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

Weekend summary 9 March 2018

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

Fund positions disaggregated data

• The USDA March crop report was viewed as bullish corn and neutral to bearish on soybeans and wheat. Funds were buyers on the initial Chicago break, and corn appears to be leading the charge higher at midday. Soybeans and wheat are lagging amid larger than expected US and world supplies. We look for a mixed Chicago close.

• The surprise of the USDA WASDE was the big increase in 2017/18 US corn exports of 175 million bu. The industry had expected a 50 million bu bump due to smaller Argentine/Brazilian production. However, WASDE decided to make a bigger adjustment which is catching the marketplace by surprise. Along with a 50 million bu increase in US ethanol demand, total 2017/18 US corn demand was raised by 225 million bu, which dropped 2017/18 US corn end stocks to 2,127 million bu. Such stocks are adequate with the annual US farm price raised up $.05 to $3.35/bu. However, remember that WASDE was forecasting a decline in 2018/19 US corn end stocks to 2,272 million bu. Subtracting 175 million bu due to enlarged old crop use would drop US new crop corn stocks to 2,097 million bu with planted acres of 90 million acres and a yield of 174.0 bushels/acre. An export adjustment is also needed in our opinion.

• If US 2018/19 US corn exports are adjusted upwards by 150 million bu, 2018/19 US corn end stocks would fall to 1,950 million bu, a stocks level that would place heightened importance on 2018 Central US weather and yield prospects. World 2017/18 world corn stocks fell to 199 million mt, the first time that world corn stocks have been below 200 million mt since 2014/15. The stock fall included an Argentine corn crop of 36 million mt and a Brazilian of 94.5 million. It is feared that the Argentine corn crop could still drop another 3-6 million mt (to 30-33 million) with CONAB estimating the Brazilian corn crop at 87.3 million mt. The point is that additional US corn export increases likely are ahead in future WASDE reports. The price range for spot Chicago corn futures is raised to a range of $3.70- 4.05 until more is known on US corn seedings and the spring seeding progress. The corn market is trying to prod producers to plant additional 2018 acres.
  

• The USDA reduced 2017/18 US wheat exports by 25 million bu to 925 million. US wheat sales and exports have been lagging as Russian exports continue to gain. US hard red winter wheat exports were reduced 15 million bu and spring 10 million based upon their noncompetitive price levels. The reduced US wheat export pace allowed WASDE to cut the average US cash wheat price to $4.65 with US 2017/18 US wheat end stocks rising to 1,034 million. World wheat 2017/18 supplies were increased 500,000 mt due to a larger crop in Kazakhstan. Russian wheat exports are projected at 37.5 million mt, a record and 35% more than the prior year. Russia’s share of world trade is also a record. 2017/2018 world wheat end stocks are record large at 269 million mt which will act as a supply cushion for any new crop weather problems. Russia will be carrying in a record wheat stocks total of 14 million mt!

• Further rallies in Chicago wheat will have to be based on adverse weather. We doubt that spot Chicago wheat can push too far above $5.25-5.50 resistance without adverse Black Sea weather. The Plains dryness will continue to get attention, but losses elsewhere in the world are needed to spur a more bullish wheat landscape. Research sees spot Chicago wheat in a range of; $4.50-5.25.
  

• The USDA raised 2017/18 US soybean end stocks to 555 million bu, up 25 million. WASDE dropped US 2017/18 US soybean exports by 35 million bu and raised crush by 10 million bu to a record large 1,960 million. The average cash price to be received by farmers stayed the same at; $9.30. The Brazilian soybean crop was increased 1.0 million mt to 113 million mt, down 1 million from last year’s record, while the Argentine soybean crop fell 7 million mt to 47 million. The net was a 6 million mt fall in S American soybean production. World 2017/18 soybean end stocks fell to 94.4 million mt, down 3.8 million from the February forecast. China’s soybean exports were left at 95 million mt, which has been a steady forecast for many months. We would note that the Argentine crush estimate was cut to 43 million mt with Argentine soybean exports to fall to 6.8 million mt from 8.50 million. We look for further fall in the Argentine soybean crop of 4-6 million mt, which will further constrain Argentine crush/exports this summer. We doubt that May soybeans can reach $10.80-11.00 resistance with futures trading in a range of $10.30-10.80 into the March 31 US Planting Intentions Report. Longer term, a lasting bearish trend can only occur with a new crop US soybean yield of 50 bushels/acre or more, which won’t be known until late summer.

To download our WASDE data recap as a PDF file please click on the link below:

USDA-Recap-8-March-18

To download our WASDE contemplations as a PDF file please click on the link below:

Mar 18 USDA contemplation

• Diminished volume and mixed has been the morning Chicago grain trade as market participants fear US trade protectionism from The White House and the USDA March Crop Report to be released Thursday at 11 (US time) tomorrow morning. US steel and aluminium tariffs are expected to be announced this week by President Trump. Retaliation is already being offered by a host of countries along with a WTO challenge noted as a countermeasure. We would agree with a comment from the IMF head stating, “There are no winners in trade wars.” Also, traders have concerns that the USDA March report may not cut Argentine crop production as much expected. An Argentine soybean crop of 38 million mt or a corn crop of 36 million mt does not justify May soybeans above $10.75 nor May corn at $3.90. Especially if USDA raises the 2017/18 US soybean end stocks on trade. We are anticipating a lower Chicago close as traders reduce their market exposure and sell out a portion of their profitable long positions. Several climate forecasters suggest that there are improved W Plains rain chances during the last ten days of March. Such rain would be timely. Amid the weather, political, and USDA report uncertainty, traders lament, “When in doubt – just get out”

• Chicago brokers report that funds are flat in wheat, while buying 3,100 contracts of corn and selling 3,400 contracts of soybeans. In soy products, funds have sold 2,600 contracts of soymeal and 1,800 contracts of soyoil. FAS did not report any new US sales under the daily reporting system. The weekly US ethanol production increased to 1,057k per day vs 1,044 last week which consumed 311 million bu of corn. US ethanol stocks rose to 972 million gallons vs 965 million last week. The data/report was broadly supportive. The midday GFS  American weather forecast calls for limited rains across the W Plains over the next 10-12 days. There could be a few showers over far Eastern Kansas, but otherwise, the forecast looks void of meaningful into March 20. It’s now the last ten days of March that potentially holds the best chance of improved moisture. Seasonally, the Plains start to receive rain in late March and early April, and this year’s acute soil moisture shortage makes the last ten days of March highly important for the US HRW wheat crop.

• Pre-report positioning has pressured Chicago futures so far today, with the meal spreads leaking amid weakening cash basis offers from the US Gulf and S America. The US cash pipeline is full and offers to export soymeal from Argentina are getting more aggressive. We note that Argentina is also more aggressive in corn offering June fob corn some $2-3/mt below the Gulf. We expect that funds will maintain their market length into spring seeding. Our bet is that Chicago consolidates its recent gains.

• In Brazil, rainfall totals seasonally peak in late February across Mato Grosso, while totals for Parana and areas farther south continue into June. The winter corn crop across N Brazil depends on an extended rainy season that lasts into May. Notice from the graphic below that rain totals progressively decline, but don’t reach arid levels until late April. Current wetness is aiding the outlook for winter corn yields across N Brazil. An estimated 20-25% of the crop could be seeded late, but that won’t become important unless the wet season ends prematurely.

• Egypt’s General Authority for Supply Commodities (GASC) purchased 175,000 mt of Russian wheat at average price of $230.70/mt basis C&F . 13 out of the last 15 tenders have been filled by exclusively Russian wheat. Prices reached new highs for the season but Russia continues to dominate Egyptian business.

• Tuesday was a mostly lower day of trade in Chicago soybean and meal markets, while soyoil prices were higher at day’s end. The USDA announced that China bought two more cargos of old crop US soybeans, and Tuesday’s sale marks the fifth export sales announcement in the last five days. In total, soybean export sales announcements have amounted to just over 1 million mt since last Monday, with all but 123,000 mt of that total being old crop sales. More than half of the old crop total is known to be to China, and the rest is to an unknown destination. Soymeal spreads have seen profit taking ahead of the March WASDE, which also left old crop/new crop soybean prices mixed at the end of Tuesday. The nearby soybean crush spread, which closed at $1.50/bu last week and was at $1.37/bu at todays close. Some of the driest parts of Buenos Aires are expected to see better rains in late March. However forecast rains are far from being a drought buster, and confidence in the outlook beyond ten days is often (rightly) low. We expect corrections just ahead or just after Thursday’s WASDE report will be well supported. CONAB will be out Thursday morning with their latest Brazil forecast.

• May corn settled at new rally highs and, unlike wheat, corn is finding demand at current prices rather than rationing it. Gulf basis has rallied along with the pace of export sales, but Black Sea feed wheat has found new highs. Regardless of final S American production estimates, exports won’t begin there until June. Weekly ethanol production is due Wednesday  and export sales on Thursday will exceed the pace needed to meet the USDA by 3-4 times the needed weekly average. US ethanol blend margins have recovered February’s loss and this evening sit at a lofty $.04/gallon (vs. $.01 a year ago). US ethanol stocks have been contracting slowly since mid-January, and amid elevated incentive to blend/export supply a further contraction in stocks lies ahead. Brazilian cash ethanol prices remain lofty and at a sizeable premium to US origin to facilitate imports. We maintain that future gains will be more difficult, but that the rally is supported by record US export sales since Jan 1 (and to some extent higher domestic use). We see the nearby upside price target basis May is $3.90-3.95.
  

• It remains that downside risk in wheat is limited until/unless widespread rainfall materialises across the US Western Plains. However, there’s evidence to suggest La Niña’s end is imminent, which should bode favourbaly for Plains rain this spring. Additionally, the US market is working to slow old and new crop export demand, and is also hindering summer feed consumption via it’s relationship with corn. Recall that feed/residual use in the Jun-Aug quarter last year was a 35-year low 170 million bu. Russia’s cash market is firm this afternoon following another sizeable Egyptian purchase. Even at multi-year highs, the Russian market is buying sizeable demand, and seasonal trends don’t usually turn noticeably weaker in the Black Sea until spring. US Gulf wheat is offered roughly $1/bu over comparable Black Sea/EU origins, and the risk is that weather premium will be extracted within a matter of days should the Central US pattern change in the next 3-4 weeks. A close eye will need to be kept on 16-30 day forecast as those models begin to digest a warming of the equatorial Pacific. The seasonal trend for rain increases in April across the W Plains. The world still has an abundance of wheat and another record crop is possible in 2018.

• A mixed Chicago start has returned to firming midday prices as concern over Trump Administration trade sanctions temporarily wanes and the market focuses back on the Argentine drought and grain logistical snarls in the Black Sea. Funds are back on the buy side of the marketplace in a new month as they continue to build their long position. Wheat has been the upside leader as funds scramble to cover the last of their short positions. The volume of trade is below prior days through midday, but market volatility persists. Until there is clear indications of rainfall across the drought stricken Argentina or the Central US Plains, any Chicago price drops will be a correction to an overall bullish trend.

• Chicago brokers estimate that funds have bought 4,300 contracts of wheat, 4,200 contracts of corn, and 3-4,000 contracts of soybeans. In meal, funds sold 2,900 contracts early and then covered, while selling 2,900 soymeal.

• This morning FAS announced that US exporters had sold 120,000 mt of US soybeans to China with half of the sale in the 2017/18 and half in the 2018/19 crop year. And 126,000 mt of soybeans were sold to unknown destination, also split evenly between the 2017/18 and 2018/19 crop years.

• US export sales for the week ending February 22 were; 7.0 million bu of wheat, 69.0 million bu of US corn, and 33.1 million bu of soybeans. For their respective crop years to date, the US has sold 795 million bu of wheat (down 113 xm or 12% from last year), 1,547 million bu of corn (down 162 million or 9.5%), and 1,674 million bu of soybeans (down 255 million or 13%). Growing US corn sales data pace argues for a 50 million bu increase in the 2017/18 US corn exports while slowing US soybean sales argues for 50-75 million bu decline in exports. US weekly soymeal sales were a modest 139,000 mt of soymeal and 16,600 of soyoil.

• Black Sea wheat prices have risen sharply in recent days amid logistical snarls and sellers that are panicking on the new crop via concern over bitter cold temperatures and potential winterkill damage. The sellers have run to CME’s Black Sea wheat futures to cover sales with guaranteed performance. The cold will persist across Europe and the Black Sea to further slow arrivals of grain from the producer. Today’s Black Sea grain market offers what can happen when too many get on one side of the marketplace, and weather conditions change. We have no way of measuring Russian/Ukraine winterkill damage until spring. The current Black Sea market is more of short squeeze, rather than any major change in the abundance of world wheat.

• President Trump is threatening to place US tariffs on steel/aluminum imports. An announcement was slated for the morning, which was cancelled and then held to only discuss the topic. Any steel tariffs were a threat to raising the US trade tensions with China, a key steel exporter. An announcement is pending.

• The midday GFS weather forecast is as dry as the overnight run with limited rain chances for the next 10-14 days. There could be a few lighgt showers in the far west and south, but no soaking rain is slated for the key Central Argentine crop areas. The Argentine drought will deepen with high temperatures ranging from the mid 80’s to mid 90’s. The 2018 Argentine drought is now historic, the worst in decades. Rain late in late March will offer a diminished crop benefit.

• Chicago continues to firm on arid weather forecasts for the US Central Plains and Argentina. Yield declines in Brazilian soy will likely produce a crop no larger than 113-114 million mt, even with the expanded planted/harvested acres. This is a realizing bull market with May soybeans targeting $10.85-11.00, $5.15- 5.25 May Chi wheat, and $3.90 in May corn.

• Soymeal finished Wednesday’s trade off the early morning highs as May found resistance just under $400, but old crop meal was still $5-8/ton higher at the close. Old crop soybeans advanced 6-7 cents, with May marking a contract high close. November soybeans ended the month of February on an upbeat note, which also completes the price establishment period for 2018 crop insurance. Settlements through the month ranged from $9.915 early in the month, to today’s high of $10.3225, and the monthly average calculates to $10.16. This will be the best soybean price in four years. Not only is the price guarantee higher this year, but bushel calculations will increase as result of record yields in the past 2 years, while the 2012 drought yields will be dropped from the calculation. Good news from the grower perspective!  The Argentine weather forecast stays dry with less than 1” of rain across the soybean belt over the next ten days. The outlook stays bullish until rains develop and more is known about crop damage.

• Argentina’s corn crop will lack the cool finish that materialised in the US during the end of last year’s growing season, and the trade continue to lower its production estimates. Many were waiting on a clearer picture of weather during the first half of March, but no change is indicated and hot/dry conditions will persist for at least another 10-12 days. Dryness is now historic, and yield models following worse than expected rainfall in February show that crop size there is likely between 31-32 million mt, vs. 41 last year.

• This week’s EIA report was not overly exciting, but it did confirm that export interest is ongoing, and that cumulative non-domestic disappearance remains record large. Export sales on Thursday are expected in a range of 55-65 million bu, and Argentine fob basis for Mar-Apr delivery is at new highs, and still some $.10-.25/bu above US Gulf quotes. Corrections are possible as the market reaches overbought territory, but we maintain US corn’s position in the world market is most important.

• US wheat futures led the way on Wednesday, rising 14-21 cents basis nearby futures. The spot Kansas-Chicago spread is testing the highs of 2016, upside risk remains unless a major Central US weather pattern shift occurs prior to April. The US weather forecast this evening is rather stagnant, and maintains near complete dryness across TX, OK, KS and CO over the next ten days. A correction is possible on Thursday following today’s emotional trade, and particularly as US weekly export sales will be rather lacklustre, but we caution against turning bearish until drought eases. It remains that the world cash market is following rising grain futures. New seasonal highs have been achieved in France, Germany and Russia, and even cheaply priced Argentina origin has rallied some $14/mt (8%) since early February. The US is no doubt losing export potential, but until weather changes there’s a real risk that HRW yields fall to 34-36 bushels/acre, vs. 42.5 last year and 49.5 in 2016/17. Spot Kansas increasingly looks to target an open chart gap at $5.30.

• Soybean and meal futures spiked higher on the Tuesday opening, and then gave back some of the overnight gains on profit taking and increased farm selling. Market news for the day had export inspections seasonally declining, while weather forecasts for Argentina show limited rains across the soybean belt over the next 10 days.

• After holding at multi year lows for many months, soybean option volatility has spiked over the last several weeks. The Chicago soybean option volatility index on Monday was at 19.5%, well above the mid January low of 11%, and the 5 year average of 17% for late February.

• The market has unsurprisingly dialed in a smaller Argentine soybean crop, though industry estimates are in a wide range of 40-50 million mt versus the USDA’s Feb estimate of 54 million. The previous two droughts caused abandonment to spike to 6-8%, while yields were 16% and 30% below trend. Our best guess today is a crop of 41-45 million mt.

• Argentine farmers will be reluctant sellers of large old crop stocks in the face of dwindling new crop prospects. 

• Corn futures fell 1-2 cents, though other than a further recovery in the US$ fresh input is lacking. It’s becoming increasingly probable that Argentina sees little/no rain through the next 30 days, after which only a small portion of the crop can be improved. US Gulf corn is still the world’s cheapest feedgrain through spring, and even sorghum basis in selected locations is recovering. Also, cotton futures rallied sharply today, and so it remains that US seedings this spring will be steady at best, and very likely down 1.0-1.5 million acres.

• Argentine drought aside, priority number one is the US’s position in the world market. The US Gulf’s price discount to S America and Ukraine rests at $.10-.30/bu, and similar discounts are noted into Asia when adding freight costs. It’s just tough to be bearish the world’s cheapest grain.

• Wheat futures corrected modestly amid a lack of any market-specific news, and as very light snow fell across Kansas over the weekend. However, overall the US Plains will be nearly completely dry into the opening days of March. We also mention that a major temperature pattern change is due in Europe and the Black Sea this week. Following abnormal warmth all season, overnight lows in the Central and Volga regions will fall to below zero. Snow cover in the next few days will be watched closely, but we do anticipated further logistical issues there.

• Egypt’s GASC is seeking optional origin supplies for late March delivery. Russian is still favoured in fob lineups, but at $203/mt (vs. $195 30 days ago) its discount to comparable origins is narrowing. Note too that interior US wheat basis is unchanged and still rather firm. It has been a sizeable rally and setbacks are assured. We caution against turning bearish until rain actually materialises in the Western Plains.

• Friday was a mixed, back forth day, with profit taking ahead of the long weekend pulling spot soybeans off an eight month high and meal off a 2 year high. The spot soybean crush spread finished at $1.47/bu, or the highest weekly close in four years, now up 62% from the start of the crop year. Spot meal is now up 28% from the start of the year, and soybeans end the week at a new high for the year and up 8%. Soyoil has been the big disapointment and now down 11% from Sep 1.

• The afternoon EU weather forecast showed light rains across the Argentine soybean belt in the 1-5 day outlook and virtually no rain in the 6-10 forecast. Temperatures look to hold near normal, though day time highs are expected in the upper 80’s to mid 90’s. Conditions remain far from favorable as 76% of the crop is reported blooming and 46% setting pods.

• Corn futures ended fractionally lower, and ahead of the a three-day weekend speculators were loathe to take new positions amid potential changes in the US and Argentine weather patterns. It remains that US corn is by the world’s cheapest feedgrain, and ethanol margins are back testing $.55/gallon, vs. $.30 in late January, on recovering energy prices. Fundamentally, breaks are buying opportunities until there are signs of weakness in world feedgrain markets. Managed funds on Tuesday were short just 11,000 contracts, much smaller than expected. Some pause in short covering is possible next week, but we do note this position compares to a net long of 85,000 a year ago, when S American weather was largely favourable. Argentine drought this year has deepened further than expected, and  increasingly crop size looks to be no larger than 33-34 million mt, down 8-9 from last year, and which suggests there’s still 120-130 million bu of export demand that needs to be shifted elsewhere.

• Wheat futures in Chicago and in Minneapolis fell slightly amid a decent recovery in the US$, while Kansas ended unchanged. The Kansas-Chicago spread this week has a hit a new rally high $.21/bu, and note that interior HRW basis continues to strengthen. Seasonally, HRW basis tends to be rather neutral during the spring months, but in 2018 elevators may have to work a bit harder to pry remaining supplies from the producer amid drought concerns. Funds in Chicago as of Tuesday were short a net 57,000 contracts, down 27,000 from the prior week and a bit smaller than expected. Funds in Kansas were long a net 15,000 contracts, unchanged on the week. Speculators have worked to pare short exposure, which is noteworthy, but it’s unlikely to have much of an impact on price. Rather, much better rainfall is needed across the Plains before any sizeable amount of weather premium can be extracted, and though long term climate guidance is trending wetter across the HRW Belt, we await even a hint of a rain the 12-14 day outlook, which is not available at present. Additional premium will be added if Monday night’s forecast remain arid into the first week of March. Note also that the Black Sea cash market is firm.

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

weekend summary 16 february 2018

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

fund positions disaggregated data