complex as governments must combat both inflation and liquidity. Risk aversion will be a theme for some time to come.

• US export inspections in the week ending March 16 were positive for corn and beans and uneventful for wheat. Corn shipments totalled 47 million bu, vs. 40 million the previous week, a new crop year high and 4 million bu above the pace needed to meet the USDA’s forecast. USDA’s forecast is now seen as 25-50 million bu too low if for no other reason than the gathering of Argentina’s crop won’t be completed until August. Soy shipments totalled 26 million bu, vs. 23 million the previous week and a three-week high. Soy exports since late Feb are near unchanged from last year despite record Brazilian production. Wheat shipments were 14 million bu, vs. 9 million the previous week.

• For their respective marketing years to date, the US has shipped 690 million bu of corn, down 36% year-on-year, 598 million bu of wheat, down 2%, and 1,619 million bu of soybeans, up 3% from the previous year. Corn inspections must average 43 million bu to meet USDA’s target. Soy shipments must average only 14 million bu.

• The Central US forecast at midday is colder and snowier in the Northern Plains and Upper Midwest than previously. Snowfall of 1-6” is offered to the Dakotas and MN in the next 72 hours. A second event is forecast Sat-Mon with similar accumulation probable. A needed warmer temperature profile evolves across the heart of the Midwest by late week, but the intensity of current and upcoming snowpack across the north will sustain abnormal cold there. Freezing temperatures linger in the Dakotas, MN, WI and parts of MI into April 2.

• Soaking Argentine rainfall is imminent, with the GFS projecting widespread totals of 1-4” in Cordoba, Santa Fe and Entre Rios Tues-Fri. Argentine rainfall at this point is less important for corn and soy yields, but a full replenishment of soil moisture is needed prior to wheat seeding in May. The Brazilian outlook remains largely favourable as the wet season persists across Central and Northern areas, and needed dryness impacts Parana and Mato Grosso do Sul. The duration of coming dryness in Southern Brazil does warrant attention as some 20% of safrinha corn in Parana remains unplanted. Weather there and in Mato Grosso matters until late April.

• Funds have shed sizable grain market length, while index funds’ net wheat long at 87,000 contracts is the smallest on record. It is clear risk-off has dominated strategy since mid-February. But normal seeding dates and favourable Central US weather this summer are needed to build global stocks in 2023. Volatility will continue.

• In the EU MARS, the EU’s Monitoring Agricultural Resources unit, reported this year’s average soft-wheat yield is seen at 5.99 mt/ha, up from 5.8 mt/ha last year, they added:-

• Winter-crops are in fair to good shape across most of Europe, after the mild winter.
• Still, there is a severe rain deficit in southern Spain and Portugal, with water reservoirs for irrigation very low.
• Soil moisture is also low in countries including Romania, Bulgaria and Hungary, necessitating spring rain to aid crops.
• Crop yield estimates as follows, in tons per hectare:

Crop	March estimate	2022 yield	5-year average
Soft wheat	5.99	5.8	5.81
Durum wheat	3.53	3.26	3.5
Winter barley	5.91	5.92	5.77
Rapeseed	3.29	3.33	3.1

 

17 March 2023

Posted on March 17, 2023 by simon

• HEADLINES: Risk off trading dominates in Chicago; Crude oil nears long held low at $65; Brazilian bio-diesel blend rates confirmed.

• Chicago ag markets mixed with the theme of the morning being “risk reduction”. Several traders have claimed that it is risk aversion, but in either case, it is the exodus of existing positions that is moving markets today. On the other side, few traders are willing to put on new risk amid the unsettled landscape of US and EU banking following massive inflows of capital from the US and National Swiss Banks. The massive $350 billion plus inflows to key banks is causing worry that other financial shoes could be dropped.

• US wheat prices are rising as funds hold a net short position in Chicago of 100,000 contracts. Fund managers are buying their way out of their net short wheat. And soybean/soymeal futures are in decline as funds are net long over 150,000 contracts (each) as of March 7. Last week it was corn/soyoil length was liquidated. Risk reduction is moving Chicago prices and playing a leading role in the decline of CME meat markets. Price is reacting to the flow of orders which all depends on the position of managed money.

• Chicago brokers estimate that funds have bought 3,500 contracts of wheat while selling 3,100 contracts of corn, 15,500 contracts of soybeans and 8,200 contracts of soymeal. Funds are flat soyoil with overnight selling being balanced by midday buying. We note that May soybeans fell below key support offered by the 100-day moving average at $14.88 and the February low at $14.7775. The break of the chart-based support produced a drop to $14.70. The next downside target is $14.55 and then $14.30.

• Brazil will raise their bio diesel blending rate to 12% from 10% as of April 1. Thereafter, the blending mandate will increase 1% each year. B13 in 2024, B14 in 2025, with B15 occurring in 2026. The stair stepping blend rates will tug at S American soyoil supplies downwards. We note that with the US no longer a major exporter of soyoil, that the world must turn to S America for supply. And rising Brazilian blend rates will further tighten supplies. B12 was widely expected to be announced as of April 1, but the Brazilian farmer was hoping for a 13% blend rate. Remember that back in November President Bolsonaro was openly discussing raising the blend rate to 15% for 2023. This was dismissed by President Lula with today’s announcement now confirming future Brazilian diesel blend rates.

• Whether or not the Black Sea Grain Corridor Pact expires on Saturday is up to lawyers to debate. Russia has formally extended it for 60 days due to the Turkish Presidential elections and are unmoved by Ukraine or the UN demands. Ukraine objects to the half extension, yet, grain is continuing to flow. No one appears to be overly concerned about the corridor breaking down in its functionality. For now, exporters are rushing out shipments and Ukraine will likely drop fob price offers to encourage vessel nomination and loading.

• USDA confirmed that China booked another 197,000 mt of US old crop corn today taking their total known purchases to 2.1 million mt. Other purchases may be individually under the 100,000 mt reporting total, which will wait until next week’s US weekly sales report. It was an active week for China buying.

• Risk off has been the theme of the week which makes the CFTC CoT report more important as a measure of fund length. We see cash basis gains and the decline in the Argentine soy crop to 25 million mt as being bullish. Yet, it is the macro financial bank worry that is keeping these bullish fundamentals constrained. The most fundamentally bullish grains, soybeans and soymeal, are in decline on liquidation, while the most bearish grain, wheat, is rising. Until confidence is restored in the US/EU banking system, it is a touch early to be making new purchases.

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

Weekend summary 17 March 2023

 

16 March 2023

Posted on March 16, 2023 by simon

• HEADLINES: Soyoil soars on NOPA reported domestic demand; Turkish presidential elections keep the corridor at 60 days; More US corn to China.

• Chicago ag markets are mixed at midday with corn/soyoil trading higher while soybeans, wheat and soymeal hold in the red. Energy and equity markets have reversed early losses and are recovering as the EU banking worry has not spread beyond Credit Swiss. US bank deposits are backstopped by the US Central Bank, so the dark financial clouds may be starting to part. At least that is the hope of traders heading into next week’s US March FOMC meeting. We look for the US Central Bank to raise its fed funds rate by 0.25% in its war against inflation.

• Yet, traders are loath to take on new risk until after the weekend. They do not want to get caught in any new bank liquidity issues as US and European regulators look through the capital positions of their regional banks. We would note that it was bad risk management at Silicon Valley Bank and Credit Swiss that caused the need for additional capital. The willingness of the US and Swiss Government to backstop the 3 failed banks is psychologically important.  We hold a view that this is no place to be selling Chicago breaks, a new Northern Hemisphere growing season is ahead and macro issues should be declining in importance. A pause period is ahead for world Central Banks.

• Chicago brokers estimate that funds have sold 3,700 contracts of wheat and 3,900 contracts of soybeans, while buyers of 9,500 contracts of corn. In soymeal that have sold 4,300 contracts of soymeal, while buying 3,400 contracts of soyoil. May soybeans tested their late February low at $14.7775 this morning.

• The UN is demanding that Russia extend the Ukraine Grain export corridor (as the July Black Sea Corridor Pact that was signed last July indicates) for 120 days. However, Russia is unmoved from its offer of a 60-day extension. Questions abound as to why Russia will only extend the corridor for 60 days, but it appears to be tied to the Turkish Presidential election on May 14. A 60-day pact extension means that the corridor pact expires on May 17, 3 days after the Turkish Presidential election.

• Russia wants to make sure that Turkey’s president is favourable to its position as grain export gatekeeper in Istanbul. In fact, the polls show that current President Erdogan is behind in the polls to Kemal Kilicdaroglu by as much as 10%. In fact, it appears that Turkish President Erdogan is facing his biggest challenge in his 20-year Turkish rule. This worries Russia and it does not want to extend the grain pact if Erdogan is no longer president.

• The USDA/FAS announced another 641,000 mt of US 2022/23 corn sold to China which takes their 3-day purchases over 1.9 million mt. We expect that total China purchases of US old crop corn in this purchase round will be completed at 2.4-2.6 million mt with crop year sales commitments rising to 7.0 million. In total, we look for China to import 8.5-9.0 million mt of US corn in the 2022/23 crop year.

• US weekly export sales for the week ending March 9 were 12.4 million bu of wheat, 48.7 million bu of corn, and 24.4 million bu of soybeans. China purchased another 208,000 mt of soybeans with old crop purchases on a known basis rising to 30.5 million mt with 2.2 million mt held in an unknown destination category. We see China taking 33.0-33.5 million mt of US soybeans in the 2022/23 crop year.

• The GFS weather forecast at midday is consistent in calling for rain across Central Argentina beyond March 21, but a pattern of complete dryness and abnormal warmth continues through the weekend. The drought is ongoing and crop losses are building. The Brazilian forecast is favourable. Needed dryness occurs into late March across Parana, where safrinha seeding is delayed, while there is no sign that the wet season ends prematurely in Mato Grosso and Goias.

• China’s 2.4-2.6 million mt of US corn purchases will raise US 2022/23 corn exports to 1,900 million bu and drop stocks by 50 million bu. Russian/E European wheat offers to GASC are aggressive which will cap US wheat futures rallies. The soyoil renewable bull market is beginning (domestic demand greater than production) while July beans will push to new highs by mid-summer. The key March Stocks and Seeding report is due out on March 31.

16 March 2023

Posted on March 16, 2023 by simon

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LIFFE Closes wc 10 March 23

15 March 2023

Posted on March 16, 2023 by simon

• HEADLINES: Grains rally, soy falls following CTFC update; Plunge in crude weighs.

• Chicago ag markets are again mixed, with US/world grain markets firm and the soy complex in correction mode. Price action this morning is partially a reflection of the CFTC’s commitment of traders update Tuesday evening, with record long liquidation (147,000 contracts) occurring in corn through the week ending Feb 28 and funds in Chicago wheat were short a sizable net 92,000 contracts. Funds were net long 130,000 contract of soybeans and 140,000 contracts of meal. We estimate managed funds today are long just 58,000 contacts of corn and 135,000 contracts of beans. Modest long soy/short grain spreads are being unwound. Yet, we would note that old crop-new crop spreads continue to perform. Spot soy basis in Central IL is still quoted $0.35/u above May Chicago, which is historically firm.

• Macro markets provide a blanket of weight with spot WTI crude oil down another $4.00/barrel and trading below $70 for the first time since December 2021. Concern over the health of developed economies is dominant, but we also note that crude oil stocks less reserves have built steadily since early January. EIA pegged US crude stocks less reserves on March 10 at 480 million barrels, up 1.5 million from the previous week and up 15% year-on-year.

• Biofuel markets have borne the brunt of weakness today, with May Chicago soyoil down $0.75/lb and spot rapeseed in Europe falling to a newer 21-month low. A bull story looms in US soyoil, but production/supplies tend to peak in March before eroding seasonally into the new crop soy harvest. A different US vegoil market landscape is anticipated in the April-Aug period as reduced output collides with additional renewable diesel production capacity.

• NOPA-member soybean crush in Feb totalled 165.4 million bu, slightly below the trade’s guess and fractionally above Feb 2022. Sep-Feb NOPA soy crush totals 1,044 million bu, down 7 million year-on-year. This is aligned with USDA’s forecast, and no further downward revisions to domestic US soybean disappearance are expected.

• US ethanol production in the week ending March 10 totalled 298 million gallons, vs. 297 million the previous week and in line with pace needed to meet USDA’s target. There is no evidence to support a hike in US corn industrial use, but USDA’s current forecast is about right.

• FAS in its daily reporting system confirmed that China has secured another 667,000 mt of US corn, and China in recent days has increased its US import commitment by 30%. US corn export sales on Thursday, through the week ending March 9, are projected at 30-40 million bu, but sales the following week will be 60-70 million. Recall exporters must average weekly corn sales of only 25 million bu to validate the USDA’s forecast. Ultimately, an increase in USDA’s corn export forecast of 25-50 million bu is possible given the absence of S American supplies.

• The midday GFS weather forecast is consistent in calling for improved rain chances in Central Argentina beyond March 21-22, but a pattern of complete dryness and abnormal warmth continues into the weekend. Confidence is rising with respect to a temporary pattern shift in Argentina next week, but this is no way will reverse 60-day moisture deficits of 6-7” across the driest areas of Cordoba, Santa Fe and Entre Rios.

• The Brazilian outlook leans favourable. Needed dryness occurs into late March across Parana, where safrinha seeding is most delayed, while there is no sign that the wet season ends prematurely in Mato Grosso and Goias.

• There will be no end to volatility as heightened macro concerns continue and the Northern Hemisphere growing season begins in earnest. We caution against chasing daily moves, but tight old crop US, exporter and global stocks place a floor under markets until summer climate patterns are known.

13 March 2023

Posted on March 14, 2023 by simon

• HEADLINES: Russia to extend the grain export corridor for just 60 days; Weaker US dollar is the result if the US central bank pauses; Algeria receives cheap wheat offers.

• Chicago ag markets are mixed at midday in a risk off day as wheat futures are higher, while soybeans/corn are lower. The “risk off” mentality has fund managers exiting positions amid the volatility/uncertainty in the US financial markets. Regional bank questions abound which has caused dramatic rallies and declines in the US stock market. There are times when grain valuations are not based on supply/demand, but order flow and macro market considerations.

• Amid the rising financial market volatility, funds are exiting short wheat while selling out corn/soy length to cut their market exposure. There are times in investing when cash can be the new asset class. The nearby best interest rates in a decade makes money markets a safe harbour for liquid assets.

• The US March inflation report (CPI) will be released Tuesday morning with the expectation that the monthly rate has cooled. The New York Fed in a survey released today estimated the US inflation rate a year from now at 4.2% with food inflation coming down to 7.3%. Both are uncomfortably high with the FOMC target for inflation at 2.0%. However, amid the economic stress that is facing regional banks, the US Central Bank could hit the pause button which would place an offer over the US dollar for months to come.

• A weaker US dollar would push new investment into hard assets and provide lift to an emerging economy that has struggled with rising costs since the pandemic started 3 years ago. The value and trend of the US$ will be pivotal once confidence is restored in US regional banks.

• Chicago brokers estimate that funds have bought 3,900 contracts of wheat, while selling 5,100 contracts of soybeans and 6,900 contracts of corn. In products, funds have sold 3,500 contracts of meal and 2,100 contracts of oil.

• Russia is willing to extend the Black Sea Grain Export Pact by 60 days, not 120 days, to provide time for the rest of the world to come up with a proposal to help its exports which are being hobbled by economic sanctions. Russia wants tangible progress to be shown on the normalisation of its agriculture exports. Russia wants the progress to be shown “not in words but in deeds”. This means that the current pact will be extended until May 18, with considerable uncertainty thereafter regarding its continuance. We doubt that neither the US nor EU will be willing to ease or drop banking/freight/insurance sanctions as Russia ramps up the war effort. A May renewal is highly uncertain, and the world grain market will closely follow if the US/EU show any willingness to amend existing economic sanctions.

• US weekly export inspections for the week ending March 9 were 39.3 million bu of corn, 22.7 million bu of soybeans, and 9.15 million bu of wheat. For their respective crop years to date, US corn exports are down 378 million bu or 37%.  US soybean export inspections are up 39 million bu or 25%, while US wheat exports down 12 million bu or 2%. US corn exports are now in in seasonal increase.

• Algeria wheat offers went in cheaply with there being only 1 Russian wheat offer at $310/mt CIF and other European offers ranging from $312-316/mt. Assuming a $34-38/mt freight, this works back to a $275-278/mt fob Russian wheat equivalent in April/May. The cash world wheat market continues to drop as end users sweep up aggressively priced old crop wheat. We continue to argue that end users should see such prices as an attractive and book wheat well into mid-summer.

• The failure of several large US banks has caused worry that the recent dramatic increase in US interest rates will cause other banks to fail or falter at a time of record large consumer debt, are there other financial shoes that could fail? This has investors looking for the safety of money markets. We maintain longer term that any Chicago break will be short lived amid the fall in Argentine/Ukraine grain production. Russia is not expected to renew the corridor export pact without significant changes in late May as the US/EU cannot drop sanctions.