• Chicago ag futures are up slightly at midday. Chicago wheat futures have recovered as major chart-based support was neared as the market began to flirt with oversold territory. But it is macro market strength that is leading the charge as the trade expects the impact and spread of coronavirus to peak shortly. Spot WTI crude is up $1.45/barrel at midday, despite another build in US crude stocks, with the Dow up 200 points.

• The number of new coronavirus cases has been on the margin slowing, with Chinese state officials urging food processing industries to resume normal workflows. Chinese soy crushers are beginning to return to pre-virus levels of activity after operating at just half-capacity last week.

• There is a dire need to boost near-term food supplies within China. Medical officials are suspecting the virus outbreak may end entirely by April. It is difficult to be precise and prior calls for peak virus incidences were a bit premature. But the slowing of new cases will likely boost sentiment and consumer spending in East Asia moving forward. Calls within China to alter Phase One commitments persist, but longer term, coronavirus looks to lose its impact on global financial markets by mid/late spring.

• US ethanol production through the week ending Feb 7 totalled 304 million gallons, a sharp, but seasonal, drop from the prior week’s 318 million gallons. Cumulative weekly US ethanol production sits at 6.97 billion gallons, down a modest 28 million from early Feb a year ago. Recall the USDA raised ethanol’s corn demand draw to 5,425 million bu, 49 million above last year. Monthly ethanol yields will be watched carefully moving forward.

• Ethanol stocks last Friday were up 37 million gallons to 1,023 million gallons. This is a record level for early Feb and is the fourth largest figure for any week on record. Improved ethanol export demand is needed.

• Other news is lacking. Key nearby will be weekly Brazilian soy harvest and safrinha seedings data. But we doubt a new trend will be established ahead of the USDA’s 2020 Outlook Forum balance sheets, due next Thursday. This will give more insight into the USDA’s expectation of US export demand following the signing of Phase One.

• The midday GFS weather forecast is slightly drier in Central Brazil in the next 10 days, though normal/above normal precipitation will return to the region beyond early next week. It remains that the jet stream moves southward in the 8-15 day period. High pressure ridging will exit Brazil. This will allow for daily shower activity to be established into the very end of the month. Soil moisture will be abundant for newly planted safrinha corn, but whether the crop can be completely planted prior to the first week of March is most important. Rainfall returns to Argentina next Mon-Tues. Argentine crop production potential is rising.

• Chasing breaks and rallies is unwise, and not until US and Brazilian weather in March-April is better known will a clear trend develop. The spark needed to be outright bullish will be lacking amid tepid world GDP growth and strength in the US$, which is nearing a 4-month high.

• The USDA February Crop Report held few surprises with US 2019/20 corn end stocks holding steady while US 2019/20 wheat and soybean stocks declined. The report was supportive to soybeans, while being neutral to the grains. It is the February USDA Outlook new crop S&D’s that will more fully reflect China demand based on the Phase One US/China deal. We do not see today’s WASDE report as changing prevailing choppy Chicago price trends.

• WASDE raised China’s 2019/20 world soybean imports by 3 million mt to 88 million. They also raised China’s 2019/20 wheat imports by 800,000 mt to 4.00 million mt. WASDE held steady their estimate of corn imports at 7.2 million mt which fully reflects their TRQ requirement under the WTO. China cotton imports were also unchanged.

• In world crop production, WASDE raised their estimate of the 2020 Brazilian soybean crop to a record large 125.0 million mt with their corn crop at 101.0 million mt. The 2020 Argentine soybean crop held steady at 53.0 million mt and corn at 50.0 million mt. The Brazilian soybean crop was record large at 125.0 million mt with its exports were hiked to a record 77.0 million mt.

• US corn 2019/20 end stocks held steady at 1,892 million bu. WASDE raised us ethanol demand by 50 million bu to 5,525 million while reducing exports a like amount to 1,725 million bu. The annual average farmgate price held steady at $3.85. We note that WASDE chose not to indicate that China would not secure US old crop corn.

• US soybean 2019/20 end stocks fell 50 million bu to 425 million with WASDE hiking US soybean exports by 50 million bu to 1,825 million. WASDE estimated that of China’s increase imports of 3.0 million mt to 88 million, the US would receive about half the business. WASDE cut their estimate of the annual farmgate price to $8.75, even with the Phase One Deal signed and US soybean stocks declining.

• US soyoil end stocks rose 69 million pounds to 1,515 million pounds with domestic use cut 400 million pounds while exports were raised 200 million pounds. Production was also adjusted downward leaving stocks that are still historically tight.

• US 2019/20 wheat end stocks fell 25 million bu based on a like hike in exports to 1,000 million bu. The average farmgate price held at $4.55/bu.

• WASDE took a conservative view of how much China demand will be forthcoming in an old crop position for corn, wheat and soybeans under the Phase One Agreement. WASDE did adjust US pork exports upwards to a record, but like traders, WASDE wants to see/measure/taste Chinese purchases of US ag commodities before raising estimates and making a bold US export statement. Farmers/traders are disappointed, but it is the arrival of real China demand that will spark a Chicago rally. February 15 is only a few days away for the commencement of the 2020 annual China purchase program.

• Chicago is stuck in a price trend that we have been reflecting on for much of the past 10 days. S American crops are huge which will weigh on Chicago prices when US summer row crops are planting in April/May. However, the bears must be careful not to press their luck too much with China demand potentially lurking in the last half of February. Patience is required, but we expect that China will step forward with initial purchases that spark a Chicago rally. It is all about timing.

• Chicago grain markets are mixed at mid session with soybeans firm, while the grains sag with corn giving back all of Friday’s gain. The large fund short in soybeans is spurring the bounce along with rumours that 2-3 cargoes of US soybeans sold to China in a new crop position.

• The China sale is modest but combined with the near record short position in soybeans by funds, it has spurred short covering ahead of Tuesday’s USDA February crop report. Chicago bulls remain hopeful that China issues duty free import licenses around Feb 1. Hints of demand for US sorghum and the morning US soybean sale to China have rekindled hope regarding Phase One Deal compliance. We look for a mixed close and choppiness into the February USDA report. The bulls have a window from now into the USDA Outlook Meeting to make a stand.

• Chicago brokers estimate that funds have sold 3,500 contracts of wheat, 2,100 contracts of soyoil and 2,600 contracts of corn. Funds have bought 5,400 contracts of soybeans and 4,400 contracts of soymeal. We are not seeing any meal/oil spread unwinding, just outright short covering in soymeal futures.

• Algeria is rumoured to have bought 500,000 mt of French wheat at a CIF price that was like their last tender. The FOB price of French wheat was up, but the freight costs were down which allowed for Algeria to pay a landed price that was like their last tender of January 20. Algeria has now covered their wheat import needs into spring.

• US weekly export inspections for the week ending February 6 were; 30.3 million bu of corn, 19.2 million bu of US wheat, and 22.2 million bu of soybeans. Wheat exports were on the high end of expectations while US soybean shipments were disappointing.

• For their respective crop year’s to date, the US has exported 425 million bu of corn (down 463 million or 51%), 1,000 million bu of soybeans (up 165 million or 20%) and 631 million bu of wheat (up 66 million or 8%). We expect that WASDE will trim its US corn export estimate on Tuesday. There is no way of knowing how much if any US corn that China will secure in an old crop position.

• The Brazilian Real is priced at 4.31:1 US$ and the Argentine Peso at 61:1 as key ag export currencies continue their decline.

• The Brazilian Central Bank lowered their borrowing rate to a record low 4.25% last week with Argentina negotiating with the IMF this week over debt payments. We expect the Real, Peso, Ruble and Ukraine Hryvnia will all stay depressed adding to the profitability of non-US farmers. Brazil has dropped its Central Bank lending rate by nearly 9% over the past year, a big deal!

• The midday GFS weather forecast is wetter for Argentina with similar rains for Brazil. Temperatures are a few degrees cooler for Argentina than the overnight run. We see no crop problems for either Argentina or Brazil. The initial crop harvest is well underway across much of Brazil and winter corn is being seeded normally. The recent and upcoming rains are raising Argentine corn/soy yield potential.

• China’s inflation rate soared to 20.6% in January with pork prices up 116%. Amid coronavirus, China must do something to pressure domestic meat and consumer prices. USDA’s February WASDE report aside, traders are hopeful that China could soon issue duty free import licenses.

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Weekend summary 7 February 2020

• Chicago grain markets are firm at midsession on diminished selling as the US DOW index rallies 500 points as the fear of coronavirus is in retreat. The volume of Chicago morning grain trade has been modest. Aggressive sellers that were present late last week are no longer evident. Traders are leery about being overly bearish following the 2-day injection of $1.6 trillion yuan into the Chinese economy. Such massive economic stimulus can produce pent up commodity demand when virus worries wane.

• We find it somewhat premature to suggest that the worst of coronavirus has passed, but following recent sharp commodity losses, a bounce was due. Traders will be closely assessing the medical progress in fighting coronavirus going forward. Any drug or mixture of drugs that fights coronavirus will cause short covering.

• Chicago brokers estimate that funds have bought 3,000 contracts of wheat, 4,000 contacts of corn, and a net 800 contracts of soybeans. In soy products, funds have bought 2,000 contracts of soyoil while selling 2,000 contracts of meal.

• US White House Economist Kudlow stated that the export boom from the US/China Phase One Deal could be delayed, but that the economic impact would be minimal. The US/China Phase One Deal is a multiyear commitment. We note that China’s commerce minister stated overnight that China would be looking to world ag imports to stem the developing foodstuff shortfalls. China may ask for deferrals on energy commitments, but in terms of food needs, coronavirus has created a more acute need for imported meat and other US food ready products.

• We doubt that the Trump Administration will alter any Phase One China purchase commitments with the yearlong agreement not even started. Rumours persist that China could release duty free import licenses for US ag goods in coming weeks.

• Brazilian soybean exporters report that China has been more active in securing 5-7 cargoes of soybean cargoes for April. Brazilian soybean cargoes are selling below the US Gulf for April.

• Thailand is reporting that that it is seeing a benefit of mixing a cocktail of drugs in treating coronavirus. However, it is too early to declare any gold standard mixture for treatment. It is hoped that the medical community will uncover treatment mixtures/methods that becomes effective for critical to serious patients. It is all about further lowering the mortality rate.

• The midday GFS weather forecast is too wet for Northern and Central Brazil with rainfall totals raised from the overnight solution to 5-10.00″. Such rains will slow the harvest and cause concern for the winter corn seeding. This will become more of a market topic if the wet trend persists. We note that the 11-15 day forecast maintains the wet trend into February 20. Optimal seeding dates for winter corn run from early February into mid-March. Corn seeded after mid-March struggles with the dry season that often starts in late April and May.

• Chicago values are bouncing with Monday’s losers being today’s winners. We remain confident that China will adhere to its Phase One Purchase Agreement and start releasing duty free import licenses in coming weeks. The real struggle for Chicago is not coronavirus, but the tug-and-pull from the world’s oversupply of grain/oilseeds and China’s sporadic US buying to occur under the duty-free licensing system. Research awaits China demand to finish 2019 sales and work into a larger short position for 2020 crops. S American crop sizes are too large to sustain a China purchase rally.

• Chicago grain markets are mixed in slow volume with few traders wanting to add to their risk ahead of the weekend. The US stock market is in big retreat expecting that China and Asian equities will come under sizeable pressure next week. The US Dow is off 400 points on liquidation amid the Cororna virus fear.

• We look for a mixed close with everyone watching China’s return from the holiday on Monday. Questions abound on whether China will be seeking (more or less) food in coming months based on the virus outbreak.

• In 2003, China booked additional food to fill the domestic void. Traders wonder with the Phase One agreement becoming active, will China will be doing the same in 2020. China should be issuing duty free import licenses in coming weeks as the 30 days to activate the Phase One pact passes.

• Chicago brokers estimate that funds have sold 2,000 contracts of corn, 3,200 contracts of soybeans, and 2,500 contracts of wheat. In soy products, funds have sold 4,400 contracts of soyoil and 2,300 contracts of soy meal. Today marks the end of the month, funds have not a good start of 2020. Most are heading to the sidelines and liquidating length amid the fear of a worsening coronavirus outbreak next week.

• Measuring the economic impact of coronavirus is impossible to gauge today. That will depend on how long the virus persists and whether the world medical community can come up with an effect treatment method. Historically, SARS did not produce a decline in China/World food consumption, but the concern did not totally fade until spring. The big question for this novel virus is whether it will linger and cause a lengthy period of medical/economic worry. We just don’t know today, but sources in China say consumers are worried about food supplies and making sure their own stockpiles are adequate.

• US exporters reported that 134,000 mt of corn to South Korea for the 2019/20 crop year.

• US Biodiesel production fell to 127 million gallons in November, from 144 million gallons in November of 2018. The amount of soyoil used in November 2019 biodiesel production was 527 million pounds or 54% of the total. The stats were slightly bearish amid the lack of a blender’s credit. Yet, US domestic and export demand looks to underpin Chicago soyoil futures on any further break.

• US and S American farmers are shutting down their cash sales which is starting to underpin cash basis. If Chicago drops further next week, we doubt that farmers will be scared into making cash sales.

• The midday GFS weather forecast is similar to the overnight run with solid rain for much of S America. No extreme heat is offered which will help Argentine corn. The forecast leans positive for S American yields.

• China regionally will be getting back from the Lunar New Year and it will be interesting to monitor the flow of food from vessels into interior distribution hubs. Food shortfalls are noted throughout China today and the Government cannot allow the shortages to deepen amid the fear of coronavirus. Demand shocks are possible.

• Today is the end of the month with fund liquidation evident. This is no place to turn bearish unless you think that China will not adhere to Phase One US ag purchase promises. Research looks for China to keep its ag purchase pledges. Ag bottoms should be forming early next week as “risk off” runs its course. March soybeans and soyoil are near key support.

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Weekend summary 31 January 2020

• Chicago grain markets are lower as funds sell amid the general decline in a host of commodity markets tied to coronavirus and Brexit. The end of the month looms and January has not been a kind start of the year for many managers. Risk off is the theme with grains/livestock under acute selling pressure. China’s financial markets will reopen on Monday and strong selling is anticipated, following the losses in other world financial markets amid the coronavirus’s deepening drag on China’s economy.

• The Hong Kong stock market fell 3.5% while Taiwan fell 5.5% overnight. Seasonally, as China returns from its Lunar New Year, US ag futures normally rally on the anticipation of fresh China buying. The fear today is coronavirus could impact on the Phase One Deal ag purchases with the US.

• Chicago brokers estimate that funds have sold 7,000 contracts of corn, 5,400 contracts of soybeans, and 4,200 contracts of wheat. In soy products, funds have sold 4,300 contracts of soyoil and 2,900 contracts of soymeal.

• GASC secured 180,000 mt of French wheat for March 11-25 shipment. The cost of the wheat purchased was $231.10/mt basis FOB plus an estimated $15.00 for freight. This purchase was down $5.10/mt from their purchase of last week which including mostly Russian/Ukrainian wheat. GASC has now covered their import needs and the window for additional purchases before their April/May wheat harvest is closing, when Egypt normally looks to secure its own domestic crop for milling needs.

• The WHO (World Health Organization) stated that coronavirus is not a not a global health emergency. The new virus is causing acute sickness and an unfortunate death of 2.2% of those infected. The mortality rate has been in decline for the past few weeks with those perishing largely elderly or the young. The decline in the mortality rate is good news and will help calm nerves following the China’s return from the Lunar New Year on Monday.

• US export sales for the week ending Jan 23 were; 23.7 million bu of wheat, 48.6 million bu of corn, and 17.3 million bu of soybeans. For their respective crop years to date, US wheat sales are 769 million bu (up 111 million or 17%), 848 million bu of corn (down 423 million/33%) and 1,164 million bu of soybeans (up 48 million) or 4.3%.

• US soymeal sales were (again) huge at 438,800 mt with soyoil sales at 29,400 mt. US soymeal sales are above last year while soyoil sales are up 143,000 mt or 34%. The US soy product sales pace should rally US crush margins.

• The midday GFS weather forecast is like the overnight release with good rains across much of S America. No extreme heat is offered which will aid crops in both Brazil and Argentina. Research maintains that Brazil will harvest a record large soybean crop in 2020. The Argentine rainfall prospects look to improve during February.

• Chicago markets are under acute pressure on fund sales and the confirmation of the first human to human transmission of coronavirus in Illinois. The coronavirus risk is front and centre and it is a risk off day. The trading focus will shift to the February 11 WASDE report and the likelihood that China will issue duty free import licenses to restock their shelves in the coming week. This is no place to make new sales.

• Chicago ag markets are mixed with any directional passion lacking. The volume of trade is slow with uncertainty hanging heavy regarding coronavirus and what, if any, impact it will have on Chinese purchases of US ag products. We look for a mixed trade with Thursday’s weekly export sales report to underpin corn and livestock markets on the expectation for sizeable new sales.

• Wheat futures are sinking amid the likely increase in sales from Russia from mid-February onward as the spread between old and new crop prices equates to nearly $0.80/bu. There is no incentive for a Russian farmer to store wheat beyond March. Moreover, the Russian ag ministry has stated that it will offer annual export quotas for grain exports to help manage its domestic supply.

• Russia did not alter its expectations for 2019/20 Russian grain exports with wheat staying put at 36.0 million mt. Russian wheat exports have slowed dramatically since October as Russian grain prices started to rise. Research argues that 2019/20 world wheat demand was front loaded which means that Russian wheat exporters will have to become more competitive ahead of their new crop. Research argues based on pace analysis that 2019/20 Russian wheat exports could decline to 32-33 million mt.

• Chicago brokers estimate that funds have sold 2,400 contracts of Chicago wheat, 3,000 contracts of corn, and 1,900 contracts of soybeans. In soybean products, funds have sold 2,100 contracts of soyoil and 2,600 contracts of soymeal.

• US President Trump inked the new USMCA this morning. The new deal will assure US agriculture with both bordering neighbours.

• USDA Sec Purdue indicated that he had no idea whether the coronavirus would affect China’s pledge to secure US farmgate goods under the January 15 Phase One Trade agreement. We hear that China has been in touch with the US, but China has until July or August to meet its purchase pledges before USTR would call out China and ask for discussions. The point is that the debate on what China will or not do will persist. China is likely in the coming weeks to announce/release duty free import licenses so that its importers can step forward and make new US ag purchases outside of the TRQs that are already in force. China can secure US corn with TRQ import licenses already issued.

• The midday GFS weather forecast is wetter in Argentina compared to the overnight release. This puts the GFS in better alignment with the EU model’s forecast and adds to our confidence that extreme dryness will be averted across S American during February. No extreme heat is offered which will aid crops in both Brazil and Argentina. Research maintains that Brazil will harvest a record large soybean crop in 2020.

• This is no place to make new sales with Chicago lows likely scored earlier this week amid coronavirus fears. Yet, Chicago rallies won’t be sustained unless actual Chinese buying of US ag goods is confirmed.

• US President Trump appears confident in his call for US farmers to buy larger tractors and more land amid China’s expected ag purchase plans at a USMCA signing ceremony. Chicago wants to see actual China demand before reacting with any upside vigour. Research expects that China will return from its Lunar New Year holiday with concrete plans for US ag purchases.

• We expect that China will issue duty free licenses for new purchases in the coming weeks.