14 May 2024

Posted on May 14, 2024 by simon

HEADLINES: Wheat sags on profit taking; GFS weather forecast features soaking Midwest rain; CONAB raises Brazilian corn, soy crops slightly.

Chicago ag markets at midday are lower by varying degrees. Wheat futures in the US and Paris are down sharply on profit taking, July Chicago wheat’s RSI on Monday hit 76, and following the $1.40 rally in Chicago and €47/mt rally in Europe, a correction is needed. The very early stages of this week’s tour of the KS wheat crop is featuring solid yield potential in the east/northeast part of the state, and not until the tour travels westward will drought damage be assessed. Markets broadly are lacking new bullish enthusiasm.

Yet, it feels that weakness in corn and wheat will be confined to profit taking corrections. US exporters sold 405,000 mt of corn to Mexico for old and new crop delivery. Climate forecasts are unchanged, with too much rain forecast in the Midwest US and France, and little/no rain offered to most of the Black Sea into late May. Volatility is the theme, but grains have a story in declining non-US production numbers.

CONAB is unwavering in keeping Brazilian corn and soy estimates well below USDA forecasts. CONAB this morning estimated total Brazilian corn production at 111.6 million mt, vs. 111.0 million in April. Safrinha harvested area was raised 200,000 hectares, while projected yield loss in Mato Grosso do Sul and Parana more than offset a 1% hike in Mato Grosso’s yield. Recall USDA in its May report pegged old crop Brazilian corn production at 122 million mt. Unfortunately, clarity is unlikely to emerge until bulk yield data is available in July, but most probably CONAB raises its forecast a bit while USDA lowers theirs.

CONAB raised 2023/24 Brazilian soybean production to 147.7 million mt, vs. 146.5 million in April. Acreage hikes in central and northern states more than offset lower projected yield in Rio Grande do Sul in the far south. USDA estimates Brazilian soy production at 154 million mt. Large production discrepancies between S American agencies and USDA persist. Brazilian soy fob premiums are steady to slightly higher this week, but a meaningful shift in world demand from S America to the US is unlikely until September.

Also of note, CONAB trimmed its 2024 Brazilian wheat production estimate to 9.1 million mt, vs. USDA’s 9.5 million. On balance, this adds 400-500,000 mt to Brazilian net wheat imports in 2024/25. 40% of Brazil’s wheat crop is grown in Rio Grande do Sul and is planted in June. Model guidance stays wet in RGDS into final days of May. Drier weather will be needed for timely wheat seeding there.

The midday GFS weather forecast is wetter in the E Plains and E Midwest in the 6–10-day period. The model is struggling with exact totals/coverage, and confidence in forecast details isn’t overly high. However, it is still a wet forecast and E OK, E KS, TN, KY and the Southern Midwest are favoured with 10-day precipitation accumulation of 3-5+”. NOAA has issued an alert pertaining to the risk of excessive rainfall across the W Plains/SW Midwest in the 8–14-day period. Better windows for planting open across the N Plains and IA moving forward.

The spec community is booking profits in wheat, while CONAB’s influence on corn and soy price discovery has waned. It is S American corn yield data this summer that determines the degree of tightening in the world and exporter corn balance sheet. Upside risk remains present in corn and wheat, we are concerned about nearby soy export demand.

13 May 2024

Posted on May 13, 2024 by simon

HEADLINES: Chicago adds premium amid adverse global climate patterns; GFS weather forecast wet in Midwest.

Chicago ag markets are higher at midday, again led by wheat as short covering worldwide occurs amid even larger uncertainty over Black Sea production following recent frost/freeze events in Russia. Whether crops can recover from recent chills is uncertain, but what is known is that regular soaking rain is needed. However, meaningful precipitation in the Black Sea into May 25 will be confined to far southern Russia. A majority of winter crop areas of Ukraine and Russia will be left arid.

Another 2-8” of rain will drop on Rio Grande do Sul in southern Brazil in the next 10 days, and it is damage to infrastructure and the associated challenges to processing capacity that is noteworthy. Roughly a fifth of Brazilian soy crush plants reside in RGDS.

And yet more soaking rain is forecast in France, where corn seeding last Friday was only 54% complete, vs. 80+% on average. Winter wheat in France is rated at 64% good/excellent, vs. 63% the previous week but against 94% a year ago in early May.

Weather issues outside the US have forced the covering of sizeable, short positions in late April/early May, but work suggests a net even position in corn, soy and Chicago wheat lies on the horizon. Managed funds last Tuesday were net short a combined 186,000 contracts of corn, soy and wheat combined, and at midday Monday we estimate funds’ combined net short at 160-165,000 contracts. The risk of further covering remains in place, but in the last three weeks managed funds have trimmed their short exposure by 60%.

US corn export inspections in the week ending May 9 totalled 37 million bu, vs. 51 million the previous week. Soy inspections were 15 million bu vs. 13 million the previous week. Wheat inspections totalled 13.5 million bu, vs. 12.5 million the previous week. For their respective marketing years to date, exporters have shipped 1,336 million bu, up 30% year on year, 1,453 million bu of soy, down 18% and 648 million bu of wheat, down 6%. USDA’s old crop US export forecasts are about right.

The midday GFS weather forecast is more expansive with 10-day rainfall across the eastern Midwest and mid-South. Moderate totals of 1-2” are indicated into the weekend across OK, MO, IL, IN, KY, and the entirety of the Gulf/Delta region. A second event is forecast next Tues-Thurs, with soaking rainfall of 2-3” offered to NE and across IL, IN, OH and KY. Confidence in details beyond 4-5 days is low, but key is where national corn and soy seeding progress exists as of Sunday. Our bet is that regional challenges persist across the southeast and far eastern Midwest. Water availability certainly won’t be an issue in June.

Decent physical wheat and soy export shipments along with uncertainty, still more questions than answers, surrounding Black Sea wheat and S American row crop production lean positive. Yet, we note that markets tend to peak seasonally by early/mid-June without adverse Central US weather. The Wheat Quality Council’s tour of Kansas kicks off Tuesday morning.

10 May 2024

Posted on May 10, 2024 by simon

HEADLINES: USDA May report non-bearish to slightly positive, Chicago grains rally sharply; Russian 2024 wheat crop at 88 million mt, Brazilian 2025 soybean crop at massive 169 million mt.

The USDA May WASDE and NASS production report was positive. The USDA did not offer any glaring bearish surprises and Chicago markets are back to trading US and world weather. WASDE forecast US 2024/25 corn end stocks at 2,102 million bu, 100 million bu above the current crop year using a record US corn yield of 181 bushels/acre. Such stocks were lower than traders expected on export increases of 50 million bu in old and 100 million bu in new.

Even with the record corn yield, US 2024 corn production is forecast to be down 482 million bu due to smaller seeded acres. And wet Central US weather threatens to further delay the last 30-40% seeding of the 2024 corn crop.

WASDE cut their estimate of 2024 Brazilian corn crop to 122 million mt (down 2 million), and Argentina to 53 million mt (down 2 million). We continue to look for additional cuts in S American corn production that can raise 2024/25 US corn exports to 2,300-2,400 million bu. This will pull 2024/25 US corn end stocks below 2,000 million bu in June. The WASDE report highlighted the corn price risk as being centred on “yield”.

WASDE forecast that 2023/24 US soybean end stocks at 340 million bu, unchanged from April as exports and crush were held steady at 1,700 million bu and 2,300 million bu, respectively. The average farmgate price was projected at $12.55/bu.

2024/25 US soybean end stocks were forecast to rise to 445 million bu on a yield of 52.0 bushels/acre. The 2024/25 US soybean crush rate was raised to 2,425 million bu (up 125 million) with exports pegged at 1,825 million bu. The average cash price is forecast at $11.20/bu forecasting a season range for November soybeans of $10.75-12.50. Brazil’s old crop soybean production was dropped by 1 million to 154 million mt while Argentina was left at 50 million mt. It is interesting to note that next year, WASDE forecast that Brazil would harvest 169 million mt of soybeans with China’s soybean imports rising to 109 million mt. The ballooning in 2024/25 world soybean end stocks to 128 million mt is due to Brazil’s massive increase of 15 million. This casts a longer-term bearish profile.

Wheat data is neutral to slightly bullish. NASS estimates US winter wheat production at 1,278 million bu, up 30 million year on year amid HRW yield recovery and less abandonment, but also 30 million below the trade’s average guess. It is a good but not great HRW crop, while SRW yields correct slightly from 2023’s all-time records. All wheat production is pegged at 1,858 million bu, vs. USDA’s Outlook Forum guess of 1,900 million. US wheat end stocks are projected to rise 78 million bu to 766 million. We see no major issues with USDA’s first 2024/25 US balance sheet, and its exports, and so EU/Black Sea weather, that drive meaningful changes moving forward.

Major exporter wheat production in 2024/25 is estimated at 386 million mt, vs. 394 in 2023/24. This assumes a Russian crop of 88 and total European output of 132. We expect EU production closer to 126-128 million mt, and a Russian crop of 82-85 is reasonable amid recent frosts and if regular soaking rain fails to develop prior to late May. Already USDA numbers features major exporter wheat stocks/use of 13.3%, the second lowest on record and down sharply from the current year. A new elevated price plateau has been found. EU/Black Sea weather is critical over the next 30 days.

The soy outlook leans bearish on rallies amid adequate oil stocks, the arrival of Argentine meal exports this summer and as Brazil floods the market with supply in Q1 2025 assuming normal weather. Upside risk remains present in global grain markets. A record US corn yield is needed to prevent a decently sized contraction in US stocks. The world needs winter wheat acreage expansion in autumn 2024.

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

Weekend summary 10 May 2024

9 May 2024

Posted on May 9, 2024 by simon

HEADLINES: Soy complex sinks on Brazilian farm sales and positioning for Friday’s report; GFS weather forecast wetter across the Gulf States next 10 days.

Chicago futures are mixed at midday with the summer row crops (corn/soybeans) weaker while wheat futures hold in the green. Trade volume has been active with traders adjusting risk ahead of tomorrow’s USDA monthly crop report. July soybeans have declined near initial chart support at $12.00-12.07 on the fall in soyoil to fresh contract lows. Soymeal has also eased with bear spreading noted in July/December with nearby July likely to fall back into a discount vs new crop as Argentine soymeal exports seasonally strengthen.

Wheat futures are holding on cold weather worry across Russia and NE Europe. There was a late season snow across Moscow overnight that highlights the outright chill that crops are enduring. Russian and European weather has been abnormal and crop assessments are likely to fall following the USDA report as freeze damage is better known. WASDE is expected to provide a starting point on where to cut Russian wheat/barley crop estimates. Already, we are hearing a widening European discussion of a Russian wheat crop of 85-87 million mt due to the recent outright cold.

Chicago brokers report that managed money has sold 4,600 contracts of corn and 6,300 contracts of soybeans, while buying 3,700 contracts of wheat. Funds have sold 4,800 contracts of soymeal and 7,400 contracts of soyoil.

FAS/USDA reported that for the week ending May 2, the US sold 16.4 million bu of wheat in both crop years combined, 35.0 million bu of corn, and 15.8 million bu of soybeans. For their respective crop years to date, the US has sold 692 million bu of wheat (down 3 million or 1% from last year), 1,875 million bu of corn (up 364 million or 24%), and 1,556 million bu of soybeans (down 307 million or 16%). The US soybean export sales pace argues for a US 2023/24 soybean export pace of 1,675 million bu or 25 million bu below the April WASDE. Brazilian soybeans fob July is offered at $0.40 over Chicago vs. 55 cents via the Gulf. The US Gulf is becoming competitive vs Brazil into Europe via cheaper freight. The US can pick up EU soybean import demand to stabilise US 2023/24 soybean exports. And China has just 2 cargoes of US SRW wheat to export before its purchase order is filled. Finally, China is securing US sorghum with US crop year purchases up to 203 million bu or 85% of the USDA annual forecast. China is said to be securing Argentine soybeans/soyoil on the morning Chicago break.

The weakening Brazilian Real has kept cash movement ongoing with moderate cash sales being reported. Brazil dropped its bank lending rate by 0.25% to 10.5% overnight which weakened the Real vs the US dollar. Central Bank Board members indicated that future Brazilian interest rate cuts would be more measured.

The midday GFS weather forecast is wetter for the Gulf states for the next 10 days. Midwest planting opportunities will occur from today into May 16 before widespread rain develops across the NC Midwest. The GFS weather model has been changeable, and the midday solution should be used with caution. NOAA indicated that El Niño will die in the next 30 days with La Niña starting in June or July. This is faster than expected and it will have an influence of the Central US summer weather pattern. A fast arriving La Niña would have negative implications for 2024 US summer row crop yields.

Chicago futures are now waiting for Friday’s USDA May Crop Report. Funds are likely to see any sizeable weakness as a buying opportunity heading into the heart of the 2024 growing season. World weather is abnormal and fund managers are worried about US sub trendline corn/soybean yields. We see market bullishness in the following order: 1)wheat, 2)corn, 3)soybeans.

8 May 2024

Posted on May 8, 2024 by simon

HEADLINES: Chicago values decline with USDA report in focus; GFS weather forecast wetter for the S Midwest, Delta, and Gulf states; No surprises in us weekly ethanol production.

Chicago futures are lower on early speculative selling and lack of midday fund buying. In the first few minutes of the morning reopening, large sell orders were executed for 8,000 contracts of soybeans, 4,500 contracts of corn, and 3,500 contracts of soymeal. This selling set the tone for the day.

Soyoil is the only Chicago grain that is higher at midday as managed money covers a large net short position and there is growing awareness that Midwest cash soyoil is priced below tallow/imported used cooking oil. Spot demand for soyoil is rebounding on biodiesel seasonal considerations. Soyoil has priced itself into a larger biofuel feedstock share with meal prices under pressure as Argentine export offers become more numerous/aggressive.

Chicago brokers report that managed money has sold 4,200 contracts of wheat. 7,400 contracts of corn, and 4,100 contracts of soybeans. In the soy products, funds have sold 3,800 contracts of soymeal while buying 2,100 contracts of soyoil. There is new speculative interest in the oil share spread below 37%.

Brazil’s CONAB will revise their estimates of 2024 corn and soybean crops on May 14 (Tuesday). Normally CONAB releases their estimates prior to the USDA report, but this month it will be several days later. When CONAB released its crop forecast later in February, it appeared that Chicago had a larger market reaction. We will watch closely to see if that occurs again.

Egypt’s GASC has yet to announce a decision on its June wheat tender. However, there were 20 offers of wheat to GASC with included origins being Bulgaria, Russia, and France. The cheapest wheat offer was from Russia which including credit for 270 days and elevation costs, works back to around $226-227/mt fob ex the Black Sea. The tender confirms rising Russian wheat prices, and that quoted price offers of $227/mt fob are correct.

US weekly ethanol production rose to 284 million gallons, down 6 million gallons from last week, but equal to last year.

The midday GFS weather forecast is wetter for the Gulf states and most of the Delta for the next 10 days. Midwest planting opportunities will be present from today into May 15, before widespread rain develops across the Southern and Central US late next Wednesday. The rain is creeping forwards (and westward) in the forecast with excessive totals to hit the Gulf States. Corn/soy crops in the Gulf States are struggling with too much soil moisture already. Three new systems will exacerbate flooding. This area must be closely followed with near to above normal rain in the 11–15-day period.

Chicago values are sagging as traders ponder a likely bearish USDA Crop report on Friday. The managed money short covering rally has ended with traders expecting that Plains HWR wheat yields will be larger than private analyst forecasts. WASDE will also likely be conservative in trimming S American crop sizes. Funds are estimated to be long more than 70,000 contracts of soymeal on their early week buying spree while the Chicago wheat short is down to less than 20,000 contracts. We look for sagging Chicago values into Friday’s USDA report.

7 May 2024

Posted on May 7, 2024 by simon

HEADLINES: Fund buying slows and Chicago futures retreat; GFS midday weather forecast offers a dry week for Midwest seeding; RGDS flooding starting to recede.

Midday Chicago grain futures are mixed at midday with fund demand noted after the morning reopening. The fund buying was not as heavy as the past 3 trading sessions, suggesting that money managers are getting to flat or modest net short positions ahead of the USDA Crop Report due out Friday.

The bear spreading of futures is related to massive cash sales of old and new crops from US/S American farmers. US cash merchandisers advise that farmers have sold more crop in recent days the biggest days of the 2023 harvest. The cash pipeline has been refilled and cash basis bids are in retreat. Brazilian and Argentine farmers have also been active sellers with an estimated 2 million mt of Brazilian soybeans and 700,000 mt of Argentine beans moving yesterday. The recent Chicago rally has sparked sizeable farm selling.

Chicago brokers report that managed money has sold 1,200 contracts of wheat while being flat in corn and soybeans. Funds have sold 1,100 contracts of soymeal and bought 3,500 contracts of soyoil.

A growing share of RGDS (Brazilian) crushers are restarting operations as flood waters recede. And farmers are expected to restart harvest by late week in a soybean salvage operation. The moisture content of seed will be elevated which will require commercial drying. That said, loss estimates are in retreat with most targeting 0.8-1.3 million mt of production. S American meal basis bids are starting to relax as worry over lengthy Argentine labour strikes is waning. The next general strike is set for Thursday but is not expected to last more than a day.

The coming spate of warm/dry weather will allow for US crops to get seeded on a timely basis. We expect that US corn and soybean crop ratings due out in early June will be historically high with soil moisture largely restored. Initial US summer row crop ratings have little correlation to final yield, it is July and August weather makes that determination. Nonetheless, we expect considerable market volatility as traders react to improving US weather.

The midday GFS weather forecast is drier for the W Midwest and similar with rain across the E Midwest. The Midwest will enjoy a 6–8-day window to seed spring crops with near to above normal temperatures into May 16. For most farmers, it should allow for considerable planting progress. Showers return after May 16 in the west with dry weather holding a few days longer in the E Midwest. The details of the rain for the W Midwest are still be worked out, but totals of 0.25-1.50” are expected. High temperatures will range from the mid 60’s to the lower 80’s.

Managed money demand has slowed from recent days with cash basis bids retreating on large farm sales. And a new IA crush plant, Platinum, is operational and adding to US soy product supplies. It has a daily crush capacity of 110,000 bu. Midwest soil moisture has been replaced which provides a moisture cushion against summer heat. Chicago markets have got ahead of themselves with a break into early June forecast.

6 May 2024

Posted on May 6, 2024 by simon

HEADLINES: Massive speculative buying of Chicago grains as funds cover shorts; Midday GFS weather forecast adds rain for dry Russian wheat; Flooded RGDS adds to Brazilian supply uncertainty.

Midday Chicago grain futures are sharply higher in active volume with wheat/soybeans being the morning’s upside leaders. July Chicago soybeans have pushed to their best levels since January while July Chicago wheat reached its best level since late 2023. Corn has followed on the upside, but with less vigour, but non-US corn crop losses look to push 2024/25 US corn exports higher, thereby making corn and upside leader in the weeks ahead.

Managed money is now holding their largest short position in soyoil, which makes this market vulnerable to further short covering. The oil share spread has fallen to 35% on the soymeal rally which has reached our upside targets.

Chicago brokers report that managed money has bought 8,900 contracts of wheat, 14,500 contracts of corn, 11,100 contracts of soybeans, 9,100 contracts of soymeal, and 4,500 contracts of soyoil. From the opening bell, fund buying has been active on chart-based considerations.

Paris wheat futures have ripped to the upside and reached their best levels since September at €244.50/mt. Interestingly, EU farmers are not selling stored wheat as the May-September wheat spread has pushed out to a record €29-30/mt Euro premium. And the EU wheat farmer is concerned by crop quality amid all the recent rain and old crop stocks provide a blending opportunity. Managed money held a huge net wheat short position, which is being liquidated. Also, the Paris/Russian new crop spread has reached a record $34/mt amid a Russian cash market that is reluctant to follow.

Cash producer selling of wheat/soybeans and corn has been huge this morning. The farmer started to engage late last week, but their cash sales pace has really jumped this morning. We understand that Brazilian farmers have sold more than 1.5 million mt of soybeans with US farmers selling like amounts with the best cash bids of the year. Brazilian farmers have also started to price their second corn crop with the harvest across the Mato Grosso to start in 2-3 weeks.

RGDS in Brazil has a rolling landscape with soybeans on the sides of hills likely to be harvested but those in the lower areas are a loss in recent flooding. We see RGDS soybean losses at 1.5-2.5 million mt. RGDS holds about 16% of Brazil’s soybean crush capacity with at least half of that crush closed on flooding. That would amount to above 16,000/mt per day. Most cannot determine when the flooding will subside and when operations will come back online, but it all depends on future rainfall totals. The point is that Brazil will have lost crush capacity with Mother Nature determining when it returns. Thankfully, the midday GFS forecast is drier for S Brazil.

The midday GFS weather forecast is drier for the E Midwest vs the overnight run and similar in the W Midwest. There will be windows for spring crop seeding. One such window will emerge Thursday and last into the middle of next week. High temperatures will range from the 60’s to the 70’s. The forecast leans positive for planting across the Plains, W Midwest, and Illinois.

At current elevated Chicago prices, it will be difficult for Friday’s USDA report to hold a bullish slant. We expect that the week’s highs will be forged early with a break into Friday, and the USDA report. The midday GFS weather forecast has turned wetter for Russian winter wheat areas. Today, July Chicago wheat does not need to rally above $6.50 nor July soymeal above $390. The Chicago rally seems to be ahead of itself until summer weather patterns are known. The midday GFS forecast has added rain for the dry winter wheat areas of SW Russia.

3 May 2024

Posted on May 3, 2024 by simon

HEADLINES: Farmers sell cash corn on the rally; Corn futures pull back; US soybeans to unknown destination; Argentine transit strike only 3 hours on Monday.

Midday corn/soybean futures are higher in active volume with wheat being the upside leader. July Chicago wheat is testing last week’s high at $6.33 and has poked above the 200-day moving average ($6.28). Corn/soy are following wheat’s gain, but with less vigour as the week two Midwest weather forecast holds opportunities for spring seeding. The cool/dry forecast helps Midwest farmers achieve timely planting. Into May 12, another 3 storms are forecast for the Central US which slows seeding progress. Traders will closely follow Midwest weather forecasts on Sunday and early Monday for late May weather direction.

It has been a volatile Chicago week with large first notice day deliveries pressuring prices on Tuesday before unruly Mother Nature (too wet Central US/too dry W Russia/record flooding S Brazil) and corn stunt disease in Argentine corn all providing significant supply risks and the late week rally. USDA/WASDE will release their important May report next week with US winter wheat production estimates and 2024/25 balance sheets in play. The May USDA/WASDE report is expected to bearish, but without significant world weather pattern changes, traders will be looking to buy the break heading into the “guts” of the US summer row crop growing season.

The USDA reported the sale of 122,000 mt of US soybeans to an unknown destination. We see the buyer as being the EU with a financial US drawback for soyoil into renewable diesel. The CIF spread for US soybeans into Europe is positive beyond July. And August rapeseed futures have rallied to their highest price since October at €470/mt. The rising price of European/Canadian rape/canola oil is making soyoil attractive as feedstock for biodiesel/renewable diesel. Note that Argentine soyoil for August/September is trading at $800/mt or some $55-60/mt cheaper than fob Malaysian palmoil, which is historically rare which will jump soyoil demand into India/SE Asia.

Thursday’s final Chicago open interest showed inflows and a rise of 21,451 contracts in corn, 18,423 contracts in soybeans, and 1,111 contracts in Chicago wheat. The shocker was that meal open interest rising 15,330 contracts and soyoil 4,566 contracts. The gains in Chicago open interest speak of new money. Grains are the only commodity that have not rallied in 2024 which, in an inflationary world, makes sense to own (from a hedge fund manager perspective).

Chicago brokers report that managed money has bought 6,700 contracts of wheat, 2,500 contracts of corn, 4,300 contracts of soybeans, and 4,500 contracts of soymeal. Funds have been on both sides of the soyoil market and are flat.

The Argentine transit strike is expected to be short on Monday, no longer than 3 hours, followed by a more lasting strike next Thursday, if the Argentine senate does not veto the omnibus/tax bill that came from the lower house. Argentine labour strikes historically do not last very long, so it is a sharp rally and a sharp break in soymeal futures, depending on the latest strike rumours that are being threatened against President Milei.

The midday GFS weather forecast is like the overnight run and wet for the southern third of the US with 1.50-4.00” of rain in the next 10 days. The Upper Midwest and the Northern Plains will see near to above normal rain in a range of 0.5-2.00” into Friday, with a cool/drier trend in the week two forecast. Another three storms are lined up to impact the Central US into May 10. Drier weather follows with seeding restarting after May 14. Below normal temperatures are forecast in the week two timeframe via a ridge/trough pattern.

The CoT report should show funds holding a large net long in soymeal and an even larger short in soyoil. The oil share spread is back near the November low at 36%. Chicago wheat futures will stay highly focused on W Russian rain and their winter wheat crop size. Corn is a story of falling world production and expanding US export opportunity.

29 April 2024

Posted on April 29, 2024 by simon

HEADLINES: Soymeal rallies above last week’s high on renewed fund demand; US weekly export inspections lack surprises; Midwest farmers worried by wet forecasts.

US wheat futures fall sharply on the forecast of rain across SW Russia which would aid stressed winter wheat; Corn futures follow wheat lower with EPA’s Greet Model update release set for Tuesday; Soybeans bounce on long grain/short soy spread unwinding; Trader’s position ahead of first notice day against May Chicago futures with soybean/soyoil/wheat/corn deliveries expected.

Midday Chicago values are mixed in a reversal of Friday’s trend with the grains lower and soybean/soymeal futures higher. Traders are cleaning up May positions before first notice day tomorrow. Chicago wheat has been the downside leader as needed rain is forecast to fall across SW Russia. The Russian dryness and crop concern sparked the 60 cent US wheat futures rally last week. A correction is underway with key support forecast at $5.90 relative to July Chicago wheat futures. July corn has support below $4.42 while July soybean futures appears to be caught in a $11.50-11.95 trading range. We note that soymeal is gaining on oil via new fund buying of soymeal futures. The only Chicago grain that managed money is long is soymeal based on the premium of the cash market. However, as US crush facilities come back online from seasonal downtime, it is expected that cash meal basis will weaken amid the oversupply. Soymeal should be in the final corrective stage of the rally.

Chicago brokers estimate that fund managers have sold 3,800 contracts of wheat, and 4,900 contracts of corn. Funds managers have bought 3,400 contracts of soybeans and 3,700 contracts of soymeal, while selling 2,900 contracts of soyoil. The funds are back selling wheat with July Chicago futures fall back to test the 100-day moving average at $5.965. The $5.86-5.96 support should catch July Chicago wheat on this decline.

US export inspections for the week ending April 25 were; 48.3 million bu of US corn, 17.7 million bu of US corn, and 9.2 million bu of US soybeans. The soybean export pace was on the low end of trade expectations. For their respective crop years to date, the US has exported 1,244 million bu of corn (up 303 million or 32%), 1,423 million bu of soybeans (down 320 million or 18%), and 622 million bu of wheat (down 48 million or 7.5%). China shipped out another cargo of US wheat.

US farmers hope that the 10–15-day forecast is correct calling for more normal rainfall across the Midwest and the Eastern Plains is correct. The heavy totals that have fallen from LA northward into Minnesota have halted planting progress for (at least) the next 5-6 days. Drying weather is needed to firm soil and allows for heavy equipment to be supported again. We suspect that the weather models are too dry in the extended range and that an active Central US weather pattern could persist. This would push corn seeding progress backwards to mid to late May. And some farmers in the Delta and S Midwest may opt to switch acres to soybeans or take out the prevent plant option. A worry over delayed spring seeding/reseeding could emerge later this week.

Argentine crush and export laborers are striking on President Milei’s policy of higher taxes and worsening standards of living. However, the strikes are not expected to be long lived with workers in dire need of cash. Such labour strikes are commonplace in Argentina as new harvests arrive. Milei will not alter his austerity program with Argentine interest rates in fast retreat.

A series of storms will roll across the Central US over the next week producing additional rain with episodes of severe weather. Weekly rainfall totals are estimated in a range of 0.75-2.50” with the heaviest rains dropping across the Missouri Valley and the Delta. Midwest rainfall is forecast to range from 0.5-2.50” with the western half of the Plains holding in an arid weather pattern. A strong upper-level trough looks to pull through the Central US early next week adding fresh rounds of rain. Temperature will be variable with 90’s to invade the dry areas of the W Plains by midweek. Excluding the W Plains, the forecast is wet from the E Plains through the Midwest into May 8.

Wheat’s break on SW Russian rain set the Chicago grain tone. However, the dry weather trend across winter corn areas of Brazil while US farmers will struggle to seed their next 60-70% of the corn crop offers support. Argentine crushers/exporters are holding labour strikes as new crop harvest supplies grow. The strikes will not be long lived as the cash needs of the workers are acute. Seasonally, such export and crush strikes happen every year and spark temporary rally in Chicago soybean/soymeal futures. The Chicago soymeal rally is likely overdone for now.

26 April 2024

Posted on April 26, 2024 by simon

HEADLINES: Wheat extends rally; Plains/Black Sea forecasts not wet enough; US planting stalls next 7-10 days.

Chicago July wheat rallies to test 200 day moving average at $6.285 on fresh fund short covering; Soybean futures sag on worries that US farmers could shift acres from corn to soybeans on coming wet weather and cheaper seeding cost; Argentine farmers power ahead with the soy harvest as the Peso leads the world in appreciation vs the US dollar. The rising Peso and waning inflation have Argentine interest rates declining and farmers wanting to sell the new harvest.

Morning Chicago values are mixed with soy futures weaker and corn/wheat futures firm on inter-crop spreading. May Chicago options expire today which is likely to add volatility to the close. But as in recent Fridays, traders are adjusting their market risk downward amid world geopolitical worry with a large share of the world preparing for the May Day Holiday. Europe, Russia, and a host of nations in SE Asia will be on holiday for most of next week. We look for continued long grain vs short soy spreading and for oil to gain on soymeal due to Argentina’s return as the world’s largest soymeal exporter. US meal exports are in seasonal retreat and an abundance of cash soymeal will be produced as Midwest crush plants come back online from seasonal maintenance.

Chicago brokers estimate that fund managers have bought 2,600 contracts of wheat, and 2,900 contracts of corn. Funds managers have sold 2,400 contracts of soybeans and 1,700 contracts of soymeal, while buying 1,400 contracts of soyoil. Soymeal is the favoured fund leg of any short with the CFTC report to suggest that managed money is either flat or slightly long of soymeal through Tuesday’s close. The US wheat, soybean and corn shorts will be sizeable.

The USDA will require that dairy cows have electronic ID’s as they move across state lines as testing for bird flu dramatically ramps up. The FDA has found that 1 in 5 samples of milk have traces of HPAI, but the US milk supply remains safe due to pasteurisation. The USDA/APHIS and FDA will continue to work to assure the safety of US milk and dairy products. So far, there has been no evidence of consumer reluctance to buy and consume US dairy products.

The midday Delta/S Midwest GFS weather forecast is wet with 2-5.00+” of rain to fall across MO/IA/AR/OK into May 5. The rain is further south and west than the overnight run. The GFS forecast does not place meaningful rainfall into W or C Kansas. The forecast does NOT show any meaningful KS rainfall until the 11–15-day period. Central US temperatures will be warming with highs in the mid 60’s to the lower 80’s next week. Near normal rainfall is offered during the 11–15-day period to restart spring seeding. The risk is that Midwest corn seeding stalls as an active pattern holds across the Central US. The AI models have more rain that either of the conventional forecasts for the Central US.

Wheat is rightfully in a weather market. Corn awaits clarity over S American production, with sizeable supply risks still in place amid uncertainty over stunt disease in Argentina and a slightly premature end to Brazil’s wet season. Soybeans are nearly perfectly valued at $11.40-11.60, basis spot, and new input is awaited. N Hemisphere climate patterns are abnormal and managed funds are estimated to be short 500,000 contracts of corn, wheat and soy combined.