5 August 2024

Posted on August 5, 2024 by simon

• Chicago recovers on less favourable Central US weather; China demand for US Gulf soybeans; Will managed money adjust grain risk downwards?

• A 900-point loss in the DOW and sharp falls in some of the US’s favourite tech company stocks has produced red for most financial market assets at midday. An unwind of the Japanese carry trade has added to financial market volatility, but there does not appear to be any real financial structural stress in banks or brokerages that is overly worrisome. The equity market drop is corrective, and tied to the sentiment that the US Central Bank has fallen behind the curve in adjusting its interest rate policy lower.

• The recent day financial market decline has some strategists calling for the US Central Bank to call for an emergency FOMC meeting for a 50-75% lending cut. But the FOMC just completed a regular meeting last Wednesday, and we doubt such an occurrence. Other than the stock market fall, not much else has changed. A call for a special FOMC meeting is unfounded. The US economy is slowing but is far from a recession and shows few financial strains.

• Chicago grain trade is mixed at midday with corn/soybean futures higher at midday while wheat values sag. Chicago selling occurred early in the trading session with values recovering on cash market firmness. Ukraine corn prices are higher at $1.20 over with new crop offers lacking this morning.

• Fob Russian wheat offers are unchanged at $223/mt while Ukraine offers are $1-2/mt firmer. Brazilian corn offers are up $0.05/bu at $108 over or $195/mt with Argentine offers up $0.07/bu on basis to $0.79 over. The rise in world corn basis is underpinning Chicago valuations on the potential for growing US demand.

• Chicago brokers estimate that the managed money has bought a net 1,100 contracts of corn and 2,300 contracts of soybeans, while selling 3,400 contracts of Chicago wheat. In the products, funds have sold 4,900 contracts of soyoil and 3,300 contracts of soymeal.

• USDA reported that for the week ending August 1, the US shipped out 47.8 million bu of corn, 9.6 million bu of soybeans, and 16.2 million bu of wheat. For their respective crop years to date, the US has exported 1,885 million bu of corn (up 499 million or 36%), and 130 million bu of wheat (up 8 million or up 16%). We note (again) that US Census soybean exports are up 72 million bu from FGIS through May with US Census corn exports up 220 million bu. This places US soybean exports to date at 1,653 million bu and corn at 2,105 million bu with a month remaining in the 2023/24 crop year. USDA is correct on 2023/24 corn/soybean export estimates.

• China is back in the US soybean market and has secured a rumoured 3-5 cargoes of US soybeans today and is still asking for offers. China appears to be far more active in securing US soybeans for October/November/December. China has secured a record amount of US soybeans with 2023/24 exports likely to be raised by another 2-3 million to 112-113 million mt by the final count.

• The Central US GFS midday weather forecast is like the overnight run with limited rainfall for the Central US over the next 10 days. The 7-day outlook is consistent with prior runs. Scattered showers favour the Upper Great Lakes. Dryness continues elsewhere. A moderation in Central US temperatures is forecast to start on Wednesday, but heat bakes the Plains, SW Midwest, and the Delta for the next 10 days.  Confidence beyond 10 days is low due to another tropical storm in the Gulf. Second half of August forecasts/outlooks will be highly changeable due to the tropic’s influence.

• Chicago grain futures are trying to bounce amid a sharp decline in world financial markets. The DOW has not been able to sustain a recovery and fund managers are trying to cut risk across their portfolios to reflect the growing market volatility. The August USDA Crop Report looms next Monday and selling above the market is limited. China is showing an active purchase program for US soybeans, while Ukraine/Argentine and Brazilian corn fob basis offers rise. Confirmation of larger than 182 bushels/acre corn and 52.5 bushels/acre soy yield is needed to sustain a deeper price decline. World grain stocks are tightening on supply cuts in Argentina, Ukraine, Russia, and the EU.

2 August 2024

Posted on August 2, 2024 by simon

• Chicago higher as break in equity markets extended; Exporters sell soy to China; GFS weather forecast stays mostly dry in Central US next 10 days.

• Stock values fall to 800+ losses in the DOW producing a long equity/short stuff (commodity) unwind; the August US Jobs Report showed an employment gain of just 114,000 raising concern of recession and 3 FMOC rate reductions in 2024; China active in seeking US soybeans with speculation growing of additional sales next week; Financial market turmoil added by this week’s Japanese interest rate hike and the long held carry trade being unwound. A massive managed money short expected to announced by CFTC after the close.

• Chicago grain volume has expanded this morning with risk trades being liquidated.

• The slowing US labour market will push the US Central Bank to lower rates as one of its mandates, full employment, is now in doubt and recession worries grow. And rumours abound from SE Asia on the liquidation of the Japanese carry trade amid faltering liquidity. The Bank of Japan rate increase caught large hedge funds off guard. Combined, this and the slowing US economic growth outlook is pulling the US equity market sharply lower and causing an unwind of long equities/short commodity trades. Algo/AI selling was active in Chicago in the morning but has since slowed at midday. A higher Chicago close is forecast into the weekend as fund managers adjust risk across their portfolios.

• USDA also announced US exporters sold another 202,000 mt of soybeans to China for new crop delivery, which confirms mid-week rumours of additional demand. China’s soy buying program is historically slow/late, but a feature of the marketplace this week, along with shifting money flows, is one of value in the ag space.

• Even amid today’s $3.00/barrel break in spot WTI crude, the Chicago corn/crude ratio is historically weak. Nearby corn fob premiums in Brazil, Argentina, and Ukraine are firmer again, with Brazilian supply offered $1.00-1.05/bu over Chicago and which Ukrainian premiums scoring newer seasonal highs at $1.25/bu over. US beans are priced competitively for Sep-Dec arrival and following this year’s year on year decline in Brazilian output, importers have few options but sourcing some measure of US soybean in autumn/early winter.

• The CFTC this afternoon is expected to peg managed funds net short in corn at 330,000 contracts, vs. 319,000 the prior week, funds short in soybeans at a record 189,000 contracts, vs. 164,000 the prior week, and funds combined net short in Chicago/KC wheat at 123,000, vs. 116,000 the previous week and the largest since mid-April. It is the structure of the market that has managers weary of large new short positions ahead of key USDA reports and as the beginning of tropical storm season complicates medium-range weather forecasts.

• The midday GFS weather forecast has introduced a second storm/hurricane into the US Gulf that makes landfall in TX Aug 15-16.

• The Central US GFS midday weather forecast is drier in SW Midwest and keeps meaningful rainfall in the 7-10-day period confined to CO and southern Kansas. The 7-day outlook is consistent with prior runs. Scattered showers favour the Upper Great Lakes. Dryness continues elsewhere. A moderation in Central US temperatures remains likely after Aug 7, but heat bakes the Plains, MO, and western IA into Monday.

• Confidence beyond 10 days is low. Second half of August outlooks will be highly changeable due to the tropic’s influence.

• US yield expectations are high. USDA’s Aug report and Pro Farmer’s Tour thereafter will provide validation or not. A more nuanced market is expected beyond late summer as corn contends with sizable non-US exporter production losses and N American wheat exports find support in quality/quantity downgrades in W Europe and the Black Sea. Soy’s story centres on US yield. The US forecast is less favourable. Note that Chicago corn tends to bottom early in years defined by large yield/production.

1 August 2024

Posted on August 1, 2024 by simon

• China securing additional US soybean cargoes; Wheat recovers on world crop losses; GFS weather forecast pulls tropical storm across N Florida.

• Wheat bucking Chicago downtrend with rally; Corn/soybean futures fall to another set of new lows. End user pricing offering support; Talk has China asking for US Gulf soybean offers for October with reported 6-8 cargoes being sold.

• Chicago volume is substantially less than yesterday which has helped fuel volatility. US financial markets have witnessed increased volatility as the DOW traded nearly 550 points lower but is holding right at key chart support heading into the August Jobs Report tomorrow. Weekly unemployment claims rose to their highest level in 11 months at 249,000, which has the US bond market raising their forecast to 3 interest rate reductions. The slowing labour market will push the US Central Bank to back down on rates as one of its mandates, full employment, is in doubt. The slowing US economic growth outlook is what pulled the US equity market lower and caused an unwind of long stocks/short commodity trades. The Algo/AI selling was active in Chicago in the morning but has since slowed down at midday. It is taking much greater volume to force Chicago values lower as end users are using the break to add to forward coverage. And China appears to be back as a US soybean buyer and they should become more active next week.

• The USDA announced a daily sale of 132,000 mt of US soybeans to China. We hear from cash connected sources, that China purchases of US soybeans is up to 6-8 cargoes for October/November. And offers are still being sought.

• FAS/USDA indicated that for the week ending July 25, the US sold 10.5 million bu of wheat, 34.6 million bu of corn, and 37 million bu of soybeans (both crop years combined in corn/soybeans). The soybean sales were larger than expected and did not include any sizeable demand by China. For their respective crop years to date, the US has sold 305 million bu of wheat (up 90 million or 42%), 2,174 million bu of corn (up 593 million or 37%), and 1,672 million bu of soybeans (down 266 million or 14%). The US is on pace to reach USDA’s 2023/24 soybean export estimate of 1,700 million bu, while 2023/24 US corn exports could rise by 15 million bu to 2,240 million. It is far too early to make any US export assessment on wheat, other than to suggest that the EU could import HRS/HRW wheat to help its poor crop reach domestic milling specifications.

• China’s Vice Premier (Liu Guozhong) called on local authorities to minimise agricultural losses and ensure a robust autumn harvest as spring drought and recent torrential flooding has caused growing crop losses. The flooding in Henan, Jilin, and Heilongjiang has even caused quality questions of the grain in storage. Unfortunately, the forecast calls for additional flooding rain across the North China Plain with 30-day rainfall accumulations estimated at 10-24” for 43% of China’s corn crop. China allocated $277 mil in disaster assistance yesterday to financially aid farmers struggling with crop losses.

• The Central US GFS midday weather forecast has a tropical storm going further east and making landfall across Sarasota. The storm then heads back out int the Atlantic across the Carolinas with flooding rainfall of 4-8.00” in between. The forecast models are having difficulty with the exact location of the new tropical system that is forming in the Caribbean. Be prepared for large run to run changes until the hurricane forms.  Otherwise, the midday forecast is drier/warmer nearby for the Plains, W Midwest, and the Canadian Prairies. Ridge riding storms are likely across the E Midwest with the extended range weather pattern in question until the path of the developing hurricane is known.

• China is back in the US soybean market and are they also seeking US sorghum. China has purchased 1 million mt of Brazilian corn but has not secured any US corn for 2024/25. The interesting price aspect of the world corn market is that the US Gulf corn is $6-7/mt cheaper than Brazilian, and $14/mt cheaper than Ukraine if China needed corn in size.  The world has lost 23-24 million mt of wheat (10 million Russian/10 million EU and 3-4 million of Ukraine) which cannot be made up in the S Hemisphere. To be bearish, you need a US 2024 corn yield above 186 bushels/acre.

31 July 2024

Posted on July 31, 2024 by simon

• Chicago wheat bounces while corn tests long term trendline at $3.81; China flooding getting talk in export circles; US ethanol use at record level.

• Push until the market pushes back!

• In the world of Algo/AI trading, market momentum is a powerful feature in daily commodity pricing. Trends are important to programmers/traders and these systems will keep pushing until the market pushes back to tell the buyers/sellers that they are wrong. To date, there has been no push back from Chicago grain prices to tell “the machines” that they should stop directionally selling Chicago grains. Corn/soybean futures have pushed to new lows with December corn slipping below $4.00 while November soybeans fell to $10.15. Wheat has been able to hold Monday’s low, but the pressure from the summer row crops has wheat back against longer term support at $5.155 September Chicago futures.

• The bearish push to new lows makes today’s Chicago close important at the end of the month. The market needs to push back to tell the bears that they are wrong and that 4-year low prices offer value. Watch closely as key support for spot corn futures looms at $4.77-4.81 on the weekly corn crop. This price is trendline support and a mean price average of value extends back to 2018-2020, the height of the pandemic and a trade war with China. Maybe there is “cents” of additional downside potential, but by any economic measure, corn prices are at demand building levels. Monitor the market closely for push back as traders prepare for private crop estimates of US corn/soybean yields.

• The USDA announced a daily sale of 104,572 mt of corn to an unknown destination for the 2024/25 crop year.

• Chinese weather during the 2024 growing season has been anything but kind. Record heat and regional drought delayed summer row crop during May/early June which has been followed by extreme rainfall during July with several tropical storms (Prapiroon/Gaemi) that has produced massive flooding across key Chinese corn/soy crop areas. 43% of China’s primary corn/soybean area has endured July rainfall of 9-24”. Record flooding is underway across Central and Northern China. This morning the Chinese government pledged 2 billion Yuan ($277 million) in disaster assistance to farmers. Although the Chinese government will never admit to anything but a record large harvest, Asian contacts offer that sizeable soy/corn losses are occurring. The flooding and potential grain imports by China is something to closely follow.

• US weekly ethanol production set a record last week at 326 million gallons. This is up 4% from last year with US ethanol stocks rising to 1,006 million gallons. WASDE is 25-40 million bu too low on their 2023/24 US corn ethanol grind of 5,450 million bu. Strong US gasoline consumption and favourable plant economics is expected to maintain strong corn ethanol grinds into September.   Corn price is doing its job to stimulate demand.

• The Central US GFS midday weather forecast is drier than the overnight run in regards for rainfall for the Plains, W Midwest, and the Canadian Prairies. Extreme heat develops ahead of a tropical storm that rakes Western Florida (Sarasota) and then heads west/northwest along the Panhandle before pushing inland into Alabama/Mississippi where its forward progress slows. The storm never makes it northward into the Midwest or the Plains.  This leaves most of the Plains and SW Midwest in an arid flow with seasonal temperatures returning beyond August 7.

• End users are stepping forward and making purchases with futures reaching 4-year lows and the USDA August crop report due in 7 trading sessions. US ethanol demand is record large and WASDE needs to raise both export and ethanol demand in the old crop year. China’s row crop production has been damaged by drought/ flooding and import demand for US soybeans is expected. And with US corn cheaper than Brazilian offers, could China take US corn with an import margin of over $1.80/bu. Volatile and interesting markets are ahead.

30 July 2024

Posted on July 30, 2024 by simon

• Corn/soybeans score fresh lows on large US crop fear; French wheat farmers seek help on catastrophic harvest; GFS weather forecast warmer for the Midwest in the extended range.

• Chicago grain futures are lower at midday on slowing volume as the soybean market scores fresh contract lows. Soybean prices have been searching for improved export demand (China) while soy product prices are helping to keep crush margins strong. We calculate board crush margins at a highly profitable $1.80/bu with the oil share contribution to margin sliding back to just under 39%. EIA will be out on Thursday with their May feedstock production estimate which is always closely followed by the industry. Soyoil should gain relative to soymeal heading into the weekend as cash soyoil values are trading at 2-4 cent/pound discount relative to imported Gulf UCO. Soyoil has priced itself into feedstock blends that will be important heading into the end of the year. Soybean futures are technically oversold, but there is no indication of a bottom on the charts amid fresh contract lows.

• September corn futures scored new contract lows at $3.8925, while Chicago September wheat held Monday’s new contract low at $5.1425. The grains are holding better than the complex with wheat trading inside of Monday’s price range. Wheat values hold a developing bullish story once the charts turn higher and seasonal EU harvest price pressure abates.

• The USDA did not announce any daily sales of corn, soybeans, wheat, or soy products. As the US export season arrives, traders are watching to gauge future US export purchases.

• Chicago brokers estimate that the managed money has sold 6,900 contracts of wheat, 6,700 contracts of soybeans and 1,900 contracts of wheat. In the soy complex, the managed money has sold 3,900 contracts of soyoil and 1,800 contracts of soymeal.

• Bloomberg is reporting what we have reported for most of the past 10 days, a catastrophic French wheat harvest with crop quantity and quality in sharp decline. French farmers are calling on the government to provide financial aid with yields down 15-28% and a crop as low as 26 million mt. But the real worry is related to low test weight wheat that does not meet French milling standards. How much wheat France has for export in the months ahead will be closely followed with exporters able to meet export milling standards from a blend of old and new crop supplies. Paris wheat futures are well above contract lows due to the French/German wheat crop uncertainties.

• Tunisia purchased 125,000 mt of optional origin soft milling wheat and 50,000 mt of durum wheat in a concluded tender for August-October. The purchase price was $243.99-245.77/mt basis CIF. The wheat is expected to be sourced from the Black Sea on cost. We calculate fob values for August at $225-227/mt which is close to current valuations.

• Monday’s Chicago soyoil volume was one of the largest on record at 364,427 contracts, the biggest daily volume in 8 years. Soyoil spread trade was massive and there is leftover selling that is bleeding into today’s marketplace on fresh selling from managed money.

• The Central US GFS midday weather forecast is like the overnight solution. The forecast shows big heat for the Central US which includes the W and S Midwest with high temperatures to reach the 90’s to lower 100’s. Scattered showers will dot the E Midwest for the next few days before a hot/dry pattern emerges on Friday and lingers into August 8. Severe weather with Derecho winds is forecast this afternoon across portions of E IA, MO, and into W IL. The extended range 11-15-day forecast holds a strong ridge of high pressure across most of the Central cornbelt with extreme heat over the Eastern US.

• It is the end of the month and August deliveries will be out overnight. Private crop estimates will be released in coming days ahead of the USDA August 12 report. Wheat has a developing trade story on EU/Russian quantity/quality losses, while soyoil funds support faltering UCO and tallow imports and domestic usage. China is expected to step forward in August with a sizeable US soy purchase program. A first notice day bounce expected on Wednesday.

29 July 2024

Posted on July 29, 2024 by simon

• Chicago grains bounce into the green; US export inspections well above pace needed to reach WASDE; GFS weather forecast warmer/drier after August 2.

• Midday grain futures are mixed following sharply lower trade in soybeans and soy product prices on the morning reopening. The liquidation of August futures was featured with soybeans, soyoil and wheat futures dragged to new contract lows. Wheat and back end soyoil futures bounced and are trading in the green at midday. End user pricing in the back end of soyoil and rising Russian wheat fob prices provided the support. We would note that corn did not post a new contract low when soybeans were down over 40 cents. The strength in corn was surprising. The midday volume of trade is contracting as August soy liquidation slows. August soybean futures volume of 26,430 contacts suggests that the Friday/early Monday liquidation phase is nearing an end. A Tuesday turnaround is forecast following the market lashing of the past two sessions.

• Chicago brokers estimate that the managed money sold a net 2,600 contracts of corn and 8,900 contracts of soybeans, while buying a net 4,200 contracts of wheat. In the soy products, funds have sold 3,200 contracts of soymeal and 2,100 contracts of soyoil. Managed money is estimated to have returned to holding a record net short corn/soybean position that will be vulnerable with any bullish fundamental spark.

• The US did not announce any daily sales of corn, soybeans, wheat, or soy products. The lack of US soybean sales to China or an unknown buyer has placed futures in a bearish demand position.

• However, we understand that China purchased 3-4 cargoes of Argentine soybeans for September and is asking for US offers for October/November out of the Gulf. Argentina dropped its export tax on meats on the weekend and rumours have the Government looking to drop the tax by 10% in soybeans/soy products to appease farmers by mid-August. The 10% tax break would be for a short period of time to push farmers to sell stored soybeans.

• Russian/Ukraine fob wheat prices are rising on the concern for spring wheat production amid a weather forecast that calls for another two weeks of cool/wet weather. And winter wheat in the Volga Valley is said to be sprouting in the head due to the cool/wet weather. Spring wheat comprises 30-35% of the Russian wheat crop in 2024 and strong yields are needed of hi protein wheat. Pay close attention to Central Russian weather prior to harvest in the next 2-3 weeks.

• The French wheat harvest is stalled by cool/wet weather that started Friday. Yields are below producer expectations with test weights not reaching milling wheat thresholds. Remember that France needs 3.5 million mt and other EU members need 10 million mt for domestic milling needs which would take the French out of the world wheat export market in 2024/25. France exported 10 million mt of milling wheat last year. The key question is which world exporters will replace the French.

• The Central US GFS midday weather forecast is drier/warmer vs the overnight forecast. The forecast shows big heat for the Central US which includes the Midwest. High temperatures are forecast to reach the 90’s to lower 100’s. Scattered showers will dot the E Midwest for the next few days before a hot/dry pattern starts on Friday and lasts into August 8. The extended range 11-15 forecast drags the jet stream southward allowing cooler Central US temperatures and widely scattered showers. Our confidence in any extended range forecast is low due to tropical waves that may or may not develop across the Gulf of Mexico. Our current forecast lean is that August will be a warm/dry month for the Plains and the W Midwest.

• Grain futures are trying to bounce. NASS has confirmed that it will update wheat, corn and soybean planted acre estimates in their August report based on the FSA Farm program participation data that was submitted in mid-July. US census exports for corn are 220 million bu with soybeans 72 million bu above Monday’s FGIS totals. This places 2023/24 US corn exports at 2,057 million bu with soybeans at 1,643 million bu. WASDE annual 2023/24 US corn/soybean export targets appear to be too low with seven weeks remaining in the crop year. Low prices are curing low prices!

26 July 2024

Posted on July 28, 2024 by simon

• Chicago sharply lower on sizeable managed money selling on momentum; Midday GFS weather forecast drier and much warmer than overnight run; Extreme heat ahead for the Plains.

• Chicago futures are sharply lower at midday trade with soybeans, corn and wheat futures in the red. September Chicago wheat futures are back to testing prior contract lows at $5.25 while corn/soybeans are giving back Thursday’s gain. The midday volume has subsided as long liquidation has as prices fell. Chicago has been myopic in following each new daily forecast and today’s GFS forecast solution was cooler beyond August 8. Expect Chicago values to be back and forth on each new weather forecast which is difficult for fund managers. The early week buyers on the unwind of the Trump Trade and the warmer/drier Central US weather forecast are this morning’s sellers.

• The grains have the best fundamentals and cash market strength to withstand Chicago selling pressure. Paris wheat futures are down despite falling crop production and crop quality concern. We have been highlighting the lack of quality milling wheat across France since late last week. The discount of FOB US Gulf wheat to French offers has reached $24/mt at midday. The French/German wheat markets must assure that their hi pro milling wheat stays within country. This is why the spread between French/US gulf and French/ Russian offers are widening. French fob wheat at $245/mt is $24-25/mt above spot Russian fob offers, future EU wheat sales will be modest.

• Chicago brokers report that managed money sold 4,100 contracts of wheat, 8,200 contracts of corn, and 8,900 contracts of soybeans. In the product’s, managed money has sold 4,200 contracts of soyoil and 3,900 contracts of soymeal.

• The US did not announce any daily sale of corn, soybeans, wheat, or soy products.

• EIA will update its Monthly Biofuel Capacity and Feedstocks report on Wednesday. The report is expected to show increased usage of soyoil due to cash prices competitive with other vegoils and even imported used cooking oil. Recent EIA monthly data has sparked rallies in Chicago soyoil values in the days following the report’s release.

• The US Central Bank’s measure of inflation rose modestly during June at0 .2%. On a 3-month annualised basis, core inflation cooled to 2.3%. This inflation rate offers the US Central Bank runway to start cutting its lending rate in September as the US labour market has become balanced. The US dollar dipped on the news as treasury yields declined. A weakening of the US dollar is forecast with the key ag currency, the Brazilian Real, trading at 5.65:1 USD at midday.

• Chicago values have taken out a considerable amount of weather premium on today’s sharp price fall. The risk heading into the weekend is that the forecast holds onto a hot/dry pattern and that the Atlantic tropical storm activity has just made the forecast beyond the next 10 days less reliable. Should the Midwest forecast turn cooler/wetter beyond August 6, Chicago will be slightly lower on Sunday. However, if the forecast stays hot/dry, the calls will be sharply higher. Please be aware of the opening week trade risk.

• The Central US GFS Weather Forecast at midday is drier/warmer vs the overnight forecast. Limited rain is forecast to fall across the US Plains, Canadian Prairies, and most of the W Midwest into August 6. Any heavier rainfall totals greater than 1.50” has been shifted east to E IN/S OH.  An amplified high-pressure ridge builds across the southern half of the US and retrogrades west and north to the Intermountain West and the W US Plains. This creates a NW upper flow through the Lake States where seasonal 80’s will prevail. However, the Plains, Delta, and the W Midwest hold in a warm to hot pattern with highs ranging from the upper 80’s to the lower 100’s. Kansas will be the hottest with readings in the 100’s.

• Today’s Chicago break seems overdone and a bounce into the close, amid the weekend weather uncertainty, is expected. The market risk is to the upside as traders argue that the weakest shorts have covered. Cash soymeal premiums are rising while Ukraine corn offers are scant. China is back asking for US soybean offers for October. The Central US weather forecast is key, and the warmer/drier midday run is like the EU model. The Chicago break sees extreme vs Central US weather.

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Weekend summary 26 July 2024

25 July 2024

Posted on July 25, 2024 by simon

• Chicago summer row crops rally as Central US heat builds; Unknown destination buys US soybeans; World wheat trade down 1 million mt via Turkey.

• Summer row crop futures are higher with wheat values sagging on intra market spreading at midday. Hot/Dry Plains and W Midwest weather and fresh Chinese demand has rallied soybeans back to early week highs. A close above $10.87 November soybean futures argue for a recovery back to $11.25-11.50 on the charts as soymeal futures rise on tight domestic supplies in the US and slowing sales from Argentina amid rumours of a crush industry strike next week.

• Soyoil has fallen back to its recent low, but export and biofuel demand is expected to underpin December soyoil futures below $0.43/pound. Minor oilseed values have a developing bullish story on tightening supplies of European and Black Sea rape/sunseed crops and as a flash drought that is adversely impacting Canadian canola. The loss of overseas crop production mandates larger US corn and soybean harvest. August weather will be critical for soy/corn/sorghum crops and run to run changes in the forecast are having a meaningful price impact on Chicago grain values. It is the duration of West Central US heat/dryness that is important heading into the last third of the summer growing season. It is all about August weather for Chicago values.

• Chicago brokers estimate that managed money has bought 4,000 contracts of soybeans and 6,500 contracts of corn, while selling 6,100 contracts of wheat.

• The USDA announced the sale of 264,000 mt of US soybeans to an unknown buyer, which is rumoured to be China. The sale was for the 2024/25 crop year.

• FAS/USDA export sales for the week ending July 18 were 11.4 million bu of wheat, 13.0 million bu of old crop and 29.3 million bu of new crop corn, and 3.3 million bu of old crop and 30.5 million bu of new crop soybeans. For their respective crop years to date, the US has sold 295 million bu of wheat (up 96 million or 48%), 2,166 million bu of corn (up 589 million or 37%), and 1,665 million bu of soybeans (down 271 million or 14%). Remember that through May, US soybean census soybean exports were up 72 million bu from Monday FGIS inspections with corn exports up 220 million bu. We see no reason to argue with the WASDE 1,700 million bu of soybean exports but could increase US corn exports by 25-50 million bu if the current pace is sustained for the next 7 weeks left in the crop year.

• Initial crop year world wheat trade via vessel counts is down 1.0 MMTs from the prior year at 8.4 million mt. The decline is largely due to Turkey and its use of domestic wheat stocks vs imports from the Black Sea. World wheat trade to other destinations is on par with the prior year and not showing a decline. Now it is early in the 2024/25 world wheat crop year with this being only the third week, but the decline from Turkey is likely to persist and slow Russian trade. Remember that Russia is expected to export 46 million mt in 2024/25 vs last year’s 53 million mt, so the early shortfall seems right. The disappointing aspect is that Turkey through policy made the demand adjustment, not the marketplace. It is hoped that Turkey returns to resume world wheat imports in October.

• The Central US GFS weather forecast at midday is slightly drier and warmer vs overnight forecast. Limited rain is forecast to fall across the US Plains, Canadian Prairies, and most of the W Midwest into August 4. Heat returns to the Central US on the weekend with highs ranging from the mid 80’s to the mid 90’s. Precipitation for the next 9 days will be focused on the Gulf States and SE US with widely scattered showers for the E Midwest on ridge riding storm systems. The GFS forecast projects amplified high pressure ridging across the Western third of the US in the 10–15-day period with high temperatures in the 90s/100s. There are clear signs of increased tropical storm activity in the Gulf of Mexico which is causing some forecast “fits” in the model.

• US ag analysts are dropping their 2024/25 US corn end stock forecasts below 2,000 million bu on expanding demand, both in exports and ethanol. Such stocks do not argue for December corn futures to fall below $4.00 for harvest lows. We see 2024/25 corn stocks at 1,750 million bu, which should rally December corn to $4.35-4.50, assuming a 180 bushels/acre US corn yield. And China is becoming active in US soybean purchases. Upside targets of $11-11.50 November are valid. US wheat values trade a range of $5.30-5.80 during August as the spring wheat crop is harvested.

24 July 2024

Posted on July 24, 2024 by simon

• Chicago mixed at midday with corn/wheat firmer amid hot/dry weather for the Plains/NW Midwest; Soybeans sag awaiting China demand; Ethanol grind strong.

• Chicago grain futures are mixed at midday with corn/wheat being the upside leaders while soybeans trade either side of unchanged. Soybeans have rallied over $0.50/bu off the lows on a partial unwind of the Trump Trade as President Biden dropped out of the 2024 race, and the election seems less clear on the November victor. As the Trump trade unwind faded, traders looked to Central US weather and its potential impact on US summer row crop yield. Chicago will add or subtract premium to price depending on the weather forecast. This week Chicago has been adding premium due to a forecast of excessive heat and dryness for the Plains and the W Midwest.

• It is the duration of Central US heat/dryness that will be the most important feature for price on a day-to-day basis. US corn and soybean yield potential is record or near record today, but it all depends on the August Central US weather pattern. July featured the remains of hurricane Beryl that soaked MO, IL and IN that has caused each state’s crop condition ratings to rise. We are focused on the Dakotas and the Plains amid the dry weather trends of recent weeks, and an arid forecast for this region. We note that the overnight models have been the driest while the midday GFS forecast adds rain and is cooler.

• Chicago brokers estimate that the managed money has purchased 3,400 contracts of wheat, 5,400 contracts of corn, and 4,200 contracts of soybeans. Managed money has purchased 5,700 contracts of soymeal while selling 4,200 contracts of soyoil.

• The USDA did not announce any new sales of US corn, soybeans, or wheat today. There are rumours that China is back asking for offers of US late September and October soybeans out of the Gulf. We cannot confirm a trade, but we suspect that if Chicago prices pull back, some new Chinese demand for US soybeans could be filled. We look for China to become a much more active US soybean buyer during late July and August.

• The US consumed 322 million bu of corn last week in the production of ethanol. The total was down 3 million bu from the prior week, but well above of the weekly average needed to achieve the USDA annual forecast of 5,450 million bu. We would argue that WASDE will raise its US corn 2023/24 ethanol grind forecast by 25 million bu by the final count. US grind margins are positive and the seasonal decline in ethanol production should be less than prior years.

• The Central US GFS weather forecast at midday is slightly cooler and wetter than the overnight forecast across the W Midwest. Limited rain is forecast to fall across the US Plains, Canadian Prairies, and most of the W Midwest into August 5. Heat will begin on the weekend with highs ranging from the mid 80’s to the mid 90’s throughout most of the Plains, Delta, and the Midwest. Precipitation for the next 9 days will be focused on the Gulf States and SE US with widely scattered showers for the E Midwest. The GFS forecast projects amplified high pressure ridging across the Western third of the US in the 10–15-day period with high temperatures in the 90s/100s. The GFS midday forecast is further west in the mean position of the ridge compared to the EU or Canadian models. Our forecast lean is to the EU model based on its consistency.

• Maybe it is too simple, but Chicago ownership features a record managed money corn/soybean short with a Central US weather forecast calling for heat/dryness across the Plains/W Midwest next week. And the August USDA crop report is dead ahead which includes an FSA update on program and prevent plant acres. The shorts are nervous about Central US weather with Chicago grain values at 3-year lows. Only a little spark is needed to ignite a rally. The price risks are to the upside on Central US weather.

23 July 2024

Posted on July 23, 2024 by simon

• Chicago traders watch hot/dry Central US weather forecast amid record fund short: Brazilian FOB soybean offers lacking.

• Chicago grain futures are mixed at midday with corn/soybean futures higher on threatening Central US weather and a record large net managed money short position, while wheat prices sag on profit taking in European wheat futures following several days of gains. It may seem to be too simple, but the ownership structure of Chicago is in the hands of commercials, while managed money is holding a record short corn/soybean position combined. As long as the Central US forecast is threatening, the Chicago price risk is to the upside.

• The French wheat harvest is reaching 40% and low test weight wheat is being reported. Unlike the US, EU co-ops collect the wheat but delay docking producers on quality until there is a clearer picture of all deliveries. To date, French/German wheat is struggling to meet milling grade, but the hope persists that the later maturing wheat may see its quality improve. We look for Paris wheat futures to dip mid-week on profit taking, and rally into the weekend as French crop condition ratings partially reflect wheat quality woes on Friday. We note that France needs at least 10 million mt of milling quality wheat to meet the domestic production of flour and wheat exports to other community members. Unless test weights change on the French crop, this leaves limited French wheat supply for export in 2024/25.

• Chicago brokers estimate that the managed money has purchased 2,900 contracts of soybeans and 4,800 contracts of corn, while selling 1,900 contracts of wheat. In soy products, funds have bought a net 1,600 contracts of soymeal and 2,100 contracts of soyoil.

• The USDA announced the sale of 200,000 mt of US 2024/25 corn to unknown destinations. US corn is uncovering demand amid smaller S American and Black Sea crop harvests. Rumours have the buyer being Mexico or Japan.

• It is becoming difficult to uncover Brazilian fob soybean offers after the middle of September. The lack of cargo availability is due to record Brazilian soybean exports with the primary buyer being China since February. Paranagua soybeans are offered at $1.25 over for FH of September, well above US Gulf offers of $0.95 for the entire month of September. The point being is that the tail of Brazilian soybean exports is being cut short by the smaller 2024 crop. The US Gulf is back in position to attract world soybean demand from mid-September onward. We look for China to become a larger buyer/importer of US soybeans in August/September. The cash market premium argues that final size of the 2024 Brazilian soybean crop is 148-152 million mt.

• World ocean freight rates declined to a 1 month low on rising availability of vessels to carry dry goods. The fall in grain values and freight costs is allowing end users the opportunity to book forward at the lowest landed values in years. World demand will be focused on the US in the months ahead.

• The Central US GFS weather forecast at midday is slightly cooler in the 8-11 day period across the W Midwest, but a below normal rainfall trend is forecast for the Plains, Canadian Prairies and the most of the Midwest into August 4. Heat will begin on the weekend with highs ranging from the mid 80’s to the mid 90’s throughout most of the Plains, Delta and the Midwest. Precipitation for the next 9 days will be focused on the Gulf States and SE US with a few isolated afternoon thunderstorms over the N Midwest. The GFS forecast projects amplified high pressure ridging in the 10–15-day period with high temperatures in the 90s/100s across the entirety of the Plains and in AR, MO, and IA. Confidence in extended range details is growing on run-to-run consistency. The coming heat and dryness will be a stress on Central US crops.

• The midday GFS forecast is threatening with extreme heat/dryness to invade the Central US from late July into August 7.  Whether the GFS is overdoing the extreme heat in the 11-15-day period is unknown. But the forecast models are consistent in the heat threat with limited rain. Finishes have proven to be poor in recent US crop years, and we expect the same again in 2024. This makes the record large fund short “vulnerable” heading into the August USDA crop report.