11 July 2023

Posted on July 11, 2023 by simon

• HEADLINES: Soyoil weaker on oil share spread profit taking; GFS weather forecast cooler in the 11–15-day period (vs. overnight) with like amount of Midwest rain; Ukraine grain export corridor impact.

• Chicago grain futures are mostly higher at midday with soybeans/soymeal pacing the advance while soyoil futures correct Monday’s rally to new rally highs. Wheat and corn prices have sagged from a strong opening as Midwest rains and forecast uncertainty regarding Central US heat in late July is being debated by traders. Russian/EU wheat prices are rising on less than expected harvested yield and crop holding by producers. The Russian/European farmer is not willing to sell newly harvested grain with yield being less than hoped for and price at a 2-year low. Moreover, the odds are growing that the Ukraine Grain Export Corridor will be closed on the weekend with Moscow sending 22 drones to attack the Odessa ports overnight. Thankfully, only the port administration building was damaged as the Ukraine military was able to shoot all but 2 of the drones. Russia appears intent on shutting down Ukraine grain exports.

• We look for a mixed Chicago close as traders’ position for the USDA July Crop Report tomorrow. Thereafter, it is all about US corn, soybean, and spring wheat weather/yield. We are using 173 bushels/acre corn and 51 bushels/acre soybean yield. Midwest drought worry persists, and the crop cannot endure any crop filling heat with soil moisture short to very short.

• Chicago brokers estimate that managed money has purchased 2,700 contacts of wheat, 900 contracts of corn, and 1,600 contracts of soybeans. In soy products, funds have bought 3,600 contracts of soymeal and sold 3,200 contracts of soyoil. The volume of trade is staying well below normal.

• The UN has been vocal in the need to keep the Ukraine Grain Export Corridor open, but 2023/24 Ukraine grain exports will be well down on recent years. USDA estimates that Ukraine will export 19 million mt of corn (we see Ukraine corn exports at 17.5 million mt), 10.5 million mt of wheat (down from 16 million last year), and 2.3 million mt of sunoil. The corn and wheat exports are half of what Ukraine would have exported without a war. Combined Ukraine wheat/corn exports will equal just 27.5-29.5 million mt in 2023/24, down 13-15 million from last year. If Ukraine can push out 2.5 million mt of grain exports/month through Eastern Europe or down the Danube River, it will be able to achieve the USDA annual trade forecast. The cost to the Ukraine farmer will be larger on the additional logistics, but thankfully, Ukraine was able to shed its large carry-in supplies in 2022/23.

• The issue for world importers is that Argentine grain exports will also be down on their dire drought. Argentine 2022/23 corn exports are forecast to fall 12-13 million mt (34.6 million) and 2022/23 wheat exports by 11 million mt (5.00 million). The combined Argentine export drop of 23-24 million mt leaves the world totally reliant on new crop Brazilian corn and the new Russian/EU wheat crops. It does not require much of a supply loss of Northern Hemisphere corn/wheat or oilseed crops to produce a rather spicy outlook for world grain values.

• The midday GFS weather forecast is like the overnight run with below normal rain for the N Plains, the Canadian Prairies, and the Northern Midwest. Most rainfall totals here will be less than 0.75” with the coverage of rain no better than 50%. Better rains are slated for the southern half of the Midwest, the Delta, and Gulf States with totals of 0.5-1.50” and the coverage of rain being 70-75%. The 11–15-day period is also cooler compared to the mid 90’s to lower 100’s that were advertised overnight. The midday GFS forecast has had a cooler bias in recent days, and this carried forward today. Midwest high temperatures will range from the mid 80’s to the mid 90’s with any extreme heat locked into the Southern Plains/W Delta with lower 100’s.

• Yesterday’s final US corn volume ended up being the lowest of the year, shocking considering it is pollination time. Also, soyoil traded more volume than soybeans, also a rarity. The point is that market participation is extremely low, which will add to (post USDA report) market volatility. We see the upside price risk in soy futures with support below $13.20 November while December corn has support below $4.80. World wheat market have forged their seasonal lows with all eyes on Russian interior prices which are in strong rally mode as the harvest reaches 8-10%.

10 July 2023

Posted on July 10, 2023 by simon

• HEADLINES: Chicago soyoil/soybeans sharply higher with crush margins expansion: China books US soybeans off the PNW for October; GFS cooler/wetter at midday.

• Chicago grain futures are higher at midday with soybeans/soyoil being sharply higher ahead of the USDA July crop report on Wednesday. The trade is preparing for a bullish USDA report due to US 2023 soybean seeding being down 4.0 million acres, and the resulting drop in supplies/product stocks. Corn and wheat futures are rising in sympathy with beans, but amid an extra 2.0 million acres of US corn and hope that US all wheat yields rise, traders are much less bullish of grain. We look for a higher Chicago close with US crop condition ratings expected to be up 1-3% in corn/soybeans, and to be steady to up 2% in spring wheat. Even with a modest condition recovery, US corn/soy ratings will be the third lowest since 1986 and with drought conditions being maintained, questions abound on what final US corn/soybean yields will be. We look for WASDE to trim its corn yield to 176-177 bushels/acre on Wednesday with no change or a 0.5 bushels/acre reduction in its soy yield. WASDE will want to be directionally correct in July, and then allow NASS to make the real crop assessment in August. NASS does not conduct field surveys until the September report. We are doubtful that the US 2023 corn yield can surpass the record at 177 bushels/acre, or the soybean yield can rise above trendline at 52.0 bushels/acre due to drought. Amid the lack of subsoil moisture, the coming next 6 weeks of Central US rain will be key to where US summer row crop yields finish.

• US export inspections for the week ending July 6 were 13.4 million bu of corn, 8.7 million bu of soybeans, and 15.4 million bu of wheat. The corn and soybean sales pace remains disappointingly slow. For their respective crop years to date, the US has shipped just 1,318 million bu of corn (down 620 million from last year or 32%) and 1,824 million bu of soybeans (down 95 million or 5%).

• China booked 10-14 cargoes of US soybeans for October off the PNW late this weekend and early today. Their pricing led to the Chicago rally as China engages in a US new crop purchase program.

• Wildfires are gaining considerable ground across British Columbia and through portions of Alberta. Smoke into the NC US looks to be a growing problem for humans, livestock, and crops in the weeks ahead.

• Early EU wheat yields are coming in below producer expectations due to hot/dry weather during the reproductive period. EU wheat yields are down 5-12% from expectations, but additional harvest data is needed to determine a trend. The same lower than expected yield trend is offered for SE Russian wheat yields. The point is that the excessive stocks that are carried forward from old crop (Russia/EU) may not be so bearish if early harvest yields disappoint and producers hold their new supplies. Interior Russian prices are rising on tightening cash supplies. And French barley bids at port have jumped due to Chinese demand. We note that China has been struggling with poor quality wheat from Australia and is adding French barley/Brazilian corn to raise the quality of its livestock feed. Quickly, Chinese nominations are showing in the Brazilian corn line-up for spot Brazilian corn, which is the likely reason for the recent S American corn basis jump.

• The midday GFS weather forecast is wetter for the SW and C Midwest and cooler than was offered in prior runs. The NW Midwest and N Plains will be short-changed on rainfall, but there is no heat looking forward into July 19. The overnight model was warm to hot in the 11–15-day period with the midday GFS forecast being cooler. The GFS forecast was too hot due to the northeast expansion of the Intermountain West high-pressure ridge. We see the midday GFS forecast as being too cool with no ridge amplification.

• Short term, widely scattered showers are expected across IA and portions of N IL late Tuesday/Wednesday with MO/S IL drenched from late Friday through Saturday. Drier weather follows with the jet stream maintaining ridge riding storm systems into July 18.

• The USDA will release their July Crop Report on Wednesday with the trade too bullish on soybean and too bearish on US corn stock expectations. We maintain a bullish soyoil/soybean stance while corn struggles to sustain a rally. Yet, it is world wheat values that are seasonally bottoming if Russian/European wheat yields prove to be disappointing. The US dollar is likely to keep declining which could pull new investment money into commodities. there were inflows into US commodity futures in the opening overnight and today’s morning reopening in Chicago.

7 July 2023

Posted on July 7, 2023 by simon

• HEADLINES: Chicago lower on better rain forecast for the W and N Midwest; Crop ratings expected to gain on Monday; Bull spreading in soyoil

• Chicago grain futures are mostly lower at midday with traders expecting additional Midwest rain over the weekend with NASS crop condition ratings expected to increase on Monday (2-4% in the good/excellent category). The July 4 holiday on Tuesday has caused traders to slowly return to taking on risk, and traders like being on the sell side of the grain ledger. However, firming cash markets in the US and S America is causing caution. December corn is heading back to test support at $4.80-4.90 while November soybean futures sag to chart support at $13-13.25. Traders want to be bearish of grain and bullish of soyoil/soybeans, but the bulls would rather engage in new length early next week. We look for weak prices to persist into the Chicago close with traders staying focused on cool temperatures and showers across the Midwest this weekend. Central US weather threats are lacking for the next 10 days.

• Chicago brokers estimate that managed money has sold 6,200 contacts of corn and 2,600 contracts of wheat, and 8,800 contracts of soybeans. In soy products, funds have sold 4,900 contracts of soymeal and 2,400 contracts of soyoil. The firmness of the US cash soyoil market has bulled Chicago spreads but has not halted the decline in flat prices.

• The US Labor Dept showed that the jobs market may be losing steam after strong growth over the past year. The US added 209,000 jobs in June, the smallest monthly gain since the end of 2020 and revised job growth downwards in April and May. The US unemployment rate fell to 3.6% with job growth coming from health care and the government. The slowing of job growth will likely cause the US Central Bank to only raise its lending rate by 0.25% in late July. The US dollar fell sharply on the news with the Brazilian Real at 4.86:1. Why we should be so focused on the Brazilian Real is that it impacts Brazilian farm profitability tremendously in the upcoming crop year.

• Featured in Chicago is that there has been some big bull spreading in August/December soyoil futures (4,300 contracts) due to strengthening cash basis bids while there was a buyer of 3,000 contracts of September $10.00 wheat calls at 2 cents. The $10.00 wheat call buying must be related to Ukraine and the worry surrounding the Zaporizhzhia nuclear plant that continues to surface in the media. Some are speculating that Russia could attack the plant to halt advancing Ukrainian troops.

• US export sales for the week ending June 29 were 14.9 million bu of wheat, 9.9 million bu of old and 16.5 million bu of new crop wheat, and 6.9 million bu of old and 21.8 million bu of new crop soybeans. We understand that China has been a sizeable buyer of at least 18-22 cargoes of Brazilian soybeans for August/September and 3-5 cargoes of US soybeans for October/November. China is using the price break to step up its soybean purchase pace.

• The midday GFS weather forecast is wetter for the W Midwest and the Northern Plains than was offered in prior runs. The EU model started to shift rainfall northward into IA/WI and MN overnight and the GFS model extended the rain with totals of 0.5-1.50”. Such rain late next week would be timely for US row crops but be advised that the rain does not occur until the 6–10-day period from 2 ridge riding storm systems. A system for Thursday/Friday of next week produces 1-2.00” rains across Iowa. No extreme heat is noted with coolness centred across the Intermountain West/W Midwest for another 5-6 days with warmth returning after July 18. A ridge of high pressure is expected to amplify north in the last half of July with heat noted across the Delta/S Midwest with highs in the 90’s to lower 100’s.

• The USDA will release their July Crop Report on Wednesday which should include an increase in US corn feed/residual use in 2022/23 and 2023/24 crop years along with 2 million extra new crop acres. The US 2023/24 soybean balance sheet will be bullish with a drop of 4.0 million harvested acres. One must not be too bearish ahead of this report. We remain bullish of US soyoil, and we doubt that Nov soybeans can drop too far below $13.00. The grains are held in a range.

6 July 2023

Posted on July 6, 2023 by simon

• HEADLINES: Chicago futures mixed with soy/corn spread unwinding; South American soyoil unlikely to be imported into the US on a 19% duty; Canadian crops suffer under drought.

• Chicago grain futures are mixed at midday with corn futures higher while the soy complex and wheat futures sag in a correction. Soyoil has rallied nonstop since bottoming following the EPA RVO announcement on June 22 and a setback was due. The volume on the morning soy complex break is modest, but with US crop condition ratings for corn/soybeans expected to gain on Monday on recent Midwest rains, the next rally effort could await trader’s focus on Wednesday’s July 12 USDA WASDE and crop report.

• We remain bullish on soybeans/soyoil with corn to uncover support below $4.90 basis December futures. Key support lies below $13.25 in November soybeans and below $0.60 in September soyoil. The US winter wheat harvest is advancing and should surpass 50% by Sunday.

• The bears are crowing about future US Central Bank interest rate hikes due to a stronger than expected US economy and ongoing US job adds. ADP reported its biggest monthly labour gains (June) since July of 2022, which rallied the US dollar. We would anticipate the US Central Bank to raise its lending rate by 0.25% when its FMOC meeting ends on July 26.  The next US Central Bank rate increase could come on September 20. The rate hammer of the US Central Bank is to cool demand, but it does nothing to boost supply, which is the real need to slow US/world inflationary pressures.

• US/World Central Banks will continue to battle inflation, the question is, will US rates reach levels that break something. For now, hedge funds are not willing to place deflationary bets with the US/world economic outlook brightening, even with rising rates. If the US Central Bank keeps raising rates beyond September, a more bearish commodity landscape could unfold.

• US ethanol production gained last week with production pegged at 312 million gallons vs 309 million the previous week. The US needs to average 307 million gallons/ week to reach the USDA annual target of 5,250 million bu. Amid historically strong margins on the US corn price break, we look for WASDE to hold its US ethanol demand estimate steady. US ethanol stocks declined 30 million gallons to 935 million gallons amid the record large weekly ethanol production (for late June).

• The amount of US cropland that remained in drought fell slightly from the previous week with 67% (down 3%) of corn and 60% of soybeans in a drought designation. The drought acres are double that of a year ago and reflects the need/importance for 1-1.50” of rain each week.

• Chicago oat futures have rallied strongly today (Dec oats up $0.16 at $4.45) due to the Canadian Prairie dryness that is forecast to worsen over the next 2 weeks. The lack of rain during crop reproduction is having an adverse impact on oats, canola, and spring wheat. Canola is particularly vulnerable with the crop 60% flowering. This would be important for US renewable diesel feedstocks.

• The midday GFS weather forecast is like the overnight solution with the N Plains, the Upper Midwest and the Canadian Prairies struggling to receive meaningful rain. Ridge riding storm systems will be positioned further south with rain from Kansas eastward across the Southern Midwest with totals of 0.5-1.50” for the next 5-6 days. No extreme heat is noted with coolness cantered across the Intermountain West/W Midwest this week. A ridge of high pressure is expected to amplify north late next week across the Intermountain West and push the jet stream further north. This could increase rain into the NW Midwest. Temperatures return to seasonal levels after July 10 with 80’s/low 90’s.

• A 19% duty prevents S American soyoil from being imported into the US. Moreover, S American soyoil is not eligible for US biofuel credits and few are willing to segregate supplies. Look for Nov soybeans to bottom at $13.10-13.25 and September soyoil to find support below $0.60. Don’t sell the Chicago break with NC Midwest dryness to worsen into mid-July. The return of any heat would be negative for pollinating US corn.

5 July 2023

Posted on July 5, 2023 by simon

• HEADLINES: Spring wheat futures soar on potential smaller 2023 Russian wheat crop; July WASDE report in a week; GFS weather forecast midday like overnight forecast solution.

• Chicago grain futures are mixed at midday with profit taking noted in soybeans/soyoil following the recent sharp early rally. Corn futures sagged into key support at $4.80-4.90 December with wheat holding strong on short covering tied to reduced US/Canadian HRS production and lower than expected early yield data from SE Russia (Krasnodar/Stavropol). The early Russian wheat yield is 12% below last year and slightly below the 5-year average. The lower Russian yield could cause farmers there to be stronger holders of the new crop supply as export volume stay record large. And the drop in US HRS wheat ratings was a surprise as the heading process will reach 65-70% this week. The disappointing ratings and limited rain for the N Plains and S Canadian Prairies is increasing the concern for hi pro wheat with the US HRW crop curtailed by months of autumn and winter drought. We look for a mostly higher close as the NASS soybean seeding drop of 4.0 million acres continues to reverberate through Chicago as it provides a bullish tailwind for the grains and support below $13.25 Nov soybean futures. The new crop November soybean/December corn spread reached out to a 2.70:1 ratio with the upside target being 3:1. This implies that November soybean futures could score new contract highs with any Central US weather adversity that threatens soy yield.

• We were looking for a higher Chicago opening, but we were surprised by the sheer strength of the start with new money said to be flowing into Chicago. Brokers report that funds have bought 7,200 contracts of Chicago wheat, 2,800 contracts of corn, 3,100 contracts of soybeans, 2,800 contracts of soymeal and 3,900 contracts of soyoil. Oil share trade continues to be the trade of the hour with soyoil having a story on expanding renewable diesel feedstock covering. The volume in Chicago is not that large with traders suggesting that they are unwilling to expand their risk until Monday.

• Tunisia has purchased 100,000 mt each of SRW and durum wheat in a weekend tender. The SRW wheat was sold for late July into late August delivery optional origin with Russia or Romania to be the suppliers at a price of $259-261/mt basis CIF. The price works back to around $236-238/mt basis fob which suggests that world wheat prices have started rising. If the Russian wheat crop is indeed under 80 million mt, the odds are strong that world wheat prices have scored an early seasonal low.

• WASDE will release their July report a week from today on 12 July.  The big question that traders are ponding is how much WASDE will reduce its corn yield estimate due to May/June dryness and the sharp fall in US corn crop condition ratings. We estimate that WASDE will cut their corn yield estimate by 3-7 bushels/acre to account for the US weather adjusted yield trend. However, remember that WASDE will boost planted/harvested corn acres by 2 million and cut US soybean planted/harvested acres by 4.0 million acres.

• The July WASDE report will likely cause December corn futures to struggle to sustain any break below $4.90 while soybean values find support below $13.25 November heading into the report. Central US weather will cause price gyrations, but traders are already talking big gains in US corn/soybean condition ratings next week Monday due to recent rains. We agree that good/excellent condition ratings will improve, but we see the gains at a more modest 1-2%.

• The midday GFS weather forecast is like the overnight solution with the N Plains, the Upper Midwest and the Canadian Prairies struggling to receive meaningful rain. The rain will occur from ridge riding storm systems that produce thunderstorms every 2-3 days.  And no extreme heat will be lasting with coolness centred across the Intermountain West/W Midwest. A ridge of high pressure is expected to shift into the South-Central US in the 10-14 day period which will raise temperatures for those crop areas that miss the rain.

• Today it is a wheat market on lower than expected Russian yield data which paints a more bullish global wheat outlook. And Chicago soybeans/soyoil also have their own bullish supply stories. As such, we caution on being bearish December corn below $5.00 if world wheat valuations have bottomed.

3 July 2023

Posted on July 3, 2023 by simon

• HEADLINES: Chicago values higher at midday as soybean futures lead; NASS report completely alters soy outlook: GFS weather forecast at midday little changed.

• Chicago ag markets are mostly higher with soybeans/soyoil pacing the rally. Corn and wheat have followed soy complex gains as Chicago continues to react to Friday’s NASS crop data.

• The NASS June Seeding data completely changed the oilseed outlook amid the decline of 4 million acres of US soybeans. This was enough lost acres to prevent the normalisation of US weather to produce a bearish trend. And if the soybean market cannot decline, it means that grains will have difficulty in falling amid their need to hold acres in future cropping cycles, first in S America and again in the US in 2024. This is not to say that December corn cannot fall to $4.75, but the long-term bearishness of corn is diminished as it is pegged to soy values. We would maintain that the soybean/corn ratio needs to push out to 3:1 in forward futures. Soybeans/soyoil is a bull market that will underpin December corn on breaks to $4.75-5.00.

• World wheat values are struggling in a $20/mt price range with the EU/Russia and Canadian harvests ahead. The wheat bears have their views based on steady to falling Russian fob wheat offers, and that Russia at some point, allows its exporters to sell wheat below $230/mt. Meanwhile, the US, Canadian and EU wheat markets are more bullish on faltering new crop supplies. By mid-August, world wheat markets should be in position to sustain a seasonal rally.

• The final Chicago open interest data showed that soybean option positions exploded by 65,500 contracts on Friday with just over 45,000 contracts being new call purchases while new put positions expanded by 20,000 contracts. The massive call buying highlights the bullishness of the NASS seeding data and its importance to the 2023/24 US soybean balance sheets. Demand rationing must occur in soybeans, that can’t happen in crush due to strong margins, but only in export trade. This is why the 2024 Brazilian soybean harvest now carries paramount importance in that no additional demand can be shifted to the US.

• Chicago brokers estimate that managed money has sold 3,000 contracts of wheat and 2,000 contracts of corn, while being buyers of 6,200 contracts of soybeans. In soy products, funds have bought 3,400 contracts of soyoil while being flat in soymeal. The buying has not been large, but it has not taken much in terms of order size to move the market.

• US weekly export inspections for the week ending June 29 were 25.3 million bu of corn, 9.2 million bu of soybeans, and 12.4 million bu of wheat. For their respective crop years to date, the US has exported 1,304 million bu of corn (down 597 million or 31% from last year), 1,815 million bu of soybeans (down 91 million or 4.7% from last year), and 40.2 million bu of US wheat (down 19 million or 32% from last year). We look for WASDE to cut US 2022/23 corn exports by 50-75 million bu in the July report while trimming soybean exports by 10-20 million bu. It is premature for WASDE to adjust its 2023/24 wheat export estimate until there is more clarity on European/Russian and Canadian supplies.

• The GFS weather forecast is like the overnight solution with 70% of Midwest crop areas receiving additional rain while 30% struggles with drought/dryness. The driest areas will be across ND, MO, IL, and MI. South Dakota looks to be targeted with heavier rainfall of 1.50-3.00”. The rain will occur from ridge riding storm systems that produce thunderstorms every 2-3 days. Three storm systems are forecast to pass across the Central US in the next 10 days. And no extreme heat will be lasting with coolness centred across the Intermountain West/W Midwest. A ridge of high pressure holds across the SW US into July 19. The chill favours pollinating corn and blooming soybeans.

• Bull markets always let you in on profit taking. However, there is no indication that any break in the soy complex will last for more than a few days. This will underpin the grain markets and provide back and forth price action until more is known about US corn/soybean and spring wheat yield potential. Trade the range. Chicago will be closed on Tuesday due to the US July 4 Holiday.

30 June 2023

Posted on July 1, 2023 by simon

• HEADLINES: Soybean seedings shock trade with 4-million-acre fall; Corn seedings rise 2.1 million acres; US corn stocks lowest since June 2013.

• Chicago ag markets are sharply mixed following the June Stocks/Seeding report with soybean/wheat futures higher while the corn market sags on a bearish surprise on 2023 US corn seedings. This June report held something for everyone with the soybean market to be the bullish stalwart through summer while corn is the bearish anchor. The Chicago soybean/corn ratio is likely to move to a record level with the US needing an additional 4-6 million acres of soybean acres in 2024 to service the expanding US crush profile for soyoil.

• US June 1 corn stocks came in lower than expected at 4,106 million bu with the third quarter feed/residual use rate calculated at 978 million bu, the third largest US on record. WASDE is understating US 2022/23 feed/residual use by 150-200 million bu which more than compensates for a 50-100 million bu reduction in 2022/23 US corn export demand due to Brazilian aggressive new crop export offers. US June corn stocks at 4,106 million bu are the lowest since 2013/14, and well below trade expectations. 2023 US corn seedings were well above expectations as farmers seeded additional corn from soybeans. US corn seedings were up 2.1 million acres from March intentions at 94.1 million acres. The US corn seeding gains were from the minor production regions.

• The big change in US corn seedings came from TX (up 22%), LA (up 13.7%), and WA, up 12.5% from 2022. More modest was that IA corn seedings were up 1%, IL up 4.5%, North Dakota up 6.7% and S Dakota up 5.1%. OH corn seeding fell 1.4%. Using a US yield of 173.0 bushels/acre produces a US crop of 14,930 million bu. We would expect that WASDE will drop their July corn yield estimate by 5-10 bushels/acre.

• The rise of 150-200 million bu of US corn feed/residual will offset the production gain of 330 million bu of extra production. We see support at $4.90-5.00 to underpin December corn unless you expect that yield will return to record levels above 177 bushels/acre or more. US crop ratings currently support a 171 bushels/acre yield.

• US June 1 soybean stocks of 796 million bu were 172 million bu less than last year which confirms that NASS overstated last year’s harvest. The Q3 residual use for US soybeans is estimated at 72 million bu. We look for WASDE to increase their 2022/23 residual use to 50-60 million bu and adjust stocks downwards.

• The bullish surprise is that US farmers planted just 83.5 million acres of soybeans this spring, well below trade estimates, and down 4.0 million acres from last year and the March Intentions. The drop in seedings cut US 2023 soybean production by 200 million bu which demands rationing in the new crop balance sheet. WI soybean seedings were off 8.7%, IL down 7.4% and MO off 6.7%. The big drop was ND being off 13.7%. US soy demand must be cut dramatically to allow 200 million bu of 23/24 end stocks. Soyoil is the bullish stalwart biofuel demand.

• NASS’s US wheat stocks and acreage date leans neutral to slightly bullish. Most importantly, total 2022/23 feed/residual use is calculated at 77 million bu, vs. USDA’s projected 50 million and some 30 million above the trade’s expectations. Final 2022/23 US end stocks are 580 million bu, vs. USDA’s 601 million, and all wheat production is unlikely to change in USDA’s July WASDE, new crop wheat end stocks are likely to drop to 540-550 million bu. Ultimately, the risk is that US all-wheat stocks decline to 505-520 million bu, and the burden on spring wheat yield performance in the US and Canada has been elevated.

• Total 2023 wheat acreage was lowered 300,000 acres to 49.6 million. Relative to March intentions, winter wheat seedings were trimmed 500,000, mostly HRW. Durum acres were lowered 300,000 (17%). Other spring wheat acres were raised 570,000 acres, with planted area in ND up 400,000. The US HRW balance sheet will be tightening further, and USDA in July is expected to put US HRW end stocks at 135-145 million bu, vs. 264 million in 2022/23. SRW stocks are estimated at 115-120 million, vs. 88 in 2022/23. HRS stocks are estimated at 170 million, vs. 151 million in 22/23.

• US wheat and soy balance sheets stay historically tight, even assuming contraction in export demand, while the US corn balance sheet will be fluid into harvest. We believe that all national yields between 165-175 are on the table amid a mix of the historic coverage of drought currently, coming soaking rainfall but also severe weather, wind, and hail. December’s corn downside is limited below $4.75-5.00 during the harvest.

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

Weekend summary 30 June 2023

29 June 2023

Posted on June 29, 2023 by simon

• HEADLINES: Chicago markets mixed at midday; Heavy rain/thunderstorms move into Western IL; US export sales lacklustre as expected.

• Chicago ag markets are mixed at midday, with corn slightly weaker, beans slightly higher and wheat caught between. Volume has been mediocre, and we continue to highlight the recent plunge in open interest, which exacerbates volatility. Stocks and seedings data drives price action on Friday/Monday, but thereafter it is all about the fine-tuning of coming Midwest precipitation.

• The importance of this weekend/next week’s rain event cannot be overestimated given current moisture deficits and expanding Midwest drought. As of Tuesday, 70% of the US corn crop, 63% of soybean and 55% of US sorghum were facing drought conditions, coverage not seen in late June since 1998. A further rapid depletion of soil moisture occurs in KS, MO and southern IL as temperatures reach into the 90s/low 100s today and tomorrow.

• Model guidance into the weekend will be changeable on exactly where rainfall in excess of 2” occurs. The midday GFS forecast into Tuesday keeps soaking rain more scattered in IL and IA and has trended wetter in the 6-10 day period. Rainfall of 1” is likely to blanket the Central and Eastern Midwest, but the details will matter, and the risk of severe weather is elevated.

• A lasting period of dryness is projected to return to Canada, the N Plains and Upper Great Lakes, with abnormal warmth to stay in place across the Canadian Prairies throughout the next 10 days. Canadian acreage has been maximised but the next 30 days there are critical weather-wise. The Indian monsoon continues to perform poorly, particularly in major oilseed production areas. N Hemisphere weather problems are numerous.

• US export sales in the week ending June 22 were weak as expected. Corn sales in the period totalled 5.5 million bu, vs. 1.4 million the previous week. Soybean sales were 8.8 million bu, vs. 18.0 million the previous week. Wheat sales totalled 5.7 million, vs. 4.0 million. For their respective crop years to date, exporters have sold 1,527 million bu of corn, down 36% year on year, 1,923 million bu of soybeans, down 13%, and 155 million bu of wheat, down 27%. It is probable USDA trims 2022/23 US corn exports another 25-50 million bu, and we note that Black Sea/EU barley prices are somewhat deflated on building stocks and the looming harvest, and this adds to already cheap Brazilian corn offers. Changes to soybeans, meal or wheat exports are not anticipated.

• Safrinha corn harvesting in Mato Grosso last week was 19% complete and it is estimated tat progress this week will reach 26-33%. Final total Brazilian corn production is estimated at 129-130 million mt.

• EU and Canadian rapeseed prices have recovered following bearish Stats Can data on Wednesday.

• Radar maps show rain/thunderstorms working across eastern IA/MO and into far Western IL, and an enhanced risk of extreme weather is in place today for N MO, IL and southern IN. An active pattern of showers is forecast into next Tuesday. The heaviest rainfall is still projected to favour portions of IL and much of IN. A drier trend is offered to the principal Midwest in the 6–10-day period, while soaking showers/extreme weather is funnelled westward into the Central Plains.

• Yield and US/global end stocks estimates will remain highly variable and even crop ratings/drought in the next 10 days will vary wildly by county. Speculative positions will be kept small, and open interest is unlikely to increase prior to autumn. This leads to ongoing volatility.

28 June 2023

Posted on June 28, 2023 by simon

• HEADLINES: Chicago correction extended at midday as GFS weather forecast features drought-busting precipitation accumulation; US ethanol production stays elevated.

• Chicago ag markets have extended overnight weakness as radar maps show light rain working across northern MO and into IL, and as the midday GFS forecast continues to add to 10-day cumulative precipitation. US ethanol production remains seasonally strong, and margins have soared following the break in corn. Soybean crush margins, both futures-based and in the physical cash market, are rising. But it is all Midwest weather into late July, particularly following widespread crop stress, and decades-low corn crop ratings.

• Only one year was there material improvement in corn and soy crop ratings from late June to late July, 1992, when July rainfall in IA and IL reached 7-9”. Such is the burden this year, but NOAA’s’ QPF and the midday GFS forecast both offer at least the chance that rainfall this weekend/next week in IL, IN and OH reaches 2.00-4.00”, and so a stabilisation/recovery in soil moisture lies ahead. We would maintain that national US corn yield potential of 165-175 bushels/acre remains intact, but exactly where final yield falls within this range has major implication on US and global balance sheets. This will be a challenging markets and risk management remains difficult.

• The US drought monitor Thursday morning is expected to show an intensification in drought conditions across E KS, MO, southern IA, IL and IN, but improvement the following week if 7-day forecasts verify. Extremely close attention will be paid to radar maps beginning Friday. Additionally, we note that max temperatures in the 90s/100s are probable in KS, MO and W IL prior to this pattern shift. The growing season into early July will have been highly variable.

• US ethanol production in the week ending June 23 totalled 309 million gallons, unchanged from both the previous week and the same period in 2023. This is right on track to meet the USDA’s forecast, and USDA may opt to leave industrial use unchanged in its July WASDE. Ethanol stocks last Friday were up 1% year on year at 965 million gallons, but the market remains balanced as gasoline use has now exceeded year-ago levels in each of the last six weeks. Spot WTI crude oil at midday is up $1.70/barrel as stocks last week were drawn down nearly 10 million barrels. Seasonally, US crude stocks decline to early/mid-autumn.

• The midday GFS weather forecast is wetter in the Eastern Midwest, with rainfall of 2-3” expanded into IN and OH in the 6-10 day period. A pattern of dryness and extreme warmth will be in place across the southern Ag Belt into Sun/Mon, but thereafter a series of light but continuous rainfall develops across the Plains and Midwest into July 8. The GFS and Canadian forecast models are at odds over coverage/amounts, and the GFS is unwavering in projecting a tropical storm making Gulf landfall July 6-7, but the best rain in months lies ahead for a wide swath of the primary Corn Belt. The GFS’s solution implies an easing or near elimination of drought in parts of IA and western/southern IL.

• The break has been as swift as mid-June’s rally. The evolution of the coming forecast should be digested by Thursday, with focus thereafter shifting to old crop US corn/soy stocks and the actual performance of rainfall in the first week of July. Wide swinging markets will persist into late summer.

27 June 2023

Posted on June 27, 2023 by simon

• HEADLINES: Risk off ahead of month end with Midwest rain forecast helping the Chicago rout; GFS weather forecast stays wet at midday, Canadian model drier.

• Sharply lower Chicago grain futures exists at mid-session amid the prospect of improved Midwest rain starting this weekend and continuing next week. Rain makes grain and the market was able to look past the near record low crop ratings released late Monday.

• Corn, soybeans, and wheat crops have suffered from record dryness since mid-May which stunted corn/soybean and spring wheat crops. How much yield damage has occurred is impossible to determine, but soil moisture levels below 2012 argue that the coming Midwest rains must be widespread soakers. Hit and miss thunderstorms will not produce enough rain to salvage US corn/soy yield with the reproduction phases underway. And importantly, soybeans will need weekly regular rainfall due to the lack of surface water through late August. There will be additional twists and turns to Central US weather, and it is too early to declare that Mother Nature will be kind from here forward.

• We have warned of extreme market volatility and recent week price action has not disappointed. The problem is a lack of resting orders above and below Chicago and that open interest has dropped to the lowest levels since 2014 (corn/soybeans) as the back-and-forth fray producer, trader, and fund manager’s nerves. And key NASS reports are out Friday that will delineate US 2023 US major row crop seeding and June 1 stocks. The gains in the July/December corn spread and July/November soybean spreads argues to be careful about being too bearish on June 1 US grain stocks..

• Producers report that crops continue to suffer with upper 90’s to lower 100’s to cover most of OK, KS, MO, and S IL from today through Friday before there is any relief. To date, Midwest crops have sidestepped any extreme heat, but that will change as South-Central US high pressure ridge builds northward. The heat/dryness will cause a fresh decline in US corn/soy/wheat crop ratings next Monday. Thereafter it is all about the coverage of meaningful rain as Central US temperatures stay warm to hot into July 10. Midwest rainfall must average 1-1.50” per week just to counter soil moisture loss due to evaporation as crop moisture needs reach their peak prior to pollination or the soybean pod set stage. This raises the need for regular meaningful Midwest rain each week.

• Chicago brokers report that fund have managed money has sold 5,600 contracts of Chicago wheat, 19,200 contracts of corn, and 9,400 contracts of soybeans.  In the soy products, funds have sold 4,600 contracts of soymeal and 1,200 contracts of soyoil. Oil share spreading continues to hold on breaks with an additional 22 soyoil deliverable receipts cancelled on strong cash bids.

• Russian fob wheat offers have been rising on the worry that the initial Russian harvest will not produce the same high protein wheat that has become commonplace and accepted during the 2022/23 export season. We believe the Russian 2023 wheat crop at 83-84 million mt due to a smaller spring wheat yield and a near average winter wheat yield. Russian farmers are not expected to be active sellers of their new winter harvest as price is estimated below their cost of production. However, an advancing harvest will boost total supplies.

• The midday GFS weather forecast is more like the EU model with drier weather for the NW Midwest and wetter weather for the SE Midwest (S IN/OH) than was shown overnight. The rain starts Friday and persists into the weekend with accumulations of 0.15-1.25”. We see the coverage of rain greater than 1.00” at no more than 20% of the E Midwest. The NW Midwest is largely missed with the SE US starting a drying trend.

• The next system is evident Wednesday/Thursday which catches more of the NW Midwest and includes N Illinois. This ridge riding system produces another 0.25-1.25” of rain across the NW and E Midwest. The system weakens and slowly pushes east and south during Friday (July 7). A trough over Central Canada keeps the South-Central US high pressure ridge from building north.

• Some of the Midwest is drier and some wetter vs the overnight model run. The message is that meaningful rain will fall across 35-40% of the Midwest. We doubt that the coverage will be as widespread as depicted by the GFS model.

• It is a risk off day as green blobs on the Midwest weather forecast spurs liquidation. Yet, this looks to be the best rain event since April, but regular weekly rain is needed through the remainder of the 2023 growing season. Ahead of key NASS reports, market volatility will remain acute and some of the selling today is funds selling out positions heading into the end of the month. Again, resting orders are lacking and producers are sceptical of crop saving rains with the calendar on the doorstep of pollination. Key support rests just below current levels at $5.50-5.60 Dec corn and $12.50-12.75 Nov soybeans.