1 May 2017

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  • There has been zero trades in London or Paris today due to the May 1 public holiday, which saw markets closed. However, this was not the case in the US where markets have been sharply higher as funds covered short positions. Kansas wheat futures led the way and have made a technical trend reversal as the market debates how much crop will be lost to disease, frost, and freeze ramp up. Snow cover across SE, CO, W KS and the OK panhandle is masking the extent of any damage, and this will remain uncertain until it melts. Today’s wheat condition report is expected to show some downgrade.
  • US corn seeding to last Sunday is expected to reach 31% vs. 45% last year and an average of 30%. Soybean planting is estimated at 12% vs. 6% on average whilst spring wheat is estimated at 33% vs. 54% last year and 39% on average. Clearly the year on year lag makes May weather all the more important for catching up on both planting and establishment, and this will be watched closely.
  • Informa Economics will provide its updated new crop US and world supply and demand estimates on Wednesday morning. Survey-based US winter wheat production will also be released, and the trade’s issue now is that freeze damage is somewhat tough  to assess. On the margin, yield potential is in retreat, however, mostly due to the weight of snow on plants in the far W Plains. Daily updates from the KS wheat tour will be of particular interest. The US weather forecast ahead maintains a lengthy period of dryness, along with warming temperatures, but whether widespread precipitation returns in mid-May is less certain. We do note that the European/Black Sea forecast is improving. Rainfall worth .40-.80” was spread across France, Germany, Poland and parts of Ukraine on the weekend. Additional rain is indicated in W Europe over the next 5-7 days, and there remain hints of widespread soaking precipitation across much of the Black Sea in the May 7-12 window. Keep in mind that longer term price direction hinges upon the sum of major exporters’ balance sheets, rather than just the US.
  • Despite the recent weather issues, the broad, longer term story of record global grain and soybean supplies is little changed, but the question now is to what extend funds aim to pare back short positions. Additional buying/short covering is expected on the close today, and follow through purchases early Tuesday (or not) will be critical to price direction over the remainder of the week.

27 April 2017

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  • Weekly US export data has been released as follows:
  • Weekly EU wheat exports reached 730,094 mt, which brings the season total to 22.19 million mt. This is 4.45 million mt (16.7%) behind last year. Barley exports for the week reached 147,532 mt, which brings the season total to 4.37 million mt.
  • Ag markets in Chicago are a shade higher today with KC wheat leading the way as uncertainty over recent and potential freeze damage to the crop. The Trump administration’s change of heart over ongoing NAFTA membership and terms has also lent additional market support, albeit limited from a financial perspective. Crude oil has extended overnight losses and the market appears to be looking to test $48/barrel.
  • US export data (above) showed better than expected soybean sales, corn sales were within expectation whilst the wheat figures were terrible, at least for old crop, and were at the lowest level in the 2016/17 crop year. Seemingly there were significant wheat cancellations, which clearly impacted the weekly total figure.
  • On a more positive note, the US drought monitor has this week restricted actual drought to the southeast and eastern OK, and this is forecast to be eliminated within the coming week whilst any lingering abnormal dryness is disappearing across the W Plains. Currently some 22% of the continental US is experiencing drought vs. 36% last month and 40% this week last year. The latest weather discussions are focussing on planting dates, which have raised concerns, against the likelihood of a summer drought as soil moisture levels have received this recent upgrade.
  • Away from the US, Morocco has increased its tariff on imported soft wheat to 135% for the remainder of the year as a consequence of their own improved harvest. This maybe provides a glimpse of what may be in the offing as far as overall N African production is concerned, which (if correct) somewhat reverses initial, and highly variable, output estimates.

26 April 2017

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  • We have seen mixed trade in Chicago today and with just over an hour to go we see corn and soybeans lower whilst wheat prices are about unchanged. Wheat prices were buoyed early with some fresh fund short covering although they appear less enthusiastic about covering their corn shorts today than appeared to be the case yesterday. This coming Friday’s CFTC report is likely to again show huge wheat short positions and this creates a vulnerability, particularly as we are approaching the USDA’s May WASDE report. Farmers and traders are fully aware of the fund short in wheat and are consequently not currently making sales, this is market supportive.
  • Turkey (the world’s largest wheat miller) has been a significant buyer of Russian wheat due to competitive prices and proximity. Turkish wheat production is expected to be down around 10% in 2017 due to extreme weather, which is likely to boost demand for world wheat. As a new crop is being made, Russia wants to make sure that it remains the largest and most important wheat supplier to Turkish mills.
  • Brazilian calendar soybean exports (January-April) are estimated to be up 5.1 million mt from last year’s record level. This pace is largely due to China, as they continue to ramp up their soybean purchase and shipping pace. Also, even with their record large export pace, ship loading delays have been minimal, which is a testament to Brazil’s huge investment in port logistics. Today, a Chinese crusher can secure a panamax size vessel and start loading by the end of the week. This is a big structural change that places Brazil on par with the US Gulf logistics.
  • Cold temperatures continue to plague Canadian farmers in their plans to harvest the remainder of the crop that was left in the field from last autumn and commence spring cultivation work. The cold snap now looks to last into mid May which is pushing seeding to the last half of May. Spring wheat/canola (rapeseed) futures are more closely watching weather updates for direction with canola up against four year highs.
  • The latest US wheat crop condition data has been released as follows:

24 April 2017

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  • Chicago corn and soybeans traded higher whilst wheat eased today. LIFFE wheat made gains whilst MATIF wheat eased; the factor here appears to be the change in currency as £Stg eased vs. €uro.
  • It is probably fair to suggest that a bearish mentality continues to dominate, particularly as the US farmer pushes to get corn and soybeans planted ahead of further rains scheduled for the Wednesday to Monday timeframe. Asian markets offer some bullish potential but Chicago bearish overtones dashed this. It seems that Chicago has the measure of global stocks and forthcoming supplies, and the real question lies in, “What will the coming season truly bring?”
  • The EU crop monitor raised their forecast for EU soft wheat yields to 6.05 mt/ha from 6.02 last month which is up 8% from last year. The EU also raised their corn yield to 7.13 mt/ha from 7.12 last month. Winter rapeseed was cut slightly from 3.29 to 3.27 mt/ha. The dry weather has not yet caused huge harm, but the dryness is becoming a concern as generally dry forecasts are called for the coming ten days. It will be key that above normal rainfall falls during May.
  • The Russian Agmin has cut their wheat crop estimate to 63.9 million mt, down around 9 million from last year. This crop is lower than most in the trade are suggesting in terms of a 2017 crop of 67-70 million mt. Weather has so far been OK, but the forecast is dry/warm going forward which should favour spring seeding, assuming that the rains return. The Black Sea has enjoyed four years of above trend-line wheat yields. History reflects that every 5-6 years the Black Sea endures a significant crop loss. The question is whether 2017 will be the year where Russia harvests a reduced trend grain crop.
  • The trade is generally supporting a view that US farmers were able to make strong corn seeding progress on the weekend with some estimates as high as 20-22%. Funds continue to sell wheat on a bet of a further increase in condition ratings. US farmers do not appear to want to sell wheat as prices scrape along the loan level. World wheat production is (at long last) coming down and too much rain looks to fall across the Midwest into mid May. Coming weeks will be interesting and we continue to caution against tuning too bearish at current prices.

20 April 2017

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  • Weekly US export data has been released as follows
  • Weekly EU wheat exports totalled 818,463 mt, which brings the season total to 21.46 million mt. This is 4.54 million mt (17.5%) behind last year. Barley exports for the week reached 85,696 mt, which brings the season total to 4.22 million mt.
  • Chicago markets are trading lower after starting in the green, it seems funds are adding to short positions. May options expire tomorrow with traders looking to pin the $3.60 price level in corn, $4.10 level in wheat and $9.50 level in soybeans. We note that July KC wheat is back testing its prior contract low at $4.235 while the low in July Chicago wheat rests at $4.20. Minneapolis wheat is correcting on a slightly drier weather forecast, which has added to the selling pressure on winter wheat futures. US soybean futures are now competitive with Brazilian fob offers for July and August, and new interest is being noted. Brazilian farmers are not increasing sales on the decline in Chicago prices while domestic Chinese soymeal demand is robust. We doubt that fund managers want to push their bearish position too hard right now.
  • NOAA’s long term weather forecast for the US called for a warm to hot late spring and summer with above normal temperatures for the much of the Central US. If correct, this could raise some concern for corn which would prefer a cool growing season for trendline or above yields. Other forecasters maintain that there will be a number of weather scares in late spring and summer with heat produced by the warmer than normal Atlantic Ocean. The area of dryness across the SE US is expected to expand. Whether this dryness can work into the Delta and the S Midwest will be closely watched. The W European weather forecast remains dry with limited rains for France, Germany, Spain and N Africa over the next ten days. The soil moisture situation for portions of W Europe is getting serious and will be closely watched in coming weeks.
  • Soybean futures are (were) holding, but it is a disappointing day for the grains as KC wheat falls to new lows and corn sinks on improved Midwest planting weather. President Trump mentioned low dairy prices and Canada in a just completed press conference, and there exits potential for a dairy trade dispute. The administration appears to be paying attention to the falling US farm income. Bearish long term price trends prevail.

18 April 2017

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  • US winter wheat condition data has been released as follows:

  • We start the return to work which is within estimates with Chicago markets mostly lower as some private forecasters call a drier Central US weather profile, which resulted in some turning more to the sell side particularly in corn and soybeans. Wheat in Minneapolis is catching a bid on potentially tight US stocks as well as delayed plantings in Canada. The cooler and wetter forecast in Canada has many talking of reduced acres, which is underpinning wheat prices. Canadian farmers are worried about cold temperatures, snow and saturated soils as key planting dates near. Much of the Prairies are still dealing with snow and low lying water, that will take at least 2-3 weeks of warm/dry weather before seeding can really get going. This means that Canadian crops are likely to be seeded late, which will allow for more fallow acres amid poor prices. World wheat traders are starting to more closely monitor Canadian weather to gauge if and when planting might commence. However, the mentality of the market remains generally bearish in the face of large US and world stocks. These large stock levels can not be dismissed out of hand, but with so many certain of prices falling further it is now a time to exercise caution, particularly as we enter a new growing season. Our view is that we are in a broad trading range and the choppy nature of prices will continue until such time as we see some fresh news input.
  • The IMF sees the global economy accelerating its growth to 3.5% this year due to a resilient China, rising commodity prices and sturdy financial markets. Combined, these features offer a bright outlook for expansion of the world’s GDP rate that should help elevate commodity demand. A 3.5% expansion of world GDP should bode well for the general outlook of the CRB Index for at least another few quarters. Goldman Sachs confirmed that it is exiting its long held US$ long position amid uncertain US Trump Administration policies and improved demand from emerging nations. A weaker US$ would help US export demand while damping the growth of grain and oilseed production in other countries.

13 April 2017

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  • US weekly export data has been released as follows:

  • US soybean and wheat exports were in line with expectations whilst the corn figure has been described as “disappointing”.

  • Brussels has issued weekly wheat export certificates totalling 549,963 mt, which brings the season total to 20.09 million mt. This is 3.98 million mt (16.55%) behind last year. Barley exports for the week reached 130,012 mt, which brings the season total to 4.14 million mt.
  • With EU, and notably French, wheat trading at a discount to UK wheat we are seeing the UK transition to becoming a net importer of the grain. There remains little evidence to suggest this trend will change in the short to medium term and reports of cargoes trading into UK mills has led to a reduction in UK consumer aggression. New crop prices in the UK remain too expensive and if the UK is to export its usual harvest volumes we will have to see a major price adjustment in order to regain competitiveness.

  • Western EU wheat growing regions are in need of rainfall in the next two weeks; private crop forecasters have highlighted the need for moisture as the crop is in the joint or late joint stage. Better rains are forecast for parts of Ukraine and Russia in the coming 7 – 10 days, and are needed after some 30 – 40 days of dryness.
  • US markets are seeing corn and soybeans a touch firmer whilst wheat prices have eased slightly.Wheat is again struggling in the face of active corn/wheat spread trade and as we approach the end of the week there is a firmer note to the market with further fund short covering noted.