26 May 2023

Posted on May 27, 2023 by simon

• HEADLINES: Chicago higher on the addition of weather premium to price; Midday GFS weather model delayed, no real change in the pattern next 10 days; Midwest cash corn bids strong.

• Chicago ag markets are higher at midday on the hope that President Biden and the US House can cobble together a 2-year Debt Ceiling Pact amid threatening Midwest/Delta weather forecasts. Chicago is adding weather premium heading into the long holiday weekend knowing that mid-June weather forecasts will key price direction early next week. Chicago is all about weather in the days and weeks ahead. The big question for traders is with heat building this weekend, will the dryness extend into the middle of June. Crops will be needing rain upon the return from the US Memorial Day Holiday. The threatening Central US weather pattern looks to underpin Chicago grain futures into the close.

• Brokers estimate that managed money has bought 3,600 contracts of wheat, 9,200 contracts of corn, and 3,900 contracts of soybeans. In the products, funds have bought 4,100 contracts of soymeal and 2,000 contracts of soyoil. Fund managers  have been on the buy side of the entire since the open. The fund flow continues to be on the buy side of the market.

• Cash corn basis bids are strong across the Midwest with Cedar Rapids bidding $0.75 over with reports of Decatur paying $0.70 over. CIF corn bids have also firmed this week (US corn export demand is slow) with calculations showing that CIF corn is trading 40-45 cents over delivery. The point is that for cash corn (and soybean) bids are strong and reflect the exceptionally tight stocks that were advertised in the March Stocks report. As a refresh, US combined corn/soybean/wheat were down some 860 million bu from 2022, with key states like Iowa/Illinois facing record tight corn stocks/use ratios by the end of summer. Since US feed wheat imports are into the SE US and the volumes are modest, the cash corn/soybean tightness in the Plains/Midwest will not be alleviated. Farmers seeing $6.70 plus old crop cash corn bids this morning are making modest sales, but the overall volume is well below daily demand.

• The US Supreme Court ruled that California could restrict pig husbandry production habits in legislation called Proposition 12. This means that only pork raised in non-confinement operations before slaughter is eligible for sale in California. This has caused California pork prices to explode to the upside which accounts for 16-18% of US pork consumption. Since most of the US pork is produced in confinement, the pork supply outside of California will sizeably grow thereby adding additional pressure to price. The net result will be negative US pork production margins, herd liquidation and diminished demand for soymeal. How much domestic soymeal demand will be lost is difficult to calculate, but it is a demand trend to follow. US sow prices are historically cheap which adds to the woes of US pig producers trying to liquidate.

• The midday GFS weather model has been delayed by some computer issues. The model maintains a forecast of dryness for most of the Midwest for the next 10 days. The entirety of the region looks to stay dry into June 5 while daily showers across the Plains. Concern is growing for HRW wheat crop quality as the pattern is stuck. Improved rain is forecast for the Carolina’s with rainfall totals of 0.25-2.00”. However, there is no indication of meaningful Midwest rain looking forward to June 7. The extended range forecast maintains a trend of below normal Midwest rainfall, but any confidence in the forecast this far out is low. Heat returns on the holiday weekend with Midwest highs next week holding in the mid 80’s/mid 90’s.

• Chicago grain market volatility stays high amid the dry start of the 2023 Midwest growing season. But Midwest yield losses won’t start to occur until after June 10 as early crop moisture requirements are low. Funds are holding sizeable shorts which will be vulerable should the Midwest forecast stays dry into the last half of June. The most important portion period of the 2023 growing season is just ahead.

25 May 2023

Posted on May 26, 2023 by simon

• HEADLINES: Soybeans fall on technical selling: Corn futures close mixed: Wheat ends mixed with KC & MGE futures higher and SRW nearly unchanged. Equatorial ocean temperatures reach El Niño threshold; strong event due in late summer/autumn.

• Record ocean temperatures, including a rather strong El Niño event, will be a major driver the global climate in 2023. Rapid warming will be ongoing, and unique to this year will be just how strong this El Niño is likely to be. The CFS projects Pacific Ocean temperatures to peak in Sep-Nov at a level seen only twice in history.

• Long range weather will become less predictable, but in places like Southeast Asia and Australia there is a growing likelihood of severe drought development. Note that weather in these regions, along with Argentina, correlate most strongly with El Niño/La Niña. Already it does appear that warming Pacific temperature is promoting noticeable dryness in Malaysia & Indonesia and Australia’s major grain producing regions.

• Soybean futures finished lower on Thursday. Soybean meal initially fell to new lows, and selling in soybeans accelerated as old and new crop futures broke through weekly lows. July recovered late in the day to end just below unchanged.

• Soybean export sales last week rose to a 3-week high of 4 million bu, and sales totalled 10.6 million bu. However, outstanding sales are at a 9-year low of just 108 million bu. Old crop exports are expected to remain slow, while world demand for US soybeans should switch to new crop in the coming weeks.

• While US soybean meal prices tick lower, the export program is steadily building. Sales last week rose to an 8-week high and were the fourth largest of the year at 379,188 short tons. Weekly exports eased to 249,074 short tons, but cumulative exports are now above last year, at an 8-year high, and the second largest on record. Outstanding sales are also gaining on last year and are the fourth largest on record. We expect that this building trend will continue as world demand is directed to the US.

• Quiet and choppy trade is expected ahead of the long weekend, with Monday weather forecasts and debt ceiling news to direct early trends next week.

• Chicago July corn rose 4 cents, but the deferred contracts lost 2 to 5 cents. Strong old-crop cash prices supported the July contract. Dismal new-crop export sales and a stronger US$ contributed to weaker new-crop futures. Corn sales saw net cancellations of 2.96 million bu of old-crop and new-crop sales of just 2.1 million bu. While central US weather is problematic, weather could improve for the Brazilian second crop, but there is an accompanying risk of freeze/frosts in the south. Elsewhere in the world, Ukraine reports that 97% of its spring crops have been sown. To date, corn seedings total 3.7 million ha (9.14 million acres). That compares to 4.41 million a year, and 5.14 million two years ago. Conversely, sunflowers seedings were 4.62 million ha (up 8%). Soybean seedings were 1.6 million ha vs 1.15 a year ago. The lack of finance and reduced profitability impact yields which are expected to fall below last year’s. The country’s corn crop is pegged to be 22 million mt, down 5 million year on year and the smallest in 11 years. Exports (assuming the grain corridor remains open) are expected to be 16.5 million mt, down 9 million from this year.

• KC wheat futures were down 1 cent to 8 cents higher at the close. Similarly, MGE futures rose 7-8 cents. The Chicago SRW contracts were nearly unchanged to up 2 cents at the close. Rain in the Plains and expectations that old-crop Russian and EU stocks will end up larger than expected, kept the market subdued. US export sales for the week ending May 18 saw net cancellations of 1.66 million bu of old-crop wheat, while new-crop sales totaled 9 million bu. Wheat imports by the Maghrib (Morocco, Algeria, Tunisia, and Libya) are projected to be record large. The region’s combined crop is projected to be just 7 million mt, the smallest in 15 years. Domestic consumption is projected to be 27 million mt. However, some of these countries have serious balance of payments problems and may not be able to pay for all the imports that are required. Elsewhere, Egypt, the world’s largest importer, has deferred payments for its purchases (mostly from Russia). Here again the problem is a lack of foreign currency.

24 May 2023

Posted on May 25, 2023 by simon

• HEADLINES: Soybeans end lightly mixed at midweek: Adverse Midwest weather forecast pushes corn higher: Wheat ends sharply lower in back-and-forth trade; large old crop Eu/Russian stocks keep cash price stable.

• Chicago soybean futures were lightly mixed, but little changed on nearby strength on Wednesday. July soybeans gained 2 cents on quieter trade, while new crop was down 2.75 cents.

• After falling to multi-year lows through the first 4 months of the year, soybean crush margins finally found a low in early May and are now rallying. The nearby Chicago crush spread fell to $0.56/bu in early May, which was the lowest since June 2020. At the low, estimated cash crush margins were below $1/bu, which had not happened since July 2020. This occurred just ahead of the May contract expirations, and nearby margins have since strengthened against July. Estimated cash margins are averaging around $0.15-0.20, better than the Chicago spread. Compared to a year ago, cash margins are $0.50-0.80 lower but should improve in the coming months. World vegetable oil markets look to be forging a low, while Argentine meal exports are down significantly. This should offer support for US soy product cash markets through the summer.

• Chicago soy markets are oversold and undervalued. A low is forming, with a recovery to get underway in early June.

• Chicago corn recovered amid moderate short covering due to concerning dry Central US weather forecasts. Central US weather has been arid for both April/May which has allowed active seeding progress, but now the market’s concern is now shifting to one of low soil moisture during the vegetative growth stage.

• The afternoon EU model 10-day rainfall forecastshows that into June 4, little rain is forecast for the Midwest making the last half of May and the first week of June the driest on record. The need for rain will be immediate after June 10 with corn yield potential to be cut if the dryness extends into mid to late June.

• Also, Brazil’s interior corn market is beginning to strengthen. US interior basis levels remain elevated with profitable US ethanol plant hunting for spot cash corn. We estimate managed funds’ net short this evening at 90,000 contracts.

• For the next 6 weeks, Chicago corn price action is all about Central US weather and the location and amount of rain. Follow each US weather model run closely for sign of a pattern shift.

• Wheat futures ended sharply lower in a reversal of yesterday. US wheat futures are trying to balance out large old crop stocks and the need of expelled Russian exporters to sell stocks prior to June. Funds were sellers of 4,500 contracts in US futures on Wednesday with KC July again taking aim at $8.00 support. We continue to maintain that volatile and choppy wheat trade will persist until there is clarity on EU/Russian and Canadian wheat production. It is far too early to discuss Southern Hemisphere wheat, but the need for rainfall is immediate across Central and Western Argentina.

• Note EU and Russian spring wheat dryness. Even France and Germany are quickly drying down with improved rains needed as their crop enters the reproductive phase during June. The Baltic wheat crop is also struggling with dryness, so European and Russian weather will take on added yield importance over the next 6 weeks. Today, the dry weather forecasts are concerning, but there remains time for moisture to drop in the first half of June. Until EU rains fall, look for Paris weakness to be modest.

23 May 2023

Posted on May 24, 2023 by simon

• HEADLINES: Soybeans correct Tuesday’s gain: Corn’s turnaround Tuesday avoided on threatening Midwest weather: Wheat ends sharply higher; sizeable fund short collides with world weather concern.

• Chicago soybean futures gave back part of Monday’s rally with soyoil pacing the drop. Fresh market news was limited, but the market is preparing for a long holiday weekend, and the theme of expanding day-to-day price volatility heading into the heart of the growing season stays in play. We doubt that the bulls and the bears will find gratification until next week. Ongoing dry Midwest weather trends are worrisome.

• US daily soymeal export sales announcements are rare, but so far, there have been 2 announcements this month. Argentine meal is often offered far below the US but has rallied to within just a few dollars. April meal exports fell to 1.13 million mt or the lowest level in 20 years. The Argentine vessel lineup has improved, but May exports are estimated near 1.9 million mt, a 20-year low. Exports in the first 2 months of the local crop year are estimated to be down 41% from a year ago, the lowest since 2003. World soymeal demand, especially from Europe, is in decline due to bird flu/pig herd liquidation. But the sharp drop in Arg meal supply will boost US meal sales/exports into yearend.

• Chicago soy markets are deeply oversold, with tightening US stocks and the entire new crop growing season ahead. Seasonal lows are forming with a recovery to get underway in June. This is no place to chase breaks to the downside.

• Chicago corn recovered amid moderate short covering. Brazil’s interior market is beginning to strengthen. US interior basis levels remain elevated. Dec corn is oversold, technically, and while this week’s rally has been driven mostly by money flow, a more supportive market evolves beyond the US Memorial Day holiday if dry Midwest forecasts are extended into the second half of June. It is premature to be overly concerned, but unlike recent years there is a need for regular June rain across the Midwest. We estimate managed funds’ net short this evening at 95,000 contracts.

• Global corn stocks fail to build adequately if Northern Hemisphere yields are even 3% below trend, which is important. Weather issues are not yet bullish, but this does suggest volatility will be incredible during the summer. Close attention will be paid not only to the primary US Corn Belt, but also drying trends in Europe and Ukraine. Additionally, we note that while the Black Sea export corridor has been renewed, vessel movement remains slow and likely tapped down by Russia.

• We are short-term cautiously bullish of corn. A higher close Wednesday confirms a bottom.

• Wheat futures ended sharply higher in the US and Europe. Tuesday’s specific catalyst is difficult to establish, but weather in large parts of Russia remains threatening, net soil moisture loss will be ongoing in large parts of Canada, and a new threat is emerging in the form of soaking rainfall across the primary US HRW Belt. Rather quickly, weather there has shifted from historic drought to weekly rainfall of 2-6.00”. A drier pattern will be needed in June to prevent quality/disease issues and advance the harvest. Eroding North American high protein supplies will be a defining feature of the 2023/24 market if weather patterns fail to change. Recall assuming normal weather outside the US, major export production is forecast to decline 12 million mt to 382 million, the lowest since 2019. This discrepancy widens considerably if heat/dryness persists in Central Russia and El Niño-based dryness in Australia is extended into Aug/September. We also note that while global trade currently sits at seasonal lows, importer interest returns in bulk by July/August. Favourable weather is needed to press EU/Black Sea fob offers much lower. Modest weakness should be rewarded with end user buying.

22 May 2023

Posted on May 22, 2023 by simon

• HEADLINES: Sharp rally on worrisome Central US weather; Prevent plant date for corn on May 25; Plains corn basis stays strong.

• “Risk On” is the theme on Central US weather forecast concern: Prevent Plant estimates rise for the Dakotas/N Minnesota; Central US cash basis strength, world crush margin expansion on new US soymeal demand; Unlike Chicago sessions late last week, it appears that today’s strength should hold.

• Chicago futures rose to sharp midday gains amid speculative buying and short covering. Old crop July futures have provided the upside leadership on strong US cash basis bids and the lack of Brazilian corn/soybean imports that will reach the US prior to first notice day. We have previously commented that based on a lack of resting orders, that market volatility will stay extreme with US and world weather becoming more important during June We maintain that key seasonal lows were scored last week and that following the Memorial Day Holiday that it is all about weather/yield,  across the US where rain will be in need across the C and E Midwest.

• Chicago brokers estimate that funds have bought 2,000 contracts of wheat, 9,300 contracts of corn, and 8,500 contracts of soybeans. In the soy products, managed money has bought 3,500 contracts of soymeal and 4,200 contracts of soyoil. Funds came out of the box aggressively buying soybeans from the million reopening.

• The US Prevent Plant date for corn occurs Thursday for the Dakotas, N Minnesota, and most of the Plains. Following Thursday, insurance revenue guarantees decline 1% per day for producers that have not yet seeded corn. This makes this afternoon’s NASS planting progress report important.  We estimate that at least 800,000-1.0 million acres of intended North Dakota corn acres will accept the Prevent Plant option, especially with the producer able to seed a second crop and have it insured with diminished coverage.

• The US sold 225,000 mt of US soymeal to the Philippines in the 2022/23 crop year. The sale is the second of the past few weeks which reflects the impact of the 2023 Argentine soy crop failure. Brazil cannot supply the world’s soy product needs, and US soymeal/soyoil demand should persist through summer boosting demand for US soybeans and boosting crush margins.

• The midday GFS weather forecast is drier beyond the next 10 days with the good rains that were forecast for the W Midwest in the overnight run petering out. The midday GFS forecast is drier for the entire Midwest in the 9-15 day period. This means that the EU and GFS models are better aligned with a dry weather pattern to persist through June 6. Any rain will be focused across the western spine across the Plains/SE US. The Canadian Prairies will also see widely scattered showers, but our view is that GFS forecast is overdoing the coverage and amounts under a broad high-pressure ridge. We have a growing concern for Central US rain and that heat could develop in early to mid-June. This is a weather pattern to closely monitor.

• North American is not losing any yield on May 22, but the weather forecast is troubling with Central US dryness to persist for another 2 weeks. If after the Memorial Day holiday there is any hint of a stable Central US high pressure ridge (heat), the price character of Chicago shifts to bullish on supply losses. Note that funds and traders are heavily short Chicago with their only market length sitting in soymeal.

19 May 2023

Posted on May 20, 2023 by simon

• An early Chicago soybean recovery stalled as November soybean futures found resistance above $12, and technical selling swept the market lower into the close as the prospect of US debt talks dimmed.

• While soybean prices collapsed this week, meal and oil prices have followed at a lesser rate, and the nearby Chicago soybean crush spread has more than doubled in the last week to $1.13/bu. The decline in product values has been far less than the break in soybean prices.

• US soybean meal exports and sales have firmed in recent weeks as world price spreads narrowed. While Brazilian soybean basis has fallen to historic lows, meal offers have firmed considerably in the last month, gaining nearly $30/mt. Argentine offers have been well supported by reduced crush and are quoted at $19 over Chicago, versus US quotes at $22 over. However, quality concerns due to the drought-stressed Argentine crop remain, even with the inclusion of imported Brazilian soybeans.

• It has been an emotional week driven by fund liquidation in Chicago, but soybeans have fallen to deeply undervalued levels. World cash prices are firming, and a Chicago recovery should be underway by early June.

• Chicago corn futures ended mixed with new input lacking and with funds on Tuesday short a net 91,000 contracts. We believe that the speed and intensity of the recent collapse has digested USDA’s call for a resetting of supply, demand, and price in 2023/24, and it is now left to Mother Nature to prove USDA right or wrong. Fundamentally, the loss of US export demand is important as old crop stocks will be above pipeline minimum barring a bullish surprise in March-May feed/residual disappearance. Yet, focus moving forward shifts rapidly to US, exporter, and world new crop supplies.

• We note that processing margins have soared on the break in corn. Ethanol plant revenue in Western IA is calculated at $0.10/gal above costs. There remains a need for larger weekly grind as the summer driving season begins, and a key is whether plants opt for discretionary production to build stocks amid strong margins.

• We again reiterate that volatility will be incredible during the summer. Weather model guidance next week increasingly peeks into June. Focus will be centred on the duration of coming Midwest heat/dryness. Current prices have digested a US 2023 yield of 182 bushels/acre. The price risk in summer is up.

• Wheat futures on Friday ended lower by varying degrees, with long liquidation ongoing in KC and Minneapolis. A decent fund length was established in KC early in the week which along with overbought technical signals triggered the past 2-day correction. We strongly doubt recent Plains rainfall adds to HRW yield potential relative to the USDA’s current forecast, but the boost in soil moisture is welcomed. Additional light rain is forecast in parts of KS and NE May 24-29.

• Managed funds in Chicago on Tuesday were short a net 113,000 contracts. Friday, fund’s short is estimated at 133-137,000. Recall the record low scored in 2017 was net short 162,000 contracts.

• Our primary issue is that exporter yield loss of just 2% from USDA’s current estimate pulls combined stocks to a nearly untenable 47-48 million mt, a level not seen since the 1970s. Net soil moisture loss will continue in Canada. Heat and dryness in Central Russia have now been extended into June 3.

• Weather is not typically a focal point to the market until June, but we must be prepared for a wide swinging market.

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

Weekend summary 19 May 2023

18 May 2023

Posted on May 18, 2023 by simon

• HEADLINES: Row crops stabilise; Wheat extracts premium on hope for better rainfall in Canada.

• Chicago ag markets are mixed but mostly lower, with wheat values shedding premium on the GFS forecast’s call for better rain chances in Canada and with row crops beginning to stabilise. Dec corn and Nov soy are trading slightly higher as of now, and while fundamental price discovery June 1 onward hinges entirely upon Northern Hemisphere weather patterns/forecasts, Chicago corn and soy futures are deeply oversold, which must be reconciled. This either occurs via a quick recovery or a lasting sideways trend. Our bet is that the addition of new shorts will be far more measured, and the monitoring of seeding dates transitions to crop ratings and vegetation health. A critical growing season lies just ahead. Ideal weather is needed.

• This morning’s weekly export sales showed net corn cancellations worth 13 million bu, a new all-time high, net wheat cancellations of 1.6 million bu and net soybean sales of 0.6 million. Wheat trade globally is in seasonal retreat as harvests occur in North Africa and across equatorial latitudes. The bulk of row crop trade has been funnelled to S America, and the recent erosion in corn/soy export demand has rapidly eased fears of sub-pipeline minimum stocks.

• For their respective crop years to date, US exporters have sold 1,498 million bu of corn, down 35% year on year, 1,866 million bu of soybeans, down 14%, and 694 million bu of wheat, down 3%. USDA is expected to trim 2022/23 US corn exports another 25-50 million bu in its June WASDE. Pace analysis suggests wheat and soy forecasts are correct, though ultimately the pace of soy demand needs to improve in late summer to prevent a modest hike in 2023/24 soy carry in.

• We would note that US soy crush margins continue to improve. The spot futures-based margin at midday is up $1.00/bu, vs. $0.44-0.55 in early May. Chinese meal prices are also rising amid slowed crush, due largely to vessel delays at ports. Spot Dalian meal has rallied 7% in the last 30 days. Work continues to point toward upward revisions to both old and new crop Chinese soy imports.

• NOAA’s long-lead summer forecasts released this morning feature additional drought erosion across the Central Plains and a lack of meaningful guidance elsewhere. A warm June is probable, but otherwise there are equal chances of above/below normal precipitation and temperatures across a majority of the Plains and Midwest throughout the summer months. Climatologists suggest generally normal climate patterns are being assumed and highlight the decidedly arid pattern forthcoming across the Great Lakes and Central/Eastern Midwest into June 1. This is by no means an issue today, but keep in mind subsoil moisture anomalies are often solid indicators of summer temperatures. Amid a lack of tolerance for supply dislocation in 2023/24, our message remains that a few weather scares are probable between now and late July.

• The midday GFS weather forecast is slightly drier in Canada but is otherwise similar to the morning run. Precipitation in the next 10 days will favour the Southern and Central Plains, where it is most needed, while little/no rain is offered to MO, IA, IL, IN and OH. Widespread warmth is indicated by early next week. Max temperatures in the upper 70s and 80s will blanket the Central Plains Sun-Wed. Most important in the short run is whether heavy rains are allowed to impact Canadian Prairies. The GFS forecast, while drier at midday, maintains much better rain chances in Alberta and Manitoba next week. The EU solution this morning was dry.

• Supply drives both bullish and bearish price action, with Dec corn at $5.00 and Nov beans below $11.80 digesting initial USDA new crop balance sheets. Rallies are selling opportunities, but we caution against expected perfect El Niño-inspired N Hemisphere weather this summer. Recent volatility in wheat foreshadows what is to come in corn and soy.

17 May 2023

Posted on May 17, 2023 by simon

• HEADLINES: On the anniversary of the 2022 Chicago wheat price high, grain futures fall sharply on China corn cancelations and 2-month Ukraine corridor extension.

• Chicago ag markets are sharply lower in active volume on massive fund speculative selling and liquidation. Corn/wheat have paced the decline on the news that China cancelled another 272,000 mt of US corn and that the UN/Turkey and Russia was able to cobble together a 2-month extension of the Black Sea Grain Corridor. A brief mid-morning rally failed and when the 2-month extension of the corridor was confirmed by the UN, prices dropped sharply in a waterfall type of decline. The market lacks resting orders and it does not take much buying or selling to really push values around.

• We note that today is the one-year anniversary of the top in 2022 Chicago July wheat futures at $12.84. The US wheat market had been on an upside push until it was learned that Russia/Ukraine and the UN were negotiating on the Black Sea Grain corridor. Few imagined last May that a deal would be struck and signed last July, but that led to the almost constant decline in world wheat prices. One year later the agreement is extended with world grain prices falling back to multi-year lows. Sometimes such anniversaries are important in world grain trading, let us see if today’s sharp decline on a key anniversary can produce a market bottom. Funds are now heavily short heading into a new Northern Hemisphere growing season.

• Chicago brokers estimate that funds have sold 4,100 contracts of Chicago what, 11,300 contracts of corn, and 7,100 contracts of soybeans. In the soy products, funds have sold 5,200 contracts of soyoil and 2,200 contracts of soymeal. Funds are flipping into a net short soy position based on their recent massive selling.

• Chicago resting orders are limited, which adds to market volatility. The bulls have been washed out on the post May WASDE price decline while a new Northern Hemisphere growing season is ahead. The statistical odds are high that a few sizeable weather scare rallies will develop based on Black Sea, Indian, Canadian droughts. El Niño is developing, but the summer weather pattern is concerning based on hot spots in the Pacific.

• US weekly ethanol production was 290 gallons,  up from last week’s 284 million gallons, but down from the 304 million gallons/week that is needed to reach the USDA annual ethanol grind forecast. The US is running behind on the grind, but there is time for the annual WASDE target to be achieved. US ethanol stocks fell 4 million gallons to 974 million gallons with the weekly consumption of US unleaded gasoline being 8.91 million barrels/day, down 1% from last year. US ethanol profit margins are soaring on the corn price decline to $0.29/gallon.

• The midday GFS weather forecast is like the overnight run with widely scattered showers across the Plains with rain totals of 0.4-1.50” but mostly dry weather for the Midwest/Delta into May 27. A few showers are also forecast for Alberta and Manitoba, Canada. The EU and GFS forecasts have been at odds over follow up rainfall in the Plains in the 6–10-day period, and changes to the EU solution this afternoon will be monitored. Otherwise, a warmer temperature profile moving forward is viewed as favourable. New N American concerns stay confined to the Canadian Prairies for now.

• One year after last year’s emotional rally high Chicago could be forming an emotional low based on a 2 month extension of the corridor and expectation for timely seeding of US crops and high yields. The bulk of the 2023 growing season is ahead and already there are areas to be flagged for drought including the Canadian Prairies, spring wheat areas of Russia, a weak Indian monsoon, and a dramatic dry down in Central and Southern Brazil. This is no place to make new sales as seasonal and potential annual lows are being scored.

16 May 2023

Posted on May 16, 2023 by simon

• HEADLINES: New crop corn, soy fall to newer lows; GFS weather forecast stays optimistic on Plains precipitation; Macro input leans negative.

• Chicago ag markets are mostly lower, with any morning strength confined to KC and Minneapolis wheat. This week’s tour of Kansas so far has found decent yield potential in the centre and east of the state, but there is no indication yet that NASS’s deep cut to production there is invalid. Abnormal heat will be in place across the Canadian Prairies this week, and the need for elevated rain there becomes immediate in June. The North American hi-pro market, today, is an island of supply concern, but solving the global trade matrix becomes much more difficult if confirmed production loss spreads outside of the US southern and central Plains.

• There is no real catalyst to explain the break in row crop markets, but seeding dates across the principal Midwest are normal/early and coming warmth and dryness will facilitate an acceleration in emergence and growth. Brazil’s forward soy fob quotes have added premium in the last week, but basis there for immediate shipment remains deflated at $0.80/bu below July Chicago. Safrinha harvest begins in earnest in Mato Grosso by early June. Brazilian storage capacity remains an issue. Waning US export demand will keep old crop US corn/soy stocks above pipeline minimums, though Mar-May residual disappearance is key with interior basis still suggesting a lack of surpluses.

• There also remain lingering concerns over global economic growth. Crude at midday is down $0.40 at $70.70. Copper futures are down sharply, with spot COMEX scoring a new 6-month low. The Dow is down 200 points. There has been a modest flight to the US dollar as safety is sought. Other exporter currencies have been weakening this week.

• Paris milling wheat futures are down €4.75-5.00/MT and have surrendered the entirety of Monday’s rally. Rapeseed futures in Europe have fallen to two-year lows. Ag market liquidation has been the theme amid hope for favourable for Northern Hemisphere weather and a material rebuilding of stocks in 2023/24. Momentum has been on the side of the bears.

• We would note that all markets are deeply oversold, with corn, wheat, soybeans and soyoil RSI’s at unsustainable levels. A recovery is imminent, but the degree of this recovery in the very near term will be determined by Mother Nature.

• The midday GFS weather forecast is wetter in the southern and central Plains next week, and compared to the overnight run the model has expanded rainfall of 1-2” into NE and IA. Soaking rainfall is still projected across the TX/OK panhandles and much of CO and KS late this week and again next Wed-Fri. The EU and GFS models have been at odds over follow up rainfall in the Plains in the 6-10 day period, and changes to the EU solution this afternoon will be monitored. Otherwise, a warmer temperature profile moving forward is viewed as favourable. New North American concerns stay confined to the Canadian Prairies.

• Markets will hinge mostly on supply over the next 90-100 days. The lack of major Central US problems today can’t be ignored. Yet, it is difficult to be bearish corn and soy at/near levels that trigger crop insurance payments (basis 85% coverage) ahead of a growing season.

15 May 2023

Posted on May 15, 2023 by simon

• HEADLINES: Wheat leads Chicago rally; Dryness in Canada, Eastern Russia need monitoring; NOPA soy crush record for April but shy of expectation.

• Chicago ag markets are sharply higher at midday as the rest of the world fully digests bullish USDA wheat data, and as S America’s cash soy market, which had been the bearish lynchpin in March and April, is shifting rapidly. Corn is following. Weather issues linger in Canada and Central Russia, which become highly important to wheat price discovery if they continue into early June. Our general thesis is that the chance to build global grain/soy stocks does exist, but it is entirely up to Mother Nature to prove USDA forecasts correct. Expect volatility moving forward.

• The rapid addition of premium in Brazil’s fob soybean market, with basis there for August delivery now quoted at $0.30 over, vs. $0.15 under last week. Basis for Sep arrival have soared to $0.90 over and suddenly the Brazilian market is working to slow late summer/early autumn demand, which will be funnelled back to the US in bulk at harvest. Additionally, US exporters sold a rare 100,000 mt of meal to Poland for 2022/23 delivery. The recent boost in meal export demand, and to a lesser degree oil, is at least correlated with the ongoing decline in Argentine soy crush rates. Board crush margins are rising.

• We expect Argentina’s meal shortage to be more pronounced during the summer months. Additional US meal and oil demand is anticipated. Argentine farmers will be tight fisted with newly gathered supply amid screaming inflation, with the official Peso likely to test the black market’s value at some point in 2023. Argentine drought/politics remain a big deal for the soy complex.

• NOPA member soy crush in April totalled 173.2 million bu, 1 million below expectations but a record for the month. Capacity utilisation has risen since February. USDA’s annual crush forecast of 2,220 million bu is viewed as accurate. Additional crush expansion lies ahead into 2026.

• Soyoil disappearance last month was disappointing, however. We calculate oil consumption at 1.96 billion lbs, vs. 2.16 billion in March and vs. 2.11 billion in April 2023. NOPA member oil stocks on April 30 totalled 1.96 billion, vs. 1.81 billion last year. We do note soyoil at current prices is competitive with other feedstocks in biofuel production. A demand-led market is still anticipated amid growth in renewable diesel production in the US and sustainable aviation fuel elsewhere.

• There is still no official word on the Black Sea corridor’s renewal or elimination, though the halting of vessel traffic this week has effectively closed off maritime Ukrainian exports. We doubt clarity emerges prior to Turkey’s run-off election on May 28, which compounds the issue of waiting times and demurrage costs.

• Little to no rain is forecast across the northern part of Russia’s winter wheat belt or in the entirety of the Ural and Siberian spring wheat areas into May 25. A blocking pattern will sustain dryness and abnormal warmth in Canada nearby. Both must be monitored as the calendar moves closer towards June, and as the exporter wheat balance sheet cannot tolerate additional supply dislocation.

• The midday GFS weather  forecast is like the overnight run in projecting needed rainfall across the TX/OK panhandles and pockets of CO, KS and NE. Mostly arid conditions persist elsewhere, which in the short run allows row crop planting to be completed nationally prior to May 30-25. Rain will be desired in the E Midwest beyond the next two weeks.

• This week’s tour of the KS wheat crop will better define the rationing chore that lies ahead for high protein wheat markets. Otherwise, daily/weekly price discovery becomes a function of weather and forecasts exclusively. Coming volatility likely provides better pricing opportunities.