Author Archives: simon

3 July 2024

Posted on July 4, 2024 by simon

• China books Brazilian soybeans; Chicago deliverable wheat receipts being cancelled: Central US heat returns after July 12.

• Chicago futures are mixed at midday as traders adjust market risk ahead of the US July 4th holiday on Thursday.China has been active securing Brazilian soybeans for August/September and next April with tonnages said to be nearing 750,000 mt. The Brazilian farmer has been willing to push remaining old crop soy supply into the market amid the recent surge of the Brazilian Real. This has helped keep the Brazilian soy pipeline ample for both crushers/exporters. This has provided a lift to Chicago soybean futures on China pricing. Traders wonder if China will soon turn to the US for new crop soybean supplies as Brazilian supplies are quickly being absorbed.

• Corn and wheat futures are mixed to lower with favourable Central US weather.  Excessive rainfall has produced some flooding issues across the NC Midwest, but the rain is seen helping more than hurting yield potential. US corn and soybean crop condition ratings are being discussed as steady to 1% higher amid this week’s improved Central US weather.

• World vegoil prices continue their bullish push amid sliding new crop production and the short structure of the market. EU rapeseed production has been knifed by cold/wet weather while Canadian canola needs sunshine/warmth, and Black Sea sunseed production is curtailed by hot/dry weather.

• There is more to the world vegoil rally than a potential trade spat between Indonesia and China. This trade spat could push China to Malaysia for supply, but in the background, adverse weather and the fall of rape, canola and sunseed production has the long-term attention of importers and green fuel producers.

• The Andersons have cancelled 720 deliverable Chicago wheat receipts in recent days. On July 1, Chicago deliverable SRW wheat receipts were 1,479 contracts which has fallen by 720 contracts (nearly half) to 759 contracts. Of the deliverable total, 649 contracts are in Maumee, 39 in Kulman, and 71 in Edwin, OH. Questions abound on why the Andersons would be cancelling wheat receipts in the gut slot of the Midwest SRW wheat harvest. Is the old crop wheat needed for blending purposes or has new export demand arrived.

• Chicago brokers report that funds have sold 4,100 contracts of corn and 1,100 contracts of wheat, while buying 4,300 contracts of soybeans. Fund managers have bought 5,700 contracts of soyoil while being flat in soymeal. Soyoil futures open interest has fallen more than 20,000 contracts in recent days with Tuesday’s decline being 14,897 contracts.

• US ethanol production was 313 million gallons, up 6 million gallons on the week, and equal to last year. US ethanol stocks rose slightly to 991 million gallons vs 984 last week, which was up 6% on last year. The US is on track to meet the US 2023/24 corn grind forecast of 5,450 million bu.

• The midday GFS weather forecast is like the overnight forecast with mild temperatures and 3 storm systems passing through the Central US over the next 10 days. Rainfall and highs in the 70’s/80’s favours Central US crop production. Much warmer/drier weather conditions evolve following July 12 as the Western US ridge progresses east to the Intermountain West/Western US Plains. The jet stream lifts northward providing a broad warm/dry pattern with ridge riding rain forecast for the Ohio Valley. Heat will be a growing Central US feature of the last half of July.

• Central US weather favours corn but managed money covering in soyoil is lifting soybeans.  Paris wheat futures are sagging on harvest pressure while spring wheat production in Russia is gaining attention amid hot/dry weather. Amid declining world grain production, the Central US weather forecast holds significant market importance in the coming weeks.

2 July 2024

Posted on July 3, 2024 by simon

• Chicago soyoil sees additional managed money short covering; Russian wheat yields are better than expected; Beryl takes a turn to the North into S Texas.

• Chicago futures are mixed at midday as the volume of trade tails off heading into Thursday’s US July 4th holiday. Short covering was the feature early today in a turnaround from the recent selling. Corn and soybeans bounced while wheat sagged on harvest hedge pressure against Paris wheat futures. China has been active pricing Chicago soybeans while 3-year lows in corn prices spur greater interest from S American buyers. The favourable Central US weather forecast caps rallies, but the short structure of the market makes the bears wary of selling breaks. Interior cash corn/wheat markets are well bid with cash buyers suggesting that if all the corn is available that NASS suggests that it is not making its way into local markets. We look for a mixed Chicago close with the spec trade interest in selling rallies on non-threatening Central US weather.

• Chicago brokers report that managed money has sold 3,200 contracts of wheat and 6,700 contracts of soyoil, while selling a net 1,900 contracts of corn, 3,200 contracts of soybeans and 3,400 contracts of soymeal.

• Soyoil is (again) the bullish stalwart of Chicago as prices surged through their 50, 100 and 200 day moving averages with values at their highest levels since mid-May. The $0.47-0.48 area basis August soyoil will act as resistance.

• The brewing trade war between Indonesia and China is the fundamental bullish catalyst for Chicago soyoil. Indonesia is threatening to place duties on imported Chinese consumer goods at 100-200% to help their local manufacturers. The only significant good that Indonesia exports to China in sizeable tonnages is palmoil. Most argue that China would retaliate against Indonesia palmoil with new duties. Chinese duties on Indonesian palmoil could force Chinese importers to secure supply from Malaysia. However, curtailed total palmoil imports would likely mean less UCO that China could ship to the US. Traders will closely follow Chinese UCO valuations should an Indonesian/China trade spat develop. The US has seen record imports of Chinese UCO, which has become important to future US soyoil demand. Canadian canola prices are also sharply higher while European rapeseed prices are rising on tightening new crop supplies. World vegoil supplies are rising on tightening supplies and an outlook for curtailed 2024/25 stocks.

• Early Russian wheat yields have been better than expected. However, NVDI measures have fallen to decade lows and the worry is that the strong yield trends in Kraznodar and Stavopol won’t last as the harvest carries northward. We maintain a Russian wheat crop estimate of 82.5 million mt awaiting harvest information from the frost/freeze areas that were hit in early May. Our bet is that USDA’s 83.0 million mt Russian wheat crop forecast will hold fast until harvest yield data is available across the Black Soils area during late July and August. Russian spring wheat crops are faring ok with the key reproductive period occurring during the last week of July and the first half of August. 

• The midday GFS weather forecast is wetter than the overnight run with warmer temperatures offered in the 11-15 day period for the  Midwest. Hurricane Beryl is forecast to make landfall across the southern tip of Texas and power northward into Dallas. This would add 3-7.00” of rainfall for Texas and potentially boost rainfall totals across the Central Plains and the W Midwest depending on the northward speed as the storm becomes extratropical. The EU model has been further south and west with Beryl, and their midday solution will be important. Beryl is the first category 5 hurricane in the Gulf of Mexico in July. The warm Gulf waters will likely produce additional hurricanes as systems exit off the Eastern African Coast.

• An historically strong high-pressure ridge is forecast to build across the Intermountain West and extend into the Plains following Beryl. Highs in the 100’s would be widespread with 90’s/lower 100’s extending into MO/IL.

• The structure of Chicago is heavily short of corn/soybeans and even wheat. Central US weather is favourable today and the algos are programmed that “rain makes grain”. Chicago values will drip lower into the holiday. However, if there are any threats, sharp short covering rallies will unfold. The Black Sea drought is expanding.

24 June 2024

Posted on June 25, 2024 by simon

• July corn falls to support at $4.25; Weather woes impact EU/Canadian crops; GFS midday weather forecast adds unwanted rain to NW Midwest.

• It was a down and dirty morning in Chicago with managed money adding to their net short grain positions. Seasonal price patterns turned negative in mid June and the breakdown in the charts caused a new round of speculative selling.

• Midwest cash basis levels gained on the decline with the July/November soybean spread pushing out to $0.49/bu premium while the July/September corn spread trades between $0.05-0.06/bu September premium. Elevator managers report that at least half of their farmers have chosen to roll long July corn futures positions forward to September to give the market time to assess the Midwest July weather pattern. Corn crops are largely made or lost during July. The next 6 weeks of weather is highly important to corn yield with temperature being a key ingredient.

• The weekly corn chart appears to be forming a right shoulder of a head and shoulders formation. Key will be corn price direction following the USDA report with traders betting on a bearish seeding and stocks total from NASS.

• The USDA reported the sale of 228,000 mt of US soymeal to the Philippines for the 2024/25 marketing year.

• Canadian and EU farmers both need heat and drier weather conditions in the coming weeks to advance crop maturity. Both Canada and the EU are forecast to endure more rain/cool to mild temperatures into July 4. The cool/wet spring has pushed crop maturity backwards with the French wheat harvest not expected to start on mass until the second week of July. Following a latent spring seeding campaign, Canadian crops are also behind normal in development. The northerly displaced jet stream will maintain wet flows across Canada/the EU for another 10 days. Key for the EU is the quality of the EU wheat crop. Yield could also be down due to persistent rain and numerous cloudy days.

• US weekly export inspections for the week ending June 20 were 44.0 million bu of corn, 12.6 million bu of soybeans and 12.6 million bu of wheat. For their respective crop years, the US has shipped out 1,639 million bu of corn (up 360 million or 28%), 38.6 million bu of wheat (up 11 million or 39%), and 1,514 million bu of soybeans (down 292 million or 16%).

• Chicago futures have fully retraced the summer rally as spot Chicago wheat futures drop to $5.465. Yet EU and Russian fob wheat values are far higher with Russian wheat offered at $230/mt and Eastern European wheat at $229/mt. Midwest SRW wheat yields are coming in 2-5 bushels/acre below last year, something of a surprise.

• The midday GFS weather forecast shows little run to run consistency, except for a high pressure ridge across the South-Central US. The ridge is strong and at times noses northward into Illinois/Indiana. Ridge riding storms will pull across the Upper Midwest and add to the flooding woes of IA/MN and WI. NW Midwest crops need sunshine and weeks of dry weather to root down, since crop nutrients have been leached out. The high pressure ridge also dries out/heats up the Delta, Plains and the Southern Midwest. This is a warm to hot weather pattern starting in early July. The mean position of the high pressure ridge heads to the SE US on July 7. We would suspect that the mean ridge position is too far east. The eastern disposed ridge would push copious amounts of rain for the W Midwest, and exacerbate current flooding woes.

• The big crop yield risk via weather is the ongoing flooding and excessive rain across the NW Midwest/N Plains. Corn can only tolerate standing water for 2-4 days before it has a significant impact on yield in the pretassel/silking stage. And temperatures above 86 degrees add to corn’s stress in saturated fields. The market is understating potential yield loss to excessive rain and budding corn disease pressures. Russian wheat is bid at $230/mt or some $30/mt more than when spot Chicago wheat traded below $5.50. US corn and soybean crop conditions are expected to decline sharply this afternoon.

20 June 2024

Posted on June 20, 2024 by simon

• Ag markets lower at midday on favourable GFS forecast; Paris milling wheat fills open chart gap.

• Ag markets are lower at midday as debate continues over Central US weather in the 6-15 day period, the GFS forecast maintains the return of needed rainfall in the eastern Corn Belt next week, and as Russia’s cash wheat market probes for demand. Soybeans and wheat are deeply oversold, but pushback is lacking so far today. We would note that spot Paris milling this morning filled a chart gap left open after May/early June’s dramatic rally. Several chart gaps now exist above the EU wheat market. Mixed reports have spilled out of Russia with respect to winter wheat yields, and clarity is unlikely to be found until July. We maintain a Russian crop estimate of 79-81 million mt, vs. USDA’s 83.

• US ethanol production in the week ending June 14th totalled 311 million gallons, vs. 301 million the previous week and unchanged from the same week a year ago.

• Ethanol production stays elevated for another 4-5 weeks, and margins in the cash market remain profitable. Yet, ethanol stocks last Friday totalled 992 million gallons, up 4% year on year. We view the USDA’s annual ethanol grind forecast of 5,450 million gallons as correct.

• US commercial crude stocks last week fell 2.6 million barrels to 457 million, down 1% from mid-June 2023. A normal seasonal drawdown in crude stocks lies ahead, and seasonally it is difficult to be bearish of energy markets until September. US gasoline disappearance in the week ending June 14 totalled 9.4 million barrels per day, a new high for 2024 and unchanged year on year. Spot WTI at midday is up $0.30/barrel at $81.85.

• NOAA’s newly released July and July-Sep climate forecasts feature high odds of drought development across the E Midwest and Southwest. Heat is forecast to blanket the Central US in July and the already-dry OH River Vally is projected to contend with additional moisture loss over the next 30 days. It is still a bit too early to be concerned about recent heat/dryness east of the Mississippi River, but a pattern change will be needed no later than July 1. Despite the shedding of risk premium in recent days, we view US/Northern Hemisphere risks as high. And unfortunately model disagreement between the GFS and EU/Canadian weather models is unlikely to be resolved nearby. The GFS features a lack of heat beyond the next few days and near normal rainfall. EU/Canadian output is much warmer/drier in the east.

• The midday GFS weather forecast is slightly drier in IN/OH but is otherwise consistent with morning output. Amplified high pressure ridging keeps a pattern of heat/dryness in place across the Delta/Southeast and E Midwest for another 3-4 days. High pressure then relaxes/retrogrades south and west thereafter into June 30. Regional showers are offered to MO, IL, IN, OH and KY next Wed-Sun. The GFS forecast is void of additional prolonged heat, but here is where the GFS is at odds with other models.

• Grain markets are anticipating no major threats to US corn and soy crops nearby, but most important is whether the wetter GFS weather forecast verifies IL eastward next week. We estimate managed funds’ combined short in corn, wheat and soy markets at 373,000 contracts, vs. 333,000 last week and the largest for mid-June on record.

18 June 2024

Posted on June 18, 2024 by simon

• Wheat continues to probe for a bottom; Duration of Midwest heat important; Crude scores newer 7-week high.

• Chicago is mixed at midday as the European wheat market continues to probe for a bottom, while row crops add modest weather premium. Intense debate over the Central US climate pattern will define daily activity this week and next, and key is whether recently updated weekly weather model guidance is right in projecting continuation of net soil moisture loss into mid-July. Corn’s seasonal price trend typically turn down just before or after the 4 July break, but risk premium will be added if the E Midwest, mid-South and Delta stays hot/arid. We note that the E Corn Belt has largely avoided major weather issues since 2019. Combined corn and soy acreage in IL, IN, OH, KY and TN accounts for a third of total US planted area. Note the GFS forecast has begun to follow the better-performing EU model in extending Central US heat, particularly east of the Mississippi River.

• No new US export sales were announced today. Brazilian fob soy premiums late last week eased slightly, just as the US was becoming competitive for spot delivery. US corn, however, remains competitive as US, Ukrainian, Argentine and Brazilian fob offers exist with $5/mt of one another. Importantly, spot fob basis in Brazil is quoted at $0.70 over Chicago, vs. $0.65 last week, and vs. negative $0.20 a year ago in mid-June. Our bet is that weekly US corn sales stay perched above 20 million bu for the remainder of June. Corn sales in the last 6 weeks have averaged 36 million bu, vs. -1 million a year ago in the same period.

• Tours of Russia’s wheat crop this week have yielded total crop estimates of 80-82 million mt, vs. USDA’s 83 and vs. 91.5 a year ago. Solid yields in the very far south of Russia will partially offset more intense frost/drought damage further north. However, exporter stocks/use will still be the lowest on record unless world trade is curtailed, and there has been no evidence of slowing trade in crop year 2024/25. The market on this break will encourage, rather than discourage, importer purchases.

• Other breaking news is absent. Spot WTI crude is up $70/barrel at $81.05, a newer 7-week high. The Midwest swap ethanol market is quoted at $1.88/gallon, vs. $1.77 30 days ago. Margins are positive. A secondary peak in weekly US ethanol grind typically occurs in July. Weekly EIA data will be published at mid-morning Thursday.

• The midday GFS weather forecast is slightly drier in the E Midwest but otherwise consistent with morning output. 5-days of heat and complete dryness are offered to MO, the E Midwest and mid-South, while additional cumulative rainfall of 2-4” is advertised in SD, IA, MN and WI. Upper level ridging relaxes in the 6-10 day period, but returns the E Midwest/east Coast Jun 29-July 1. Confidence in details beyond 8-10 day is low, but there remains general agreement that heat persists across the primary Corn Belt. Notice the Gulf stays rather active, with flooding rainfall probable to impact south Texas in the next 2 hours.

 

• We would caution strongly against chasing moves. Central US weather is most important, and we reiterates potential threats are emerging in the east amid sizeable fund short positions in corn, soy and soyoil. It is the covering of these positions that provides short-term upside fuel if extreme heat lingers into July. We see value in wheat below $6.20, basis Dec Chicago.

17 June 2024

Posted on June 17, 2024 by simon

• Ag markets sag on drop in Russian cash wheat, weaker Brazilian soy FOB premiums; NOPA crush record large for May.

• Sharply lower Paris wheat futures and sagging Brazilian soybean premiums have pressured Chicago futures at midday. Managed money piled into long Paris wheat futures amid the Black Sea drought. These longs are now being unwound as the European and Black Sea harvest commences. The downside target for September Paris wheat futures is €225-229/mt. This is a chart gap left as the May contract expired and September became front month.

• Brazil’s President Lula postponed recent 120-day tax legislation but is promising to return with another proposal in coming days. The tax will be watered down, but Brazil must raise more revenue to cover existing debt and Lula does not favour cutting government spending. Farmers are using this period when taxes reverted to their old rate to sell cash soybeans/corn, which is pressuring nearby Chicago futures.

• Traders are less certain what to do about Central US weather with excessive rainfall across the NW Midwest/N Plains and hot/dry conditions from Illinois eastward. Traders suggest that they will wait for crop condition ratings to tell them how adverse the weather extremes have been on US corn/soybean yield potential in the coming weeks. And remember on June 28 NASS will update the industry on June 1 stock and final 2024 seedings. The combination of weather and NASS reports will produce considerable market volatility into July.

• Managed money has sold 6,700 contracts of Chicago wheat, 9,300 contracts of corn, and 4,100 contracts of soybeans. In the products, the managed money has sold 5,100 contracts of soymeal and 2,600 contracts of soyoil.

• US weekly export inspections for the week ending June 13 were 52.7 million bu of corn, 12.9 million bu of wheat, and 8.5 million bu of soybeans. For their respective crop years to date, the US has exported 1.540 million bu of corn (up 316 million or 20%), 1,489 million bu of soybeans (down 305 million or 17%), and 10.9 million bu of wheat (down 1.0 million early in the 2024/25 crop year).

• The May NOPA crush was 183.625 million bu, a record for the month. NOPA member soyoil stocks fell 6% to 1,724 million pounds, below trade expectations suggesting a record May soyoil use. The big rebound in the US May soybean crush rate argues that seasonal downtime due to plant maintenance has ended with green diesel demand expanding. We maintain that June-July-August crush will also be record large and that the US 2023/24 crush will equal 2,310 million bu.

• The midday GFS weather forecast is warmer than the overnight model run. A broad high-pressure ridge covers most of the Central and Eastern US this week. Central and Eastern Midwest high temperatures will reach into the 90’s through Friday. Ridge riding storm systems will push along the NW flank of the ridge producing heavy rains across the N Plains/the NW Midwest with 10-day totals of 3-8.00”. Low lying flooding will be the result of crops suffering from excessive soil moisture.

• The other extreme is Central and Eastern dryness. Limited rainfall is expected for the next 7-8 days, with dryness to expand to all regions June 25-30. However, the GFS model struggles with tropical Gulf upper air convection and we have limited forecast confidence beyond the next 7-9 days. Our bet is that heat remains a feature of Central US weather well into July.

• Brazil tax legislation is postponed and is expected to be reintroduced later this week or next week. The tax on farmers may not be 20-23% but a few percentage points lower. Brazilian farmers are fearful of a tax hike and are selling cash grain which is pressuring basis. And Paris wheat futures are getting close to seasonal lows which will come early. Russian cash wheat prices are down $234/mt to start the week. The world wheat market is looking for demand with US farmers not anxious to sell wheat off the combine with values down $1.30/bu from a high just two weeks ago.

13 June 2024

Posted on June 13, 2024 by simon

• The midday GFS weather forecast returns flooding rains across NW Midwest/N Plains; Egypt rumoured buyer of US soybeans (Unknown Buyer); China bidding for US Gulf soybeans ; Central US Weather in focus into the weekend.

• Chicago futures are higher at midday with China bidding for additional US soybeans, while cash traders report low test weight on S Midwest SRW wheat, which is being balanced out by heavier test weight HRW wheat across Oklahoma/Texas. The early S Plains HRW harvest has solid protein levels. Early US wheat harvest results are supportive to Chicago wheat and slightly bearish to KC. We look for the Chicago/KC wheat spread to trade at a premium.

• Corn and soybean futures are higher on dry weather forecasts for the US and Central China. Traders are trying to assess the duration and the impact of hot/dry weather on summer row crops. July corn reached above $4.60 and a close above $4.61 will set an upside price target of $4.77, the 200-day moving average. We estimate that funds are short 190,000 contracts of corn which could spur significant covering should hot/dry weather extend past the next 10 days. A more volatile weather market lies ahead for corn/soy/wheat futures.

• The USDA reported that an unknown buyer secured another 120,000 mt of US soybeans, the third day of old crop US soybean sales. The buyer is rumoured to be Egypt. Price spreads indicate that US soybeans are equal to Brazil. This has end users looking at US for soy supplies.

• China has been a recent buyer of US soybeans. China is taking US soybeans to replace those sold from the reserve in recent months. US soybeans store better than Brazilian soybeans amid a lower seed moisture content. China is bidding for additional US soybeans today for August/September, which could include the season’s first new crop purchases. China has yet to show on a US weekly export sales report as securing new crop US soybeans, but they have purchased 24 million mt of US old crop on their way to taking 25.0 million in total.

• For the week ending June 6, the US sold 12.5 million bu of wheat, 41.6 million bu of corn, 13.9 million bu of soybeans. For the crop year to date, the US has sold 178 million bu of wheat (up 33 million or 18%), 2,060 million bu of corn (up 540 million or 35%), and 1,609 million bu of soybeans (down 288 million or 15%). We believe that WASDE will raise their old crop corn export estimate by 25-50 million bu in future monthly reports.

• Managed money has bought 3,7000 contracts of wheat, 5,900 contracts of corn, and 7,800 contracts of soybeans. In the products, the managed money has bought 5,200 contracts of soymeal and sold 1,500 contracts of soyoil. Much of recent day buying is tied to July contract liquidation amid the start of the Central US weather market with areas of too much and too little rain.

• The midday GFS weather forecast is back to adding considerable rain to the W Midwest and sparking widespread flooding. Rains of 5-9.00” are unwanted, but also not backed by the EU model. Rainfall overnight across the NW Midwest was disappointing, and we suspect that that GFS forecast is probably too wet and too far south with the moisture. That said, the heat is on and high temperatures will be reaching into the 90’s with frequency. The hot/dry weather for the Central and Southern Midwest will cause crops to root down, but also increase the need for rain to return in late June/July. The weather risks are rising and model debate is active between areas of too much and too little rainfall. The emerging heat is not being debated, it is ahead.

• Short July futures liquidation is ongoing. Key will be if July corn can close above $4.61. EU rainfall amid the ongoing wet weather has caused issues for the soon to be harvested winter wheat crop. Crop quality and quantity are both in retreat. World corn and wheat crops are still in decline with US weather in focus. Monitor US weather forecasts closely heading into the weekend. Increased volatility is ahead.

12 June 2024

Posted on June 13, 2024 by simon

• USDA report lacks surprises with US 2023/24 and 2024/25 stocks little changed; Russian wheat crop cut 5 million mt to 83 million; Midday GFS weather forecast goes wet across NW Midwest with 5-9.00″ of rain.

• The biggest statistical impact of the June WASDE was a cut in 2024/25 non-US wheat supplies of 8 million mt and a drop in world wheat stocks of 1.4 million mt due to a decline in wheat feeding. US corn, soybean and wheat end stocks were little changed, and Chicago market direction hinges upon summer growing weather across the Northern Hemisphere, particularly the US. The report has not caused post report market fireworks and traders will get back to the job ahead, assessing weather and its impact on yield/supply.

• The USDA left US 2023/24 corn end stocks at 2,022 million bu with 2024/25 US corn end stocks at 2,102 million bu. The 2024/25 balance sheet left the 2024 US corn yield at 181 million bu, 4 bushels/acre aboveΩ last year’s record. We expect a 50 million bu increase in 2023/24 US corn feed/residual use and a 25-50 million bu bump in 2023/24 corn exports come July.  

• WASDE made no change in its S American corn crop estimates leaving Brazil at 122 million mt and Argentina at 53.0 million, implying that it wants to see actual yield data before making any adjustments. The Brazilian winter corn crop on June 1 was 4% harvested with the second Argentine corn harvest just starting late last week. Downward adjustments are expected in the July WASDE report.

• World 2024/25 corn end stocks were lowered to 310.8 million mt, down 1.6 million from the current crop year. WASDE is forecasting an 8 million mt fall in 2024/25 corn trade which we would doubt based on price and the rising values for world wheat. China is forecast to import 23.0 million mt of world corn in 2024/25, unchanged om the year.

• US 2023/24 soybean end stocks rose 10 million bu to 350 million on a cut of 10 million bu of the US crush rate to 2,290 million bu. US soybean exports were unchanged at 1,700 million bu. We see US 2023/25 soybean exports at 1,675 million or 25 million bu less. No change as made to the 2024/25 US soybean balance sheet, other than adding the 10 million bu of old crop supplies. 2024/25 US soybean end stocks were forecast at 455 million bu with a near record US soybean yield of 52.0 bushels/acre.

• WASDE held its Brazilian and Argentine soybean crop estimates unchanged at 153 million mt and 50 million mt, respectively. CONAB will update their production estimates on Thursday. It is surprising that historical flooding across RGDS, did not cause a downward Brazilian crop adjustment. World 2024/25 soybean stocks are forecast at a large 128 million mt, up 17 million on the current crop year.

• USDA wheat data leans mixed as a hike in US production was more than offset by lower Black Sea/EU crop sizes. World end stocks were trimmed 1.3 million mt to 252.3 million. NASS raised US winter wheat yield to 51.4 bushels/acre, vs. 50.7 in May, and the highest since 2020. Meaningful upward adjustments were made in IN, KS, MI and SD. HRW production is pegged at 726 million bu, vs. 705 million previously, which raises projected HRW end stocks to 350-360 million bu in crop year 2025/25, vs. 270 million in 2023/24. However, SRW production was lowered a net 2 million to 342 million bu, and we would maintain 2024/25 US SRW end stocks drop to 90-95 million bu, vs. 126 million in 2023/24 and which is historically tight. There is not much room for elevated US SRW export demand. 2024/25 US all wheat exports were increased 25 million bu to 800 million as falling non-US production funnels non-traditional demand to the US over time. US end stocks were lowered 8 million to 758 million bu. WASDE’s season average cash price was increased $0.50/bu to $6.50.

• Russian wheat production was lowered 5 million to 83 million mt. Ukrainian production was trimmed 1.5 million mt to 19.5 million. EU production was trimmed 2 million to 130.5 million mt. USDA now projects combined major exporter stocks at 52.6 million mt, the lowest since 2007/08. Stocks will be nearly nonexistent in Australia, Canada and Ukraine, and so there is virtually no tolerance for additional world wheat crop issues.

• The world wheat market will slide into seasonal lows soon and it is Northern Hemisphere weather that determines value into late year. Coming Central US heat is a concern, but weC doubt that premium will be added in bulk until it is seen/felt in the coming weeks. It is all about Northern Hemisphere weather with the US dollar sharply lower on the limited gain in US inflation. Corn should be the upside leader into July with seasonal wheat lows to be posted early in the harvest due to end user demand and tightening exporter stocks/supplies.

6 June 2024

Posted on June 6, 2024 by simon

• Chicago soy/corn rally sharply on Brazilian tax and Central US weather; Wheat futures fall on harvest yield results and liquidation.

• The provisional President Lula 29 billion Real tax package that was announced/implemented yesterday across Brazil along with warmer/drier Central US weather forecasts has ignited a strong Chicago summer row crop rally. Wheat has been a laggard on US harvest pressure and wheat/corn spread unwinding. The US Plains harvest is expanding, and high yields are being reported in TX/OK with tests weights reported to be exceptionally high. US HRW wheat production estimates are rising which has put the US futures under pressure. We note strong chart support below $6.60 KC July with Chicago/KC wheat pushing out to a 34.75 cent premium. We doubt that the spot KC/Chicago wheat spread can rise much above $0.40/bu amid a US hard wheat crop that may be as large as 725 million bu. The Kansas harvest starts in 10 days and yield results will be closely followed. Weaker wheat is acting to tug corn/soy futures off their highs. The 50% correction level in July Chicago wheat is $6.36/bu, the immediate downside target.

• Chicago brokers estimate that funds have bought 7,800 contracts of corn, 5,400 contracts of soybeans, and 2,300 contracts of wheat. In soy products, funds have bought 4,900 contracts of soyoil and 2,100 contracts of soymeal.

• The Lula Administration implemented a broad tax package yesterday that would raise $29 billion in new Brazilian Government revenue annually. The package was announced and enacted (provisionally for 120 days) with Brazil’s Lower House and Senate needing to approve by early October to maintain the same tax collection rate. The tax package increase was complex including new taxes on income, sales, and export credits. Brazilian ag agencies estimate that it could raise farm taxes by 20%. The tax package has caused producer sales to dramatically decline as farmers wish to better understand the program and weigh their options. If the tax package does not pass the Senate of the Lower House, holding grain makes good economic sense on a lower tax bill. However, farmers still need to pay for crop inputs before their next soybean planting cycle that starts September 15. Winter corn cash sales is where the biggest impact could occur with the harvest just starting.

• US weekly export sales for the week ending May 30 were 22.7 million bu of wheat (both crop years combined), 46.5 million bu of corn, and 7.0 million bu of soybeans. For their respective crop years to date, the US has sold 685 million bu of wheat, 2,018 million bu of corn (up 509 million or 27%), and 1,595 million bu of soybeans (down 285 million or 15%). We look for WASDE to adjust US soybean export estimates slightly next week to 1,685 million bu. China purchased 2 cargoes of US corn.

• The midday GFS weather forecast is wetter in the E Plains and the W Midwest than was offered overnight. The US Gulf is again forecast to have tropical activity which is likely causing distortions in the GFS forecast beyond the next 5 days. The Gulf is record warm for early June and the outbreak of tropical storm activity is expected at some point. A high pressure ridge noses northward from Mexico into the Central US, but it does not appear to be stationary. The GFS forecast places a strong ridge across the Great Basin after June 20. There are many moving parts in the North American forecast and caution on the adoption of any one run is advised.

• Chicago is unlikely to break sharply ahead of next week’s USDA WASDE report which will likely further drop Black Sea wheat production with a cut in the S American corn crop also forecast. US crop balance sheets will not change much with the trade focused on overseas crop production. US soyoil prices are fully competitive in the world marketplace which returns the US back to the chance at being a prominent exporter. Soyoil has finally scored a longer-term bottom. Wheat has additional downside risk on harvest pressure, but longer term a bull market lurks on rising Black Sea and European prices.

3 June 2024

Posted on June 3, 2024 by simon

• Chicago grain values fall sharply with energy; Ukraine corn basis soars above US Gulf; GFS weather forecast slightly drier at midday for Central US.

• The upwards pull of US wheat futures faded under the weight of active corn/soybean selling with key chart support levels broken as world energy prices declined sharply. OPEC+’s Sunday sustain cut in supply did little to alter prevailing bearish energy price trends with WTI July crude oil down $2.70/barrel at $74.20. Today’s decline projects a test of key support at $73.60 July (trendline) and thereafter to $65-69.00. US crude oil production in waning, but the worry is that world energy demand is flagging on a slowing economic outlook.

• The sharp fall in energy price/demand left doubt in the mind of world grain traders with net long positions. If world energy demand is stumbling, will world grain demand, follow the same path? Currently world wheat and corn trade are showing hefty gains from the prior year, with world soybean trade off 4 million mt. China’s soybean import pace is slowing on faltering crude margins.

• Chicago July soybeans fell under their 50/100 day moving average while July corn is already trading under like moving average support. US wheat futures are holding near unchanged, but a strong overnight rally with gains of nearly 20 cents could not be sustained. Today the weakness in grains it is tied to falling energy values (potential end games for the Israeli war).

• The USDA announced that 100,000 mt of US corn was sold to Spain adding confirmation that the total package of purchases will reach 400-500,000 mt. Spain is a corn deficit European member with special privileges to import US corn. Ukraine corn is offered at $0.90 over July futures for June/July, so US corn is the cheapest to Spanish livestock feeders.

• Chicago brokers estimate that fund managers have sold 10,700 contracts of corn, 6,300 contracts of soybeans, and 6,500 contracts of Chicago wheat. In the soy products, funds have sold 1,200 contracts of soymeal and 4,900 soyoil.

• For the week ending May 30, the US exported 54.1 million bu of corn, 15.3 million bu of wheat, and 12.8 million bu of soybeans. For their respective crop years to date, the US has shipped 1,485 million bu of corn (up 307 million or 26%), 1,480 million bu of soybeans (down 309 million or 17%), while US wheat exports ended their crop year at 687.5 million bu or down 40 million or 5%. WASDE looks to adjust US 2023/24 wheat and soybean exports lower in the June USDA Crop report on Wednesday June 12. The cuts in US soybean/wheat end stocks will fall directly into end stocks and be considered slightly bearish.

• The midday GSF weather forecast is slightly drier and slightly warmer than was offered in the overnight run for the Central US. A high-pressure ridge is forecast to push northward from Mexico which has been enduring one of their worst droughts on record. The lack of soil moisture across Mexico is fuelling extreme heat, which could migrate north with time. Showers will cross the Central US over the next few days with totals of 0.25-1.50”, but a decidedly drier trend evolves after Wednesday with heat building through the S Plains in the week 2 timeframe. Whether this ridge pushes northward in mid June should be closely followed. For now, enough rain falls for early season crop needs.

• The fall in energy values has sparked new Chicago selling to start June. However, the Black Sea drought will worsen and Russian spring wheat areas are enduring excessive rainfall. The Black Sea/European weather pattern shows no sign of change for the next two weeks. And the Mexican drought is worsening which will boost their corn imports. July corn under $4,40, July Chicago wheat under $6.50 and July soybeans under $11.70 are too cheap nearby. We maintain that trading lows in Chicago grains will be scored early this week.