8 August 2023

Posted on by
  • HEADLINES: Turnaround Tuesday in the making as end user pricing surfaces on morning break; GASC secures 325,000 mt of Russian wheat; GFS weather forecast slightly wetter across W Midwest.
  • Chicago futures are mixed at midday in declining volume. Long liquidation by fund managers in soybeans/soymeal/soyoil and corn pressed values early, but end user pricing and profit taking by the bears trimmed losses at midday. Chicago grains are now trading in the green with a turnaround Tuesday in the making.
  • We doubt that with the USDA August crop report due out on Friday that either the bulls or the bears can sustain a price trend for the rest of the week. Chicago markets are in waiting mode with traders paring risk awaiting last half of August weather, private crop tours and NASS August USDA yield data.
  • Expect a mixed to slightly higher close as positioning is the dominate theme for price, and traders will lean into the potential for a supportive US 2023/24 soybean balance sheet with corn staying heavy with end stocks near or above 2.0 billion bu. We note that traders are not looking for much of a change in US all wheat production with an average guess right at the July NASS forecast at 1,739 million bu. Our bet is that if there is a surprise, it could be a smaller US wheat harvest due to sinking HRS yield.
  • Chicago brokers estimate that funds have sold 3,400 contracts of wheat, 4,800 contracts of soybeans, and 2,900 contracts of corn. In soy products, funds have sold 4,300 contracts of soyoil and 3,200 contracts of soymeal.
  • GASC purchased 235,000 mt of Russian wheat from the same supplier, Grain Flower, at reported prices of $262-265/mt basis FOB. This is up $12-15/mt from last week’s tender with freight costing $14.50-17.69/mt. World wheat prices as values have formed their seasonal low. Russian exporters are struggling to replace sold wheat from the farmer and insurance/freight rates are rising on the back of the expanding Black Sea marine war. As we have previously reflected in recent weeks, it is just getting tougher to supply Russian/Ukraine grain as the Black Sea Grain Corridor Pact ended in mid-July. If new Southern Hemisphere wheat harvests are not as large as USDA forecast (due to the rapidly expanding El Niño), the wheat bull story will become somewhat spicy into 2024. It is important to understand the growing difference in world wheat markets last year and this year and the bullish tailwind that it would provide for corn/soy futures.
  • Ukraine President Zelenskiy indicated that Ukraine will attack Russian vessels and ports just as Russia has attacked Ukraine ports and grain silos in a tit-for-tat kind of war in the Black Sea. The Ukraine pronouncement on its exports was a surprise as it has been the defender not the aggressor in the war to date. However, grain/steel exports are at the heart of the Ukraine economy. We fear that Russia will continue to target Ukraine grain assets  with retaliation from Ukraine in a broadening war with September-December grain exports being the largest of the crop year. The expanding Black Sea war makes it difficult to be overly bearish of Chicago and world values once the US corn yield is digested. Sub $4.80 December corn futures offers ownership opportunities for end users with Ukraine corn exports expected to be curtailed by 4-6 million mt.
  • The midday GFS weather forecast is slightly wetter across the W Midwest and similar in the E Midwest vs the overnight solution. Any heavier rain will be confined to OH/IN with 10-day totals of 0.5-2.00” with reduced 0.25-1.25” for the W Midwest. The best rain chance is with a ridge riding system in the next 48 hours across the C and E Midwest. Severe weather is probable across the OH Valley. Thereafter a drier weather trend evolves with seasonal temperatures. The high-pressure ridge amplifies northward late next week with 80’s to mid-90’s becoming commonplace. The GFS forecast has been the warmest of the forecasts in the 10-15 day period and is likely too warm. The northern branch of the jet stream stays strong which will prevent any pattern stagnation into late August.
  • Speculative liquidation ended early in the session with end user pricing noted in soyoil, corn and soybeans. China secured additional US and Brazilian soybeans this morning. Cash soyoil holds at a $0.04-0.08 premium to August futures with only 71 deliverable receipts registered. Seasonal bottoms are forecast either right before or after the August or September USDA reports. World wheat, rice and soy product prices have already forged seasonal lows. Don’t sell sharp breaks!

7 August 2023

Posted on by
  • HEADLINES: Chicago sharply lower on fund liquidation; Wheat rallies sharply awaiting GASC tender results; China active buying us soybeans.
  • Chicago futures are sharply mixed at midday. Soy futures sharply lower while wheat values are sharply higher, and corn is caught in between. The fundamental tugs of an expanding/intensifying Russian war against Ukraine and a needed Midwest rain is directing grain valuations today.
  • Trade volume is restricted by recent week market volatility with few wanting to place new price bets until after Friday’s USDA August crop report. The August report is based on farmer survey data and farmers tend to be more optimistic on their yield than NASS is in the September or October reports.
  • We are doubtful that NASS will be able to conduct an October estimate if the US Congress cannot agree on a budget extension or new pact in September. The odds of a US government shut down are high for October and November.
  • Seasonal Chicago price trends are down for another few weeks before bottoming in the last week of August or the first two weeks of September. US farmers report that they will store as much of the 2023 harvest as possible. This argues that cash basis bids will firm before Chicago values turn. It is the cash market that will provide the first signal of a seasonal low in corn/soybean futures.
  • Exportable cash wheat values bottomed in June and have headed upwards into early August. US futures will need to maintain a healthy premium to the world fob wheat market to prevent exports beyond traditional demand.
  • Chicago brokers estimate that managed money has bought 5,200 contracts of wheat while selling 8,700 contracts of corn and 7,900 contracts of soybeans. In the products, funds have sold 4,300 soymeal and 3,800 contracts of soyoil.
  • US export inspections for the week ending August 3 were 10.1 million bu of wheat, 14.9 million bu of corn, and 10.4 million bu of soybeans. The corn exports were at the lower end of expectations while soybean inspections were larger. US wheat exports were near the weekly average needed to achieve USDA’s annual target.
  • The USDA/FAS announced 251,460 mt of US corn sold to Mexico and 132,000 mt of US soybeans sold to China. We hear that China remains active in booking US soybeans for November while also securing 6 cargoes of Brazilian soybeans for February. It is our belief that China will take more than 105 million mt of world soybeans in the old crop international crop year that ends on October 1. USDA is way too low in forecasting both China’s old and new crop import pace and significant upside adjustments are needed in the next 2 WASDE reports.
  • Argentine imports of Brazilian soybeans have declined to near nothing over the past 5 weeks and little interest is being expressed with commercial stocks falling to a record low for August 1. The point is that Argentina will try a soy-dollar program on Sept 1 to spark farm movement of drought stored soybeans, but their export stature in the world market is in sharp decline. This will push additional meal demand to the US while the world is shorted by a hefty 2 million mt on Argentine soyoil exports through April 2024.
  • Traders are debating on how much yield benefit was produced by the Midwest rain. Our best estimate is that yield was boosted by 0.5 bushels/acre back to 51.0 bushels/acre from the week following. Midwest soybeans endured germination woes that produced poor stands and smallish plants. The rain will help podding, but we doubt that the US soybean yield will be able to reach back to 52.0 bushels/acre trend.
  • The midday GFS weather forecast is drier than was offered overnight for the W Midwest and the Plains with 0.4-1.50” less rainfall. The E Midwest is wetter from Indiana and Ohio. Unfortunately, there will be areas of Minnesota that keep getting missed by the moisture. And temperatures look to be rising following the middle of next week as the high-pressure ridge amplifies northward and covers most of the Central US after August 18. Extreme heat returns and would be felt if the GFS weather forecast verifies.
  • The bears have their claws out on the weekend Midwest rain ahead of a key monthly USDA report. Wheat futures are rising on tightening world exportable supplies amid rising Black Sea war tensions and a limited offers of insurance for freight. Our advice is the same, don’t sell breaks or chase rallies.

4 August 2023

Posted on by
  • HEADLINES: Chicago corn futures declined for 8 consecutive days; GFS weather forecast at midday wetter on the weekend, drier in the 6–10-day period; US crop condition ratings to ease 1% on Monday.
  • Chicago futures are higher at midday, but the overnight gains have been cut in half with soyoil/soybeans being the day’s bullish stalwarts. Wheat has retreated as Russian exporters tell their import customers that they will be able to manage future marine drone attacks from Ukraine. The Russian’s claim that no damage was done to Novo export infrastructure and that loading has quickly resumed. However, insurance brokers are more fearful, but ahead of a weekend, no one wants to push the green panic button until there is clarity on whether the war is expanding into the shipping lanes of the Black Sea in a more meaningful way. Those headlines will be closely followed next week.
  • If the expired Black Sea corridor export pact is not renewed, neither Ukraine or Russia will want the other side to export and capitalise on the shortfall. It’s a classic case of, “If I can’t export then neither will you!”  Otherwise, traders will be counting weekend Midwest raindrops and where they fall and in what amounts for the key dry zones of Minnesota, W and N Iowa, and Central Illinois. Rain has been forecast for the drier Midwest areas since the start of the week. Rainfall totals this week were disappointing, but the models are still promising rain this weekend, so hope persists that a crop saving rain will develop. The midday GFS forecast is slightly wetter this weekend.
  • Spot Chicago corn futures have declined for 8 consecutive days coming into today’s trading session with the September/December corn trading at a discount of 13 cents. The last time that spot corn futures has fallen 8 consecutive trading was back in 2016, 7 years ago. Our point is that for corn to drop 9 days in a row would take a further step back in history. The shorts are willing to bank profits ahead of a key USDA crop report a week from today. Headlines have been the biggest feature of Chicago this summer and who knows if Russia will retaliate for the Novo attack on the weekend.
  • Chicago brokers estimate that funds have bought 3,500 contracts of wheat, 4,700 contracts of corn, and 4,100 contracts of soybeans. Funds have bought 2,200 contracts of soymeal along with 3,500 contracts of soyoil.
  • We look for a stable or 1% decline in corn, soybean, and spring wheat good/excellent crop ratings on Monday. Seasonally, US corn/soy crop ratings erode into mid-September before stabilising ahead of the harvest. The impact of weather on US corn fades in the middle of August while its impact on soybeans is sizeable.
  • S American soymeal export premiums slipped this morning on the need to uncover business. The cash slippage pressured Chicago soymeal spreads. However, the US cash soymeal market stays tight amid strong domestic demand and slowing US crush due to plant maintenance. August soymeal futures are priced at a $46/ton premium to December with September soymeal trading at $24/ton premium. August Illinois rail soymeal is offered at $34 over September soymeal futures.
  • The midday GFS weather forecast is slightly wetter on the weekend with needed rain across SW MN and the northern third of Illinois. Rainfall totals are estimated in a range of 0.2-1.50”. The rains then cover a larger share of the E Midwest in the first half of next week. Short changed will be the Delta and the S and C Plains where limited rain looks to fall for the next week. The forecast models have backed off on heavy rains across the SE US as the Bermuda high pressure ridge is located further east. There is no extreme heat noted as a high-pressure ridge retrogrades to the SW US. A more zonal weather pattern is forecast for mid-August with near to above normal temperatures and near normal rainfall in the 11–15-day period.
  • The week produced 2 larger than expected private US corn yield estimates of 176-177 bushels/acre, a bearish surprise. We see the US corn yield at 173 bushels/acre or under as producers report considerable ear tipping and shallow kernel depth. US corn supplies and end stocks are the bearish anvil on Chicago. US 2023/24 wheat/soybean end stocks will be smaller than last year, and we doubt that Brazil will be able to produce back-to-back record corn/soy crops amid El Niño. We are looking for longer term bottoms are in by mid-September.
To download our weekly update as a PDF file please click on the link below:

3 August 2023

Posted on by
  • HEADLINES: Chicago mixed at midday; Wheat and corn test recent lows; GFS drier; crude up $1.90/barrel.
  • Chicago futures are mixed, with grains weaker and soybeans and meal higher, in very thin volume. The choppy nature of the marketplace and the inability to established new lasting trends has eroded participation. Key supply updates also lie just ahead, beginning with USDA’s August WASDE and followed by Pro Farmer’s Tour of the principal Midwest in mid-August. Calls for a mild/wet August are coming to fruition, but damage has been done to yield potential in July and amid last week’s extreme heat keep questions over exact final output intact. Funds have resumed adding to an already decently sized net short wheat position in Chicago amid expectations, right or wrong, that Black Sea exports will be normalised in the long run.
  • Neutral/bearish seasonal trends and a lack of new US weather threats have weighed on the market this week, but secondary seasonal lows are close at hand. Yet, we note that the port of Asov in Russia is still operating below capacity, and only during daylight hours, and wheat futures markets are discounting Southern Hemisphere crop risks entirely. Exceptional drought will remain in place for another 10 days in all but the southern part of Buenos Aires in Argentina, with high temperatures into August 11-12 will exist in the mid-80s and 90s (or 9-15 degrees above average) in Cordoba and northern wheat producing regions.
  • This along with developing dryness in Western Australia and New South Wales needs very close monitoring. Already USDA projects combined Argentine/Australian exports to drop 4 million mt year on year in 2023/24 to a 4-year low. This discrepancy rises to 6-8 million mt if weather stays adverse.
  • We also note that the details of Egypt’s tender Wednesday featured aggressive Romanian offers for Sep arrival but substantial risk premium in non-Russian origin thereafter. We currently strongly doubt the Black Sea export corridor will be restored, and risks to Ukrainian and Russian infrastructure remain elevated. Wheat’s break seems short-sighted in nature.
  • US export sales in the week ending July 27 included 4 million bu of old crop corn, vs. 12 million the previous week, 3 million bu of soybeans, vs. 7 million the previous week and 15 million bu of wheat vs. 9 million the previous week. Spot corn and soy demand remains lacklustre, while wheat sales continue to keep pace with USDA’s forecast. Exporters sold 14 million bu of corn for new crop delivery and a sizable 96 million bu of new crop soybeans. New crop soy sales in next week’s report will be a large 50-60 million bu following recent daily announcements, including a new sale to China this morning worth 134,000 mt.
  • New crop corn export commitments to China as of July 27 total 21 million bu, just 0.5 million short of total physical exports to Canada so far in the 2022/23 crop year. Corn exports to Canada are expected to reach 50-70 million bu following dire drought there and falling barley, oat, and wheat yield potential.
  • Spot WTI crude oil at midday is up $1.90 at $81.50. The Dow is down 10 points.
  • The GFS weather forecast at midday is much drier in MO, IA and IL than this morning’s run, and rather abruptly the model has eliminated rain chances there through late next week. The GFS forecast keeps the jet stream aligned a bit further north than previously, and heavy precipitation into mid-August instead will continue to favour the Central Plains and southern Midwest/mid-South. This is a significant change, but the EU model must validate it this afternoon. Extremes stays absent.
  • Russia’s supplying of the world wheat market, for now, and the expectation of a neutral/bearish August WASDE have triggered a test of recent lows in corn and wheat. Wheat markets add premium rather quickly if weather fails to change in the S Hemisphere or Black Sea infrastructure is damaged. Soy is a bull market until sizeable acreage expansion occurs in the US next spring. Corn stays choppy until US yield is known. 57% of US corn area is still experiencing drought.

2 August 2023

Posted on by
  • HEADLINES: Chicago mostly lower on negative macro input, higher dollar; Egypt buys Russian and Romanian wheat.
  • Midday Chicago futures reversed overnight gains rather quickly this morning amid weighty macro markets, wet Plains/W Midwest forecasts and as FAS’s daily reporting system was void of new soybean demand from China or others. Rating firm Fitch downgraded US debt from AAA to AA+, a move significant enough to pull the Dow down 230 points and spot WTI crude oil down $2.00/barrel to $79.30. The labour market is tight. ADP data features net jobs gains in July of 324,000. But the forward US/global economic picture is murky amid middling manufacturing index performance in the US and China. Some research suggests positive grain/oilseed fundamental input lingers in the background, but the trade is aware that seasonal trends are not overly supportive in early/mid-August and wheat futures worldwide are reluctant to add Black Sea risk premium.
  • Weekly EIA data leans neutral of corn and ethanol but longer-term positive crude and distillate markets. US ethanol production in the week ending July 28 totalled 314 million gallons, vs. 322 million the previous week but 2% above the same week in in 2022 and right at the USDA’s forecast. USDA is unlikely to adjust industrial corn use in its August WASDE.
  • US crude stocks less reserves on Friday totalled 439.8 million barrels, down a sizeable 17 million from the previous week. Available crude stocks now exist just 3% above last year, crude stocks were up 12% year on year in mid-June, and total US stocks, including strategic reserves, total just 787 million barrels, the down 12% from last year and the lowest since 1985. Energy markets are unlikely to embark on a lasting bullish trend until reserves stocks are replenished and global production rises, and we believe that OPEC is unlikely to change output levels materially below $85, spot WTI. Soy oil’s demand story is intact. Dec soyoil has reversed morning losses.
  • Egypt’s GASC received offers worth 1.77 million mt of wheat, of which a majority were Russian origin at the newly established floor price of $250/mt and ultimately Egypt purchased 300,000 mt of Russian and 60,000 mt of Romanian supply. We would note that Russian wheat at $250 reflects the first rally there since September 2022, and the spread between German and Russian milling wheat has narrowed to $20/mt, vs. $33-37 last week. EU/Russian supplies will be large in late summer, but the value of cash wheat in the global market, particularly hi-pro milling, is forecast to rise seasonally into mid/late winter. Lows have been scored. The degree of the coming recovery will hinge upon the evolution of conflict in the Black Sea. Risk has not been eliminated.
  • EU and Canadian canola are steady/higher following the recent collapse in Canadian vegetation health. The US dollar index is up 0.5% at a newer three-week high.
  • The midday GFS weather forecast is again drier in the Eastern Midwest relative to morning guidance but maintains soaking rainfall of 2-4+” in western NE, northern IL, IL and the mid-South. The major forecasting models agree that an elongated ridge of high pressure between now and mid-August will stay confined to Southern Plains and Delta, which opens the Central Plains and Midwest to near normal temperatures and active showers. Not all areas will benefit but convincing new US supply threats are absent.
  • Volatility continues. Daily moves of at least 1% have become commonplace in all markets. Managing risk on a daily basis will stay challenging indefinitely. Wheat and soy outlooks are fundamentally bullish, while corn scores a lasting low once US crop size is known. The fact that processing margins are profitable, extremely so in the case of US soy crush, is important.

1 August 2023

Posted on by
  • HEADLINES: Wheat sags on renewed spec selling; Russian wheat crop update, low protein abounds; Cash soyoil basis firms.
  • Midday Chicago futures are mixed to lower as wheat sags on renewed fund selling. Corn futures are following wheat downwards while soy futures trade on either side of unchanged. Longer term support is offered below $5.00 December corn futures with November soybeans having like support below $13.20. Oil share spreading interest has returned with soyoil futures holding key chart support. S American/US soyoil basis levels are firm, which has acted to underpin soyoil futures. Last week Brazilian soyoil was priced at $0.23 under and trade today is occurring at $0.175 under.
  • We note that this is the wrong time of the year for a secondary seasonal low with a bottom more likely following the August 11 USDA Crop report. Fund managers are looking to the period following the August USDA report for a new investment opportunity. The back and forth of the summer weather market is something that fund managers want to avoid and they fondly remember the low that occurred in August 2020, and the bullish demand trend that followed. We doubt that this year’s rally will be as robust unless El Niño plays a role in cutting Brazilian corn and second corn crop production. Few are monitoring Brazilian weather during the off season, but the dryness is acute, and doubt is emerging on whether initial soy seeding can commence after September 14.
  • Chicago brokers report that funds have sold 4,700 contracts of wheat, 5,800 contracts of corn, and 1,200 contracts of soybeans. In soy products, funds have sold 2,900 contracts of soyoil and 1,400 contracts of soyoil. Funds are liquidating stale long positions that were established last week.
  • The USDA did not announce any new US soybean sales to China or other destinations this morning. Sellers have another 24 hours to help in confirming the sales that were 6-8 cargoes that were rumoured to be completed on Monday’s break.
  • Russian wheat yield/quality estimates are in decline. Based on yield data, we peg the 2023 Russian wheat crop at 83.0 million mt, which is 2 million below the USDA. Wheat protein levels are poor in most regions with some levels as low as 10-10.5%. Only Krasnodar protein is equal to last year at 12-13%. The combination of a smaller Russian 2023 crop with less milling wheat has caused exporters to scramble for supply with cash basis levels rising to push the Russian farmer to sell newly harvested supplies. Just a month ago, Russian wheat exporters expected that the basis and cash market would be run over by record large old crop stocks and the new harvest. The sharp basis gain has some wondering whether Rosstat’s crop estimate of the 2022 crop is correct at 104.4 million mt
  • There are estimates of the 2023/24 Brazilian soybean crop at 157-158 million mt, down 5-6 million from the USDA. Brazilian farm margins are well down from recent years, and few are willing to expand seeding on low cash basis bids.
  • The details of the midday GFS weather forecast feature less rain in IL and much of the Eastern Midwest, but the overall pattern is consistent. An active pattern of showers is forecast into August 8. The first meaningful event sweeps across Southern IA, MO and into Southern IL Wed-Thursday. Moderate rain becomes more widespread thereafter into the middle part of next week, with 7-day accumulations of 1-2” to favour IA/IL as well as the Delta/Southeast and pockets of MN. Major crop producing areas of the Dakotas will be left arid, but the absence of heat limits crop stress. The midday GFS forecast in fact includes low temperatures in the upper 40s/low 50s across the N Plains/Upper Midwest Aug 8-11, but confidence in this is low.
  • The market’s ebb and flow between digesting major supply issues (Black Sea logistical threats) and improved US yield potential will be ongoing throughout August, recent volatility shows just how on edge the market is and overall solving food supply issues will be challenging in 2023/24. Early Aug is seasonally the wrong time of year to add to sales. Post-harvest recoveries will be strong. The world needs record wheat Russian exports.

31 July 2023

Posted on by
  • HEADLINES: Funds cut losses on last week’s Chicago purchases: US weekly exports start to seasonally improve; China active cash buyer on the break.
  • Volatility, it is occurring in abundance with Chicago futures sharply lower this morning. Remembering back to just a week ago, Chicago and KC wheat futures were limit bid with corn/soybeans in tow on threatening Midwest weather and Black Sea grain export concern. Today, the bearish feature is an improved Central US weather forecast with the Russian war ongoing and no escalation in the attacks against Ukraine grain infrastructure (for now). Chicago futures are sharply lower at midday and those that chase rallies or sell hard breaks are the “wounded” in the marketplace as price trends last only a week or less.
  • Some questioned at the start of May why we were calling for extreme volatility and not a lasting bull or bear move. Our response then (and now) is that Northern Hemisphere weather patterns, trade data and financial markets were not indicating a straight-line move, but extreme whipsaw price action that is difficult to navigate, even for the most seasoned and fast-moving trader.
  • That volatility is persisting and is likely to continue until there is US crop yield clarity and world demand steps forward to produce a demand led market in Q4 2023 and Q1 2024. In fact, the lower Chicago drops into a late summer low, the better the longer-term opportunity in our opinion. However, be prepared for additional acute choppiness in the weeks ahead.
  • Chicago brokers report that funds have sold 6,700 contracts of Chicago wheat, 11,800 contracts of corn, and 9,900 contracts of soybeans. In the products, funds have sold 4,900 contracts of soyoil and 5,400 contracts of soymeal. The funds were huge buyers in Chicago last week and are unwinding a sizeable amount of that market length today.
  • The USDA reported that China purchased 132,000 mt of US soybeans for 2023/24 with the Philippines securing 183,500 mt of soymeal. We believe that China is active securing US soybeans for October/November on the morning break with an additional 6-8 cargoes selling. And the world is looking to US soymeal as Argentine imports of soybeans from Brazil are far below what is required to keep its crush industry supplied. The US will have an important opportunity to supply soymeal to key importers from late September through February. And Argentina looks to export 2.0 million mt less of soyoil which will help ignite a rally in tropical oil demand with Canadian canola supplies so tight.
  • US export inspections for the week ending July 27 were up from prior weeks. The US shipped 20.6 million bu of corn, 12.1 million bu of soybeans, and 21.4 million bu of wheat. For their respective crop years to date, the US has exported 1,370 million bu of corn (down 676 million or 33%), 1,856 million bu of soybeans (down 116 million or 6%), and 100.5 million bu of wheat (down 5 million or 5%). We look for the US export pace to slowly improve amid record large world wheat/soy demand.
  • Argentine grain inspectors have announced a strike in a bid for higher pay. Argentine inflation rates are soaring to an estimated 116% in July and workers are using every opportunity to improve wages. Argentina is increasingly becoming a banana republic which will curtail crop production gains following 2 years of drought amid financially stressed farmers.
  • The midday GFS weather forecast is drier in the first 5 days of the forecast and wetter in the 6–10-day period with a soaking rain projected for Iowa. Confidence in the forecast beyond the next week stays low as the models struggle with ridge riding storm systems. Note that ridge riding systems during July proved to produce a hodgepodge of rain leaving some areas with improved crops while others suffer from acute drought. The only consistent trend has been a worsening Canadian drought and deepening dryness across the Dakotas, MN, and W IA.
  • Soybeans have fallen below their 200-day moving average which has sparked additional liquidation. China is active securing US soybeans while US soyoil demand stays strong from renewable diesel. Corn and wheat futures are following the complex lower. Consumers should scale into additional purchases on weakness, this is no place to make new sales. Look for a turnaround on Tuesday in a market where volatility reigns supreme.

28 July 2023

Posted on by
  • HEADLINES: Chicago leaks lower on the hope for improved Midwest rain amid liquidation; First notice looms on Monday for soy; GFS midday weather forecast offers scattered showers.
  • It has been another volatile Chicago session with values swinging sharply lower following the morning reopening which triggered sell stops below last Friday’s low. The stop loss selling was buffered by end user/commercial demand which rallied prices back to unchanged in the grains. News that Ukraine had attacked Russia near a grain export port helped accelerate the morning rally. Concern is building on an escalation of the war, and the potential that Ukraine will strike back on Russian export capacity for ending the Black Sea Grain Pact. China remains active in cleaning up Brazilian soybeans for August/September and securing US soybeans for October/November. The break enticed additional Chinese demand with their domestic crush margins positive.
  • We look for a mixed Chicago close as volume wanes, but resting sell orders above the market are lacking. End user pricing rests below $5.20 Dec corn, $13.75 Nov soybeans and $6.90 in September Chicago wheat. The escalating Russian war against Ukraine makes traders reluctant to sell Chicago price breaks. We would suppoprt buying of breaks with seasonal lows in place for world wheat/corn prices.
  • Chicago brokers estimate that funds have sold 1,600 contracts of Chicago wheat, 3,100 contracts of corn, and 4,400 contracts of soybeans. In soy products, funds sold 4,300 contracts of soymeal while buying 1,100 contracts of soyoil.
  • Initial Argentine farmer response to the NEW Corn/Dollar sales program has been better than expected with more than 1.2 million mt selling since the Peso offer was made on Monday. The Corn/Dollar program runs through the end of August, and we would raise our expected farm sales to 4-5.0 million mt. Much of the Argentine cash sales are hedged in Chicago, which helps explain the bump in open interest on Thursday.
  • India has banned the export of deoiled rice into November according to trade sources. We understand that the Indian ag ministry is having meetings to lower import duties on wheat, following last week’s ban on 10 million mt of non-basmati rice. Domestic wheat/rice prices continued to rise this week and heading into the next presidential election, rising food prices will be a political talking point. Rumours persist that India has purchased 1.5 million mt of Russian wheat in a direct Government purchase, but confirmation from all sides is unavailable.
  • The Russian Government is preparing a draft decree to price its ag exports in Roubles rather than dollars to help circumvent western nation sanctions/SWIFT payment system. The shift to Roubles for energy payment is also in the works. Historically, world ag exports are priced in dollars in the international market and converted back to local currencies. Due to the length of the Russian war against Ukraine, the Russian Government wishes to use its own currency as the payment method. Russia continues to offer wheat in $/mt today, but it could shift to Roubles/mt soon. There are no Ukraine fob price offers for corn or wheat/sunoil since the Black Sea corridor pact ended on July 16.
  • The midday GFS weather forecast is like the overnight solution with limited Midwest/Delta rain as ridge riding storm systems are not good producers due to the eastward shift of the Bermuda high pressure cell in the Atlantic. There will be areas of severe weather and localised heavy rain this weekend across the North Central Midwest. Highs will range from the 90’s to the lower 100’s through Saturday and then drop to the 80’s to lower 90’s next week. Ridge riding rains will produce afternoon thunderstorms, but the coverage of the rain will be disappointing. This is a below normal Midwest rainfall pattern into August 10. The 11–15-day forecast allows the South-Central US high pressure ridge to progress north and east into the Midwest. Other models are not showing a Midwest ridge and questions abound as to its correctness.
  • China continues to be an active soybean buyer in Brazil for September and the US for October/November. The rapidly expanding El Niño looks to delay the start of the rainy season across Northern Brazil with record heat in early August. World crop production is in decline with the harvest slowed in Russia by too much rain. Look for extreme market volatility to persist with the trend of early week rallies to persist on falling crop conditions.
To download our weekly update as a PDF file please click on the link below:

27 July 2023

Posted on by
  • HEADLINES: Chicago sags on a lack of buying with hope for better Midwest rain next week; Ukraine grain though the EU will be challenging.
  • Chicago grain trade has been mixed in slow volume with corn/soy values under pressure on the belief that next week’s Midwest weather will improve as the recent extreme heat abates while traders debate Black Sea supply risks. Extreme volatility in August soybeans and soy products ahead of first notice day on Monday has been a key driver this morning. August soybean futures scored a fresh contract high at $15.8075, while profit taking, and forward position rolling has hammered soyoil futures. And oil share spread unwinding has been featured which has underpinned soymeal values. Soy futures are all about spread adjustments with traders unwilling to add to risk with most wanting to get flat ahead of the weekend.
  • We look for choppiness to persist with the bulls and bears trained by the summer volatility, do not chase rallies or declines is the new manta of a successful 2023 grain trader. A late day Chicago rally is forecast due to the ongoing Russian war aggression. Neither the US nor world markets have fully adjusted to Ukraine grain export shortfalls.
  • Chicago brokers estimate that funds have sold 2,200 contracts of wheat, 4,400 contracts of corn, and 4,200 contracts of soybeans.
  • US weekly export sales for the week ending July 20 were 8.6 million bu of wheat,  12.4 million bu of old and 13.2 million bu of new crop corn, and 7.3 million bu of old and 20.0 million bu of new crop soybeans. Corn/wheat sales were below the average needed for WASDE to achieve WASDE annual totals.
  • The percentage of the US corn crop that is enduring drought rose 4% to 59% with soybeans rising 3% to 53%. Seasonally, the amount of crop enduring drought rises from early August into November as rainfall fails to offset evaporative losses. We look for US corn/soybean good/excellent crop ratings to decline 2-3% on Monday due to this week’s heat and lack of rain. So far, ridge riding storm systems have produced a few thunderstorms that produce heavy rain in locales but have not produced a general Midwest rain. The deepening dryness is important in terms of corn ear tipping while soy pod abortion will occur without soaking rains. August needs to be a wetter across the Midwest/Delta.
  • There has been much discussion regarding Ukraine grain flow through the EU and who will pay for the additional transportation cost this week. The EU ag minister (who is Polish) made comments that as much as 4.0 million mt/month could be exported from the EU. Of course, back in November 2022 when such grain was flowing into the EU, it was not encumbered by Polish blockades and long transit times to the ports for offload. And EU sources report that the EU is unlikely to pay for the transit cost as all EU members must agree to the above budgetary cost. And Romania and nearby countries have road restrictions on truck weights on roadways which would add to the logistical delays. The EU will not be able to export 4.0 million mt of Ukraine monthly. We could argue the total will be no more than 0.5-1.5 million mt which means that Ukraine grain exports will be just 30-40% of last year. This leaves the world with a big supply hole that Brazil/US must fill in terms of corn and Russia must fill with wheat.
  • The midday GFS weather forecast is like the overnight solution with limited Midwest/Delta rain as ridge riding storm systems are not good producers due to the eastward shift of the Bermuda high pressure cell which limits the flow of Gulf moisture northward. A dry/warm Friday and weekend is forecast for the Midwest with extreme heat battering the Delta/W Midwest. Highs will range from the 90’s to the lower 100’s. A few instability afternoon showers develop across Intermountain West on Tuesday, but the next chance of rain is not evident until a week from today.  Extreme heat holds across the South-Central US.
  • China continues to be an active soybean buyer in Brazil for September and the US for October/November. China will import a record amount of world soybeans in the 2022/23 crop year that ends on Oct 1, 104-105 million mt. China’s vessel loading of Brazilian corn is also growing. Amid declining US corn/soy yield potential and strong Brazilian buying from China, we see no reason for sustained Chicago price break with quality/quantity of the Russian wheat crop being questioned by importers/exporters.

26 July 2023

Posted on by
  • HEADLINES: Chicago falls as the EU attempts to route Ukraine grain through their ports; GFS weather forecast drier at midday with cooler temperatures beyond August 3.
  • Chicago grain futures are sharply lower at midday with soybeans gaining on both grains. Wheat futures have declined sharply as Russia did not attack Ukraine Grain infrastructure for the second day in a row and traders ponder whether ALL Ukraine grain can be effectively transported through the EU. The EU has offered Ukraine $1.5 billion to rebuild infrastructure that has been damaged (including grains) which started the break. Showers across Chicago added to the selling while support is offered by the searing heat that will impact the Plains and W Midwest today, and the entire Midwest for the remainder of the week. The wide ranges and extreme market volatility has every producer, trader and end user cutting their risk to derivative positions.
  • It is hoped that a path can be carved through the EU to allow Ukraine grain exports from Romania, Bulgaria, and even Baltic ports. Although the EU Government argues that ports can export as much as 4.0 million mt of Ukraine grain monthly, European exporters are far less certain, and there is real worry that it will displace normal EU grain trade. The EU Government is said to have legislation pending to pay for the extra logistical cost for Ukraine grain. However, EU exporters are also voicing that the community needs to pay their rising cost of elevation/transit due to the additional Ukraine grain.
  • The EU land movement of Ukraine grain is complex and costly. Moving Ukraine corn/wheat through Constanza, Varna or other nearby ports will produce considerable strain on trucks/bridges/rail lines. Ukraine truck drivers will unload their grain at the border with either an EU truck, rail or barge then taking the grain to a marine export terminal. The logistical costs are sizeable, and the EU is not set up to export such large/consistent tonnages.
  • And Russian President Putin can bombard Western Ukraine roadways/rail that would further restrict Ukraine grain flow (into Europe) if it was the intent of Russia to halt Ukraine ag flows. Moving grain through the EU is the last (and a costly) alternative. Otherwise, Ukraine agriculture will be facing worsening bankruptcies of farmers, processors, and exporters. Ukraine farmers will not be able to make it through to another growing season.
  • Weekly US ethanol production was hefty at 322 million gallons, up 7% from last year and the largest weekly corn grind for any week since October 2021. The US needs to grind 311 million bu of corn per week to reach the WASDE annual target. A few additional weeks like this would cause WASDE to raise their 2022/23 corn ethanol grind by 20-25 million bu. US ethanol stocks rose by just 3 million gallons to 973 million suggesting record large use. US gasoline demand was 8.94 million gallons, down 3% from last year.
  • The USDA announced the sale of 272,000 mt of US soybeans to an unknown buyer for 2023/24 and 229,000 mt of soybeans received and to be sold to an unknown buyer. The buyer is assumed to be China as they start their October/November purchase program.
  • The midday GFS weather forecast is drier that was offered overnight. The system that currently sits over Lake Michigan will push east today producing scattered showers across MI, IN and OH with rain totals of 0.1-1.00” on coverage of 40%. The period from Thursday into Monday is dry with searing heat in the 90’s/lower 100’s. There may be a few instability afternoon thunder storms on Tuesday, but rain total will be less than 0.25”. The Canadian Prairies are also drier/hot under the GFS forecast with limited rain for key canola, oat, and spring wheat areas for at least another week.
  • A secondary surge of Midwest heat develops mid next week with a high-pressure ridge holding across the South-Central US. High temperatures range from the upper 80’s to the lower 100’s. A ridge riding storm is forecast for Aug 3 with 0.1-0.6” of rain favouring the E Midwest. The W Midwest/N Plains is dry into August 6 with considerably cooler temperatures in the 80s/low 90s.
  • The EU hopes that Ukraine grain can flow through its ports in the coming months. We suspect the EU flow will be far smaller than was pushed through the Black Sea. The midday GFS forecast is considerably drier with cooler temperatures after August 3 for the Midwest. The amount of US crop in drought will be expanding. US soy crush and corn grind margins are profitable. The chase is on for remaining old crop beans.