1 June 2022

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  • HEADLINES: Grains extend collapse on Ukraine export hope; Soybeans add premium; Egyptian wheat line-up leans supportive.
  • Chicago ag futures are mixed at midday, with the soy complex finding support on new soybean export demand and with grains collapsing on continued expectations that old crop Ukrainian corn and wheat supplies will be given safe passage through the Black Sea. More and more media outlooks are reporting on efforts to boost Ukrainian exports amid next week’s scheduled meeting in Turkey, with the assumption this week that a deal will be passed. Yet, there is nothing new or concrete available this morning and we highly doubt that Russia will capitulate without demand the lifting of sanctions. Long liquidation makes sense as geopolitical risk is elevated, but current corn and wheat values worldwide are assuming that Black Sea grain flows will be closer to normal this summer, which is a dangerous and potentially incorrect assumption.
  • Should Russia’s blockade of Ukrainian ports in the Black Sea be ongoing, premium will be added swiftly and violently as millions of tonnes of potential Ukrainian exports will remain absent from the world marketplace. We caution against chasing daily breaks and rallies until clarity emerges over Northern Hemisphere crop potential.
  • US exporters this morning sold 132,000 mt of soybeans to China, half of which is designated for old crop delivery. Argentina soybean offers have disappeared, while Brazilian offers have become increasingly difficult to find August onward. As has been the case all season, spot fob basis in Brazil exists at a rather wide $0.25/bu to the US Gulf. Pace analysis continues to suggest USDA’s 2021/22 US soybean export forecast is 75-100 million bu too low. Large cancellations are needed immediately if USDA’s number is to be proven correct, but cancellations are not anticipated as there are simply no meaningful alternative oilseed supplies.
  • Following liquidation today, we estimate managed funds are net short 11,000 contracts of Chicago wheat. Net fund length in corn is estimated at 240,000 contracts, vs. 291,000 last Tuesday and which is the lowest since October. Sell orders were compounded once July corn fell below early May’s low and as Sep Chicago wheat fell below its 50-day moving average.
  • Grain markets are in their third day of being dominated by Black Sea conflict headlines. There is no point in dismissing the flow of money in the short-term, but there has been no fundamental change in the marketplace. The European weather forecast at midday maintains needed rain in N France this weekend but the return of warmth/dryness thereafter. The cheapest wheat offer made to Egypt’s GASC was Russian origin at $439/mt. The cheapest non-Russian offer (Romanian) was $445, or some $10-15 above best guesses on German and Baltic fob prices. This price line-up leans supportive physical wheat prices.
  • The midday GFS weather forecast is slightly wetter than the morning run across the Southern Midwest. An active pattern of precipitation will be in place across all but the far Northern Plains into mid-June amid a fast moving zonally flowing jet stream. Light but steady showers will trigger two-week cumulative rainfall of 3-5” across large swaths of the Southern Plains and Eastern Midwest. We would note that NOAA is testing a new computer with today’s midday release and will again at unspecified times in the future, which may trigger sizable run-to-run changes. This is not the case today, but this will only add to weather-based volatility beginning mid-month.
  • We have previously discussed that even the minor addition/subtraction of global supplies will produce incredible price moves throughout 2022. This week is dominated by hope that supplies will be increasing via Ukrainian exports. Ukrainian supplies are needed to stave off further increases in food costs, but corn and wheat are undervalued if a deal cannot be reached in the weeks ahead. Clarity is awaited before new positions are advised.

31 May 2022

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  • HEADLINES: Month end selling combines with a Russian/Turkish June 8 meeting on Ukraine grain exports; Fund sales large.
  • It is the end of the month and Chicago grain futures are sharply lower at the noon hour. The volume of trade has been modest, and it does not take much of an order flow to push Chicago values around. The fund selling started in wheat overnight with the Kremlin suggesting that Russia could allow a Ukraine grain export corridor with the Turks being the chaperones and counters of the grain.
  • We hear that Russia continues to demand that the west lift economic sanctions, before such a grain export corridor can become a reality. However, the Turks will be holding a meeting with Russian Foreign Minister Lavrov on June 8 to discuss the issue. No timeline is being set for a decision, yet most put the chance for a corridor export deal as extremely low as Ukraine does not want the mines cleared so that Russia can assault its ports via Russian warships, and Russia wants the west to drop economic sanctions. The bulls seeing the export corridor decision timeline pushed out to June 8 were Chicago sellers. The “will they/won’t they” back and forth on Ukraine grain export corridor has created acute market volatility, it is all about the next headline.
  • For over a week, Chicago grain markets have been directed by Ukraine grain export corridor headlines. Ukraine is at war with Russia and trust between the two is rock bottom low. The US/UK/Australian Navy’s would have to get involved for a Ukraine grain export corridor to be successful and for Ukraine to be assured that Russia will not be amphibiously attacked. US/UK/Aussie warships will not be allowed into the Black Sea by Russia. Unfortunately, it remains a long shot that a Ukraine grain export corridor will be established, but in markets lacking resting orders, it only adds to Chicago volatility.
  • Funds have sold 9,300 contracts of wheat, 12,900 contracts of corn, and 11,600 contracts of soybeans. In the products, funds have sold 5,400 contracts of soymeal and 3,700 contracts of soyoil.
  • US export inspections for the week ending May 27 were 54.7 million bu of corn, 13.9 million bu of soybeans, and 12.6 million bu of wheat. For their respective crop years to date, the US has shipped out 1,664 million bu of corn (down 17% or 350 million), 1,817 million bu of soybeans (down 13% or 264 million), and 735 million bu of wheat (down 196 million or 21%). Every importer is keeping close bought on their future need due to high prices and the hope for a Ukraine export corridor. If an export corridor is not established, a rush for supply will be underway which will cause a sharp rise in world wheat/corn and soybean prices.
  • Dakota farmers are nearing the end of their window to seed spring crops with most reporting that after Sunday, Prevent Plant will be their best option. The calendar is working against the Northern Plains and South-Central Canadian farmer. The risk of planting at a record cost via soaring inputs is not a gamble that farmers are willing to accept. The weekend rains will keep many Dakota farmers off their planters until Thursday at the earliest, the risks are growing for additional Prevent Plant acres in early June.
  • The midday GFS weather forecast is drier than the overnight run with a tropical system that passes south of Florida causing the forecast models some issues as to where to place rainfall. The midday models are further south with the rain across the S Plains and the Southern Midwest. The Northern Plains and the South-Central Canadian Prairies are cool/dry. A ridge of high pressure rests across the SW US and into the Southern US Plains. A trough is positioned across the NE US. The summer US weather pattern has yet to be established.
  • It is the end of the month and active liquidation has been felt across a host of financial markets. US cash basis levels are strengthening as Chicago futures decline. We would place low odds that a Ukraine export corridor will be allowed by Russian President Putin. The summer Midwest weather pattern should be determined by mid-June. This is no place to make new sales. July corn is testing its March levels, which we expect to hold against $7.48.  And wheat should be forging an early seasonal low with July Chicago under $11.00/bu.  Cash soybean basis bids are still hot which will underpin July below $16.75.

27 May 2022

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  • HEADLINES: Rumours of China buying 500,000 mt of world corn; Spot midwest cash soybean basis on fire; Planting progress important on Tuesday.
  • Chicago grain futures are sharply higher at midday with July soybean futures pushing to new contract highs at $17.44. Corn/wheat futures posted strong gains as the news spread that Russia will not back down from its demands that western sanctions be dropped in return for corridors of grain exports out of Ukraine. Traders are back to adding risk knowing that Russia has decided to prevent Ukrainian grain from being exported out of the Black Sea.
  • World wheat/corn should be the upside leaders on tightening world supplies with Ukraine grain not in the mix. We look for a strong Chicago close with world weather being closely watched after the US holiday. Will additional rain fall across the Northern Plains/Southern Canadian Prairies that could lead to additional prevent plant acres. And the long-range EU weather model did add warm/hot and much drier for the next 30 days across the Midwest and the Central Plains. Remember that USDA’s corn balance sheet incorporates a record yield of 177.0 bushels/acre which we believe to be optimistic with the spring offering less than optimal planting conditions. Midwest farmers report good stands, but the crop is late and subject to the extreme heat of mid-July.
  • Chicago brokers estimate that funds have bought 3,000 contracts of wheat, 7,600 contracts of corn, and 6,500 contracts of soybeans. In the products, funds have bought 2,000 contracts of soymeal and sold 2,300 contracts of soyoil.
  • There are rumours that China has booked 500,000 mt of either US or Brazilian corn for September. Our bet is that China has booked another 500,000 mt of Brazilian corn since its landed price/mt is $20/mt cheaper than the US Gulf. Yet, others argue that the US Gulf corn was purchased. Either way, what is interesting is that China continues to secure world corn ahead of their own harvest which starts in October. China’s newfound corn demand hints of their growing need for feedgrains. China is acting in the world corn market just like it did back in the early 2000’s for world soybeans.
  • US soybean processors and exporters are elevating their fight for nearby cash supply. A Central Illinois processor is rumoured to have paid $1.10 over July soybean futures or an incredible $18.50/bu for spot cash beans. Data shows that this is a record high for Central Illinois soybeans. The problem is that the rising futures and basis market is not sparking needed cash movement. It is almost like NASS overstated last year’s soybean crop and old crop supplies are exhausted. Record strong cash basis bids make it tough for the back end of the soybean market to reflect any weakness.
  • Tuesday’s NASS Crop Progress Report will be highly important to Chicago prices.  In focus will be North Dakota, South Dakota and Minnesota on Tuesday and their corn, soybean and spring wheat seeding progress through Sunday. The lack of seeding progress will be digested by the market as farmers wanting to enrol additional acres in the 2022 Prevent Plant option.
  • The EPA must announce by June 4 what it has decided on biofuel mandates for the calendar year of 2022. The industry has split expectations on whether the EPA will adjust downward from the initial announcement due to rising food costs. We lean towards the EPA holding fast to its prior promises to US farmers and the green fuel industry.
  • The midday GFS weather forecast is like the overnight with soaking rain for the Dakotas and South-Central Canadian Prairies. A ridge of high pressure across the southern half of the US will produce drier weather/warmth into June 7.
  • Record US and the 2023 S American crops are needed to sustain a bearish Chicago trend. Any US/Canadian or EU weather adversity will produce a sharp demand rationing rally in world values. We maintain a bullish view with the Russian war against Ukraine ranging on. Market risks are to the upside, with world wheat demand to step forward in early June due to what we see as the extremely short bought position.

26 May 2022

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  • HEADLINES: Soybeans lead Chicago on commercial demand, Wheat recovers from deep overnight losses.
  • Chicago grain futures were sharply lower overnight but are recovering. Chicago wheat had been down as much as 35 cents overnight but has turned that into a 4+ cent gain at midday. Corn followed wheat lower overnight but has been positive at midday. Overnight selling of wheat was tied to hopes that Ukraine grain could start moving. We would highlight tremendous logistical challenges. The Chicago soy complex has traded sharply higher this morning. Soybeans have traded up as much as 30-50 cents this morning, meal has $4-6/ton higher, and soybean oil is tracking soybeans and has traded above $0.80 after marking a new monthly low overnight. Commercial interest is driving soybeans as C IL basis reaches $0.60-1.00 over.
  • The USDA announced this morning that farmers that are in the final year of their CRP (Conservation Reserve Program – contracts for land enrolled in CRP are from 10 to15 years in length. The long-term goal of the program is to re-establish valuable land cover to help improve water quality, prevent soil erosion, and reduce loss of wildlife habitat) contract will be allowed a one-time option to terminate contracts early without penalty. This looks to have the greatest impact on 2023 wheat, where some producers in the Western Plains could be enticed to pull acres out early. But even that impact will be minimal. It will have virtually no impact on 2022 corn and soybean acres. The latest FSA CRP Contract report shows 4 million acres of contracts set to expire on Sep 30, 2022, and 2 million acres in 2023.
  • The USDA’s weekly export sales report did not offer any real surprises. Old crop wheat sales saw net cancellations of 85 million bu as the old-crop marketing year draws to a close. New crop wheat sales amounted to 9 million bu. Old crop wheat sales are down 19% from a year ago, and new crop sales of 110 million bu are 35 million or 24% less than last year.
  • Old crop corn sales fell to a marketing-year low of 6 million bu, but weekly exports were at a 3-week high of 72 million bu. This resulted in a 66 million bu drawdown in outstanding old crop sales. New crop sales were just 2.3 million bu, and outstanding sales rose to 223 million bu. Outstanding new crop sales are down considerably from last year due to reduced Chinese sales but are still the second largest since 1995 and the third largest on record for this time of year.
  • Old crop soybean sales were light at 10 million bu, and exports amounted to 20 million bu. However, new crop sales reached a 5-week high of 16 million bu. Combined old and new crop outstanding soybean sales now stand at 810 million bu on near-record old crop sales and recover large new crop. We expect that US soybean exports over the next 12-months (old and new crop combined) will top 2,500 million bu.
  • The midday GFS weather forecast is similar to the overnight run in that Central US temperatures will be highly variable over the next 10 days and meaningful precipitation will be confined to portions of the Dakotas/MN and a narrow swath of the Central Plains stretching across E KS, E NE and far W IA. Extreme heat returns to TX, OK and KS this weekend and early next week, but this will be displaced by widespread below-normal temperatures in the 6-10 day period. Drought across the W Plains will stay intact. Seeding delays will be ongoing across the Northern Plains/Upper Midwest. Otherwise, weather across the primary Midwest will be non-threatening into the early part of June.
  • All eyes will be on extended range forecast beginning next week. A shift to warmer/drier weather in June is forecast, and it is the duration of dryness that will be important in the long run.
  • Markets continue to chop ahead of a three-day weekend, after which each/every weather model release will have a measurable impact on price discovery. We continue to maintain that breaks are buying opportunities. Strength in US/world cash markets cannot be ignored, and the creation of an export corridor in the Black Sea seems highly unlikely.

25 May 2022

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  • HEADLINES: End users use Chicago weakness to extend forward coverage; Russia rejects Ukraine grain for Russian fertiliser corridor.
  • Chicago grain futures were sharply lower on the opening and are in recovery on end user pricing. Funds are sizeable early net sellers, but end users are finally getting their chance to extend forward coverage into July/August.  The scale down buyers includes soybean crushers, ethanol grinders and wheat importers/millers. The end user pricing has been in old and new crop, but their most aggressive demand has been focused on July futures based on cash basis levels that are on fire. Basis bids for both corn/soybeans have been rising sharply and are sitting at record or near record levels. Yet, the huge premium basis bids are not sparking movement from the farmer. US farmers have gambling stocks remaining in the bin and see no reason to make sales until they know more about 2022 US row crop seeding and weather conditions globally and heading into the mid July corn pollination. Chicago lows appear to be in for the day, and it does not take much volume to move the market with resting orders absent.
  • Chicago brokers estimate that funds have sold 7,600 contracts of wheat, 6,700 contracts of corn, and 4,500 contracts of soybeans. In soy products, funds have sold 1,500 contracts of soymeal and 3,400 contracts of soyoil. The fund selling has been easily absorbed by the early end user pricing.
  • News from Russia’s INTERFAX quoting a deputy minister that Russia is willing to consider grain export corridors is just propaganda. Russia wants to blame Western World leaders for the coming food crisis. Russia will say that they are happy to open humanitarian grain export corridors if NATO drops its economic sanctions. This was a nonstarter last week and a nonstarter again this week. Nothing has changed other than the UN keeps asking Russia to find a way to feed the world’s impoverished.
  • We would remind that Russia agreed to humanitarian corridors for civilians out of Mariupol which always collapsed at the last minute. Allowing Ukraine to export grain would be a relief to the Ukraine farmers and Government officials, which Russia is totally against. Russia knows the importance of Ukraine grain which is why they are now targeting Ukraine grain storage facilities. And no western nation will use their own naval ships to move into the Black Sea as it will be seen as an act of war. We doubt that Turkey would allow non-Russian naval vessels to pass through the Bosporus. Turkey does not want to get ensnarled in the Russian war.
  • There are also rumours flying that Argentina is getting close to raising export taxes on grain/soy, and that Indonesia is making it extremely difficult to register for palmoil export licenses with some suggesting that exporters must be domiciled in Indonesia (not Singapore). And widening demands for export documentation is slowing or halting Indian wheat that had LC’s open prior to the announcement of export restrictions. Grain suppliers are worried by their own rising food prices and are countering gains with reduced trade.
  • World fob wheat, corn and even soybean markets are not fully following the futures break which is frustrating to buyers/importers. Futures gap up and down due to the lack of resting orders and acute market volatility. However, cash markets whether they are export or domestic are reluctant to follow the Chicago/Paris wheat lower which is speaking volumes about supply availability.
  • The midday GFS weather forecast is drier for the E Midwest. Heat returning to the S Plains next week (and into mid-June). A ridge of high pressure holds across the East Central US which pushes excessive rains back into North Dakota and the S Canadian Prairies.
  • It is a holiday in most of Catholic Europe on Thursday, and the US Memorial Day Weekend follows with the end of the month on Tuesday. Fund managers are selling commodity gains to pay for their losses in equities. However, strong US and world cash markets with Mother Nature unkind to EU, Canadian, Brazilian, and Chinese crops will underpin Chicago values. Early June is often the time for a Central US weather pattern change, it will be interesting to monitor what the new pattern will be. We see limited downside price risk and we doubt any Ukraine grain corridor will be approved by Russia. Seasonal lows appear to be forming in July futures.

24 May 2022

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  • HEADLINES: Macro market sell off ahead of 3-day US holiday weekend and end of month.
  • Chicago grain futures are sharply lower at midday with corn, soybeans and wheat all coming under acute selling pressure. The slide of nearly 90 points in the stock market and nearly 400 points in NASDAQ has produced a “risk off” day in a host of financial markets. Last week’s low was taken out in wheat/corn which added to the selling pressure. Soybeans are holding somewhat better on cash strength, but even soyoil is in the red amid risk off selling. We look for end users to use the break to add to forward coverage but heading into a long 3-day US holiday weekend, commodity and stock values appear to be linked. A lower to sharply lower close is expected.
  • Chicago brokers estimate that funds have sold 13,000 contracts of corn, 3,600 contracts of soybeans, and 9,500 contracts of wheat. In soy products, funds have sold 600 contracts of soymeal and are flat in soyoil. The selling has been robust from the opening bell.
  • The EU head of the Commission, Chief Ursula von der Leyen called for talks with Moscow to unlock Ukraine grain exports to avoid a world food shortage at the Economic Forum in Davos, Switzerland.
  • Moscow has already rejected such calls by the UN, WTO, and the US on the weekend. It is highly unlikely that the EU will hold any persuasion to get a corridor of humanitarian grain from Odessa. The Black Sea is the only real means to move the amount of grain needed by the world that is needed. Rail infrastructure from Ukraine into the EU is too limited and comes under constant bombing from the Russians. And Russia is now targeting grain storage facilities with Ukraine. And NATO or the US has no desire to pass naval vessels through the Bosporus as an act of war against Russia. The UK was rumoured to be considering such a naval move, which has since been denied. Unfortunately, it is extremely difficult to move more than 1-1.4 million mt of grain per month out of Ukraine, which falls far short of world demand.
  • As previously reported, China has purchased 500,000 mt of Brazilian corn for September as it had completed a phytosanitary agreement in late April to allow for the Government-to-Government purchase. China needed more than one corn supplier, the US, and struck the Phyto Deal with Brazil for an alternative. China used to secure corn from Ukraine, but with the Black Sea blockaded, China has lost this supplier to the war.
  • The China/Brazilian corn deal should send shivers down the spine of Europeans as they cannot import US/Argentine corn on GMO grounds. Brazil was their only other supplier and now they have a large new competitor in China. The EU will need to import massive amounts of Brazilian corn due to a deepening drought. We were surprised that China would secure Brazilian corn for September with their own harvest just underway. China must have an acute corn import need.
  • We see the China opening of the Brazilian corn market as bullish for world feed prices. Every grain importer must have a list of suppliers and the US Gulf is virtually sold out on September elevations with offers at $3.00/bu over. We do not see the China diversification to Brazilian corn demand as bearish with China on pace to import 27-29 million mt in 2021/22.
  • The midday GFS weather forecast is drier in the E Plains and E Midwest. Cool temperatures prevail this week with heat returning to the S Plains next week (and into mid-June). A ridge of high pressure holds across the East Central US which pushes heavy rain back into North Dakota and the S Canadian Prairies. This will cause further troubles for North Dakota farmers.
  • This is a price break that world end users of wheat and new crop corn have been waiting for. The US/EU are not going to send in naval vessels to form a humanitarian food corridor out of Odessa to release 20 million mt of Ukraine grain. And China signing a phytosanitary agreement for Brazilian corn is not bearish when they book an immediate 500,000 mt for September and are asking for new offers. Dec corn appears to be nearing a bottom and Chicago/KC and Minneapolis wheat futures are undervalued. This is a break to buy in corn/wheat in our considered opinion.

23 May 2022

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  • HEADLINES: Corn/wheat pace rally on soy/grain spread unwind; Did China buy Brazilian corn.
  • Chicago grain futures are mixed at midday with traders taking profits on long soy vs. grain spreads that worked late last week. S American soy export offers are becoming hard to find with crushers bidding hard for available cash beans. And Russia’s rejection of a Ukraine food corridor leaves the world exceptionally short of cash wheat/corn with July being the month that Black Sea wheat exports seasonally starts to ramp up. Ukraine finds itself awash in grain with no means of marine export. Shipping Ukraine grain into Europe and then re-exporting the supply out through Romania is costly, complicated and will be tested by the arrival of Romania’s own new wheat harvest in a few weeks.
  • World wheat fob values did not follow Chicago or Paris wheat futures lower late last week. Argentine and Australian wheat export offers have surged to new highs ($500/mt fob Argentina) with the EU offers sitting at an historical high. US wheat gained competitiveness on the Chicago break, but it is the EU that will fill fresh world wheat demand. Importers will only book Russian wheat on a spot basis of they have a vessel in hand.
  • End users have limited forward coverage and are hoping for a seasonal decline to secure their needs. We doubt that seasonal price trends mean little in this world that finds itself increasingly tight on grain/oilseed supplies.
  • We look for a firm Chicago grain close with today’s weakness in the complex being temporary. The price risk in the marketplace is to the upside amid dryness across Northern China, Europe, and North Central Brazil. Too cool/too wet weather is pushing more than 50% of Canadian seedings into June. Mother Nature has been anything but kind to grain producers during April/May. And US soy crush/corn ethanol grind margins are near record highs which will cause a bidding war for old crop corn/soybean supplies. The world is on the doorstep of a food crisis should US weather be less than favourable in June.
  • US export inspections for the week ending May 19 were 66.9 million bu of corn, 21.1 million bu of soybeans, and 11.4 million bu of wheat. The US has now shipped out 1,607 million bu of corn (down 325 million or 17%), with soybeans at 1,803 million bu (down 271 million or 13%), with wheat exports at 723.3 million bu (down 196 million or 21%). We would point out that Census US corn exports through March are running a massive 266 million bu above FGIS inspections due to the record amount of US corn that is being imported by Canada.
  • Rumours abound that China booked Brazilian corn in recent days for September/October shipment. The tonnage involved is estimated at 250-400,000 mt according to commercial sources. The US Gulf is virtually sold out on elevations for September/October and China needed the corn ahead of their own harvest. China/Brazil do not have a publicly signed phytosanitary agreement for corn, but since SinoGrain is said to be the buyer, such an agreement should be in the works with an announcement to be forthcoming.
  • China lost Ukraine as a corn supplier in late February due to the Russian invasion and is trying to diversify their corn sources. S American sources also report that Argentina has withdrawn corn export offers this morning due to a tightening of cash supplies due to a drop in harvested yields. Also, rumours persist that Argentina could be preparing for a hike in export taxes to help bring in additional hard currency.
  • The midday GFS weather forecast is drier in the Plains, Delta, and SE US. Cool temperatures prevail this week with heat returning to the S Plains next week (and into mid-June). A high-pressure ridge is seasonally building across the Southern US Plains which should push northeast into the W Midwest. Heat looks to be a feature of the Central US weather for the next 45 days.
  • Northern Hemisphere wheat exporters will be exceptionally short of supply with a further fall in the EU wheat crop. We see the EU wheat crop at 128 million mt vs. the USDA’s May forecast at 136 million. And Brazilian corn is also in retreat amid a dire drought. And now China’s wheat crop is being hurt by drought. The risk vs. reward is new highs in Chicago corn, soybeans, and wheat into mid-June. Any setbacks are temporary.

20 May 2022

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  • HEADLINES: Chicago little changed from overnight session; Brazilian corn premium widens; US weather forecast extremely wet.
  • Chicago ag futures have done little pricewise since the morning opening with soy futures up 7-15 cents, corn down 5-7 and wheat futures down 25-50, with spring wheat contracts in Minneapolis pacing the decline. Breaking news is absent but as large funds typically adjust positions in three-day increments, we would advise against chasing the break in wheat. Additionally, we estimate managed fund length in Chicago wheat at 50,000 contracts, vs. Tuesday’s peak of 88-90,000. Wheat futures’ RSI in the US and Europe is now rather neutral.
  • What guidance is available from macro markets leans slightly negative. Global crude futures are flat. The Dow is down another 450 points, with US equity indexes swiftly approaching bear market territory. The arrival of a confirmed equity bear is imminent. This will alternately weigh on ag investments day-to-day, but we maintain that money will flow into ‘stuff’ in the long run. Grain, oilseed, and energy markets in recent weeks have performed well as hedges against inflation and future economic uncertainty. 2022 is unique given rising concerns over food security and less than helpful Northern Hemisphere weather patterns.
  • Brazilian corn futures are flat as weakness in Real-based values has been offset by the Real falling to a three-week low. Sep corn in Brazil’s premium to Sep Chicago has widened to $080/bu. This along with the pulling of Argentine fob offers Aug onward suggests competition from S America for late summer/autumn corn trade will be fleeting. US corn (and soy) export excitement fades seasonally in all years during the summer months, but weekly sales benchmarks needed to validate hikes in USDA corn and soy export forecasts are rather low. The sluggish pace of Argentine corn harvest alone will sustain weekly corn export sales of 15-25 million bu into mid-summer. Sales must average only 10 million/week to hit the USDA’s target.
  • Global vegoil markets are also in recovery, with spot cash rapeseed oil settling this week at $1.05/lb. Strength in the Ruble has lifted spot cash sunseed oil in Russia to $0.88/lb. Palm futures have shed premium amid the return of Indonesian supplies next week, but end user demand will absorb further breaks quickly and easily.
  • Extended range US weather forecasts are trending warmer beyond the next 10 days. In the near-term this is only a threat to row crop production in areas already experiencing severe to exceptional drought across the Plains. However, close attention must be paid to temperature outlooks beginning in early June given the consistency of climate outlooks calling for a sustained period of abnormal Central US warmth this summer.
  • The midday GFS weather forecast is wetter again in TX, the Delta region and parts of the Upper Midwest into Northern Plains and Upper Midwest. Confidence in GFS output beyond late next week is low amid the model’s erratic nature in recent days. But should the forecast verify, two-week precipitation totals of 5-9” will impact E TX, AR, IA, IL and W IN. Flood risks will be present in the E Midwest as surplus soil moisture is currently in place there. Cool ttemperatures will blanket the Central US into late next week. Heat returns to the Southern Plains thereafter.
  • The casual nature of the ascent of corn, soy and wheat markets is noteworthy. It will be difficult to see the forest through the trees as Mother Nature adds to already extreme volatility. Yet, we maintain that global grain/oilseed consumption will struggle to keep pace with consumption without a string of favourable crop cycles in both hemispheres. This will add to market sensitivity, but the risk of new all-time highs remains intact. End user buying is advised on breaks.

19 May 2022

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  • HEADLINES: wheat extends losses but fills chart gaps; Old crop US demand intact; US forecast stays wet.
  • Chicago futures are mixed at midday, with July soybeans up 30, wheat futures down 20-30 and corn unwilling to move. Better than expected weekly soybean and meal export sales are cited, and the US Gulf soy market maintains a sizeable discount to Brazilian origin for mid/late summer delivery. We hear of additional Chinese interest for new crop US beans, and pace analysis suggests USDA’s old crop US soy export forecast is understated by upward of 60 million bu.
  • US wheat futures at all exchanges have fallen to close open chart gaps left on Sunday night, but uncertainty over near-term Indian exports along with the UN’s aim to open a sort of humanitarian food corridor have prevented large-scale new buying. The Indian government is mulling over the idea of allowing some 1.8 million mt of wheat currently trapped in ports to ship. Previously, of India’s unshipped exports, only 400,000 mt had lines of credit attached. There are no details available as to whether this 1.8 million mt will ship or not, but uncertainty abounds with respect to Indian wheat exports over the next 30-60 days. However, India will not be a large net exporter of wheat 2022/23 and net imports may be needed if final production there falls below 98-100 million mt. India this morning cut its wheat production estimate to 106.4 million mt, vs. 111 previously.
  • And establishing safe passage for Ukrainian grain and vegoil exports makes good sense, but to establish this Russia is demanding the lifting of current economic sanctions. This will not happen and negotiating with Russia will be fraught will issues of trust. Unfortunately, boosting the monthly pace of Ukrainian grain exports will be incredibly challenging.
  • Old crop export sales through the week ending May 12 totalled 17 million bu, vs. 8 morning the previous week and at the upper end of trade expectations. New crop wheat sales totalled 12 million bu, vs. 5 morning the previous week. Old crop soybean sales were an impressive 28 million, vs. 5 million the prior week and the largest since late March. Old crop soy sales to China were 14 million bu. Additionally, weekly soy sales in May 21 averaged just 2.2 million bu, and ongoing strong demand reflects this year’s rapid exhaustion of S American surpluses. Simple pace analysis places final 2021/22 US soybean exports at 2,190-2,200 million bu, vs. USDA’s projected 2,140 million.
  • And new crop soybean commitments sit a record large 448 million bu, vs. 273 million last year and 20% of the USDA’s 2022/23 US soy export forecast. New crop commitments are also record large at 220 million bu vs. 192 million a year ago.
  • The Brazilian corn market is up $0.05/bu at midday, with Sep Brazilian corn’s premium to the US widening to $0.75/bu. The sum of state government safrinha corn production estimates are 5-6 million mt below CONAB’s latest number, and similar to soybeans Brazil’s corn surplus will be consumed quickly, likely by the middle of autumn.
  • The Wheat Quality Council at this week’s tour conclusion pegged KS wheat yield at 39.7 bu/acre, vs. NASS’s 39, but pegged production at 261 million, vs. NASS’s 271 million. The tour’s estimate leans neutral, but we maintain that it is yield loss in TX, OK and across the Northern Plains that ultimately lowers final US HRW production by 20-30 million from USDA’s current estimate.
  • The midday GFS weather forecast is consistent with the morning run in projecting soaking rainfall of 2-5” across the S Plains, Delta and Eastern Midwest in the 5-10 day period. Fieldwork/seeding will be only regionally disrupted into the weekend, but an outright halt occurs in MO, IL, IN, OH and KY next week. NASS planting progress data on Monday will be critical in estimating the number of acres to be seeded in June.
  • Bull markets must be fed and wheat futures at contract highs will be highly sensitive to any modest loosening of supplies in exportable positions. However, it remains that wheat importers are very poorly covered beyond early summer, and additional downside risk is limited. Soy stays in a demand-led bull, while Midwest forecasts in June drive daily/weekly corn price direction nearby. We maintain a strategy of using corrections to extend supply coverage into autumn.

18 May 2022

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  • HEADLINES: Chicago weakens on collapse in macro markets, energy; US weather forecast trends wetter again.
  • Chicago futures are sharply lower at midday, with corn and soybeans falling to initial chart-based support while wheat undergoes its first meaningful correction in three weeks. Coincidentally, July Chicago wheat began its decline exactly at early March’s peak. There is no real catalyst for today’s break, but wheat markets worldwide must reconcile heavily overbought chart patterns and macro markets lean negative. Spot crude is down $2/barrel despite a draw in stocks last week. The Dow at midday is down 775 points amid lingering fears of the rising cost of money and the slowing global economic growth. Chicago volume is mediocre and open interest data on Thursday is expected to confirm today’s action is simply corrective in nature. Paris milling wheat looks to settle down only $0.15/bu. EU corn is down only $0.05/bu.
  • Exporters this morning sold 10,0000 mt of soybeans to unknown destinations for old crop delivery and 219,000 mt for new crop arrival. Other news is limited to the EIA’s weekly energy update, which leans bullish crude/gasoline but slightly bearish industrial corn demand. Export sales Thursday morning will be unexciting.
  • US ethanol production in the week ending May 13 totalled 291 million gallons, unchanged from the prior week and down 4% from mid-May a year ago.
  • Our work suggests weekly ethanol grind must average 304 million gallons during the summer months to meet the USDA’s annual target. This is no doubt reasonable given seasonally rising gasoline disappearance June onwards, but ethanol stocks remain large at 1.0 billion gallons (up 22% year on year), and there won’t be an urgent need to boost production until summer.
  • However, EIA data did show US crude stocks at 421 million barrels, down 4 million from the prior week despite the ongoing modest release of reserve supplies. In fact, strategic crude reserves are down 27 million barrels from early April and there has been no noticeable increase in available supplies. US crude stocks on May 13 were down 13% from the prior year. Motor gasoline stocks on May 13 totalled just 220 million barrels, down 4% from last year and the lowest for mid-May since 2014. US energy prices have built in Ukrainian conflict premium, but the US market’s own fundamentals are highly supportive relative to $100, spot crude.
  • The midday GFS weather forecast is wetter in the Central Plains and across the Midwest through the next two weeks. A rather active flow of moisture returns late in the coming weekend and persists into the opening days of June. If verified, cumulative rainfall of 3-5” will be spread across the Delta/Southeast and Midwest over the next two weeks. Confidence in GFS output is low, but other forecasting models have trended wetter in the last 24 hours. The midday GFS forecast also offered needed rainfall of 0.50-1.00”+ to eastern CO and western KS May 24-25.
  • End users are advised to add to summer corn supply coverage on further weakness as our downside target of $7.75-7.80, July, has been reached. There is no indication in cash markets that supplies are loosening. Yet, we must be prepared for extreme volatility as the 2022 growing season begins in earnest. The long-term outlook remains bullish in our opinion.