12 June 2017

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  • Egypt’s GASC made a 360,000 mt purchase of wheat over the weekend with prices up $3/mt from their first tender of the season reflecting a general increase in global prices. Romania and `Russia were once again the awardees in this latest tender. Some feel that the price paid reflected something of a premium as a consequence of zero tolerance on ergot contamination – once again.
  • Chicago markets have seen some decline today as forecast rainfall and its impact upon new crop corn and soybeans weighs on traders minds. Farmer selling has declined, perhaps as a result of declining crop condition. Fund managers are seeing prices fall back to last week’s breakout levels and a “Turnaround Tuesday” looks on the cards tomorrow. Historically dry conditions in the first half of June leave crops requiring abundant rainfall in the latter half of the month.
  • Our view is that weather concerns are not yet over and that we will see further weather driven price rallies before this growing season is done and dusted. Trendline yields, particularly in corn, and also in US wheat, look ambitious at this time.

8 June 2017

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  • US export data has been released as follows:
  • The current price rally has seen some huge cash corn sales by US farmers who are happy to part with stored stocks, and cash basis has declined as the market takes on board test additional supplies and end users as well as exporters add to their forward coverage. The market awaits the potential for new crop supplies and we would suspect that cash basis could weaken further as S America takes over export demand from the US beyond July.
  • Chicago markets have extended the overnight rally with spring wheat leading the charge. Front month (July ’17) corn futures are flirting with $3.90/bu technical resistance whilst wheat futures break through, which is triggering further fund short covering. The midday weather model is little changed from this morning, though the GFS continues to fail to bring meaningful rainfall forward in time. The EU model in recent days has maintained near complete dryness throughout the next ten days, and in the short term the burden of proof is on the bears.
  • It feels as if funds will continue to short cover and/or buy until such time as we see improved US weather conditions actually materialise.

7 June 2017

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  • Although rainfall returned to much of Europe in late May and early June, a below normal rainfall pattern is anticipated going forward with warm to hot temperatures. June is the key month to determine wheat yield and production, and the latest weather forecast hints at declining crop prospects across much of the continent and throughout Ukraine. The 2017/2018 world wheat crop is in decline, which is in stark contrast to a year ago when world yields gained amid favourable weather conditions. 

  • Spot (July ’17) Chicago corn futures have pushed higher and breached technical resistance at $3.805, which triggered further widespread fund short covering and further price upside.Corn traded volumes have exploded as weekly charts break out to the upside. Wheat and soybeans have followed corn’s bullish lead as Kansas wheat futures lead the way as yield data continues to disappoint as the harvest pushes north. Soybean prices have held back a touch as weakness in the oil portion of the crush limits upside somewhat. We would expect to see a retest of the $9.40-$9.50 level before the weekend basis July ’17 futures.
  • It feels as if all Chicago futures markets are adding weather premium right now in advance of anticipated hot, dry and windy forecasts. There is a projection for “blast furnace” like conditions, which will take a toll on central US crops if it materialises.
  • Market volumes have been huge today, and this is one potential sign of changing direction – recall our earlier suggestions that we may have seen a market “bottom” – and today could well be another signal that this is under way. Friday’s report continues to loom large over the market but again it is the forecast hot and dry weather that is holding centre stage.

6 June 2017

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  • Funds are back to holding a near record short soybean position that is not going unnoticed. The chart reflects funds holding a sizeable net short position heading into the heart of the growing season. Whether a stout rally develops is in the hand of Mother Nature, but history shows it not unusual to have a few good weather scare rallies during a growing season. We also note that with US and world farmer selling limited by the weak price structure, funds will have to maintain a brisk sales pace to keep the soybean complex under pressure.

  • US crop condition has been reported as follows:

  • July ’17 wheat futures in Minneapolis have reached two year highs leaving the Chicago bears somewhat more nervous than has previously been the case, and some short covering has been the case. Soybeans continue to attempt to carve out a bottom in the market but the question of whether or not the current warm and dry spell is impacting the soybean crop is leaving many guessing. Consequently, soybeans are following the grains rather than forging their own price path. Kansas wheat has moved strongly above its 50 day moving average and closes above this level will likely trigger fresh fund buying when the market opens. It feels very much as if we have seen the seasonal low in wheat and that the market is awaiting further confirmation of likely 2017 US and world crop reduction prospects. The corn market is also higher, forming a bullish reversal pattern with today’s prices taking out yesterday’s high and low.The market is adding weather premium on drier trends.
  • Heavy fund shorts and a twitchy, nervous feel to the markets as warmer and drier conditions appear more established across the Midwest and C Plains leave us somewhat more friendly to the market. Yesterday’s improvement in corn crop rating (see above) is not having a bearish impact as focus is more upon future condition deterioration as soil moisture levels decline. Friday’s USDA report looms close but it is the hot and dry central US forecast that is grabbing the headlines.

5 June 2017

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  • Trading in Chicago at the start of the week has been mixed with limited direction. It seems that traders are awaiting more clarification on where central US weather patterns are going before committing to fresh positions. Of note was the continued increase seen in Minneapolis wheat premiums relative to other grades. US farmer cash selling of corn and soybeans is slowing quickly as they consider the change in growing conditions from cool and wet to warm and dry. An unusual pace of drying soils and hardpan formation on the back of “ponding” following spring rains has led to some increased concern over corn and soybean crops’ ability to root down unless normal, or near normal, rainfall returns, and soon. That said, the funds remain resolute in their massive net short positions, and technical chart patterns leave little near term indication that corn or wheat are about to break from current trading ranges. Meanwhile soybeans and soybean meal charts remain in technical downtrends.
  • Funds holding net short positions may well be starting to be getting somewhat impatient that profits are not rolling in particularly as we are about to see the release of the June USDA report on Friday this week. Weather forecast models for the coming week or two hold limited agreement and are therefore somewhat less reliable. The UK general election outcome will doubtless play a major role in the future direction of £Stg and UK equity markets. How the week develops will be interesting to watch.

1 June 2017

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  • Weather has been a “hot” topic from a US growers perspective in recent times and we thought it worth pointing out that although April and the first half of May were extremely wet, the month ended on the drier side with temperatures starting to warm up. It is pertinent that 45% of Central US crop areas received less than 75% of normal rainfall during May, while the N Plains endured less than 50% of normal precipitation. Dryness over the N Plains has to be closely monitored for expansion south and eastward in June and July.
  • Overnight strength in soybeans gave way to technical trade which left both old and new crop slightly weaker at the close. Old crop prices continue to weaken against new, and the July finished 5.5 cents under November. The new crop soybean/corn ratio has narrowed to 2.35:1 (a four year low) and is expected to stabilise around 2.30:1. New crop Nov ’17 soybeans at $9.00 feel too cheap with the bulk of the growing season ahead. 12.3 million acres of soybeans are seeded in the parched Dakotas representing 14% of the US total. N Plains producers are concerned by dry soils and poor germination. We are turning more bullish towards soybeans as both oil and soybeans reach our summer downside price targets.
  • The weather models are in better agreement with the GFS the EU and Canadian models starting to come together, and forecast warmth and dryness will be welcomed in all but the N Plains, where abnormal dryness and moderate drought are expanding. Whether rain returns in mid-June merits close attention, and overall the market lacks inspiration ahead of the growing season. Argentine corn offers are increasing as solid demand is noted. Brazilian corn exports in May totalled 310,000 mt, vs. near zero in May of 2016, and seasonal shipments will begin in earnest in late July. Record Brazilian corn exports are probable, and US export sales will likely slow through the balance of the crop year. The US big demand is about to end. However, unlike a year ago, world cash wheat prices are firm and are rising in the Black Sea. Hot and dry weather will plague key areas of Ukraine and S Russia over the next ten days, and the speed of drought development in the N Plains is noteworthy. Without a 170 bu plus national corn yield, US end stocks fall to or below 2.0 billion bu. The point is that uncertainty remains, and lower projected global corn stocks and a sizeable net fund short linger in the background. The debate centres on US corn yield and weather during July. 
  • US wheat markets ended steady to higher, with Minneapolis’s premium to CME and KC widening to $1.44-1.47 basis July. This premium is testing the highs of January, and is generally a level rarely seen in recent years. Drought is developing across the Dakotas, other issues are mounting across the N Hemisphere, and there are real concerns over 2017/18 HRS stocks. The midday EU weather model has added a fairly strong high pressure ridge in Ukraine in the 6-10 day period. As such, meaningful rainfall will be absent from the Black Sea in the next ten days and high temperatures there will reach into the upper 80s and low 90s in the June 8-11 window. Assuming the forecast is correct May 1-Jun 10 precipitation in Ukraine will range from just 35-60% of normal. Note too that Russian fob offers are firm at $192/mt for spot, vs. comparable HRW at $190. S Plains harvest results continue to feature sub-par protein levels, and on this evidence we can not advise a bearish outlook with managed funds in Chicago short an estimated 125,000 contracts. Harvest lies ahead, but weather pattern changes are needed in the Northern US and Black Sea to push spot futures below $4.20.
  • 31 May saw Egypt’s GASC secure 180,000 mt of wheat in their latest tender, 120,000 mt from Russia and the remaining 60,000 mt from Romania. Interestingly, US grains did not feature at all in the lineup.

30 May 2017

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  • Soybean futures break down In technical trade, following last week’s break to the downside, soybean futures shrugged off old crop export demand and extended losses in Monday’s trading. Ahead of the morning open, the USDA announced an export sale of 130,000 mtof old crop soybeans to an unknown destination. After the close, NASS reported national planting progress at 67% complete, versus 53% last week and the five year average of 68%. MN is leading the Cornbelt states with 81% of it’s crop in the ground, trailed by IA at 77%. IN and OH were each at 54% complete, and both states were 17 points behind their five year averages. 37% of the US soybean crop was reported emerged, just behind the average of 40%. Old and new crop soybean contract’s are now deeply oversold, with funds sitting on the largest net short position in over a year while hedgers are still holding a rare net long position. Support should be found in July ’17 futures around or just below $9.00/bu.
  • Corn falls on weather; crop rating lower than expected: Somewhat expectedly, Chicago futures start the summer season lower on a modestly improved US forecast. Additional soaking rain is absent through the next 10 days, and temperatures will eventually reach into the mid/upper 70s across much of the Corn Belt by mid-July. Planting and emergence dates continue to track close to normal, though crop conditions provide evidence of this season’s less than ideal start to the growing. Funds are estimated to hold a net short in Chicago worth 193,000 contracts. The US crop is rated at 65% good/excellent vs. 72% a year ago and the lowest since 2011. Ratings are decent across the Plains and W Corn Belt, but are concerning in the East. IL’s crop is pegged at 52% good/excellent, down 19% from last year, IN’s crop is pegged at 43% good/excellent, down 26% from last year, and work suggests without improvement US yield potential is no better than trend. In the primary corn belt, only NE conditions are better than last year. We also mention that Gulf corn for spot delivery is priced at parity with S American origin, and ethanol margins have rebounded quickly following the break in corn.
  • Wheat ends down; world cash market still firm. Wheat futures followed corn and soybeans to moderate losses, though as the US dollar weakens Gulf wheat remains competitive in the world market for spot delivery. Russian cash prices have rallied slightly and origination issues persist, and Gulf SRW is not only the world’s cheapest origin, but also holds a sizeable discount to EU and Black Sea wheat. US wheat crop conditions remain well below last year. Winter wheat conditions fell 2 points to 50% good/excellent vs. 63% on this week a year ago. Declines of 4-5% are noted across the Plains, and early harvest results continue to feature very low protein levels. Spring wheat is rated at 62% good/excellent vs. 79% a year ago and the lowest in late May since 2008. We remain somewhat concerned about high protein wheat availability. There is also increasing concern about developing drought in E Ukraine, where 30-day rainfall in some areas now rests at 20-40% of normal. Record old global stocks must be worked through, but increasingly wheat is viewed as cheap below $4.20, spot Chicago, as N American weather has been far from ideal, and as for the first time in years the US is competitive with Europe for summer export demand. Egypt released its first tender for new crop supply this afternoon, the results of which will be watched closely by cash traders on Wednesday