• Chicago ag markets are mixed, with corn higher on nearby export demand and wheat/soy a bit weaker on a lack of fresh fundamental news. Macro markets continue to stabilise despite ongoing elevated uncertainty surrounding China’s coronavirus. Spot WTI crude is $0.45/barrel at $53.60. Ethanol and gasoline futures have followed. The Dow at midday is up 200 points.

• Exporters this morning sold 124,000 mt of corn to Mexico for 2019/20 delivery. FAS’s daily reporting system since last Thursday has featured new corn sales of 522,000 mt. Weekly FAS corn sales are likely to reach/exceed 1.0 million mt in each of the next two reports.

• Argentine fob corn basis continues to firm. Fob basis this morning is quoted at $0.75-0.90/bu over Chicago futures for Feb-Mar. This compares to Gulf basis of $0.67/bu over. Argentine and US origin corn is offered near parity for Apr-May.

• Argentine corn basis typically begins its seasonal retreat once harvest reaches 30% complete (late April), but importers today see US corn as a more logical supply for winter/spring arrival. And recall managed funds are estimated to be short some 75,000 contracts of corn currently.

• However, US ethanol production margins remain negative in spot and deferred positions. The EIA’s weekly report on Wednesday will reveal further seasonal declines in US ethanol production, while a lack of export improvement will keep ethanol stocks at/above last year.

• Other news is lacking but European ag futures have turned positive at midday. Even rapeseed (and Chicago soy oil) futures have largely shrugged off incredible weakness in Malaysia’s palm oil market overnight.

• We doubt that coronavirus, with known information, will cause any lasting damage to global demand and trade flows. But we reiterate that it will take time to measure just how contagious and dangerous the illness is.

• The US forecast maintains heavy rain/snow across OK and central KS in the next 24 hours. A brief drop in US temperatures occurs beyond Feb 4, but bitterly cold readings will stay confined to the Northern Plains.

• 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. Net draws in soil moisture will persist in Buenos Aires, but two meaningful events will impact Cordoba and Northern Argentina in the next 10 days. The arrival of this moisture will prevent a pattern of excessive heat there during the first 10 days of Feb. Normal rain continues in Central Brazil. Excessive precipitation will stay confined to Minas Gerais the fringe producing areas in eastern Brazil.

• Sideways trading looks likely to occur into late February, but like a year ago rallies will struggle into Mar-Apr as S American crops are gathered.

• Chicago corn, soybean and wheat futures remain weak at midday. US and European wheat futures have crawled off session lows, but it is clearly a risk-off day for global financial and raw material markets. The Dow opened sharply lower and at midday is down 400 points. Crude and gasoline futures have fallen to lows for the recent move, with spot RBOB trading at $1.45, near a 12-month low. The plunge in energy markets has weighed further on both ethanol production margins and the incentive to boost domestic blending.

• Today’s weakness of course centres on the spread of coronavirus in China and East Asia, including Thailand, Singapore and Japan. The Yuan has been in a weaker trend since news of the virus broke. The ongoing spread of the illness will also, on the margin, negatively impact travel and other discretionary spending in Asia. But otherwise, there is little known about how far reaching or impactful coronavirus will be in the days and weeks ahead. For now, risk exposure is being reduced.

• Research suggests that US and world wheat markets will be most supported on breaks as exporter stocks will stay relatively tight into summer. But in addition to broad commodity selling, S American weather forecasts are improving, and US export demand is hardly exciting.

• US export inspections through the week ending Jan 23 included 23 million bu of corn, vs. 16 million the prior week but against an average of 40 million bu required to meet the USDA’s forecast. Soybean inspections totalled 38 million bu, vs. 44 million the prior week. US wheat shipments were just 8 million bu, vs. 19 million the prior week. Work continues to suggest that the USDA’s US corn export forecast is 75-100 million bu too high, even assuming the arrival of Chinese buying this spring.

• Needed moisture is forecast to impact much of Europe and the Black Sea in the next 10 days. Heavy snow is due in Central Europe, Ukraine and the northern latitudes of Russia this week. Rainfall of 0.25-0.50″ will impact Southern Russia. There is still some concern over abnormal warmth in the Black Sea, but no change to bitterly cold temperatures is indicated into mid-February. The coming boost in soil moisture across France and Germany will be welcomed.

• The midday GFS weather forecast is consistent in allowing better rainfall to spread into Northern and Western Argentina beyond the next 24 hours. Light showers will dot much of Argentina at mid-week. A more potent system is advertised Feb 3-6. Cumulative totals of 1-2″ will impact Argentina’s northern crop belt in the next 10 days, while the GFS maintains below normal precipitation in Buenos Aires. Recall the EU model is more expansive with coming Argentine precipitation, and key in the next 1-2 days is how the models come to agreement. We note that the EU model remains the better performer – for now. Normal showers persist in Brazil, with excessive totals 5″ plus isolated to pockets of Goias and Minas Gerais. Soy harvest in Mato Grosso will continue normally.

• We would advise against chasing breaks amid rampant market uncertainty. Yet, the extent of any recovery in corn, soy will be a function of S American production longer term.

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Weekend summary 24 January 2020

• Chicago corn, soybean and wheat futures are mixed at mid session. It is all about US export demand potential in determining morning Chicago price action. Soybeans are weaker as China is showing no interest for nearby US soybeans while China could book US corn as it is the cheapest feedgrain in the world with TRQ import licenses outstanding and active. Wheat is rising on world values (gains in French and Russian markets). French grain markets are embroiled in a labour/transit strike while Russian farmers are tight fisted with existing old crop wheat stocks. At some point in mid to late February, we expect that Russian farmers will wake up to the hefty old vs new crop premiums of over $24/mt. Chicago has a firm feel, the risk as we see it is to the upside into the weekend.

• Chicago brokers estimate that funds have bought 4,600 contracts of wheat while selling 3,100 contracts of corn and 7,400 contracts of soybeans. In soy products, funds have sold 4,300 contracts of soyoil and 2,200 soymeal. US weekly export sales for the week ending January 17 were; 13.6 million bu of corn, 44.0 million bu of soybeans, and 16.0 million bu of wheat.

• For their respective crop years to date, the US has shipped out 371 million bu of corn (down 440 million or 54% from last year), 888 million bu of soybeans (up 170 million or 24%) and 585 million bu of wheat (70 million or 13.6%). The US corn export pace is pitiful and calls for a further 100-150 million bu in 2019/20 US corn exports. Even if China were to secure 2-3 million mt of old crop US corn, it is hard to statistically justify the USDA annual forecast.

• There is no UDSA confirmation that China booked US corn off the PNW for spot shipment last Friday. Cash sources report that they cannot rule out that a few cargoes were sold, but other than China asking for PNW and Gulf fob corn offers, nothing else appears to be occurring. China sources speculate that China could book US ag commodities before the Spring Festival holiday which starts on Saturday, but most expect that China will wait until early February before becoming more active buyers. The US/China Phase One agreement calls for China to activate US pork by no later than January 25, while the grains have 30 days, February 25. Amid a potential bullish Feb US WASDE report that includes China demand for US ag goods is expected to underpin Chicago grains.

• The midday GFS weather forecast subtracted rain from Argentina while adding it to Northern Brazil. The 10-day Brazilian rainfall forecast now includes totals as much as 5-8.00″ which will produce localised flooding. Argentina will be dry for much of the 10 and 14 day forecast as soil moisture declines. The falling soil moisture profile will introduce the potential for heat next week with highs ranging from the upper 80′s to the upper 90′s. The forecast has to be watched with the early soybean harvest underway across Mato Grosso and Goias.

• The declining soy/corn ratio has Midwest farmers talking about planting more corn. The new crop soy/corn harvest ratio stands at 2.37. The next downside price target for March beans rests at $9.00-9.05, a 61.8% retracement of the Nov-January rally. We would not advise a bearish bias below $9.00. Wheat has pushed to new rally highs and we expect that March corn will try to test $3.92 resistance this week. Until there is greater harvest pressure generated from N Brazil, Chicago has more upside potential than downside risk.

• Chicago futures are weaker at midday, with corn and wheat futures extending overnight losses. Phase One’s seeming confirmation that China will buy US ag products according to needs and market conditions has been the focal point of the market today. This at the least places more pressure on actual confirmed demand from China beginning in mid-February. The market won’t likely receive any more details regarding Phase One following the release of the text on Wednesday afternoon. We would note that Chinese demand for US goods will operate outside of traditional Chinese import protocols.

• The Chinese government is fully expected to issue tariff waivers on needed products, especially meats, which will reduce the burden of higher costs and makes current import margin analysis difficult. Yet, it remains that global grain supplies will be more than adequate longer term amid profitability in Brazil and the Black Sea. Bull markets need constant fuel.

• US export sales through the week ending Jan 9 were higher than the previous week across the board. Corn sales totalled 31 million bu, vs. just 6 million the prior week. Wheat sales totalled 24 million bu, vs. a meagre 3 million the prior week. Bean sales were 23 million bu, vs. 13 million, and weekly meal sales totalled 375,000 tons, the largest of the crop year so far.

• For their respective crop years to date, the US has sold 760 million bu of corn, down 40% from last year, 1,120 million bu of soybeans, unchanged from this week a year ago, and 720 million bu of wheat, up 9%. We have no major disagreement with USDA wheat and soy export forecasts, but corn exports are still viewed as 50-75 million bu too high, even with modest Chinese purchases in 2019/20.

• Needed rain is falling across Eastern Australia, with additional totals of 1-2″ to impact the eastern sections of NSW and Queensland. Longer term climate forecasts suggest Australian drought continues into spring, but recent and coming precipitation will rebuild following devastating fires.

• NOAA’s Feb-Apr climate forecast was updated this morning. Near normal temperatures and precipitation are forecast into the middle of spring across the primary Corn Belt. A wet/cool pattern may linger across the far Northern Plains. NOAA cites current warmth across the equatorial Pacific. However, a full-blown El Niño is unlikely in the coming months. Neutral ENSO is projected through the early part of the US growing season.

• The midday GFS weather forecast has again added to precipitation totals in Central Brazil through the next 10 days but is otherwise unchanged. Pockets of dryness in Mato Grosso, Goias and Minas Gerais will be eliminated by late January. A drier climate develops in Central Argentina and Southern Brazil. This is not yet a concern, but regular Argentine rains will be needed no later than early February.

• March corn has fallen below all major moving averages. A close below $5.55, March Chicago wheat, accelerates fund liquidation. We holds a neutral bias into late winter.

• Chicago futures are mixed at midday with wheat firmer and corn/soybeans slightly lower as large S American crops continue to be made by timely rainfall. We note that again better than expected precipitation fell across key Argentine crop areas overnight. 5-day precipitation accumulation across crop-heavy areas of Cordoba, Santa Fe and northern Buenos Aries range from 3.5-6.5″. A drier pattern is offered to Argentina, but nearby improvement in vegetation health will be ongoing. The message is that only exporter wheat balance sheets feature real fundamental tightness ahead of S America’s harvest.

• US wheat futures have found newer seasonal highs as most trade participants expect coming Chinese demand for higher protein varieties in 2020. And Chicago futures continue to act as a proxy for the major exporter balance sheet, which is the tightest in 6 years. It is tough to be bearish wheat into February, but new sales have been made as we are concerned over the return of Black Sea farmer selling while world trade seasonally slows.

• The US and China’s Phase One agreement has been signed to mixed market fanfare. Aside from wheat’s rally today, US ag futures, including dairy, have done little. The Dow is up 163 points. Crude is down $0.40/barrel despite a modest drawdown in US crude stocks last week.

• Most important will be Phase One’s enforcement mechanisms should China fail to meet its spending targets by 2020. There is also doubt that a Phase Two agreement will be reached anytime soon, with the US and Chinese press at odds as to when Phase Two talks will even begin. Phase Two is required to further ease US tariffs on Chinese manufactured goods. Phase One text is not yet available.

• US ethanol production through the week ending Jan 10 totalled 322 million gallons, up 9.7 million on the previous week and a record for early January. Cumulative weekly ethanol production sits at 5.73 billion gallons, down 1% from last year and in much better alignment with the USDA’s forecast. However, ethanol stocks were up another 23 million gallons to a 15-week high 966 million.

• US gasoline stocks last week were up 6.7 million barrels. US gasoline stocks at 258 million barrels are the largest on record for early January, and the further build has pressured US energy markets at midday. Spot ethanol is down slightly at $1.35/gallon. Futures-based margins sit fractionally above breakeven. Improved ethanol export demand, potentially to China, is needed to provide incentive to plants and blenders moving forward. So far in 2020, weekly residual ethanol disappearance, the best measure of exports, is down 36% from last year.

• The midday GFS S American weather forecast is wetter in Central Brazil in late January but otherwise unchanged. The GFS allows soaking rainfall to expand a bit farther southward Jan 23-30. Rainfall of 3-6″ will impact Mato Grosso, Mato Grosso do Sul, Minas Gerais and far northern Brazil in the 8-15 day period. This rain very likely provides enough to finish crops should it verify. Nearby, moderate rain impacts N Argentina and Southern Brazil in the next 48 hours before drier patterns are established there.

• Wheat’s rally is viewed as function of tight exporter stocks/use and a rising need for favourable Northern Hemisphere spring weather. Corn/soy balance sheets, however, loosen substantially with semi-normal weather in 2020.

• Chicago futures are mixed at midday in moderate volume with everyone trying to guess if China will secure US ag goods (if anything) following Wednesday’s Phase One Agreement signing. The bulls argue that China will make purchases prior to their January 25 Lunar New Year holiday with the bears claiming that China will sign the agreement and then do nothing.

• We expect that China will start their ag buying and adhere to quarterly purchase promises that will be closely followed by USTR. China will not be allowed to wait until the final days of an annual agreement and then “buy it all”. Rather China will conclude regular purchases that will be watched closely by both sides. We expect that China will secure what it needs, US pork, DDGs, ethanol and soybeans. However, we would point out that open interest in Chicago corn/wheat/soybeans has recently been surging.

• Research calculations suggest Chicago corn open interest has risen nearly 60,000 contracts in the past 6 trading sessions while wheat is also up sharply. On Monday, Chicago corn futures open interest was up another 8,153 contacts, wheat up 10,927 contracts with soybeans up 7,123 contracts.

• The sharp rise in open interest has some speculating that China has been securing US futures for forward purchase coverage. We would suggest that the index fund rebalance is also underway and that it is not fair to suggest that all that demand is from China. However, the futures buying has traders on alert that China may be buying futures to engage in a versus cash in the future. The 86-page Phase One Agreement is expected to be released Wednesday morning.

• Chicago brokers estimate that funds are flat in corn, have bought 4,000 contracts of Chicago wheat and 4,200 contracts of soybeans. In soy products, funds are flat of soymeal while buying 3,100 contracts of soyoil.

• Egypt’s GASC secured 240,000 mt of Russian/Romanian wheat at prices that range from $235.30 to $237.00 with freight rates that range from $12.90 to $13.55/MT. Russia sold 180,000 mt while Romania sold 60,000 mt. The purchase covers GASC wheat milling needs into late March. We look for GASC to tender another few times before the arrival of their own wheat harvest in April and May. Turkey has also covered its wheat import need into late March today in a tender.

• The GFS weather forecast is slightly drier for Argentina and more in line with the overnight EU model solution. The remainder of Brazil and Northern Argentina looks to receive adequate rainfall, with their being no hint of any extremely warm temperatures. The combination of cool temperatures and at least normal rainfall is boosting the Brazilian soy crop. A cold front is pushing through S Argentina and producing a few spits of rain. Better rain chances are forecast this afternoon and evening. The rains then push into S Brazil late Wednesday/Thursday. Dry weather follows with improved rain chances returning mid to late next week. The forecast remains generally favourable for S American crops with rain needed across S Argentina.

• Chicago wheat pushed to new rally highs with March corn unable to rise above last week’s high at $3.92. Soybean futures are sagging on the growing S American supply prospect. China is “chock full” of beans amid large November/December imports. Chinese crushers are having trouble moving meal and stocks are building. It is all up to China whether they make new purchases which can push wheat/corn to new rally highs.