Author Archives: simon

23 January 2023

Posted on January 23, 2023 by simon

• HEADLINES: Chicago falls sharply on improved S American/US Plains weather; Fresh export demand lacking.

• Chicago futures are sharply lower at midday as markets extracts weather premium from price due to needed moisture across S America and the US Western Plains. KC wheat futures are down over 30 cents with French wheat futures falling to a 10-month low.  Lower prices on the soybean chart left a gap that if it is not filled in the next few days ($15.03-15.04), it becomes a break-away gap with an acceleration of price to the downside. Corn and wheat futures did not leave similar chart gaps, however the next downside price target for Chicago March wheat futures is $7.00 and a test of the September 2022 lows.

• The decline in wheat keeps feed wheat (and milling wheat) offers below CIF US corn into North Africa and SE Asia. This will harm US corn export demand in the April/May period as farmers sweep their bins ahead of the coming harvest in July/July. Normally, world wheat trade seasonally declines in mid-February in preparation for a new Northern Hemisphere harvest. We hold to a bearish Chicago view this week and looks for a sharply lower close today.

• Chicago brokers estimate that funds have sold 6,900 contracts of wheat, 15,200 contracts of corn, and 9,100 contracts of soybeans. In the products, funds have sold 7,200 contracts of soymeal and 4,000 contracts of soyoil.

• US export inspections for the week ending January 19 were 28.6 million bu of corn, 66.4 million bu of soybeans, and 12.3 million bu of wheat. For their respective crop years, the US has shipped out 469 million bu of wheat (down 17 million or 3.5%), 453 million bu of corn (down 197 million or 30%), and 1,252 million bu of soybeans (down 35 million or 3%). The US has a record number of soybeans that are sold and not shipped in the middle of January.

• The USDA reported that 192,000 mt of US soybeans were sold to an unknown destination. The sale follows like sales that were completed last week. US exporters report that these soybeans are sold “optional origin” which means they could be sourced from the US, Brazil, or Argentina. Amid the cheap offers out of Brazil, we expect that the soybeans will be sourced from Brazil. This would produce a sales cancellation at some point in the future. There are 5 million mt of US soybeans sold to an unknown destination which raises the chance for a US cancellation depending on the price/availability of S American soybeans.

• Debate is ongoing as to where China’s purchase orders will rest in the marketplace when they return next week. The Argentine/S Brazilian rains are important, and China could slow its purchase pace. This will be watched closely.

• The midday weather forecast is slightly further west with the Argentine rain later this week compared to the overnight run. The GFS Ensemble and Canadian forecast models have the rain further east. The GFS’s track record has not been particularly good as of late as the EU model has outperformed on rainfall totals/locations.

• Moderate to at times heavy rain will fall across Argentina from late Wednesday into the weekend from a slow-moving storm cell with rain totals to date range from 0.4-2.50”. A few dry days follow with another system noted for the northern half of Argentina in the opening days of February.

• Near normal rain drops across N and C Brazil which is ideal for late podding soybeans. There will be enough dry slots for N Brazilian farmers to advance their harvest and start the seeding of winter corn. No extreme heat is forecast.

• It is a down and dirty day in Chicago as weather premium is extracted due to improved precipitation for Argentina/Southern Brazil and the Western US Plains. The next level of key support rests at $14.40-14.60 March soybeans, $6.45-6.52 March corn and $7.00 March Chicago wheat. Brazil is more actively harvesting soybeans while China is on holiday. We remain generally bearish looking for additional long liquidation.

20 January 2023

Posted on January 20, 2023 by simon

• HEADLINES: Rains better than expected across southern Argentina; US weekly export sales support CBOT, but US corn sales historically lag.

• The CFTC will release their CoT data today. Normally in a holiday shortened week, the CoT data is delayed. The US Government was closed for the MLK holiday on Monday, but the CFTC will be keeping to their normal schedule.

• Chicago grain futures are mixed at midday. US weekly export sales were better than expected with US soybean/soymeal sales being larger than expectations. The solid soybean/meal sales and China’s purchase of 3 cargoes of US sorghum produced some Chicago buying. Wheat/corn spreading is also being witnessed.

• However, China’s being on Lunar New Year holiday and wet weather forecasts for Argentina with needed rain falling across Buenos Aires and Cordoba sparked selling as the bulls look to take profits on rallies. If the CFTC CoT data shows that funds hold large net long position, the risk is for liquidation grows as Brazil starts to harvest its record soybean crop, and as Argentine crop conditions stabilise/improve. We loo for a mixed to lower Chicago close as traders position for improving Argentine/Southern Brazilian crops.

• Chicago brokers estimate that funds have bought 4,100 contracts of wheat, while being flat in corn and selling 3,300 contracts of soybeans. In the products, funds have sold 2,200 contracts of soymeal and 4,400 contracts of soyoil. The index fund buying of corn/wheat in the past 3 days appears to be subsiding.

• US weekly export sales for the week ending January 12 were 17.4 million bu of wheat, 44.6 million bu of corn, and 36.2 million bu of soybeans. The sales were on the top end of trade expectations. For their respective crop years, the US has sold 571 million bu of wheat (down 36 million or 6%), 910 million bu of corn (down 765 million or 46%), and 1,668 million bu of soybeans (up 84 million or 5%). Chinese demand for their soybean reserve along with sales of optional origin via the Argentine drought have helped support US soybean sales. However, with nearly 5 million mt of US soybean sales held in the unknown destination category, there is the risk of cancellations with Brazilian soybeans $0.85/bu cheaper landed basis into China in March/April.

• The corn export commitment chart shows that as of mid-January, there is only one other year when US corn sales as a percentage of the annual forecast were lower, 2005/06 at 44%. We would argue that US 2022/23 corn exports should be cut another 100-150 million bu.  US corn is losing market share to feed wheat.

• The midday forecast is wetter than the overnight run with rainfall totals more like the EU model. Moderate to at times heavy rain continues across Cordoba/Buenos Aires from a slow-moving storm cell with rain totals to date range from 0.4-2.50”. This rain has been far heavier (from this system) than expected. And the GFS forecast maintains a wetter pattern across Argentina for the next 10 days with an additional 1.50-4.50” of rain from the passage of 2 systems. One of the storms on January 25 is a very slow mover which will produce meaningful rain over 2-3 days. We see Argentine rainfall risk as “above normal” for the next 2 weeks.

• Near normal rain drops across N and C Brazil which is ideal for late podding soybeans. There will be enough dry slots for N Brazilian farmers to advance their harvest and the seeding of winter corn. No extreme heat is forecast. The weather pattern stays favourable for Brazil.

• Solid US export sales helped underpin Chicago values early day. But the market is always forward looking, and it is the above normal Argentine rain and ongoing discussions of record soy yields being cut in Mato Grosso/Goias that will direct Chicago prices. Paris wheat futures are unmoved suggesting that the Chicago wheat rally is just short covering.

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

Weekend summary 20 January 2023

19 January 2023

Posted on January 19, 2023 by simon

• HEADLINES: Rains to start Friday across Argentina; World Ocean freight rates decline to multi-year low; Wheat takes US corn export lustre.

• Chicago grains are mixed at midday with the grains firmer, while soybeans sag. Brokers indicate that index fund flows are still occurring in the grains, mostly in corn, and investors try to gain exposure to ag/food markets. Some large brokerage firms see commodities outperforming equity markets in 2023 and are trying to diversify their clients accordingly.

• We do not see fund flows as continuing or sizeable beyond this week, it is latent investor index fund type of buying that was waiting to get past the USDA January Crop Report. This flow is also pushing spreads, which is keeping some sellers aside. March corn futures trading at a 4-cent premium has some bears scratching their heads. However, Chicago spreads are more about order flow than cash markets, at least until spot futures are closer to delivery.

• We look for a mixed to mostly lower Chicago close on fund flows. Thereafter, it is all about when and where rain drops hit in the gauges of Argentine farmers. The bulls won’t budge on their length until the rain falls.

• Chicago brokers estimate that funds have bought 1,500 contracts of wheat and 5,500 contracts of corn, while selling a net 5,100 contracts of soybeans. In the products, funds have sold 2,100 contracts of soymeal and 6,900 contracts of soyoil. The soyoil selling was sizeable as key moving averages were breeched. Rain across Argentina could cause a decline below $0.62 March soyoil which would set up the next purchase opportunity. Over time we look for the oil share trade to appreciate.

• World ocean freight rates have fallen to a 31-month low which argues that the world economic outlook is worsening, and raw material demand is soft. The China reopening following the Lunar New Year holiday could help spur demand in metal, energy, and ag markets, but assumes that China’s consumer steps forward with new spending. The Chicago rally since the US harvest has been about supply and the loss of US corn/soybean crops and the Argentine drought. It is demand that is troubling with US corn, soybean and wheat exports sagging and feed demand to decline due to falling US livestock numbers and the ongoing fight of the US poultry industry against avian flu.

• Mexico purchased 195,000 mt of US corn. Traders expect that US corn, soymeal, and soybean weekly export sales to be large on Friday. We have concerns that Black Sea or Australian wheat can now trade into SE Asia below the cost of Gulf US corn on a landed basis. And Brazil/Argentina have started to drop their premiums on June forward fob corn to compete with the US. Nearby, Brazil will capture world soybean and product demand on price into September.

• The midday weather forecast is little changed from the overnight GFS solution and remains consistent. A wetter pattern develops across Argentina’s crop belt starting later today with 10-day cumulative rainfall 1.50-4.50” with the passage of 3 fronts. Such rain totals are near to above normal. The extended range 11–15-day period enhances this wet trend which will includes RDGS in Southern Brazil next week.  Near normal rain falls across N and C Brazil which will be ideal for late podding soybeans. There will be enough dry slots for N Brazilian farmers to advance their harvest and the seeding of winter corn. No extreme heat is noted, and the outlook stays favourable for record soy production. And it is far too early to worry about excessive wet weather causing any N Brazilian harvest delays or worry for soybean crop quality.

• Friday’s price action will depend on Argentine weather and whether the radar “lights-up” heading into the weekend. China will be on holiday next week which will limit their buying. Key will be if fund managers added to their already record large soymeal length. The market risks are to the downside with cash soybean basis bids weakening. The location and amounts of Argentine rain will direct Chicago prices next week. Our view is bearish.

18 January 2023

Posted on January 18, 2023 by simon

• HEADLINES: Argentine rain forecast washes over index fund buyers with Chicago sharply lower at midday; Soyoil holds on oil share spreading.

• Chicago ag markets are mixed at midday as the grains, soybeans, and soymeal sag. New fund inflows are being witnessed this morning with the volume of buying below yesterday. Funds tend to move money in and out of markets in 2–3-day time horizons, so most of the recent investment by Goldman (and others) in commodities as an asset class should be completed by today’s close.

• This morning it was a battle between the fund flows and improving S American weather. We expect that as the fund flows slow, a Chicago correction will unfold into the weekend. China is on holiday next week, so any fresh grain/soy demand will be modest. China has covered its February soybean import needs and is 60-65% finished with March/April. Amid the sharp discounts of Brazilian soybean fob offers, fresh future US soybean demand will be limited. And Asian feed compounders have secured Australian feed wheat due to its attractive price and lower transit cost compared to corn. US corn export demand will continue to suffer.  We look for a mixed Chicago close with the coming Argentine rain for Thursday/Friday likely to pressure Chicago values.

• Chicago brokers estimate that funds have bought 2,200 contracts of wheat and 1,500 contracts of corn, while selling a net 5,600 contracts of soybeans. In the products, funds have sold 3,800 contracts of soymeal and bought 2,900 contracts of soyoil. The oil share trade should perform amid the coming improved Argentine rain which will act to stabilise summer row crops.

• There were no new FAS Daily Export sales announcements. And remember that FAS will release their weekly export sales report on Friday due to Monday’s MLK holiday.

• There is no shortage of world soy crush capacity, just a potential shortage of soybeans due to the Argentine drought. Nearby, we expect that Argentine will continue to crush soybeans amid strong margins into the new crop harvest. And India will double its soymeal exports in 2022/23 while Paraguay/Brazil will both export beans to Argentina for future processing. If there is a shortage of soybean crush, it will be with the US new crop position if the US suffers weather adversity. Spot Chicago soymeal has rallied near record highs above $500/mt. This rally was based on the Argentine drought and a record inflow of investor funds into Chicago soymeal futures. Funds are estimated to be long nearly 150,000 contracts of soymeal at Monday’s close. If the rains fall across Argentina, fund meal length will be vulnerable to liquidation. And US and world livestock feeders are looking to alternative protein supplies in their feed rations on soaring meal prices. An important price top is forming in soymeal should normal Argentine weather returns into March.

• The midday weather forecast is little changed from the overnight GFS solution. However, it is worth noting that the GFS forecast is not as wet as the EU overnight solution. The GFS has not been doing a very good job in itemising nearby total rainfall amounts.

• A wetter pattern develops across Argentina’s crop belt starting tomorrow with 10-day cumulative rainfall 1.50-4.00” with the passage of 3 fronts. Such rain is near to above normal, the first time that such a statement can be made in the 2022/23 crop year. Extreme heat will be confined to the next 24 hours before showers develop Thursday/Friday/Saturday with 0.5­-2.00” accumulations.

• Near normal rainfall drops across Brazil which will be ideal for late podding soybeans in the north while RGDS sees improving rain chances this weekend. No extreme heat is noted for Brazilian crops and the outlook stays favourable for record production.

• Index fund buying is starting to subside in the grains which is allowing improved rainfall forecasts for Argentina/S Brazil to weigh on Chicago prices. China is on holiday next week and if the Argentine rain persists, long liquidation in the soy complex could develop. It is just tough to be long soy as Brazil starts its harvest of a record soybean crop of 5.6 billion bu.

13 January 2023

Posted on January 13, 2023 by simon

• HEADLINES: Chicago markets rally ahead of three-day weekend; Higher crude lends support; Fresh news absent.

• Chicago ag markets are mixed but mostly firm at midday, with March soy scoring a newer two week-high, corn falling from session highs and wheat struggling amid weakness in the European market and as fresh importer tenders this week were again filled with Russian origin. Logistic challenges and insurance uncertainty pose questions over the future pace of Black Sea loadings, but for now there is no indication that exports will be disrupted in the near term. Larger than expected US winter wheat acreage expansion lingers in the background. Surprisingly large seedings expansion has weighed on Chicago wheat most heavily. Macro guidance leans modestly supportive. Crude has extended its overnight rally $1.05/barrel. The Dow is flat following morning weakness.

• Breaking news is absent. FAS’s daily reporting system was void of new US export sales this morning. Key over the weekend is whether model guidance maintains at least a temporary improvement in Argentine rainfall Jan 21-23, and as a three-day weekend lies ahead for the US, there is limited enthusiasm in establishing new positions.

• Otherwise, changing world price relationships favour a seasonal uptick in US corn export demand, flat wheat demand, and waning interest in soy February onward. Interior Russian wheat prices have failed to move, with replacement costs in southern Russia this week quoted at $185/mt. Brazilian soybeans’ discount to US Gulf origin widens to $0.65/bu in April. But there is hope for corn export improvement Feb-Jun amid the lack of Brazilian offers and rising Argentine premiums.

• Yet, corn export sales in the week ending Jan 5 were a pitiful 10 million bu, the lowest since September, and despite the USDA’s downward revision to annual exports, weekly sales still must average 30 million bu to meet the USDA’s forecast. It is critical that export sales data shows a shift in demand from S America/Ukraine to the US in February. Otherwise, the market will assume global demand is being destroyed at high prices.

• The release of bullish US stocks data Thursday implies closer attention will be paid to Argentine weather in February, Chinese demand in spring (as Covid’s impact wanes), with weekly export sales to be the best measure of changing global corn, soy, and wheat trade flows. The addition of risk premium has been warranted as moisture deficits in Argentina reach multi-decade highs, but demand, not just supply loss, is critical to sustain bull runs. This is especially true as spot corn and soy prices sit at rarefied levels for mid-winter.

• The midday GFS weather forecast is little changed from the morning solution. A much wetter pattern develops across the southern half of Argentina’s crop belt beyond Jan 20, with cumulative totals of 1.0-2.5” offered to important regions of Cordoba, Buenos Aires and La Pampa in the 8-11 day period. Yet, widespread showers are not indicated the GFS hints at the return of dryness in Argentina Jan 23-28. Argentine’s forecast is expected to be more dynamic moving forward as La Niña fades. We note that extreme heat and dryness continue in Argentina into late next week.

• Needed rain falls across the northern half of Rio Grande do Sul in southern Brazil this weekend. The remainder of Brazil stays wet/mild into late month.

• A broadly neutral price trend will be extended into spring following US production cuts made on Thursday. It is still tough to overly bullish of ag markets in the long run amid the lack of a demand driver and improving soil moisture in the US and Europe.

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

Weekend summary 13 January 2023

12 January 2023

Posted on January 12, 2023 by simon

• HEADLINES: USDA data bullish corn, soy; Wheat follows; Winter wheat seedings hit 8-year high.

• USDA stocks, seedings and balance data lean bullish of row crops and neutral to slightly bearish of wheat.

• Final US corn production was trimmed a surprising 200 million bu as higher yield (+1 bushels/acre) was more than offset by a 1.6 million drop in harvested acreage. US sorghum production was lowered 48 million bu (20%) as yield was lowered just under 2 bushels/acre and final harvested area was reduced by 900,000 acres. Final US soybean production was 4,246 million bu, down 70 million from November. US soy yield was lowered 0.7 bushels/acre.

• Yet, downward revisions to stocks in USDA’s Jan WASDE were a function of supply loss, not demand. Dec 1 US corn stocks of 10.8 billion bu were 200 million below the trade’s guess, but Sep-Nov feed use is calculated at 2,397 million bu, down 6% from last year and in line with the USDA’s annual forecast of 5,275 million bu. 2022/23 US corn exports were lowered 150 million bu to 1,925 million, which better aligns with pace analysis.

• US 2022/23 corn ending stocks were cut by just 15 million bu, with annual stocks/use unchanged at 8.9%. NASS’s yield cut does justify post-harvest strength, particularly in cash corn basis levels across the Central Plains.

• Dec 1 US stocks at 3,022 million bu fell 120 million bu short of expectations, but US soy end stocks were lowered a modest 10 million bu to 210 million. Exports were cut 55 million bu following a 1 million mt hike in expected Brazilian production and as Chinese imports from all origins in 2022/23 was lowered 1 million to 95 million mt. Crush was left unchanged. US soy residual use was reduced 2 million bu.

• Dec 1 US wheat stocks were 1,280 million bu, the lowest since 2007 and which implied positive feed/residual disappearance worth 17 million bu. Note that Sep-Nov wheat feed/residual is very often negative, and so USDA was forced to hike annual US wheat feed consumption to 80 million bu, vs. 50 million in December. End stocks were cut 4 million bu to 567 million. Much of the decline in wheat stocks, by class, was centred on SRW and white. HRW stocks were increased 15 million bu.

• US wheat seedings in 2023/24 totalled a sizeable 37.0 million acres, up 3.7 million year on year. Assuming trend yield, US winter wheat output in 2023 will be 1,350 million bu, up 250 million from the previous year. US wheat end stocks rise to 640-650 million bu if Plains drought is allowed to ease. However, wheat acreage expansion of 20-55% occurred across the Midwest and Delta, which eats into land available for corn production. Combined winter wheat seedings in MO, IL, IN, OH, MI and KY were up 1.0 million acres from the previous year. Combined seedings in TX, OK, KS, CO and NE were up 1.3 million. We note that seedings in KS were up only 250,000 Acres. Seedings in TX, where widespread grazing is probable, were up 1.4 million acres.

• World balance sheets were little changed. Argentine corn production was lowered 3 million to 52 million mt. Brazilian corn production was lowered 1 million mt. Total global corn demand, however, was lowered another 5 million mt, leaving world end stocks relatively stable. Argentine soy production was lowered 4 million mt, which is partially offset by a 1 million increase in Brazil. Total world soybean demand was cut 1.9 million mt. World wheat supply and demand was left alone, with Russia’s balance sheet unchanged completely.

• The midday GFS weather forecast is wetter in far Western Argentina but leaves the core of the Ag Belt arid into Jan 25-26. There remain hints of a wetter pattern thereafter, but confidence stays low until this precipitation is pulled forward into the 10-day outlook. Extreme heat returns to Argentina next Wed-Sun. Above normal rainfall continues in Brazil, with a needed expansion in precipitation due in RGDS in the south this weekend.

• Markets have added premium following an unexpected but modest lowering of US corn, wheat, and soybean end stocks. Focus shifts back to S American weather and principally whether wetter/cooler conditions evolve in Argentina during the final week of January. A choppy marketplace will be ongoing into late winter, as Argentine yield loss cannot be dismissed but rallies require confirmation that demand is begin funnelled to the US. This is not evident today.

To download our USDA data recap as a PDF file please click on the link below:

USDA Recap 12 January 23

11 January 2023

Posted on January 11, 2023 by simon

• HEADLINES: Chicago rallies in pre report positioning; Argentine weather forecast unchanged.

• Chicago ag futures are higher at midday on positioning ahead of Thursday’s USDA January Crop Report. The report is expected to cut Argentine corn and soybean crops by 3 million mt (each) and offer final US corn/soybean yield data and the first glimpse of 2023 US winter wheat seeding.

• Historically, Chicago endures extensive market volatility post the report due to its importance to longer term price direction. The report finalises 2022 US summer row crop yields, but also offers a crop year Q1 indication of US corn feeding. Traders are cutting their position size while understanding that fund managers are holding sizeable net long corn, soybean, and soymeal net long positions. The report holds market risk that is always difficult to assess. We look for a mixed to higher close on positioning for the report.

• Chicago brokers estimate that funds have bought 1,600 contracts of wheat, 5,400 contracts of corn, and 5,500 contracts of soybeans. In the products, funds have bought 3,900 contracts of soymeal while being flat in soyoil.

• Private Brazilian firms are preparing to start crop tours to assess yield potential throughout N and C Brazil. The early harvest is underway, and a record crop appears likely. Most crop watchers peg the Brazilian soybean crop at 151-154.4 million mt with yield to at least reach trendline. Coming rains for RGDS will be key in discussing a Brazilian soybean crop of more than 155 million mt. The 2023 Brazilian soybean harvest will be record large at least 24 million mt larger than last year. This will help ease pressure on world soybean supply tightness.

• Brazilian soybean offers are 50 cents cheaper than the US Gulf for February and 70 cents cheaper in March/April. World demand is completely shifting away from the US due to price and new crop availability. And Brazilian and Paraguayan soybeans are being booked by Argentina to crush amid their drought losses. This will help to ease further losses in premiums relative to the US Gulf. We also note that Brazilian soymeal for February is offered $28/mt below the US Gulf with March/April $38/mt cheaper. US soymeal demand is going to be difficult to uncover amid the cheapness of Brazil. The export outlook for both US soybeans and soymeal is in retreat.

• Ukraine 2023 wheat/corn production is forecast to be down 20-40% amid a shortage of seed/fertilizer and financing. It is mid-sized Ukraine farmers that are struggling to find financing. All the above will have an adverse impact on Ukraine 2023 grain production due to the war. Thus, the outlook for world wheat supply is cloudy until Black Sea crops can be better assessed in spring.

• The midday GFS weather forecast is like the overnight forecast with showers reported in N and NW Argentina at midday. Rains are still expected across Southern Brazil late Thursday and Friday. A second system is noted for Argentina in the last half of next week with near normal rainfall in the 11–15-day period. Temperatures hold in the 80’s to the mid 90’s with extreme heat in retreat.

• Brazilian rain will delay the harvest of early planted beans, but yield threats are lacking. Soil moisture will be abundant for safrinha corn seeding in February/early March with favourable rain for the remainder of Brazil. A record soy crop is expected which will boost world soybean supplies to a record.

• Demand for US corn, soy and wheat remains concerning, but markets worldwide must contend with uncertain late Jan weather in Argentina and uncertainty over Sep-Nov residual corn and soy disappearance. Soybeans above $15.00 are richly priced while March corn will struggle above $6.70.

10 January 2023

Posted on January 10, 2023 by simon

• HEADLINES: Row crops reverse overnight losses on drier Argentine forecast; Wheat continues to struggle.

• Chicago ag futures reversed overnight losses and hold in a choppy back-and-forth trend heading into Thursday’s USDA January Crop report. The overnight models reduced rainfall chances for Argentina which was the catalyst for the Chicago morning recovery. The forecast models are having trouble regarding extended S American weather. We note that the EU model is moving to a new supercomputer, but it is the GFS forecast that has been more volatile as of late. We would argue that the models are starting to see the dramatic weakening of La Niña but are having difficulty with rainfall amounts and locations across the drought areas of Argentina. It is the forecast uncertainty ahead of the USDA report and a 3-day weekend that is causing traders angst. We look for a mixed close with corn/soy futures back to adding weather premium back into price. Weather forecasts will be changeable in the 10–15-day period and until the rain is pulled forward in the forecast.

• Market volatility will be the theme of the market following the USDA report data release amid uncertain weather for the last half of next week.

• The lowest price offer to Egypt’s GASC was for 60,000 mt of Russian FOB wheat from Ashton, a large Russian exporter. The fob offer works back to around $308-310/mt, down slightly from prior sales. Traders have been watching Russian FOB wheat offers due to talk on rising Black Sea insurance rates. However, Ashton often uses its own boats in these transactions and may self-insure. The offer is competitive and reflects that Russia looks to stay aggressive in offering wheat in early 2023. Mother nature will have to intervene to slow Russian grain exports. We maintain that Russia will export 44-46 million mt of wheat in 2022/23, a record.

• US farmers are holders of old crop corn hoping for a rally like the past few years. Today’s rally has sparked some cash corn movement, but ethanol producers are hoping for improved movement to lock down supply and margin. We note that most farmers hope for a yield decline from USDA on Thursday. Our own view is that US corn yield will rise 1.0 bushels/acre to 173 due to diminished harvest losses and better than expected yields across the Eastern Midwest and Delta.

• India is claiming that it might produce a record large 2023 wheat crop as large as 112 million mt. We note that Indian farmers did seed record acres, but that it is last half of February/March weather that will determine final yield/production. A year ago, temperatures soared in March to 120 degrees plus to substantially reduce yield. The point is that that it is too early to declare the 2023 crop a record and close attention will be paid to daily high temperatures next month.

• The midday GFS weather forecast is wetter in eastern Buenos Aires in Argentina but is otherwise warmer and drier in Argentina and portions of Rio Grande do Sul in southern Brazil into Jan 25 relative to the model’s overnight solution. Scattered showers will impact Northern Argentina Fri-Sun and again next Wed-Thurs. But organized soaking showers are not indicated, which if realised keeps historically low soil moisture intact into the latter part of the month. The midday GFS forecast keeps max temperatures in Argentina in the 90s/low 100s as late as Jan 23.

• Heavy Brazilian rain will delay the harvest of early planted beans, but yield threats remain lacking. Soil moisture will be abundant for safrinha corn seeding in February/early March.

• Demand for US corn, soy and wheat remains concerning, but markets worldwide must contend with uncertain late Jan weather in Argentina and uncertainty over Sep-Nov residual corn and soy disappearance.

9 January 2023

Posted on January 9, 2023 by simon

• HEADLINES: Chicago mixed at midday as Argentine weather forecast goes wetter and traders debate Thursday’s USDA report.

• Chicago ag futures are mixed at slightly higher at midday with early weakness unable to show any follow through technical selling. Wheat has traded both sides but with Egypt/Turkey in the world market, the early Chicago break uncovered commercial buying. The index fund roll starts at the close and traders will be watching for any unusual buying or selling. Index fund managers will use TAS (trading at settlement) so as to not produce too much of a market disruption. We would remind that the USDA January Crop Report will be released on Thursday with normal trade on Friday, with a 3-day weekend following (Martin Luther Kingf Observance) with the Asian Lunar New Year starting on January 21. Chicago trade will not be back in full force until the closing days of January. Market volatility will stay elevated until all market participants have returned. We look for mixed Chicago price action heading into today’s close and Thursday’s USDA report.

• Chicago brokers estimate that funds have bought 2,200 contracts of corn and 3,200 contracts of wheat, while selling 1,900 contracts of soybeans. In the products, funds have sold 3,900 contracts of soymeal and bought 1,500 contracts of soyoil.

• US export inspections for the week ending January 5 were 15.6 million bu of corn, 52.9 million bu of soybeans, and 7.4 million bu of wheat. US grain exports continue to be disappointing. For their respective crop years, the US has exported 393.6 million bu of corn (weekly average of just over 23 million bu to date, far below the 43 million weekly average needed to achieve the USDA annual export pace of 2,075 million bu). US wheat exports rest at 444 million bu or down 12 million from last year, while US soybean exports rest at 1,105 million bu, (down 62 million or 5%). We would expect WASDE to trim their 2022/23 US corn export estimate by 50-100 million bu on Thursday. We can also argue for a cut in US 2022/23 soybean exports of 25-50 million bu. The US export profile will struggle going forward.

• The average trade estimate for the 2022 US corn yield is 172.5 bushels/acre, up ).2 from the November NASS forecast with soybeans at 50.3 bushels/acre, up 0.1. We lean towards increases in both of 1 bushels/acre in corn and 0.5 bushels/acre in soybeans. Our bet is that the onus on the report is on the bulls. NASS tends to surprise to the upside on yield and does adjust harvested acres also.

• March corn TAS has traded nearly 3,000 contracts for the close which suggests that Index funds will us it partially to rebalance. We doubt that the rebalance will have much of an impact on Chicago futures this week.

• Egypt and Turkey are seeking world wheat for February/March, which should include Black Sea and potentially French wheat. US wheat is bouncing as the domestic price reached low levels that worked into SE US feed rations.

• The midday GFS weather forecast is wetter than the overnight run with better rain projected for Argentina/S Brazil late this week and next. A front is forecast to produce showers Thursday/Friday, and again early next week with a third (potent) storm system noted from January 19-22. The 10–15-day period features 0.5-2.00” of rainfall for Argentine crops. The improved rainfall pattern boosts Argentine and S Brazilian crop potential if correct. Traders will monitor the EU model’s rainfall output before the close. Near normal rains look to fall across the remainder of Brazil with a drying trend to aid the Mato Grosso harvest late month. The midday GFS forecast is improved (in respect to Argentine rainfall) from prior model solutions.

• Chicago futures are mixed at midday with corn, soybean and wheat holding either side of unchanged. Unless Thursday’s USDA January crop report holds a bullish surprise, the wetter Argentine weather forecast should start a sustained downtrend. Brazilian soybean premiums are under pressure as their harvest starts in earnest in a few weeks. US corn, soy and wheat export demand stay seasonally slow, and selling Chicago rallies is our current leaning. The downside price leader should be corn/soymeal on speculative length and slowing US corn trade profile. Notice that even with a 43 million mt Argentine soybean crop in 2023, that world soybean supplies will be record large, which does not sustain rallies above $15.00.

6 January 2023

Posted on January 6, 2023 by simon

• HEADLINES: Soybeans soar on drier Argentine weather forecast; Traders debate index fund roll next week: US jobs report strong.

• Chicago ag futures are mixed at midday with the soybean market adding weather premium due to the overnight dry change in the Argentine weather forecast, while the grains struggle amid competitive world export markets. US corn and wheat sales continue to disappoint against cheaper offers from S America, Russia, and the Ukraine. We note that world cash grain trade is tepid, and holiday driven. It will likely be after Asia’s Lunar New Year before normality in volume returns. FOB price offers are holding in world wheat/corn, but Brazilian soybean premiums are in decline vs the US Gulf amid their expanding harvest. Early Brazilian soybean yields are impressively strong, and a record crop is in the making. However, traders would like to get past next week’s USDA January Crop Report before adding to net short positions.

• The Argentine drought remains a market focal point but even with an Argy soy crop of 38-40 million mt, the world will produce a record soy crop during 2022/23. We maintain that it will be difficult for spot Chicago soybean futures to sustain rallies above $15.00 as the US’s window of export opportunity is closed by cheaper Brazilian price offers from February and beyond.

• Chicago brokers estimate that funds have bought 6,900 contracts of soybeans, while being flat in corn and selling 1,400 contracts of wheat. In the products, funds have bought 4,900 contracts of soymeal and 2,200 contracts of soyoil. The volume has been in soymeal as funds add to their market length. We calculate that funds are close to a record net long position in soymeal.

• Index fund rebalances have not had much of an impact on Chicago prices in recent years. We doubt that this year’s rebalance will have much price impact either. Calculations from the fund community has index funds selling 40,000 contracts of corn, 19,000 contracts of wheat, and 26,000 contracts of soybeans in a 5-day period. We hear of continued outflows, not inflows, into the commodity space. Few investors see a fundamental reason to be overly bullish of raw material markets as World Central Banks fight to lower inflation.

• US weekly export sales were disappointing. For the holiday week ending December 29, the US sold 1.7 million bu of wheat, 12.6 million bu of corn, and 26.5 million bu of soybeans. For their respective crop years to date, US wheat sales stand at 550.0 million bu, a record low and 34 million bu less than last year. US corn sales are 856 million bu, down 758 million or 47% from last year, while soybean sales rest at 1,610 million bu (up 78 million or 5%). Ukraine continues to be a very aggressive exporter of corn to the EU, China, and the others.

• The January US Employment report showed a gain of 223,000 workers which will likely keep the US Central Bank raising rates into the middle of 2023. US inflation appears to have peaked, but if the FED wants to get the rate down to 2%, it will have to keep raising rates into 2024. We fear that the US Central Bank lending rate may have to rise to 5.5-5.75% before there is a pause. The fight of the US Central Bank against inflation will be difficult.

• The midday GFS weather forecast is consistent with hot/dry weather to impact Argentina and RGDS (Southern Brazil) for the next 10 days. We suspect that the models are too dry and rain will be added with time, but the GFS forecast at midday followed the overnight run and was equally as dry. The extended range 11–15-day forecast has a few showers, but rainfall amounts in the next few weeks would be running 40-60% of normal or 0.5-1.50”. A drier Northern Brazilian trend is forecast after January 20.

• A bullish reaction of the macro financial markets to the US Jobs Report and drier Argentine weather is providing a lift to Chicago soybeans today. We believe that chasing March soybeans over $15.00 is ill advised. And Ukraine remains an active seller of corn with China seeking Brazilian corn for June onwards. A secondary top could be formed early next week if the Argentine forecast stays dry. Weather models maintain that they are struggling with the end of La Niña and movement of a MJO (Madden-Julian Oscillation) across the Equatorial Pacific.

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Weekend summary 6 January 2023