7 February 2023

Posted on by
  • HEADLINES: Chicago futures chop on pre report positioning; Index fund roll starts on the close; Stats Canada stocks uninspiring.
  • Chicago grain futures are sharply mixed at midday with an early rally in soybeans failing while wheat futures try to regain lost early ground. Corn is holding in the red with rallies being sold. The 50 day moving averages crosses at $6.65 in March corn and $14.94 in March soybeans. A non-bullish USDA report could cause both support levels to be tested by the weekend. The midpoint of the crop year will be reached by the end of February, and price focus will be shifting away from S American crop sizes to the new Northern Hemisphere growing season. Risk is being adjusted accordingly.
  • China was an active buyer of 4-6 cargoes of Brazilian soybeans for April/May this morning while China’s trade of soymeal at port was a massive 1.0 million mt. Chicago acted poorly to Chinese demand on the thinking that China has covered 70-80% of their April soybean imports and 60-65% of May. And the big Chinese soymeal trade was likely capitulation by livestock feeders fearing that prices would keep rising. The net result was that Chicago soybean/soymeal futures fell while soyoil rallied sharply.
  • Chicago brokers estimate that funds have sold a net 3,700 contracts of corn and 1,700 contracts of soybeans, while buying 2,100 contracts of wheat. In soy products, funds have sold 4,200 contracts of soymeal and bought 6,200 contracts of soyoil. We are told that there was some good cash connected end user pricing shortly after the morning reopening.
  • There were no daily sales announced by FAS/USDA today. However, Census confirmed that there were 305 million bu of soybeans, 145 million bu of corn, and 39.6 million bu of US wheat exported during December. This compares to 297 million bu of soybeans, 196 million bu of corn, and 50 million bu of wheat during December 2021.
  • Stats Canada reported December 31 grain and oilseed stocks of 22.3 million mt of wheat, 11.4 million mt of canola, and 3.6 million mt of oats. Trade estimates nailed the wheat/oat stocks totals but were 300,000 mt too high on canola. The report leaned bullish canola and neutral of the grains.
  • Algerian wheat purchase prices are said to average $329/mt basis CIF for April. The wheat is said to be a mixture of EU/Russian wheat. The Russians are offering wheat for April around $308/mt which would leave $20-21/mt to cover freight and costings. Purchase tonnage totals are awaited but note that key world wheat importers are getting coverage through April/May amid the potential escalation of the Ukraine war by Russia. Also, another Black Sea Corridor Pact must be signed by all sides before March 19 to continue.
  • The midday GFS weather forecast is slightly drier than the overnight run with less rain coverage/lower amounts for Western Argentine crop areas. The GFS Ensemble model pegs rain totals in a range of 0.25-1.50” from Sunday through Tuesday of next week. This is down around 0.50” from what was offered by the GFS and other forecast models overnight.
  • Dry weather follows in the 10–15-day period with another rain event needed in late February for crops to mend across Argentina. Projected Brazilian rain for RGDS/Parana is estimated at 1-2.50”. Such rain will aid the far Southern Brazilian soybean/corn crops. Another 2-3 soaking rains are needed across Argentina for yield improvement into March 10.
  • Price action following the USDA February Crop report is key. We doubt that the bulls will chase a bullish report. However, until a more regular rain pattern develops across Argentina, breaks will also be supported. We would argue that a longer term price peak has formed, and that additional Argy supply loss is needed to push Mar soybeans above $15.50 or Mar corn above $6.90. Otherwise, Chicago corn and soybean values will settle lower with the oil share spread performing. Wheat holds in a range into spring awaiting additional rain for the Western US Plains.

6 February 2023

Posted on by
  • HEADLINES: Chicago sags on better rains for Argentina; US dollar catches a bid; Key 50 day moving average just below in corn/soybeans.
  • Chicago grain futures are lower at midday on a gain in the US dollar, rising US/China political tensions, and potential for rain across the key crop areas of Argentina this weekend and early next week. Today’s tone of Chicago is bearish, but the USDA February Crop report will be released in less than 48 hours with traders adjusting their risk accordingly.
  • Funds are holding sizeable, long positions in soymeal, soybeans and corn and a sizeable net short position in US wheat futures. Yet, we calculate that funds are holding their smallest net long soyoil position in 20 months. The recent break has pulled spot Chicago soyoil futures to their lowest level since July 15 when spot futures fell to 58.40 cents. The low this morning for March soyoil was $58.43. We would argue that soyoil futures are undervalued and that soymeal futures are overvalued. It will be key to monitor the oil share spread following the USDA February Crop report on Wednesday.  We look for a mixed close today, and for that trend to persist into the USDA report. Record soybean yields out of N Brazil will make up for any Argentine soybean crop shortfall under 40 million mt. The N Brazilian soy yields are that sizeable.
  • Chicago brokers estimate that funds have sold a net 4,700 contracts of corn and 3,800 contracts of soybeans, while buying 900 contracts of wheat. Funds were early buyers of 2,900 contracts of wheat and turned around as sellers of 2,000 contracts for a net of 900 contracts on the day. In soy products, funds have sold 3,400 contracts of soymeal and 4,800 contracts of soyoil.
  • The USDA confirmed that Mexico purchased 200,000 mt of US corn with 118,000 mt to be sold to Japan. The Japanese corn was old crop while the Mexican corn purchases was evenly split between old and new crop.
  • The devastating S Turkish earthquake has not caused any delays in Black Sea grain inspections or shipments. However, it could delay future Turkish grain tenders until more is known about the financial and structural damage to Turkey. Today it is about the aftershocks and the help needed in distributing food, aid, and other supplies.
  • US export inspections for the week ending February 6 were 18.9 million bu of corn, 19.7 million bu of wheat, and 67.2 million bu of soybeans. Wheat exports were larger than trade expectations, while corn was less while soybeans were right at trade ideas. For their respective crop years to date, the US has exported 493 million bu of corn (down 239 million or 33%), 1,392 million bu of soybeans (up 8 million or 1%, and 505 million bu of wheat (down 9 million or 7 million bu or 2%). US corn loadings must soon start to rise for there to be any chance of reaching the WASDE forecast of 1,925 million bu. We see 2022/23 corn exports at 1,850 million.
  • Stats Canada will release their closing January grain stocks tomorrow morning. It is expected that stocks of wheat, canola, oats, and corn will be well up from the year prior, remember that 2021 was drought impacted.
  • The midday GFS weather forecast is wetter than the overnight with better rain coverage/higher amounts for Argentine crop areas after Feb 12. The GFS forecast pegs rainfall totals in a range of 0.5-2.00” from Sunday through Tuesday of next week. Dry weather follows in the 10–15-day period with another rain needed in late February. Projected Brazilian rain has improved for RGDS/Parana with heavy totals of 2-5.00” offered for Sao Paulo.
  • Extreme heat returns to Argentina this week but abates next week. USDA will likely cut its Argentine corn/soy crop estimates on Wednesday due the ongoing drought.
  • Chicago has a heavy feel as new money is not flowing into raw material markets. This is a departure from the start of the year. And the USDA report is not scaring end users into taking soymeal coverage before the report. The 50-day moving average crosses at $6.65 basis Mar corn/$14.92 basis Mar beans.

3 February 2023

Posted on by
  • HEADLINES: Interior Russian wheat market offsets rising export tax; Soybeans slip lower in late week trade; CBOT corn ends firm but lacks bullish enthusiasm; Momentum stays absent nearby; Wheat ends weak on surge in US dollar.
  • There is no indication that Russian wheat exports will slow meaningful. Egypt confirmed that it had purchased a sizable 535,000 mt of Russian origin for late Feb/March delivery at below replacement prices that included costs and freight. Relative warmth and a lack of heavy snowfall in Southern Russia will prevent major logistical issues at ports during the first half of February.
  • Russia’s nearby wheat export tax has pushed up to $62-63/mt vs $45-48 in December. However, the rise in tax costs has been partially offset by falling interior values.
  • The Russian Ruble scored a newer three-week low on Friday, with spot wheat in Southern Russia pegged at $183/mt, vs. $200 in mid-December. Russian exporters are receiving adequate supplies, while also face decently sized margins at current fob offers, which are $20-80/mt below EU/US origins. It is tough to be bullish of US/EU exports into early spring on the Russian wheat export aggression.
  • Chicago soybean futures were down 2-3 cents to end the week, caught between a strong rally to new contract highs in the soybean meal market and a drop to a 7-week low in the soybean oil market.
  • The USDA announced new crop soybean export sales to unknown destinations of 4.9 million bu. There has not been an old crop sales announcement in over a week, and we expect that daily announcements will be few and far between in the coming months as world demand is re-routed to Brazil.
  • The Commitment of Traders report has been delayed due to reporting issues and is expected to be released next week. Chicago soybean open interest has been rising on seasonal considerations ahead of the March expiration. However, total market open interest is well below both last year and the 5-year average for early February. With a record large Brazilian crop on the way, speculative Chicago interest is reduced.
  • The February WASDE will be released Wednesday. A further decline in the US export forecast and an increase in the Brazilian crop size are expected. The trade is anxious for Argentine crop and global S&D updates. Our market outlook is bearish on rallies.
  • Chicago corn futures ended just fractionally higher. March has been unable to close below initial chart-based support at $6.75 but has been equally unwilling to add risk premium at/above $6.85. We expect a range of $6.60-6.85 to continue into planting, but it is imperative to use near-term strength to position for a more significant correction in mid/late spring.
  • The market through February must contend with the return of warmth and dryness in Argentina, which is forecast into at least Feb 12. Brazil’s market has been somewhat firm, with March and May contracts there rising to $7.45-7.50/bu this week. Safrinha corn seeding in Mato Grosso is just 16% complete, vs. 32% on average. An acceleration in planting progress lies ahead, but ideally the crop there is fully in the ground by March 5. S American weather remains a priority.
  • US domestic use will be challenged by weak ethanol profit margins and low cattle numbers. Falling crude oil prices are noteworthy. The market lacks the fear of shortages seen a year ago, and new supply dislocation is needed to test $6.90-7.00 basis spot.
  • US wheat futures ended slightly lower on Friday amid renewed buying of the US dollar, which rallied 1.1%, and an otherwise lack of breaking news. US job growth of 517,000 in January has triggered fears of yet more benchmark interest rate hikes throughout 2023. The dollar appears to be forming a rounding bottom, and it is clear money has flowed quickly from the euro and other currencies to the dollar, which on balance harms US export demand.
  • We doubt a lasing bear trend can be sustained until trend/above trend yields can be confirmed across the Northern Hemisphere this spring. But Russian wheat remains cheap. India’s cash market has turned lower for the first time since September. Harvests begin in North Africa, the Mid-East and India in April, and rallies will struggle mightily as global trade limps into the spring and summer.
  • The risk of moderate fund short covering remains present.

2 February 2023

Posted on by
  • HEADLINES: Corn/wheat fail on early day rally; Funds add to length in soymeal; GACS gets cheap Russian wheat offers.
  • Chicago grain futures are mixed at midday with the fund order flow being the dominate feature (once again). Chicago has all been about the flow of money since the start of the year with traders struggling with the back and forth of prices, depending on whether the money comes or leaves. Today is another example of new fund investment flowing into soybeans/soymeal and out of corn and soyoil. Funds are flat in wheat after being early buyers. It is the difficulty in predicting whether an investment manager wants to be a buyer or a seller or a spreader of the oil share which hurt trend followers.
  • We look for a mixed Chicago close with the index fund roll to add some market drama next week as March longs are rolled forward. Most index funds will roll to the May position, but some will go forward to December corn and November soybeans. If you want to be bullish of Chicago, new crop offers a better opportunity vs the nearby with cash basis levels likely to leak lower as world soybean/grain demand is fulfilled by S America (corn/soybeans) and Russia (wheat). These are not easy markets to trade.
  • Chicago brokers estimate that funds have bought 1,600 contracts of wheat, 6,500 contracts of soybeans, and 5,900 contracts of soymeal. Funds have sold 4,300 contracts of corn and 2,300 contracts of soyoil. Chicago open interest has risen nearly 85,000 contracts in corn/soybeans (each) in 2023, which is one of the reasons for the price rise during January.
  • The USDA/FAS did not announce any new purchases of US corn, soybeans, soy products or wheat in its daily reporting system. This week’s US corn, soybean and wheat sales are down, which will be reflected in next week’s USDA weekly export sales report. We are seeing world soy demand switched totally to S America. With the $0.80/bu discount of Brazilian soybeans and the $0.20/Bu savings on freight, Brazilian beans landed in China are $1.00/bu cheaper not including the $0.15-.020/bu bonus on quality. Brazil has quite the advantage right now.
  • US weekly export sales for the week ending January 26 were; 5.0 million bu of wheat, 63.0 million bu of corn, and 27.0 million bu of soybeans. For their respective crop years to date, the US has sold 594 million bu of wheat (down 40.0 million or 6.4%), 1,009 million bu of corn (down 767 million or 43%), and 1,736 million bu of soybeans (up 80.0 million or 5.0%). We expect this to be the last big week of US soybean sales with US wheat sales through January being at a record low. We would argue that USDA must cut its corn export estimate by 100-150 million bu and with Brazil now offering soybeans into October, US new crop export estimates are too high above 2,100 million bu. The Brazilian soy export program will have a long tail that harms US exports well into their harvest.
  • The midday GFS weather forecast is drier (which did not have much rain either), but our confidence in the GFS model stays low. Showers are exiting E Argentina at noon and will reform across Uruguay and RGDS later today. Argentina will endure 8-9 days of dry weather with heat returning early next week. The good news, near to above normal rain is forecast in the 10–14-day period which should aid Argentine yields.
  • The Brazilian weather forecast offers near to below normal rain across the North and improving rain chances for RGDS in Southern Brazil. The harvest will quicken into mid-February. The weather forecast for Brazil stays favourable with record corn/soybean crops in the making.
  • Brazil’s soy export aggression will be felt for months to come, and well into the US new crop position. US corn export demand is disappointing with a suggestion that a secondary price top is either forming or in place. US wheat futures ran higher on short covering, but the Russian offers to Egypt’s GASC were aggressive. A purchase announcement of Russian wheat is awaited. Russia is now offering cheap wheat into April and will likely export 44-45 million mt.  We doubt that rallies in soybeans or meal can be sustained.

1 February 2023

Posted on by
  • HEADLINES: Brazilian soy production talk is big as farmers sell newly cut supply; World grain trade shifting south; Egypt cancels corn tender.
  • Chicago futures are lower at midday with selling noted from sagging S American soybean/corn premiums, and the ongoing shift in world trade from the US to Brazil/Argentina. The US is in the cusp of seeing its export book languish as cheaper price offers from the Southern Hemisphere curtails new nearby US corn, soybean, and wheat export sales.
  • The bulls are hopeful for another large week of US corn, soybean, and soymeal sales tomorrow, but with much of Asia on holiday last week, we are doubtful.
  • The slowing of US export sales and shipments has now arrived. US export sales will be slow from February through July while shipments are likely to stay tepid well into the new crop position if Brazil’s weather is normal for winter corn yield/production. Brazil still has vessels to load corn during February and early March, which suggests strongly that last year’s Brazil winter corn crop is understated by as much as 4-5 million mt. The price of feed wheat and the ongoing export of corn by Brazil looks to curtail US 2022/23 corn exports. We fear that USDA/WASDE will further cut US corn exports in coming monthly reports. The competition in the world grain export market is acute.
  • Chicago brokers estimate that funds have sold 2,300 contracts of wheat, 4,200 contracts of corn and 2,900 contracts of soybeans. In the soy products, funds have sold 2,200 contracts of soyoil and 900 contracts of soymeal. The fund buying of recent trading sessions has slowed.
  • The USDA/FAS did not announce any new purchases of US corn, soybeans, soy products or wheat in its daily reporting system. China is said to be bidding for May soybeans out of Brazil this morning.
  • The USDA ag attaché estimated the 2023 Argentine soybean crop at 36.0 million mt, 9.5 million below the USDA. The attaché estimate is just below the Rosario exchange forecast at 37.7 million mt but well below other private estimates that range from 38-42 million. No estimate was provided for 2023 Argentine corn. The world market has heard Argentine soy crop estimates of 36-41 million mt for several weeks now and is likely trading a crop of 38-40 million mt. To take the crop lower will demand the return of acute heat/dryness in the last half of February and March. Argentine weather will be closely watched, but Chicago appears to have digested a significant Argentine soy crop loss at this point.
  • Northern Brazilian soy yields are reported to be massive and are slowing the harvest but will likely cause an upward adjustment the crop in coming CONAB monthly reports. RGDS is too dry, and crop losses of 3-4 million mt are expected, but RGDS produces 21-22 million mt of soybeans while Mato Grosso produces 44-46 million mt (larger than Argentina)
  • The midday GFS weather forecast is slightly drier than the overnight solution, but our confidence in the GFS model stays low. Widely scattered showers will continue for another 12 hours, but the GFS forecast is once again under forecasting rain amounts/coverage. Showers are continuing across Central Argentina at noon. Following this rain, 8-9 days of dry weather follows. Near to above normal rain is forecast in the 10–14-day period, and we doubt that Argentina is slipping back into any dire drought.
  • The Brazilian weather forecast offers near to below normal rainfall across the North and improving rain chances for RGDS in Southern Brazil. An improvement in the harvest pace lies ahead.
  • The Argentine dryness is becoming too well known to be much of future bullish factor. More important is that Brazilian cash selling from recently harvested soybeans is active. Farmers are harvesting record soybean yields in the north and pushing that supply across the weigh scales. Today’s Chicago drop has not altered Brazilian farm sales. A bounce into the Chicago close is expected as the bulls hope for strong weekly sales totals from USDA on Thursday. As the Brazilian harvest advances, a liquidation break should occur by mid-February. We understand that Egypt has cancelled a corn tender on price.

31 January 2023

Posted on by
  • HEADLINES: New fund flows into Chicago reverses overnight losses; Cash basis sags in US; Argentine weather forecast little changed.
  • Chicago futures are mixed at midday with soybeans/corn/wheat enjoying another day of fund inflows. Managed funds appear to be putting additional money to work which showed up just after the reopening. We note that this money is being categorised as managed since it is index (long only) fund type money that can move between different commodities. This managed movement classifies it as managed money, not just as typical long only fund in raw materials. The index fund/long only positions as measured by the weekly CoT report has been steady/flat since the start of the year.
  • We look for a mixed close with March soybeans back targeting the contract highs at $15.50 while March corn ran up against resistance near $6.90. March Chicago wheat will find resistance at $7.80-8.00 with Russian fob wheat offers steady to slightly lower early this week.
  • Chicago brokers estimate that funds have bought 4,800 contracts of soybeans, 3,100 contracts of wheat, and 5,900 contracts of corn. In the products, funds have bought 2,900 contracts of soyoil while selling 1,900 contracts of meal.
  • The USDA/FAS did not announce any new purchases of US corn, soybeans, soy products or wheat in its daily reporting system. China has been securing US soybeans for their reserve, but those purchases have wound down as China must replace them following a reserve sale in 120 days. China soybean auctions ended in late summer. Minnesota, South Dakota, and Ohio crushers all dropped basis bids by 3-5 cents. US soybean crushers area again struggling with arctic cold which is slowing their daily run rates.
  • Statistics Canada will be releasing their December Grain Stocks report on February 7. We look for their all-wheat stocks to be 22.5 million mt (vs 16.8 million in 2022), canola of 11.6 million mt (vs 8.79 million in 2021), and oat stocks of 3.6 million mt (vs 1.87 million in 2021). It will be hard for the report to be bullish based on the comparisons in a drought year, and Canada’s import of US corn is also down accordingly. Canada has booked just 17 million bu of corn for import in 2022/23, down nearly 80% compared to last year. Reduced Canadian and Chinese imports are key reasons why we see 2022/23 US corn exports dropping to 1,800-1,850 million bu by the final WASDE count.
  • The midday GFS weather forecast is like the overnight solution, but our confidence in the GFS model is low. Widely scattered showers will break out Wednesday/Thursday, but the GFS is under forecasting rain amounts and coverage. We look for 0.25-1.25” on 60% of the Argentine crop area. Thereafter, a weeklong dry trend follows, but we doubt that Argentina is slipping back into the dire drought as La Niña collapses in the Equatorial Pacific. The next Argentine/S Brazilian rain chance is offered in the 11–15-day period. This rain chance looks solid on the midday run. Extreme heat is lacking which will help Argentine crop potential recover.
  • Leftover fund buying is underpinning Chicago corn, soybean, and wheat futures. Trying to gauge when the flow will end is always difficult. But the Brazilian soybean harvest is advancing and should reach 20% by February 10. A record soy crop looms and US export sales totals are in decline. If the rain for Argentina in the 10-15 day period is pulled forward in the forecast, soybean sellers will return.   February 1 starts the price averaging for the US crop insurance program. Watch for bull spread weakening and a rally of backend futures ahead of the USDA Outlook meeting in late February. This is no place to chase a rally and old crop corn/soy should all be sold.

30 January 2023

Posted on by
  • HEADLINES: Funds aggressively buy soybeans/soymeal on charts/China reopening; Wheat follows on fund short covering
  • Chicago futures are mixed at midday with soybeans/soymeal surging on new fund buying while wheat prices rise on short covering while corn sags. We look for a mixed Chicago close with traders noting that new fund flows are being witnessed in soybeans/soymeal. Charts can be the only reason why fund managers are putting new money to work into soybeans/soymeal at $15.25 and $480/ton respectively. Historically, investing on the long side of soybeans/soymeal has not produced a lasting payoff. The Chinese reopening trade has been popular for the past 2 weeks, but by midweek, we doubt that fresh inflows will be seen amid the war of world Central Banks against inflation. We look for a mixed Chicago close with traders eying future Chinese buying trends, Brazilian soybean yields and Argentine weather forecasts.
  • Chicago brokers estimate that funds have bought 7,800 contracts of soybeans, 3,900 contracts of wheat, and 3,200 contracts of corn. In the products, funds have bought 7,800 contracts of soymeal and 3,000 contracts of soyoil.
  • The USDA/FAS announced a daily sale of 112,000 mt of corn to Japan. US corn is competitive in the world marketplace through May, when S American corn will be more available and economic.
  • For the week ending January 26, the US exported 20.7 million bu of corn, 68.2 million bu of soybeans, and 16.4 million bu of wheat. For their respective crop years to date, the US has shipped out 473 million bu of corn (down 217 million or 31%), 1,322 million bu of soybeans (down 17 million or 1%), and 485 million bu of wheat (down 15 million or 3%). The US corn export pace needs to rapidly grow to have any chance of reaching the USDA annual estimate with the crop year half completed by the end of February.
  • China is securing Argentine soyoil for March/April with tonnages said to be nearing 100,000 mt. Sinograin is booking the soyoil for China’s reserve. The purchase further tightens world vegoil supplies and reflects the attractive cost position of S American soyoil. US Gulf soyoil is priced $0.14/pound above Argentina due to renewable diesel demand. The US is not competitive in the world market due to record large soyoil demand for green fuels. Traders will be closely watching to gauge if China adds additional forward coverage.
  • Chicago soymeal futures have rallied to new contract highs on speculative buying. Brazilian meal is trading $40/mt below the US Gulf for March/April and even Argentine soymeal is $23/mt cheaper for April Decatur soymeal on the rail is trading flat to $2/ton lower. The cash market is not the leader.
  • Northern and Central Brazilian soybean yields are massive, often record large by 4-8%. The yields have Brazilian farmers smiling with Chicago March futures above $15.00 and diesel prices in decline. Most Brazilian farmers are selling their soybeans off the combine, which will quickly fill the pipeline. There are 8 million mt worth of vessels waiting to load US soybeans, but that total is below that of recent years. This week the Brazilian soybean harvest will kick into a higher gear, but the massive crop will cause logistical strains.
  • The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model is low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks. The GFS forecast is missing showers/storms over Argentina late Wednesday/Thursday with rain totals of 0.25-1.25”. A weeklong dry trend follows, but we doubt that Argentina is slipping back into the dire drought of recent months as La Niña collapses in the Equatorial Pacific. The next Argentine/S Brazilian rainfall chance is offered in the 11–15-day period. No lasting extreme heat is forecast with soil moisture being the best in months following 2 storm systems that produced soaking Argentine rain over the past 2 weekends.
  • The China reopening investment flow is in full view today with soybeans/soymeal surging on large speculative buying. We doubt that the rally can be sustained amid the record large soy yields being reported across N and C Brazil. The speculative China reopening push should be completed by the start of a new month on February 1. Corn and wheat are lagging and likely nearing a trading top. Chicago values have been choppy for months and our advice stays the same – “Don’t chase rallies with new purchases”.

26 January 2023

Posted on by
  • HEADLINES: Chicago rallies on strong export sales and chart buying; Brazilian premiums fall; US cash sales uptick.
  • Chicago futures are higher at midday with better than expected US weekly export sales offering bullish fodder while a record large Brazilian soybean crop and new rain chances for Argentina acting as a bearish drag. The volume has been better on the rally vs. the breaks this morning.
  • The Chicago choppiness of late should persist. Grain values have been wildly swinging higher and lower this week with Argentine rain pressuring prices on Monday/Tuesday while the hope that China returns to the world raw material market with new buying following the Lunar New Year holiday rallying values late week.
  • We maintain that with spot corn/soybean prices at their second best level on record for the month of January, buying rallies is difficult with funds already holding a sizeable long position, and the US/world economic outlook darkening on rising interest rates in the Central Bank’s battle against inflation. The demand outlook stays soft, but funds are adding to their net long position on bullish chart patterns.
  • The USDA announced the sale of 106,000 mt of US soybeans to China for the new crop season, 2023/24. There are a modest 229,000 mt of new crop sales already on the books to China. Small to moderate sized Chinse crushers are starting to take some forward coverage, amid their ability to lock down margins with Dalian soymeal and oil sales.
  • Chicago brokers estimate that funds have bought 6,200 contracts of wheat, 11,800 contracts of corn, and 6,900 contracts of soybeans. In the soy products, funds have bought 5,100 contracts of soymeal, while being flat in soyoil. The funds have come out with active buying this morning.
  • US weekly export sales were better than expected. For the week ending January 19, the US sold 18.4 million bu of wheat, 35.8 million bu of corn, and 42.1 million bu of soybeans. For their respective crop years to date, the US has sold 589 million bu of wheat (down 43 million or 7% from last year), 784 million bu of corn (down 784 million or 45% from last year), and 1,710 million bu of soybeans (up 88 million or 5% from last year). We would argue that the USDA’s export estimate for soybeans is correct, while the US corn export forecast is overstated by 100-200 million bu. WASDE is likely to further adjust US corn export estimates lower in coming monthly reports. Feed wheat sales have undercut the opportunity for US corn to work into SE Asian feedstuffs.
  • Brazilian soybean export premiums have declined on the Chicago rally by 4-7 cents. Brazilian farmers are anxious to make cash sales knowing that their yields are above expectations. Northern Brazilian soybean farmers report actual harvested yields coming in 3-6% above trend and are often record large. We expect Brazilian soy yields to hold at similar strong levels through Parana.
  • The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model stays low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks.  The EU model is outperforming the GFS and will be out with its 10-day rainfall solution before the close. Showers should start to become more numerous later today and Friday with a slow-moving storm system with rainfall amounts of 0.5-2.00”. A second system is offered for mid next week. A third system is offered for the 11–15-day period.
  • These are not easy markets, don’t chase rallies or breaks is the best advice and keep risk small. A record large Brazilian soy harvest is underway which will pressure Chicago values as world demand switches to cheaper S American offers. Corn, soybean, and soymeal rallies will likely fail. And Mar Chicago wheat values are up against key resistance at $8.60-8.80.  The US and world Central Banks will continue to fight inflation, including food inflation with higher rates.  USDA adjusted upward their view on food inflation which is one reason why we suspect that rates will go higher for longer than many now expect. US farmers are rewarding the rally with old crop sales.

25 January 2023

Posted on by
  • HEADLINES: Chicago steady to higher at midday; Wheat leads on short covering.
  • Chicago futures are slightly higher at midday in thinning volume. Fund managers returned with new buying after the opening to protect large net long positions in corn, soybeans, and soymeal.
  • However, as the Chicago session advanced, that buying has waned. Some of the demand is due to positioning ahead the weekly export sales report to be released on Thursday morning. Another week of large corn, soymeal and hopefully soymeal sales is expected. It does not require much volume to push Chicago higher or lower. Questions abound as to Chinese demand in world corn, but for now, there does not appear to be any fresh interest. We maintain that China will be a buyer of Brazilian/Ukraine corn down the road, with only limited amounts of US corn from private TRQ buyers. The unknown sale this morning was not China’s Government importers and larger sales are needed to narrow the 760 million bu shortfall in US corn sales vs last year.
  • Improving S American weather and spot Chicago futures being at their second highest level on record does not argue for a sustained bullish Chicago run.
  • US ethanol production in the week ending Jan 20 totalled 298 million gal, up a modest 2 million from the previous week and right at the level needed to validate the USDA’s current industrial corn use forecast. However, net imports were recorded last week, which along with ongoing weak gasoline consumption allowed ethanol stocks to soar to 1,054 million gallons, up 2% year on year. Ethanol stocks building in mid-winter is seasonal, but we doubt a major drawdown in supplies occurs until mid-spring. The cash ethanol market this week, along with production margins, is flat.
  • Domestic corn, soy and wheat consumption is so-so. Greater emphasis will be placed on slowing export disappearance once S American harvests reach 40-50%.
  • India has confirmed the release of 3 million mt of stocks into the domestic market. This is a sign of supply fears there, but a record Indian wheat crop is likely to be harvested in April. India, like most importers, has managed to get by without discretionary imports. And world wheat trade begins to erode beyond February.
  • The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model stays low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks. We suspect that the model has a La Niña component that is still being used. La Niña is in fast retreat.
  • The EU model is far wetter and is outperforming the GFS. One storm system is passing through N Argentina and S Paraguay with 0.25-1.00” of rain falling. Showers should break out later tonight across Southern Argentina and persist into the weekend. Rainfall totals are estimated in a range of 0.5-2.00”. The best rain looks to fall on Thursday/Friday. A second system is noted for mid next week with similar rain totals. The rain will allow further soil moisture improvement. The 11–15-day forecast is drier with a new system shown in the week 3 forecast. The S American pattern has changed.
  • A bearish mentality prevails on rallies with corn, soymeal, and soybeans to pace the decline. We see soyoil as nearing an intermediate bottom. The wheat rally is based on short covering.

24 January 2023

Posted on by
  • HEADLINES: Mixed as Chicago tries to bounce following Monday’s lashing; Export demand lacking to keep the rally going.
  • Chicago futures are mixed at midday with the grains holding in the green while the soy complex sags on long liquidation and the coming harvest of a record large Brazilian soy crop. We look for a mixed close, but we doubt that Chicago corn futures can sustain the rally amid ongoing tepid export demand. The USDA announced the sale of US corn to an unknown buyer which is rumoured to be Japan. The window for an increase in US corn export sales has narrowed from March through mid-June. Thereafter, S America will again become the low-price seller to the world. We maintain that US 2022/23 US corn exports are overstated by 100-150 million bu which will add to old crop end stocks.
  • March soyoil is back testing key support below $0.61 while soymeal has tried to rally. However, US cash basis bids for soymeal are in decline with Central IL rail meal bid at even money. The weakening cash meal basis is narrowing the premium of March/May soymeal spreads. The soymeal and soybean markets have scored a longer-term top and oil share spreads should again start to perform. We would sell rallies as the supply bull market fades.
  • Chicago brokers estimate that funds have bought 6,100 contracts of wheat, 8,200 contracts of corn, and 3,200 contracts of soybeans. In the products, funds have bought 1,900 contracts of soymeal and sold 4,400 contracts of soyoil.
  • March soybean futures rallied and filled an open chart gap left from Sunday’s lower open due to better than expected Argentine/Southern Brazilian rainfall. That gap was at $15.04-15.06 March with a lower close today suggesting that further weakness lies ahead into the weekend. The downside price target is $14.45-14.65 nearby.
  • The economic outlook for the world economy is gloomy on rising rates in the Central Bank’s war against inflation. Rumours of Pakistan defaulting on palmoil cargoes while the private sector in Egypt struggles amid the falling Egyptian pound swirl. The sharp fall in world freight costs is due to slow charter bookings. World consumers are struggling on cost and diminished financing opportunity which is hitting commodity demand. USDA is forecasting no growth in 2022/23 corn trade for the first time since 2012/13. The data suggests that USDA will continue to trim 2022/23 world grain trade.
  • We have no way of knowing if China will return from their weeklong holiday with improved commodity demand due to its reopening. That is a bet being made. China was a sizeable buyer of US/S American soybeans in the first half of January, but since the weather is improving in Argentina/S Brazil, Chinese crushers may wait for cheaper prices amid the added supply potential.
  • The midday GFS weather model is coming around to the wetter thinking of the EU model solution. Moderate to at times heavy rain will fall across Argentina from late Wednesday into the weekend from a slow-moving storm system with rain totals of 0.4-2.50”. A few dry days follow with another system noted for the northern half of Argentina in the closing days of January and the first day of February. Additional rain will fall.
  • Near normal rain will drop across N and C Brazil which is ideal for late podding soybeans. And there are enough dry slots for N Brazilian farmers to advance their harvest. The forecast for leans favourable for S American crop yield/production.
  • It is a turnaround Tuesday with the supply bull market of recent weeks trying to fight for its existence. The supply bull will struggle against a lack of demand. The only positive of export demand is for renewable diesel, and soyoil is selling off on speculative liquidation.  We doubt that corn, soybean, or meal markets can sustain a lasting recovery with another 2 rounds of rain to drop across Argentina. A seasonal price high was scored last week. This no place to chase a rally and with March corn at resistance at $6.77-6.83.