16 September 2022

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  • HEADLINES: Wheat bounces as Putin says nothing has changed with war plans; GFS calls for dry/warm weather; US stock market falls hard on week.
  • Chicago futures are mixed at midday with corn, soybean, and wheat futures trading either side of unchanged on the pending ramp up of the Midwest harvest. Hedge pressure will be felt on the close with producers reporting that corn seed moisture is in fast decline while the soy crop is quickly yellowing/dropping leaves. The warm/dry weather of the first half of September has really helped to push crop maturity. Early corn and soybean yields are variable and below last year in most reports. How much of the yield decline was caught in the September Crop Report is something that traders will debate up into Oct 12, the next NASS report. The early harvest is finding its way into cash market and starting to refill the pipeline. Producers are hoping that Mother Nature stays kind with ongoing dry weather to help offset the high cost of drying.
  • We look for a mixed Chicago close with hedge pressure felt going home for the weekend. Spot cash basis levels are in slow retreat, and it will take time to refill the cash pipeline. Rally efforts are unlikely to hold.
  • We note the growing influence that US/world financial markets are having on Chicago/CME ag prices. These are macro, not micro ag markets, with the US Central Bank to raise interest rates on Wednesday September 21 by at least 0.75%. The war against inflation is real and is causing deflation in a host of asset prices. Already, the US stock market has lost an estimated $7 trillion in value, with real estate and raw material values in retreat. The message is that World Central Banks must punish asset values to control inflation and force demand destruction. The Fed’s mandate is 1) Stable prices and 2) Full employment. The mandate says nothing about lasting bull markets in equities, real estate, bitcoin, or commodities. We see a tradable bottom in US equity/commodity markets following the FOMC fed fund rate hike next week.
  • World corn/wheat and vegoil markets are all posting massive skews on FOB offers to importers. Ukraine corn is said to be offered at $0.20/bu under Chicago for October, while Argentine October corn is $0.35 over, Brazilian at $0.65 over and US October Gulf corn at $1.35 over. US corn is $1.00/bu more expensive than Argentine corn offers. In wheat, Russian 12.5% wheat is offered at $320/mt, with French wheat at $340/mt and US HRW wheat $428/mt and US SRW wheat at $375/mt. US wheat is overpriced relative to the world market with only residual demand expected going forward. US HRW wheat is $108/mt $2.95/bu more expensive vs. Russian and US SRW wheat is $0.95 more expensive vs. French.
  • And finally, US soybeans are more expensive than October offers of Brazilian and Argentine soybeans with Argentine soyoil being $0.19/pound cheaper and Brazilian soymeal being $19-21/mt cheaper. US export interest stays slow.
  • Chicago traders are focused on the value of the US$ and as the dollar came off its early highs, soy/grain prices bounced. Carefully monitor whether the US$ can score a new high following the hike from the Central US bank next week. The Brazilian Real has reached 5.29:$1.00 aiding their farm profitability as soybean the first crop corn seeding gathers steam.
  • There was limited change in the GFS weather forecast with below normal rainfall/warmth across the Central US into Sept 26. Showers will fall across IA/MO/MN on the weekend with totals of 0.1-0.8”. There is no sign of a frost/freeze or a Gulf Hurricane into Sept 27. The warm/dry open harvest weather bodes well for corn/soybean crop quality.
  • Chicago values are mixed at midday with summer row crop futures sagging. The 100-day moving average crosses at $14.51 in November soybeans and a close below this level would be bearish. We hold a bearish short term Chicago view with initial downside price targets of; $14.20-14.40 Nov soybeans and $6.60-6.70 Dec corn. Wheat seasonal price trends are positive with Russian President Putin suggesting that the recent pushback from Ukraine has not changed his war stance. This hints at an extended conflict. We look for short term tradable lows late next week on FOMC rate hike.

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

Weekend summary 16 September 2022

15 September 2022

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  • HEADLINES: Chicago sags on the onset of harvest amid slowing US export demand; China has now booked more than 50 cargoes of Argentine soybeans since Sept 1.
  • Chicago futures are mixed at midday with soybeans firmer and the grains lower. November soybeans initially fell below its 100-day moving average before recovering via a rally in soymeal. December corn futures are getting close to support at $6.60-6.70 with key support in November soybeans at $14.00-14.20. The wheat market has formed a key reversal down today with some of the selling tied to the ending of the rail strike. Feedlots were securing trucks to transit HRW wheat if rail corn became unavailable. Thankfully, a rail strike is being averted and the risk premium built into wheat is being diminished. We look for a lower Chicago close based on the oncoming harvest and lack of strong US export demand. China remains active in securing Argentine soybeans.
  • Macro financial markets are weaker as traders prepare for next week’s increase in US interest rates. Funds have sold 5,000 contracts of wheat and 3,700 contracts of corn and 2,300 contracts of soyoil. Funds have bought 3,400 contracts of soybeans and 2,300 contracts of soymeal.
  • Argentine fob soyoil is priced at a cheap $14.50 cents under Chicago. Cash traders are hearing that several US multinationals may import Argentine soyoil into the US. The Argentine soyoil cannot be used for renewable diesel production as it does not qualify for the credit, but it can be used on other areas including US food production. The acute cheapness of Argentine soyoil and soymeal should provide a pause in US soy product rallies.
  • NOPA reported a 165.5 million bu soybean crush rate, slightly less than the 166 that traders expected. Soyoil stocks dropped to 1.565 billion pounds, the smallest total since June of 2021 and down from 1.684 billion pounds last month. The NOPA data was seen as supportive of soyoil, but slightly bearish of soybeans. US processing margins stay strong which should encourage US crushers through the harvest.
  • FAS/USDA export sales totals were larger than expected in soybeans at nearly 125 million bu, while corn/wheat sales were as expected. For their respective crop years to date, the US has sold 929 million bu of soybeans (up 110 million or 11% from last year), corn sales stand at 484 million bu (down 483 million or 50%, with US wheat sales at 376 million bu (down 7 million or 2%). The US corn export sales pace is troubling with their being no sign of Chinese interest. China has been absent from the world feedgrain market for weeks. Some point to their own potential record corn crop and feeding of broken rice in animal feed rations as the rationale for avoiding corn/sorghum imports. We note that China has secured more than 50 cargoes of Argentine soybeans into January since Sept 1.
  • There was limited change in the GFS weather forecast with improving harvest conditions across the Central US. Showers will fall across the S and C Plains on Friday and the early weekend, but amounts will be less than evaporation with the harvest disruption being no longer than 1-2 days. There is no sign of a frost/freeze or a Gulf Hurricane into September 26. The time for cold weather damage is quickly passing for crops. The warm/dry open harvest weather bodes well for crop quality/yield.
  • The grains are sagging on long liquidation. The 100-day moving average crosses at $14.51 in November soybeans, and a close below this support would be prove to be bearish. We hold a bearish short term Chicago view with initial downside price targets at $14.20-14.40 Nov soybeans and $6.60-6.70 Dec corn. KC wheat likely forged a short-term top overnight with a correction underway. Seasonal price trends are positive, but Russian fob wheat offers are expected to keep falling on their oversupply. US cash basis bids are strong and forward future’s offer no return to storage; farmers are advised to sell strong rallies as US export demand worry looms. The US$ will continue to push higher.

14 September 2022

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  • HEADLINES: Summer row crops sag on liquidation ahead of weekly export sales report and US rail strike; Wheat rallies on fund buying.
  • Chicago futures are mixed at midday with the summer row crops sagging on the fast-approaching harvest and strong macroeconomic headwinds regarding demand. End users and importers are staying close bought on future needs with US domestic end users concerned by the pending US rail strike. The movement of ethanol and soy products would be greatly impacted if a rail strike lasted more than a few days. Traders worry that with harvest dead ahead, snarls of the supply chain add to future inflationary worry, with (even) higher interest rates the result later this year and through mid-2023.
  • US interest rate futures are already digesting a US fed funds rate of 4.4-4.5% with talk that the US Central Bank may have to increase their lending rate above 5% in 2023 to cool wage and inflationary price pressures. We see demand as the future worry of CME grain/livestock markets. Future rallies will be tied to US grain supply shortfalls. This means that a top in Chicago should be scored between the September and October USDA crop reports.
  • USDA will release their September Stocks in all positions report on the 30th with the October USDA crop report scheduled for October 12. Following October 12, it will be up to adverse S American weather to push Chicago values even higher with US export demand to be questioned with normal Brazilian weather. Please note that Argentine farmers can seed their first corn or soybean crops well into yearend, so the window is wide to get seed in the ground. We mention this since dryness is already impacting the area with soil moisture at its lowest level in 27 years, since 1995. The problem is that Argentine soil moisture and yield has limited or no correlation in the middle of September.
  • The US PPI Report this morning showed that inflation likely reached a peak in July, but that it is not receding as fast as desired. Economists suggest that US inflation is being “sticky” which is why the US Central Bank keeps talking rates higher for longer to make sure that an embedded inflationary mentality does not go mainstream. The August PPI excluding food and energy was up 0.4% in August, not the decline that many market pundits were hoping for.
  • US gasoline consumption as down 4%, an improvement from last week’s fall of 9%, but US gasoline consumption is not keeping up with last year’s usage pace, a sign of waning demand. US ethanol production fell to 283 million gallons.
  • This week’s ethanol production was up 3% from last year. Amid all the plant maintenance planned for late September/October, we look for weekly production to fall near weekly gasoline consumption. We see the 2022/23 corn grind as falling below last year by 50-75 million bu due to sagging margins. The US Government has decided to refill the SPR (Strategic Petroleum Reserve) below $80/barrel, a big surprise!
  • There was limited change in the GFS weather forecast with improving harvest conditions across the Central US. Some rain will fall across the S and C Plains, but amounts will be less than evaporation. There is no sign of a frost/freeze or a Gulf Hurricane into September 25. The time for cold weather damage is quickly passing for crops.
  • Summer row crops are sagging as chart buying faded after the opening. The 100-day moving average crosses at $14.51 in November soybeans, a key level that acted to accelerate Monday’s rally. We fear that the Biden Administration nor Congress will halt the rail strike until the public outcry becomes too loud to ignore. It is ethanol and both soy products that would be the most adversely impacted heading into harvest. We hold a bearish short term Chicago view with initial downside price targets at $14.20-14.40 Nov soybeans and $6.60-6.70 Dec corn. KC wheat is higher on dry Plains weather forecasts and worry that if rail shipments stop, that HRW wheat feeding could return.

13 September 2022

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  • HEADLINES: Chicago mixed as bearish macro-economic trends battle post report chart buying; Argentine farmers sell more soybeans.
  • Chicago futures are mixed at midday with August US inflation data causing doubt that a pivot from the US Central Bank (or any Western World Bank) will occur anytime soon. The US August inflation rate was an unacceptable 8.3% year on year with food inflation surging more than expected. Month on month US food inflation rose 0.6% which hardens the Fed’s inflation fight. And there is no relenting in US food costs. And rising Chicago values make the fight difficult.
  • Future food inflation will be sticky with the US Central Bank likely to embroiled in its inflation fight well into mid-2023. We see the core inflation rate falling to 5.5-6% by yearend, but this a long way from the US Central Bank’s target of 2%. Historically, the US Central Bank must raise its fed funds lending rate 2% above the rate of inflation for it to cool. That suggests numerous future rate hikes and slowing of US/world economic growth. It is the slowing of grain demand that troubles us.
  • The US$ has rallied sharply on the US August inflation data and movement of US lending rates to the upside. The yield on the 10 Year US Treasury is near 3.5% with the 2-year yield likely to reach 4.0% (currently trading at 3.77%). The rising US rates affords investors an alternative to equities. Cash is a new asset class. The US DOW is down 800 points.
  • The rising US$ makes goods/grains/metal more expensive to importers. We hear of very limited interest in US Gulf corn, soybeans, or wheat. Elevation costs are high and when soybeans/corn are priced back to a local currency, the cost is immense. World importers will stay hand to mouth in their purchases.
  • S American corn basis is weakening with Argentina offered at $0.20 over Chicago while Brazilian corn is offered $0.60 Chicago. This compares to US Gulf corn at $1.45 over for October/November/December. And the Ukraine grain export corridor is working with their offers for spot cargoes even cheaper. Chicago corn has acted heavy since the report was released due to keen competition from overseas sellers. US corn export demand is soft.
  • Goldman Sachs is out telling its clients that they expect China will maintain its zero covid policy well into 2023 (March at least) which will continue to produce a headwind for future economic growth. This will impact ag import demand with grain/soy demand likely reduced from past year levels.
  • Argentine sources report that farmers there have sold 650-750,000 mt of old crop soybeans today following the Chicago rally. The sale has allowed China to secure another 4-6 cargoes of soybeans for October/November. The new soybean Peso rate and Chicago rally sparked windfall profits for Argentine farmers.
  • Corn prices are starting to eat into US ethanol producer’s profitability. Older US ethanol plants are posting negative margins and will close for maintenance. US grind rates are expected to decline in future weeks. A push in December corn to $7.10-7.25 would produce red margins for even newer plants.
  • Chicago brokers estimate that funds have bought 5,400 contracts of wheat, 4,900 contracts of corn, and 5,500 contracts of soybeans. Funds have sold 1,200 contracts of soymeal and 1,500 contracts of soyoil. This is chart buying.
  • There was limited change in the GFS weather forecast with improving harvest conditions across the Central US.
  • Chicago soybeans above $15.00 November and December corn futures above $7.00 offer sales opportunities as funds add to existing net long positions. The US and world economic outlook is weakening. S American and Chinese soybean crush margins are deeply negative while the US crush rate is sliding amid the fear of a rail strike. Most of the US ethanol, soyoil and soymeal production moves by rail. And a new US harvest looms with additional cash supply to reach the marketplace. It is the bearish macroeconomic outlook and potential for a record large Brazilian soy crop which pushes us to now be a seller of Chicago rallies. The only market we want to be careful of being too bearish is wheat where funds are holding a sizeable short position. World wheat demand stays very slow.

12 September 2022

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  • HEADLINES: USDA September report bullish on acres and yield; EU corn crop cut to 58.8 million mt, Ukraine corn crop raised to 31.5 million mt.
  • The September USDA Crop Report was bullish with corn/soy futures soaring on cuts in planted/harvested acres and yield. NASS cut US corn harvested acres by 900,000 acres to 89.5 million acres with soybeans cut 600,000 acres to 87.2 million acres. This combined with a cut in the US corn yield of 2.9 bushels/acre to (172.5) and a cut in the soybean yield of 1.4 bushels/acre to 50.5, which produced crops of 13,944 million bu of corn (down 415 million) and 4,633 million bu (down 138 million) of soybeans. History is in the side when a US crop declines from August to September, the decline continues into October. China is on holiday, but we doubt they will chase the rally with crush margins negative.
  • WASDE dropped their US 2022/23 corn end stocks to 1,219 million bu with a stocks/use ratio at 8.5%. USDA cut total US corn demand by 250 million bu including a decline in feed/residual and exports (100 million bu each) and a 50 million bu cut in the US corn ethanol grind. WASDE raised their annual US farmgate cash corn price to $6.75/bu. The USDA September report is bullish and argues that December corn should score a seasonal price high of $7.10-7.30 with key support noted under $6.40-6.50. Longer term, it is US corn export demand that will determine the amount of demand rationing that is occurring. The Iowa corn yield was pegged at 200 bushels/acre with Illinois at 204 bushels/acre.
  • World 2022/23 corn production was pegged at 1,172 million mt, with the Ukraine corn crop raised to 31.5 million mt with their exports raised to 13.00 million, up 500,000 mt. The EU corn crop was cut to 58.8 million mt with imports unchanged at 19 million.
  • The US soybean crop at 4,633 million bu included yields of 59 bushels/acre in Iowa and a record 64 bushels/acre in IL. The smaller crop caused WASDE to cut 2022/23 US soybean demand by 93 million to 4,433 million bu, up 7 million from last year. The breakdown of the demand cut was 20 million of crush, 70 million of exports, and a 3 million cut in the residual. We would argue that WASDE is too high on 2022/23 US soybean exports by 25-75 million bu which will add to end stocks. The US soybean end stocks of 200 million bu argues for a price range of $13.50-15.00. We doubt that a rally in November soybeans can be sustained above $15.00 at harvest.
  • USDA’s wheat updates were mixed, and it remains that Black Sea balance sheets continue to loosen while the non-Black Sea exporter balance sheet tightens. WASDE raised 2022 Russian output 3 million to 91 million mt and raised Ukrainian production 1 million mt to 20.5. However, combined Russian and Ukrainian exports were left unchanged. Russian 2022/23 wheat end stocks are now pegged at 15.4 million mt, the largest since 1990 and final Russian production is very likely to be raised another 3-5 million mt. Large Russian stocks will hang over the marketplace well into the second half of 2023.
  • Non-Black Sea exporter stocks were trimmed another 350,000 mt, with non-Black Sea exporter wheat stocks/use forecast at a newer record low 12.2%. Wheat feed consumption in Europe was raised a full 1 million mt as corn production there is trimmed further and as domestic wheat prices in Europe are competitive with corn and feed barley.
  • The US wheat balance sheet was left completely alone. Export shipment data is so far aligned with the USDA’s annual 825 million bu export forecast. It is USDA protocol to not touch US production in its Sep WASDE as NASS will release final US wheat production on Sep 30. Ongoing uncertainty in the Black Sea sustains a wide-swinging market, but there is little doubt N Hemisphere acreage expansion is needed to boost stocks in 2022/23.
  • Soybean acreage/yield data was a surprise, but otherwise harvest yield reports drive price direction over the next 30 days. The outlook leans positive into mid-autumn, but once US crop sizes are known, a correction is probable unless adverse dryness continues in Central and Northern Brazil into late October.
To download our USDA Data Recap as a PDF file please click on the link below:

9 September 2022

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  • HEADLINES: Sharp rally on momentum and short covering; Resting orders above the market lacking; Key USDA report due Monday.
  • Short covering a new fund buying has lifted Chicago futures into the noon hour to sharp daily gains. Wheat/corn have been the upside leaders as doubt builds about the flow of Ukraine Grain Out of the 3-port export corridor with a key USDA Crop Report looming on Monday. And the US harvest maybe ahead, but there is a history that when August to September corn and soybean yields decline, that they drop further in the October Report about 70% of the time. The mantra of a small crop getting smaller will be heard if US corn/soybean yields decline as the average trade estimate indicates. And farmers are showing limited desire to sell new crop supply, less certain about their own yields. The point is that the market’s focus is all on supply and future potential for tightening US corn/soybean stocks.
  • US cash markets stay strong with corn in demand in the Plains and W Midwest. Basis levels are refusing to break with end users on the hunt for new crop supply. The harvest will start late next week, but full throttle Midwest cutting will have to wait until late September or early October. As such, refilling the pipeline has been arduous with soybean crushers, livestock producers and ethanol grinders all fighting for early new crop supply. Cash basis bids should continue to gain and push US farmers to cut crops early.
  • Chicago brokers estimate that funds have bought 6,500 contracts of wheat, 6,000 contracts of corn and 5,100 contracts of soybeans. In the products, funds have bought 2,100 contracts of soymeal and 2,300 contracts of soyoil.
  • Argentina has been a massive seller of cash soybeans this week as the Government encouraged producers to sell hoarded beans at a Peso rate of 200:1. Cash sales through today are estimated at 3.6 million mt or nearly 20% of estimated stored stocks. The Argentine soybeans have flowed into crush plants and export facilities with China said to have bought 19-23 cargoes for October/November in recent days. China appears willing to secure any/all soybeans away from the US when offered. China has also booked as many as 10-12 cargoes of US soybeans and upwards of 20-24 cargoes from Brazil for February-March. The Argentine soybean Peso rate has proved remarkable in prying old crop supplies from farmers. The impact will be one of reduced US soybean export opportunities longer term.
  • Indian wheat/rice prices continue to rise amid tightening supplies. The Indian Government has placed a 20% duty on rice exports which has trapped as much as 1 million mt of wheat at port with exporters unwilling to pay the new duty. We believe that Indian 2022 wheat production is in a range of 92-95 million mt which must facilitate 4-6 million mt of wheat imports (mostly Russian wheat) in Q4. Russia has a massive wheat crop of at least 92 million mt, but the economic sanctions of the west are hobbling exports. Wheat stays a highly charged political market with headlines directing day to day price action. But as non-Black Sea export supplies tighten, US wheat will muster a seasonal recovery into November.
  • The midday GFS weather forecast is wetter than the morning run across Iowa/Minnesota but is otherwise unchanged. Light/moderate rain will move across the far E Plains/W Midwest this weekend as low pressure sinks southward into Wisconsin. Rain totals of 0.25-1.50” are offered to WI, N IL, and IA/MN. Temperatures cool this weekend and then warm back to more seasonal levels late next week. We look for steady US corn/soybean crop ratings on Monday.
  • The USDA September Crop Report looms on Monday, and a sizeable market reaction is expected. We would see rallies near or above $7.00 December corn and $14.40 or above in November soybeans as offering new cash selling opportunities. Our future concern is US export demand if Brazil harvests record large corn/soy crops in 2023. Wheat price direction hinges on the Ukraine export corridor and the amount of wheat that India purchases later this year. Unless S American endures a worsening drought (Argentine dryness is already acute), the risk is smaller US corn/soybean and wheat exports allows US 2022/23 stocks to rebuild.

8 September 2022

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  • HEADLINES: White House expects Ukraine export corridor to stay open; EIA ethanol grind starts new crop year robustly; GFS weather forecast adds rain for IA/E NE.
  • Grain futures are lower at noon with selling noted across Chicago. News from the White House that it did not see the Ukraine Grain Export Corridor deal unravelling helped sink values. This White House Statement was contrary to recent comments from Russian President Putin and Turkish President Erdogan, which suggested that Ukraine grain was not feeding the world’s impoverished with grain flowing to rich western nations like the EU.
  • Whether the Ukraine Export Corridor stays open or closed is a big deal to the longer-term outlook of Chicago grain values. Putin seems to be taking aim at both EU energy/feed supplies. And Russia is back to demanding that NATO drop all economic sanctions so that Russian grain exports can move unfettered. We do not believe that such a Russian demand will be fulfilled or even considered.
  • Our guess is that Russia will not renew the 120-day Ukraine Grain Corridor Pact in November. Moreover, vessel owners will not be willing to place their ships at risk of a long costly period of demurrage if Putin decides to quickly close down Ukraine exports. The growing political uncertainty that surrounds Ukraine will act to slow corridor grain trade. Corn should be the most bullish world grain should the corridor be closed once again. Ukraine desperately needs to export old crop corn to free up storage for the new crop harvest.
  • Chicago brokers estimate that funds have sold 5,000 contracts of wheat, corn, and soybeans (each). And have sold 3,500 contracts of soymeal, while being flat in soyoil. Managed money is on the sell side of the marketplace.
  • China has used the recent Chicago move to add to their forward coverage with new November/December purchases of 5-7 cargoes of US soybeans. China is a buyer of US soybeans on scale down basis, but they have also booked at least 8 cargoes of Brazilian soybeans for February/March at the same time. Look for FAS to announce daily sales of US soybeans to unknown or China on Friday/Monday.
  • USDA/FAS will restart their export sales reporting a week from today on the 15 September. 3 weeks of sales will be offered in what will be seen as a “data dump” which will help the industry measure demand since the last week of August.
  • Weekly US ethanol production started the new crop year off strongly with a gain of 6 million gallons from last week and up 7% from last year. Seasonally, US ethanol production should ramp up into November. However, US gasoline consumption was down 9% from last year, which continues to be a bearish demand surprise with US ethanol stocks up 13% year on year. The US needs to see gasoline consumption expanding.
  • Argentine cash soybean selling has slowed following 2 days of active sales with the total reaching just over 3.00 million mt. Commercials report that sales today will be closer to 600-700,000 mt. The movement has helped refill the pipeline with China rumoured to have bought 4-5 cargoes for October shipment.
  • The midday GFS weather forecast is wetter than the morning run across Iowa/Minnesota and E Nebraska but is otherwise unchanged. Light/moderate rain will move across the far Plains and Midwest Sun-Monday as low pressure sinks south into the Midwest. Rain totals of 0.25-1.50” are offered to WI, N IL and portions of IA/MN. Temperatures stay abnormally warm this weekend then fall to more seasonal levels next week. The Southeast US will be wet amid an active flow of Gulf moisture, but there is no indication of Gulf/Atlantic hurricane activity.
  • The USDA September Crop Report looms on Monday, and a sizeable market reaction is expected. We would see rallies near or above $6.90-7.20 December corn and $14.40 or above in November soybeans as offering cash selling opportunities. Our future concern is US export demand if Brazil harvests record large corn/soy crops in 2023. Wheat price direction hinges on the corridor and whether it stays open or closed.

7 September 2022

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  • HEADLINES: Row crops sag amid Chinese demand issues; Wheat adds geopolitical risk premium.
  • Chicago ag futures are mixed at midday, with corn and soy unable to shake negative economic concerns and plunging energy markets. Wheat’s been the clear leader as an extension of the Black Sea export corridor is in jeopardy, with recent Ukrainian military advances giving the Kremlin pause with regards to aiding the Ukrainian economy longer term. There is no concrete news on corridor extension/elimination, but wheat markets worldwide will remain incredibly sensitive to even potential adjustments in global grain flows. Spot WTI crude is down another $4.20/barrel at $82.70. RBOB gasoline has fallen to $2.27-2.32/gallon for autumn delivery, which is now near parity with cash ethanol quotes.
  • Today’s action in wheat is a reminder that non-Black Sea wheat exporter stocks/use will be (by far) record low in crop year 2022/23, even assuming Russian shipments of 40+ million mt and Ukrainian exports of 10. The market has been unwilling to embrace this particular balance sheet (non-Black Sea exporter) as vessel movement in Ukraine increased as Russia’s cash market was beginning to attract importer interest. But the need to ration supplies will be triggered in Russia, while combined Canadian, Australian, and Argentine wheat stocks fall to dangerously low levels.
  • We estimate that managed funds this morning were short a net 18,000 contracts. This position is being trimmed this morning. Paris milling wheat futures look to settle €9.50-10.50/mt ($0.27/bu) higher, with spot EU corn up €7-8/mt.
  • US exporters sold 227,000 mt of corn to Mexico for 2022/23 delivery and 30,500 mt for 2023/24.
  • Yet, energy markets continue to reel from lagging demand growth, particularly in China, which shows no signs of ending amid their unwavering zero tolerance Covid policy. Chinese crude oil imports in August totalled 9.5 million barrels per day, down 9.4% year on year. China’s August soybean imports totalled 7.2 morning, down 2.3 million (25%) from the previous year. This is generally in line with USDA’s annual Chinese soybean import forecast of 90 million mt, down 9.8 million from 2020/21. We note that the USDA projects Chinese soybean imports to grow by 8 million mt in 2022/23, and the likelihood of this occurring will be a principal driver of soy values in the long run.
  • The US and Brazil will split whatever China’s total soy import demand is over the next 11-12 months and closer attention will be paid to the arrival of the wet season in Central and Northern Brazil. 7-day forecasts keep S American precipitation confined to RGDS and Parana in far Southern Brazil, but extended range forecasts allow light/moderate rain to impact Mato Grosso do Sul and Mato Grosso beginning Sep 15. All that is required is enough moisture for germination.
  • The midday GFS weather forecast is wetter than the morning run across the Great Lakes region but is otherwise little changed. Light/moderate rain will move across the far Plains and Midwest Sun-Mon as low pressure sinks into the E Midwest/mid-South. Totals of 0.25-2.00” are offered to WI, IL and portion of IA and MN. Temperatures stay abnormally warm into the final part of the month. The Southeast will be wet amid an active flow of Gulf moisture, but there is still no indication of Gulf/Atlantic hurricane activity.
  • Wheat’s chart has turned more positive, and it is difficult to overestimate the importance of Black Sea exports, particularly in mid/late autumn. Corn and soy price discovery in the near term will hinge upon US supply. Corn has a story if US yield drops below 171-172 bushels/acre, while beans will struggle above $14.40-14.50 without a threat to S American production.

6 September 2022

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  • HEADLINES: Corn rallies on smaller crop potential; Soybeans decline on Chinese demand concern; Wheat follows.
  • Chicago grain futures are mixed at midday with corn/wheat higher while soybeans sag on chart-based selling amid a steep fall in soyoil. November soybean futures fell back under $14.00 while December corn rallied to $6.71. The volume of trade has been modest with few traders wanting to add to their risk profile ahead of next Monday’s USDA/NASS September Crop Report.
  • The new crop soybean/corn ratio has dropped to 2.08:1, and it will likely fall under 2:1 as the market encourages farmers to consider seeding additional feedgrain acres to offset the crop losses in the US/EU due to adverse weather this past summer. The world needs additional feed supplies. However, there is an abundance of Black Sea feed wheat should export channels stay open.
  • And as corn prices rise, it underpins the price of HRW wheat as strong Plains cash premiums for corn make wheat feeding economical. In general, Chicago holds a domestic focus into the USDA September Crop Report. Once the 2022 US corn/soybean crops are determined, the market’s focus will shift to demand. Unfortunately, with the US$ at a multi-decade high and the world/US economy slowing, recent year “bullish demand” for US grain/soy demand is lacking. Russia keeps cutting its offered price of fob wheat and Ukraine of fob corn, which pressures Brazilian fob corn offers. We would argue that US corn, soybean/wheat 2022/23 exports are overstated.
  • Chicago brokers estimate that funds have sold 6,500 contracts of soybeans, 3,900 contracts of soymeal and 5,700 contracts of soyoil. In the grains, funds have bought 7,400 contracts of corn and 2,800 contracts of wheat.
  • FGIS/USDA export inspections for the week ending September 2 were 20.4 million bu of corn, 18.2 million bu of soybeans, and 17.5 million bu of wheat. All were light compared with expectations. The old crop year has ended for US corn/soybeans sorghum with the Census Trade report out on Wednesday for July. It is now Census export data in July and August that will determine final US 2022/23 exports. We maintain that the USDA is modestly too high on both corn/soybean exports.
  • Brazil’s Parana has seeded 22% of its first corn crop with the crop reported to be 99% in good/excellent condition. Initial spring weather conditions have been favourable to early crop establishment. Mato Grosso weather has been more arid, and farmers report that although soybean seeding starts on September 15, they will wait another week for germinating rains to return. Mato Grosso rains occurred in the third week of August, and now the forecast looks arid for the next 10 days.
  • China will be on their autumn holiday this weekend and early next week. The holiday will push Chinese buying of US/S American soybeans into late week. Chinese buyers will be on holiday next Monday, the day of the USDA September report. We note that many Chinese will spend “staycations” with travel dramatically restricted by zero covid restrictions across much of China.
  • The midday GFS weather forecast has pushed the chance of weekend rains further east into WI/MI and Northern IN with rainfall totals of 0.25-1.50”. The W Midwest and the entire Plains are dry with late season warmth.  High temperatures range from the 70’s to the mid 90’s which will quicken crop development. The S Midwest corn harvest will start to gather speed next week. There is no indication of threatening tropical weather or a frosty end of the 2022 growing season through September 20.
  • Corn is back testing last week’s high on the ongoing dryness across the W Midwest/Plains while the soy complex sags on sluggish Chinese demand and the potential that the US/Brazil could both harvest record large crops. China’s zero covid policy is causing a deterioration in its economic outlook. China Q3 soymeal use is estimated to be down 5%, with the fear being that such slow domestic meal demand will push into Q4 and 2023. We hear of widening reports of White Mould/Sudden Death Syndrome (SDS) in Midwest soybeans. We would see a push to new highs in corn and a rally above $14.50 November soybeans as setting up a cash sales opportunity. Chicago wheat values look to be sideways on Russia’s massive supply.

2 September 2022

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  • HEADLINES: Chicago higher on correcting US$/strong crude oil; Volume restricted by the holiday;  weather forecast has wetter E Midwest weather.
  • Chicago grain futures are higher at midday in thinning pre-holiday volume. Corn, soyoil and wheat are the upside leaders as macroeconomic concern is diminished following the US September Employment report. The report was neutral with 315,000 non-farm payrolls added to the workforce, but importantly, wage pressures grew just 0.4% and there were older workers pulled back into employment. To ease inflationary pressures, additional goods and services are needed along with expanded productivity.
  • We see the September Jobs Report as being broadly neutral. We doubt that it changes the FOMC’s mind on a 0.75% hike on September 22 to 3-3.25%. The US Central Bank wants to get ahead of inflationary expectations and keep pressure on price by slowing demand. However, financial markets have taken a beating in recent days and heading into a 3-day weekend, a rally makes sense as traders cover shorts.
  • Russian FOB wheat offers have declined for weeks. The downtrend quickened this week on 11.5% protein wheat offered at $289/mt and bid at $285/mt. The Russian wheat export pace will reach 3.8-4.0 million mt in September, well below prior years. The Russians complain that sanctions are inhibiting their grain export pace. It is ocean freight operators and the SWIFT banking system of smaller Russian banks that are causing the slowness. Some Russian watchers wonder if the tepid Russian grain export pace does not cause Putin to back out of the corridor deal when up for review in mid-November. The trade will be closely watching the renewal amid cheapening Ukraine corn/wheat offers that provide competition for the Russian exporters.
  • China’s economy continues to stutter as its political leadership shows no willingness to end their zero percent Covid tolerance ahead of the Party Congress in mid-October. As temperatures cool, the incidence of Covid is expected to increase with additional lockdowns anticipated. Recent history shows that China’s economic woes have slowed their purchases and imports of grains and oilseeds. However, hog feeding margins are in the black which could help slow the decline. The key to understand in China is when will confidence be restored to the economy/population. Their supply lines in livestock will need to be refilled at some point, and when they start will be important to Chicago prices. We hear that Chinese supply chains are nearly exhausted on the bearishness that prevails their economic outlook.
  • The midday GFS weather forecast is wetter than the overnight run for the E Midwest as Gulf moisture is pushed north into a passing cold front late next week. The forecast is arid through Thursday before the rain arrives.  Light showers will fall across the Midsouth/S Midwest this weekend. Above normal temperatures will blanket the entire Central US throughout the next 10 days. Tropical Storm Danielle has no chance of making US landfall and two additional disturbances are forecast to move northeast prior to hitting the US Coast.
  • Selling pressure is easing from macro market concern with the US$ weaker and crude oil higher today. Hedge funds sell commodities amid a rising US$ as the US Central Bank raises rates. We see today’s US$ weakness as a correction on profit taking. The USDA September Crop Report is now 4 trading days away, and few will want to take any new positions until the US corn/soy yield is better determined by actual field surveys. We would position to sell cash corn/soybeans on a bullish NASS crop report amid recessionary economic worry. And the Midwest harvest is ahead.
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