26 June 2017

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  • US crop condition data has been released as follows:
  • In a quiet start to the week soybeans ended a couple of cents higher, products were mixed as meal firmer and oil a round unchanged. After trading closed, NASS reported that 66% of the soybean crop was rated good/excellent, down one point week on week. It is likely that weather that will drive prices more than any other influencing factor as we head into late summer.
  • Corn futures ended a touch higher on correction of technically oversold conditions. Weather models are in pretty good agreement that a high pressure ridge will extend into the heart of the corn belt bringing heat with it, the duration of this ridge is questionable at this time. Corn crop condition remained unchanged as far as the proportion rated good/excellent is concerned, perhaps the crop is stabilising at this time on the back of recent wetter and cooler conditions. Ukraine, on the other hand, remains dry with little in the way of precipitation in the coning ten days, which is following a June pattern that sits at somewhere between 20 and 40% of normal precipitation so far. Mid-July sees the crucial pollination period in Black Sea regions and current weather conditions will need to change in order to prevent further potential crop losses. We caution against a bearish stance.
  • US spring wheat rallied to fresh highs on further dry weather conditions as modest selling resumed whilst fund short covering continued at a more robust pace than expected.Funds are no longer excessively short, which may well give something of a pause to stronger rallies. However, it should be noted that global weather remains less than ideal, our main area of concern being hot and dry conditions across the Black Sea regions. US spring wheat condition continues to fall with 41% now rated good/excellent, a record low at this time of year, and further downgrades are probable in the face of lack of precipitation. French soft wheat condition fell to 68% good/excellent as of June 19, prior to last week’s hot conditions, this is below previous year ratings.
  • Clearly weather conditions are dominating at present.

 

22 June 2017

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  • US export data has been released as follows:
  • We have seen continued weakness in Chicago markets today as July ’17 corn futures pushed lower and breached trendline support levels whilst soybeans eased lower on the back of weather conditions best described as non-threatening in the central US regions. Wheat prices also eased on technical selling and a correction from recent rally. Volume today has been somewhat reduced when compared with recent days, and traders appear reluctant to take on fresh risk. It is probably fair to suggest that wheat, at least, has a fundamentally bullish story, but an overbought market and requirement for correction have taken over, at least for now.
  • Egypt’s GASC have secured a further 175,000 mt of wheat from Ukraine and Romania, perhaps unsurprisingly. The ongoing ergot issue continues to leave traders wondering what is happening in coming weeks in Cairo.
  • The Argentine Peso is sitting just below a record low level, which is potentially keeping pressure on fob prices for corn and soybeans . Corn at 2 cents over Chicago prices is a record low level and points to the large exportable surplus as well as the currency incentives available to exporters.
  • Hot and dry conditions are starting to adversely impact Ukraines’s corn crop and exportable surplus. The USDA has forecast exports of 20.5 million mt from a crop of 28.5 million mt, and many now peg that crop at 26 million, leaving export availability some 2 million mt lower. Ukraine weather is looking even warmer next week.
  • Markets are targetting chart support levels in the absence of continued weather threats. The only bullish story surviving right now is that of hard wheat supplies being downgraded due to earlier weather difficulties, soybean yield judgement is still too early in the season.

21 June 2017

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  • Following mixed markets overnight, soybeans turned down shortly after the morning open on Wednesday in follow through technical trade. Markets settled 9-11 cents lower for the day with commodity fund traders estimated as sellers of 9,000 soybean, 3,500 soymeal, and 3,000 soyoil contracts. The midweek Brazilian vessel lineup was fractionally lower from a week ago as some shipment dates were rolled into July. However, June shipments are still expected to be close to 9 million mt versus last year’s 7.5 million while the July lineup is now showing 1.5 million mt. With the USDA’s Quarterly Stocks and Acreage reports just a week away, we would not advise a bearish stance now. Note that November beans today are $1.80 cheaper than a year ago.
  • Corn fell a shade in lower than average volume, and the trade is left pondering the market’s next move. Crude fell $.80/barrel and continues to flirt with chart-based support. This week’s ethanol update is viewed as slightly negative as production fell and stocks remain perched well above recent years. The Midwest weather forecast is void of any excessive heat through the next ten days, but meaningful precipitation through the period looks to be somewhat scarce in nature. Also there is no evidence that drought conditions will improve across the N Plains. Weather models today lean neither bullish nor bearish, and we should keep in mind there are growing yield concerns in W Europe and the Black Sea as heat expands eastward across the European continent in the next few days. Recall that the US in July of 2016 shifted to a rather wet pattern, and a similar shift will be needed this year to maintain yield potential of 170-172 bu/acre. Crude’s recent collapse, along with ongoing political turmoil in Brazil, has weighed on major exporting currencies and thus keeps other countries more competitive in the world market.  It is tough to define a trend. Until weather in the first half of July is clarified we expect corn futures to continue in a sideways trend, with support pegged at $3.65 and resistance note above $3.90, basis spot.
  • Wheat futures fell 6-8 cents as the Russian ruble hit new four month lows, and on paper this allows Russian wheat exporters to be more aggressive in the world market. Currencies in Australia and Canada also settled a bit weaker, and today was generally marked by commodity liquidation. The weather pattern in Europe and Black Sea into late June remains concerning. The EU and GFS models remain in good agreement that excessive heat and a complete lack of precipitation will move eastward into the Balkan and Black Sea regions by mid/late next week. High temperatures in Romania, Ukraine and S Russia will reach into the upper 90s and low 100s, and already Ukrainian crop potential has been capped by a severe lack of precipitation since late winter. Talk that the US has imported modest amounts of high protein  German wheat started the market’s break today, and indeed high protein cash markets at the Gulf do allow imports to pencil, but work suggests major exporter production could be down 20 million mt from last year, which is significant. We doubt the market has fully digested yield loss in the N Plains at this time.

20 June 2017

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  • US crop condition data has been released as follows:
  • June is going to end up as being one of the driest/warmest of the past two decades across Ukraine and E Europe. The oval shape in the graphic defines the acute area of dryness that is starting to stress crops. We note that wheat is in its reproductive stage, while corn is 3-4 weeks away from pollination. Rain needs are immediate and with heat forecast next week, crop prospects appear to be heading lower.

  • Soybeans began to sell off overnight, and fell at the morning open as weather models added rain and cooler temperatures in near term forecasts, and maintained similar extended outlooks. November soybeans again held resistance against the 50 day moving average overnight and were down 9.75 cents at the close.Traders and analysts have worried over estimated Chinese soybean crush margins, which have been negative since March. Negative margin estimates have little noticeable impact on crush rates, which continue at a record/near record pace. Last week’s crush was estimated at 1.7 million mt, and the cumulative crush figure of 61 million mt is 8% over last year and on pace to reach the USDA’s forecast of 86.5 million mt. To date there has been no indication that imports will slow down, with record large imports expected to continue at least into July. Building soybean meal stocks are becoming a concern. July soybeans have been range bound over the last three weeks, and we doubt that much of trend will develop ahead of next week’s key USDA reports.
  • From the perspective of corn, the major weather models are again in agreement that excessive heat will stay isolated to the W Plains through late June, and moderate rain is due across the E Plains and Midwest in the next ten days. This outlook is much more benign that solutions offered last week, and following recent fund short covering some new selling has emerged. Crude also fell to seven month lows, which has triggered a pause in the recent advance in ethanol margins, and ethanol’s premium to gasoline has widened in the last two weeks. It is all US weather near term, and indeed the nearby forecast has improved relative to recent record breaking temperatures across the Plains. Argentine cash basis remains historically low, and so bullish input so far this week has been lacking. We caution against turning overly bullish. Drought will remain firmly in place across the N Plains into early July, and still net drawdown in soil moisture are expected across much of the Corn Belt over the next seven days. Heat (highs in the 90s & low 100s) is forecast expand into Ukraine and Russia beginning late next week.
  • US wheat futures settled 3-17 cents higher, led once again by Minneapolis following Monday’s crop update. As noted previously, the US HRS yield in 2017/18 is likely no better than 35-36 bushels/acre, which exacerbates the need to ration high protein supplies, and which places much more pressure on non-US production, Canada’s harvest, specifically. Heat and dryness will persist in W Europe through the remainder of the week, and looks to expand into Ukraine and Russia thereafter. Note that the EU and GFS models have introduced temperature readings in the 90s and low 100s across the Black Sea region beginning next Wed/Thurs. Gulf wheat’s premium to other origins is widening, but the world cash market has largely followed the recent advance in US futures. Notice that only Russian wheat is offered below $190/mt for August delivery, which is equivalent to $4.60/bu, basis September futures and which compares to Black Sea prices in August of last year at $165-175/mt. EU crop estimates are in retreat, and recall roughly half of Russia’s crop is spring wheat.

19 June 2017

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  • Prices in Chicago are mixed today as markets appear to have returned to their previous ranges. Wheat is at the top of its range as funds continue to cover their short positions, however corn having covered the majority of the structural and longer term short position has the potential to ease lower. Adverse weather conditions will be required if funds are to turn net long on a large scale. Traders are looking for improved crop ratings tonight on the back of rain last week.
  • EU wheat harvest estimates are in decline, but depending on who you talk to, the size of the decline varies. Some peg losses at no more than 1-2 million mt while others see the loss at 3-4 million. WASDE pegged the EU wheat crop at 150.75 million mt in the June report, so most see the crop as ranging from 149-147 million mt compared to last year’s harvest of 145.5 million. Remember, WASDE sees EU wheat opening stocks at just 11 million mt, which would likely reduce 2017/18 exports to 28-29 million mt. The EU corn crop size is also critical this year to determine the amount of wheat needed for feed. Losses of the EU corn crop cannot be tolerated without Black Sea corn imports, clearly feed supplies within the EU are tightening.
  • Heat and dryness is embryonic across the Plains and growers are concerned that it will shift east with time. Not everyone in the Midwest received good rains last week and the forecast is not offering much relief over the next ten days. June will end up being drier and warmer than normal, making July weather highly important to US corn yields. It is still far too early to turn overly bearish.

15 June 2017

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  • Wide swaths of the Midwest are suffering from short to very short soil moisture. The latest NASS report confirmed that 52 million corn and soybean acres are short or very short of topsoil moisture, and subsoil moisture is also in fast retreat as three weeks of drier than normal weather has occurred. Drought, by definition, is measured by an extended period of below normal precipitation. You do not need soaring temperatures to produce drought, just below normal rains. Yet to be determined is whether the drought in the N Plains will expand south and east. It would be historically unusual if the ongoing dryness did not worsen and expand during mid to late summer. 

  • US export data has been released as follows:

  • Chicago markets started the day mixed but have moved into positive territory with wheat leading by some margin. Th market continues to await weather forecasts and the anticipated arrival of hot and dry conditions, the real questions are “if” and “when”.

14 June 2017

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  • Lower volumes and prices has been the order of the day in Chicago today, and this has translated into London and Paris wheat markets too. Crude oil values easing to below $45 has placed a cap on prices and the early rally stalled. Expectations of the US Federal Reserve raising rates a quarter point later in the day has helped the US$ and again helped cap commodity price upside.
  • Weather models have some agreement with returning heat and dryness in the last week of the month, and this has the potential to push prices higher as and when there is confidence in the forecast. Some US farmer reports are showing corn stress levels rising in hot, dry and windy conditions. Leaf rolling in the afternoon and unfurling at night is reported to be farly common right now.
  •  The wet and cool spring weather conditions followed by heat and dryness in late May and June make it look unlikely for corn to reach trendline yields in 2017. Soils have dried to hard pans in Central US and replanted corn has struggled to emerge or regrow, shorter plants with reduced potential appears to be the most likely outcome. Whilst this is not the case across the whole corn belt, it is being reported quite widely. Yields of 171 bushels/acre require the crop to have good conditions, this year has already seen a number of “bad” days and the question right now is how many more “bad” days is the crop going to endure?
  • Clearly it is tough to trade weather markets when the weather models are in full agreement, but when there are divergences such as we are seeing at present it becomes doubly or trebly difficult. The current price break, albeit small, does not encourage us to become bearish and we prefer to see it as a buying opportunity rather than joining in with the sellers.

13 June 2017

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  • US crop condition data has been released as follows:
  • Key in the data above is that US spring wheat condition is at its lowest level in nearly 30 years. Only 46% of the crop is rated good/excellent as shown above, a 10% reduction week on week. The rating reduction was greater than trade expectation and created a stir in the market place with prices spiking sharply higher. Higher protein wheats, particularly in the US, are under a greater degree of pressure, and that appears to be translating into other origins, and will likely weigh on other wheat grades too in the fullness of time.
  • Tuesday saw soybeans trade an “inside day” leaving both old and new crop contracts about unchanged, but well below early session highs. Weather forecasts continue to hold the attention of the trade with current dryness directly opposed to the wetter forecast, which has rainfall across the entire cornbelt in the latter part of the week.
  • Corn futures followed wheat to a modestly higher close with the main issue not so much near term rain but more “what is the trend next week and beyond”. There is an expectation for improved soil moisture levels in the coming week but the six week outlook  is key and whether drought expands or declines in that period will be a determining factor in price direction. There is talk around that China will eliminate its value added tax on DDG imports but there remains anti-dumping and anti-subsidy tariffs that will hamper any major DDG import in the near term. It is the longer term policy that will be of interest.
  • Wheat, as mentioned above, rallied strongly as the market digested the latest crop ratings, particularly the spring crop. The Dakotas received decent rains in the last day or so but it seems spring wheat development, particularly in SD has gone beyond the point of recovery, and warm/dry conditions look set to return there before long. The outlook for the SD crop is not good. Winter wheat markets followed as did fob offers in Black Sea and Europe.
  •  Egypt’s GASC secured another purchase this week, the second, in which Russia, Romania and Ukraine were the selected origins. The latest price paid was a shade lower than the last tender at the weekend, at $193.50 basis fob, but includes (we believe) a modest premium on account of the current zero tolerance policy on ergot contamination. We would mention that Egypt secured wheat in early July a year ago at $163/mt, basis fob, and though that was more of a harvest position, world cash markets now hold a slight premium to year ago levels. This is especially true in N Europe. Without a major and rapid change in spring wheat crop conditions, work suggest a yield of 37-39 bushels/acre, which in turn makes the HRS balance sheet untenably tight. US HRW wheat end stocks could tighten to 360-380 million bu or 200 million less than 2016/17. Early seasonal lows appear to have been forged.