• It has been a low volume morning with initial limited interest from fund traders. Chicago in the reopen, came under pressure, tried to bounce before more aggressive selling then pushing values down to new daily lows. Volume today is down some 15-25% from recent weeks.

• Chicago lacks any “upside spirit” with traders expecting that US corn and soybean crop ratings improve later this afternoon by 1-2% in the good/excellent category following last week’s rainfall. Chicago traders need to see a statistical reason that US corn/soybean yields are well below NASS to engender a late summer market bounce.

• The Pro Farmer Tour this morning indicated that Dakota crops are behind normal, but they are generally healthy depending on the length of the growing season.

• We would note that you cannot trade a frost/freeze risk until it shows up in the10-14 day forecast. The earliest that such concern could arrive is mid-September or about a month away. The market knows that crops are delayed in maturity, but it has no way of measuring what it might or might not mean to lost production or yield.

• Chicago brokers estimate that funds have sold 2,600 contracts of wheat, 3,200 contracts of corn, and 2,700 contracts of soybeans from the reopen. In soy products, funds have sold 3,100 contracts of soyoil and 1,100 contracts of soymeal. Funds are modest net Chicago sellers this morning, but the volume does not suggest any real passion by the bulls or the bears.

• US export inspections for the week ending August 15 were; 20.0 million bu of corn, 42.6 million bu of soybeans, and 18.0 million bu of wheat. China shipped out 20.3 million bu of soybeans or nearly half the US’s weekly total. China has some 103 million bu of us soybeans that are sold, but not shipped in an old crop position. US soybean weekly exports are expected to “stay bright” for a few more weeks as China adheres to its pledge to execute Government purchases of US soybeans. US vessel nominations to load out to China are staying strong.

• For their respective crop years to date, the US shipped out 200 million bu of wheat (up 40 million or 25% from last year), 1,817 million bu of corn (down 353 million or 16%), and 1,597 million bu of soybeans (down 409 million or 20%). The export pace heading into the end of the crop year smacks of a slowing trend for new crop amid cheaper S American, Black Sea and Romanian grain offers. The US is the most competitive in soybeans by a wide margin, yet it can only fill non-Chinese demand based on the prevailing US/China trade war.

• Black Sea wheat prices are sliding to start the week with values down $2-3 with offers at$192/mt for September and there being few bids.

• The GFS midday weather forecast is wetter across the southern half of the Midwest/Delta and drier across the N Plains and the NW Midwest than the overnight run. Some 1-3.00″ of rain is forecast to drop across the south of I-80 with 0.25-1.25″ of rain to the north. No extreme dryness or heat is foreseen for the Midwest or Northern Plains. Portions of Texas will be hot with highs ranging from the mid 90′s to the lower 100′s under a high-pressure ridge. This ridge retrogrades westward by next week allowing for mild temperatures and several rain chances. There is no evidence of any threatening cold weather into Sept 3. The Central US forecast is generally favourable into the US Labor Day holiday.

• Immature crops are the early theme of the Pro Farmer Crop Tour, but the market has no way of knowing whether a frost/freeze will be early, timely or delayed this autumn. Chicago will make maturity adjustments when frosty temperatures are seen on the forecast maps. Until then, Chicago will see improved yield/production potential amid the recent rain. It is all about getting confidence over 2019 US corn/soy yield potential which is likely to cause a range bound Chicago market into September.

• Reduced volume and technical healing is the tone in Chicago at noon. Following 3 days of active fund selling in corn, the market is trying to stabilise with funds again returning to sell the overnight bounce, but in reduced volume.

• Wheat and soybeans are sagging with spreading noted in KC/ Chicago wheat futures. The ag news surrounding grain trade is limited with the results of the GASC wheat tender awaited. We look for a mixed Chicago close going home with few wanting to push their bearish luck too far. The market is taking its pulse amid a host of geopolitical factors including US/ China trade that are on the horizon.

• Chicago brokers report that funds have sold 1,600 contracts of wheat and 3,400 contracts of corn, while buying 3,200 contacts of corn. In soy products, funds are selling 1,900 contracts of soymeal while buying 1,200 soyoil. Spreading of oil/meal and KC/Chicago wheat is noted. Cash connected traders point out that cash DP corn/soy contracts (delayed price contracts) come due at the end of August.

• US weekly export sales for the week ending August 8 were mixed. The US sold 17.0 million bu of wheat (better), 14.3 million bu of corn (worse), and 26 million bu of soybeans. The corn and soybean sales include the old/new crop. China canceled over 400,000 old crop soybean sales that were shifted to new crop. China has 103 million bu of old crop soybeans left to ship and increasingly we look for at least half of these sales to be rolled forward to new crop.

• We also note that China secured 10.2 mt of US pork. The sale could have occurred right on the date that China halted purchases of US ag goods, August 2, but the demand is interesting. In the weeks ahead it will be key to monitor whether China secures additional US pork or any red meats. China pork prices are exploding to the upside with values said to be rising daily on supply shortages.

• US grain/soy sales for their respective crop years to date stand at; 362 million bu of wheat (up 56 million or 18%), 1,968 million bu of corn (down 400 million or 17%), and 1,788 million bu of soybeans (down 365 million or 17%). US soybeans are now priced $0.79/bu under Brazilian offers and US soybean demand should start to improve to non-Chinese destinations.

• The value of the Argentine Peso has improved slightly to 58:1 US$ while the Real stands at 4:1. Argentina farmers have slowed their selling of stored grains amid the currency uncertainty. The coming October Argentine Presidential election will loom large for the Peso in the weeks ahead.

• The midday GFS weather forecast is drier from the overnight run with tropical moisture reduced from the Gulf, which diminishes the rain chances for the E Midwest in the 5-10 day period. The Delta and much of the Gulf Coast has rain totals reduced by 1-2.00″ as a tropical system does not push northward. The models are struggling with Gulf tropical activity. E Midwest rainfall chances hinge on a weekend storm system that looks to produce 0.25-1.50″ across MO, IL and portions of IN. The rains would be a help to E Midwest summer row crops. A drier trend develops thereafter with the next meaningful rain chance not until the 11-15 day period. Tropical storm activity across the Gulf reduces our confidence in the forecast and attention should be paid to the 5-day forecasts.

• The markets are seeing new fund selling as spot corn futures drop below $3.60. Soybeans are leading the decline today as China secures additional Brazilian soybeans for October. KC wheat is likely forming its seasonal bottom and a higher close in corn would signify that this break has reached fundamental support. This is no place to turn bearish and we recommend awaiting US crop size clarification.

• Macro market selling has pressured Chicago row crop values this morning as the US DOW falls over 600 points amid the fear of a world economic slowdown. Germany, the strongest economy in the EU is no longer growing and China’s growth is fading. The worry is that the world’s economic cold could be pushed into the US which results in reduced raw material demand. The numerous geopolitical flash points and now economic slowing has acted to cap the overnight Chicago rally.

• Chicago brokers reportthat funds have sold 12,000 contracts of December corn and 6,500 contracts of soybeans, while buying 1,900 contracts of wheat. In soy products, funds have sold 1,600 contracts of soymeal while buying 2,500 contracts of soyoil. Funds are now entering a net short corn position with their selling active in the morning trade. We note that several large funds do not trade in the overnight session, and only position during the day session.

• The Argentine Peso is trading at 59.50 vs 1 US$ this morning, down another 4%. The Brazilian Real is weaker at 4 :1 while the Russian Ruble has fallen to 66 :1. The strength in the US$ heading into Russian winter wheat seeding and S American production cycles will spur additional grain production in 2020. The US$ is a safe haven investment in times of economic adversity. The greenback should continue to rally amid the outlook for US economic strength. The Chinese Yuan is priced at 7.025, their best levels in a year.

• US weekly ethanol production rose slightly to 1,045,000 barrels/day, up 5,000 barrels from last week. This will produce 306 million gallons of ethanol vs 307 million last year. US ethanol stocks rose to 1,003 million gallons, up 4% from last year. US crude oil stocks rose to 440 million barrels, up 6% on last year.

• US corn is priced well above other world origins, while the spread between US 12.5% HRW wheat vs Russian offers is narrowing. Russian 12.5% wheat is trading at $194/mt this morning vs US HRW Gulf wheat at $204/mt. Russian wheat is always 1% less on protein than what is stated, but the point is that the fob vs fob spread is the tightest since early spring. Although we do not expect any new N African or Mediterranean wheat demand to be filled by the US anytime soon, the fall in US KC wheat values is nearing levels that should be underpinned at $3.75 basis September futures amid a trend of rising Black Sea wheat values during September and October. US soybeans are the cheapest in the world by $0.75 vs Brazilian September offers. All non-Chinese import demand will be shifted to the US on price.

• The midday GFS weather forecast is wetter from the overnight run for the next 10 days with showers/storms focused across the Central Midwest through the weekend. Then, a series of short waves will produce showers across the E Midwest on each day next week. The rains would be a big help to E Midwest summer row crops that are in need rain. The wet weather trend persists during the 11-15 day period, and a good finish to the month.

• Tropical storm activity is evident across the Gulf, which reduces our confidence in the GFS forecast. However, there is no lasting extreme heat and the coming rain would be ideal for the blooming/podding soy crop. 2019 Midwest crops were late seeded which means that mid and late August weather matters.

• Funds are selling Chicago corn /soy for chart based reasons amid the weakness in US financial markets. December corn is within cents of our downside price target of $3.65-3.70. End user pricing has been less than expected on the decline as they already have hefty forward coverage. Wheat should be the first Chicago grain to bottom as harvest is completed, but much uncertainty remains for 2019 US corn/soy yields. US weeklyexport sales are out Thursday morning.

• The August USDA Crop report was bearish corn with soybeans and wheat caught up in its bearish undertow. US farmers are likely to start more aggressively shedding old crop stocks ahead of the new crop harvest. The report was a sizeable step in confirming that annual highs were likely scored in June with fund long liquidation in corn likely to accelerate. The next potential upside surprise comes with the September report and objective measurements of the US corn and soy crop sizes.

• NASS forecast 2019 US corn planted acres at 90 million (down 1.7 million acres from June, but still 2 million acres above expectations) with harvested acres pegged at 82.0 million. There is still the potential for US corn acres to decline farther in the October and final estimate, but the market’s focus now shifts totally to yield. That debate will heat up closer to harvest.

• NASS forecast ‘19 US soy planted acres at 76.7 million acres, down 4.3 million from expectations. Such US soy seedings are the lowest since 2007. US soybean seeding is the lowest since 2007 when the US farmer seeded just 64.7 million acres. The US seedings fall is bullish of soybeans via supplies.

•  NASS forecast US ’19 corn yield at a lofty 169.5 bushels/acre, up 3.5 from July based on farmer surveys and satellite data. This yield would be just 7 bushels/acre below trend with the IL corn yield at 181 bushels/acre, IA at 191 bushels/acre and IN at 166 bushels/acre. We would argue that this yield appears at least 3-5 bushels/acre too high, but based on US planted/harvested acres, a US corn yield less than 155 bushels/acre is needed to spark a run at the June highs. Amid the better corn crops in the Plains and the W Midwest, reaching such a low US crop yield is a “stretch” today.

• The US August soybean yield at 48.5 bushels/acre is right at the July WASDE forecast and like corn, is likely too high amid unfavourable August weather. However, adjustments will only be made when actual harvest data is available from the field in late September. We see the US final soybean yield at 46.5-48 bushels/acre.

• WASDE forecast 2018/19 corn end stocks at 2,360 million bu, an increase of 20 million with 2019/20 corn stocks at 2,181 million bu, and increase of 171 million, down only 179 million bu from the current crop year. WASDE lowered its US corn 2019/20 average price to $3.60, down $0.10 from this year. We would argue that WASDE is still too high by 150-200 million bu with US 2019/20 corn exports based on prevailing world stocks and fob price offers. December Chicago corn has downside price risk to $3.70-3.80 for a short term bottom with higher prices thereafter depending on yield results and the length of the growing season.

• US 2018/19 soybean end stocks were raised to 1,070 million bu, up 20 million as the US crush rate was lowered. US new crop soybean stocks were forecast at 755 million bu, which was down 140 million bu from July. We note that US ’19 total soy demand was lowered 104 million bu due to a 100 million bu decline in exports. China’s old crop imports were cut to 83 million mt with new crop at 85 million. Research argues for deeper cut in 2019/20 China soybean imports to 80 million mt or less amid the expansion of ASF and their reduced feed demand.

• US 2019/20 wheat end stocks were raised 14 million bu to 1,014 million bu with the average cash price lowered to $5.00. US 2019 all wheat production was raised 59 million bu to 1,980 million bu. Research argues that US 2019/20 wheat exports are overstated by 50 million bu due to acute competition in world wheat trade. US 2019/20 wheat end stocks are likely to remain between 1,050-1,100 million bu. Chicago rallies will struggle, and we see no real demand story for US wheat into 2020.

• WASDE forecast 2019/20 world wheat stocks at a record large 285.5 million mt with a Russian wheat crop of 73 million mt and European harvest of 150 million mt. World wheat trade was reduced to 182.6 million mt amid slowing world GDP rates.

• WASDE forecast 2019/20 world corn stocks at 307.7 million mt, down 20 million from last year amid a 16 million mt decline in Chinese corn stocks.

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

Weekend summary 9 August 2019

Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions disaggregated data

• The E Midwest is becoming involved in a flash drought with poorly rooted crops suffering more with each dry/warm day. The graphic reflects percent of normal rainfall since July 1 and notice that Central IL has been missing the rain. Moreover. temperatures have averaged above normal leading to acute soil moisture shortages. It is the lack of rain across the key areas of the Midwest which move us back into a semi bullish corn/soy market stance until a weather pattern change with better rains is indicated. US corn and soybean crops are again in sharp decline. 

• Wednesday was an exceptionally slow day of trade in Chicago soybean markets that left futures a cent higher at the close. An early morning break in other US commodity and financial markets weighed on the soy trade, but the upcoming August Crop Report, along with widespread Midwest dryness offered support. Brazilian cash soybean prices are moving higher as Chinese demand remains focused on Brazilian supply, while the US$ continues to rally against the Brazilian Real. The strong US$ is putting additional Brazilian Reals into the Brazilian farmer’s pocket. Brazilian producers report that they expect the US/China trade war to last least another year and that they intend to expand their soybean acreage by another 2-4% this year (planting season to begin mid-September). Pre report positioning is expected to keep soybean markets quiet at the end of the week. The next major move comes with the USDA August Crop Report on Monday, with prices to respond to the acreage and yield estimates.

• Dec corn ended 2 cents higher as a trend of below normal rainfall looks to persist east of the MS River. Heat develops early next week with highs in the low/mid-90s which will add stress to pollinating corn . The weekly EIA ethanol data was also supportive, and so there was little for the bears to grab onto on Wednesday. The US ethanol stocks fell sharply on a boost in weekly export disappearance. Ethanol stocks are still record large for early August, but no longer are burdensome. We expect ethanol production to slow in the weeks ahead. This will reduce corn’s demand draw but will quickly allow balance to return to US ethanol supply and demand. The longer-term feedgrain outlook is bearish as Black Sea and S American yields accelerate. But in the near term, falling US corn production potential in IL, IN and OH and uncertainty of actual seedings argue against chasing breaks. This is still a market dominated by the US supply bulls vs the long term demand bears.

• Chicago wheat futures began the session weaker but ended 4 cents higher. Breaking news is absent, but we estimate that managed funds in Chicago have fully liquidated their net long position since last Tuesday. World cash markets remain flat. US export demand will remain limited to traditional importers. However, more attention will be paid to lingering dryness in Australia in the next 30 days. The attached graphic shows Aug 1-21 % of normal precipitation. Assuming the two-week forecast verifies, the Aussie wheat-growing season will again start with severe/widespread drought in NSW and Queensland. EU and Black Sea markets continue to compete for demand, and Russian export commitments in August are struggling. End user demand surfaces below $4.80. US exports slow further above $5.10. Rangebound trade is seen into early autumn.

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

Weekend summary 2 August 2019

Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions disaggregated data

• Carryover technical fund selling has pressured Chicago this morning as funds continue to shed stale length. Wheat has been the downside price leader with corn/soy futures in tow. December corn has fallen back to the 200-day moving average at $4.065 which is offering some initial support, but it is the pressure from declining US wheat futures that is the keeping pressure on the summer row crops.

• September Chicago wheat has fallen to fresh lows since the early July high was scored which is pushing funds to exit all length. The late May lows at $4.74 are offering some support, but Sept wheat futures appears to be heading back to long term support offered at $4.00-4.10 basis spot KC wheat and $4.55-4.65 Chicago. US wheat lacks an export story with sales starting to decline amid cheaper world values. And the spring wheat harvest will start to gain speed in coming weeks which will add to the high protein world wheat supply.

• We caution about becoming too bearish corn, wheat or soybeans on this break with the key August crop report still ahead. Chicago has declined to key support and initial downside price targets. We would not advise new sales here and this would be a good level for consumers to add to forward coverage.

• Chicago brokers estimate that funds have sold 9,000 contracts of wheat, 13,000 contracts of corn and 4,500 contracts of soybeans. In soy products, funds have sold 3,200 contracts of soymeal and 2,100 contracts of soyoil. The fund selling in the grains has been much larger than the soy complex as they are still shedding market length. Funds are marginally short in soybeans.

• US weekly export sales for the week ending July 25 included 14.1 million bu of wheat, 10.7 million bu of corn (both crop years combined), and 16.5 million bu of soybeans (both crop years combined). The sales were paltry and reflect the large premiums that US corn/wheat is offered in the world marketplace. US soybeans are more in line with S American fob offers, but Chinese demand is not evident which limits US new crop sales.

• For their respective crop years to date, the US has sold 327 million bu of US wheat (up 63 million or 24%), US old crop corn sales stand at 1,964 million bu (down 373 million or 16%) while US soybean sales stand at 1,790 million bu (down 346 million or 16%). Research maintains that WASDE should trim US 2018/19 corn exports another 75-100 million bu while reducing US 2018/19 soybean exports by 20-25 million. It is too early in the crop year to make any comment on the USDA annual export estimate for wheat.

• Illinois, Indiana and Ohio producers are bemoaning July’s dry weather and the stress that it is producing on corn/soy crops. Shallow rooted crops struggle for moisture and yield potential is being harmed. Rain is in immediate need.

• The midday Central US GFS weather  forecast has shifted rainfall next week from the Southern and Eastern Midwest into IA, MN, WI and northern IL. The models in the days ahead will continue to work out details surrounding next week’s precipitation. A wetter pattern lies ahead, but confidence in exact rainfall placement and amounts is low.

• The GFS forecast allows high pressure riding to return to the Southern Plains. This will push the mean position of the jet stream into the Dakotas and Upper Midwest early next week and beyond. Meaningful rainfall will favour the North, but again much of IL looks to be short-changed.

• Dec corn has fallen to key support and a trading low is being formed. This is no place to be turning bearish of corn, soybeans or wheat with so much still unknown about 2019 US summer row crop sizes. Bottoms should be forming with some sort of short covering bounce expected into the August 12 USDA report. Research is tilting short term bullish for a bounce into the close.

• It has been another morning of sizable losses in Chicago corn, soy and wheat futures. The lack of any meaningful news from this week’s US-China trade talks is noted. Fundamentally, a wetter Central US pattern is likely beyond August 7. US weekly ethanol data again leans bearish. And EU grain and oilseed futures have followed the US market lower.

• We would be very cautious of chasing breaks from current prices amid sizeable US acreage and yield uncertainty. Production potential has stabilised, while RMA data suggests indemnity payments are rising quickly. The lack of US demand, and rising non-US crop production, will likely cap rallies. But the August crop production and WASDE reports could provide some short term market fireworks.

• FAS this morning did report a sale of soybeans to an unknown destination. The sale included 500 mt for old crop delivery and 104,000 for new crop.

• However, take-home points from this week’s meeting in Shanghai are mostly more of the same. There is talk that China will commit to buying more US ag goods, but the market is well aware that China has not followed through on similar commitments previously. The next round of meetings will take place in early September in the US.

• US weekly ethanol production through the week ending July 26 totalled 303 million gallons, down 2 million from the prior week and the lowest since late April. Ethanol margins have been squeezed since early summer. Yet, stocks are ballooning to record levels, with some in the trade calling for a strategic slowdown in future weekly ethanol production.

• US ethanol stocks as of last Friday totalled 1,028 million gallons, up 33 million from the prior week and a new all-time high. Ethanol exports continue to fall further behind the pace of last year. A slowdown in production is needed to better balance ethanol supply and demand, and we note that stocks seasonal rise from early to late autumn as consumption slows. Weekly corn export sales are expected in a meagre range of 5-10 million bu. US grain and soy markets lack a needed demand driver.

• EU and Russian wheat exports also continue to struggle against year-ago levels. Russian wheat shipments in July are tallied at 2.2 million mt, vs. 3.8 million a year ago. EU wheat exports are down 15% from late July a year ago.

• The midday Central US GFS weather forecast is wetter in IA, IL and WI next Wed-Fri, and is better agreement with this morning’s EU model output. A broad NW upper air pattern is forecast to end beginning early next week and a more zonal jet stream alignment will take its place. This will allow for better rain chances across the Eastern Midwest late next week and beyond. It is critical that rain projected across Central IL materialises as 30-day moisture there is stuck at 10-50% of normal. But the forecasting models have been consistent in the evolution of a wetter pattern in early August. Threatening heat remains absent into August 15. Rains are falling as expected across E KS & NW MO.

• Dec corn has fallen below major technical support and it is key that the contract’s 100-day moving average ($4.14) hold today. The next downside target sits at $4.07. With the all-important August WASDE still 7 trading sessions away, the demand bears continue to hold leverage.