2 February 2022

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  • HEADLINES: Market volatility ramps up as funds sell grains/buy soybeans; US ethanol stocks rise for fifth week; Argentine weather concern is high.
  • Chicago futures opened sharply higher but a wave of profit taking pulling values off the highs by mid-morning. However, with US and S American soy crush margins deeply in the green (US soy crush margin estimated at $1.85/bu), there is no indication of demand rationing. Chicago needed a rest and could not keep rising 20-30 cents/day in soybeans, but lasting bearish price trends are not anticipated. We would see May corn under $6.10 and KC May wheat under $7.50 as offering a new purchase opportunity. We continue to highlight that extreme price volatility is the new theme of Chicago based on high prices and new large fund traders.
  • The soybean/corn ratio has pushed out to a 2.44:1 in old crop and a normal 2.40:1 in new crop. Soybean futures have additional work to accomplish if there is to be any chance that the US farmer will seed 90+ million acres of US soybeans this spring. The US needs to seed 90 million acres to prevent end stocks from falling into the negative with record large 2022/23 US exports forecast. A year ago, November soybeans peaked at $14.80/bu which was not high enough to jolt farmers out of their traditional crop rotations.
  • Chicago brokers estimate that managed money has sold 12,300 contracts of corn and 4,200 contracts of wheat, while buying a net 4,600 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soymeal and 2,100 contracts of soyoil. Money managers have turned grain sellers based on the charts. Cash markets are holding strong both in the Central US with corn said to be trading at 17-18 cents over h corn futures for nearby delivery. The Chicago correction is not enticing fresh cash corn/soybean movement.
  • The USDA reported that 380,000 mt of US old crop soybeans were sold to an unknown destination (rumoured to be China for March) in the 2021/22 crop year. Cash traders indicate PNW soybeans to China are becoming competitive based on rising Brazilian cash basis bids. Brazil is expected to export a record 10-10.4 million mt of soybeans in February. There is a record number of vessels that are waiting to load new crop soybeans. Brazilian crushers are outbidding exporters which is raising interior cash basis bids. Everyone is seeking new crop supply with the Brazilian farmer no longer a seller of their harvest.
  • The US weekly corn ethanol grind produced 306 million gallons, up 2 million gallons from last week, and well above the 296 million gallon average forecast by the USDA. The USDA should raise their annual US corn ethanol grind by 25 million bu next week. However, US ethanol stocks swelled 5.6% to 1,086 million gallons. The sharp rise in US ethanol stocks is due to sluggish US ethanol exports. However, with US ethanol priced below unleaded gasoline, we doubt that the slowness in US ethanol exports will persist beyond the next few weeks.
  • The midday GFS weather forecast is consistent with the overnight run with a below normal rainfall for S Brazil/Argentina for another 14 days. Argentine weather has been arid for the past 7 days and the crop areas that missed last week’s rains are back to showing stress. A few light showers of 0.2-0.85” are possible from Thursday through Saturday before another 7-10 day stretch of dry weather follows. Temperatures rewarm after February 6 with highs returning to the upper 80’s to the lower 100’s. Hot/dry weather could catch the second corn crop during pollination.
  • Record large S American soy crop losses imply an acute need for demand rationing and higher soy prices with US crush margins at $1.85+/bu. S America has lost over 20 million mt of corn, and the Argentine weather forecast is threatening with heat/dryness for its second corn crop. But corn has been unable to close above the summer highs at $6.41 March. Wheat is locked into a range awaiting Putin’s next move. We see KC March wheat in a wide $7.60-8.40 price range. This is no place to turn bearish of corn/wheat.

1 February 2022

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  • HEADLINES: Dramatic rally in Chicago soy as Brazilian export premiums soar; Warm/dry weather threatens Argentine crop yield potential.
  • Chicago futures are sharply higher at midday as new investment funds flow into corn, soybeans, and wheat in a new month. March soybeans have rallied to a new contract high at $15.39/bu, March soymeal has scored a new contract high at $437/ton while March soyoil tests Monday’s contract high at 66.77 cents. The next upside price target in soybeans rests at $16.23, the June 2021 high, $16.77, the May 2021 high and then $17.95, the drought high back in 2012. We see reasonable odds that the $17.95 high set back in 2012 will be tested or exceeded in an acute demand rationing rally effort.
  • Corn/wheat have followed the soy complex to the upside, but it is February Argentine weather that will determine the Argentine corn crop size. The initial Argentine corn crop (35%) was stressed by extreme record heat in January that cut the crop by an estimated 7 million mt. The second crop seeded in late November/December will reach its reproductive stage in February and was adversely impacted by 3 million mt due to early heat/drought. If February weather is too dry or too hot, Argentine 2022 corn production could easily slip below 40 million mt and create a world shortage of exportable feed grains.
  • Chicago is digesting S American crop losses that are adding up. In soybeans, Brazil/Argentina/Paraguay is estimated to have lost 27-31 million mt and 17-21 million mt of corn. The combined total of 44-52 million mt is massive in a world that already was short of supply. And the world’s largest buyer, China is poorly covered on forward corn and soybean import needs.
  • Dry Argentine/Southern Brazilian 2-week weather forecasts are adding to the upside potential. There being no room left in balance sheets to lose any additional S American crop. World exporter stock/use ratios were already record low and S American crop losses compound the demand rationing chore. The onus on the Northern Hemisphere to produce record harvests is massive. Chicago prices can correct for a few days, but a lasting bearish price trend demands record large US corn/soybean production in July/August/September.
  • Chicago brokers estimate that managed money has bought 7,300 contracts of soybeans, 9,500-10,500 contracts of corn, and 4,200 contracts of wheat.  In soy products, funds have bought 5,300 contracts of soymeal and 3,200 contracts of soyoil.
  • The USDA reported that 110,000 mt of US corn was sold to Mexico in 2021/22 and 132,000 mt of US soybeans to China in 2022/23. China is active in new crop bids trying to cover a portion of their September-November import need.
  • Brazilian fob/cif soybean basis bids are sharply higher at midday as panic sets in with importers and end users. We understand that premiums are up 9-15 cents/bu for March/April Brazilian soybeans.
  • The midday GFS weather forecast is consistent with the overnight run in a dry forecast for Southern Brazil/Argentina for another 10 days. Argentine weather has been arid for the past 5 days and the crop areas that missed last week’s rains are back to showing stress under 90 plus degree heat. A few light showers of 0.2-0.85” are possible on the weekend with another long stretch of dry weather following for Argentina. Temperatures rewarm after February 6 with highs returning to the upper 80’s to the lower 100’s. The hot/dry weather will further reduce Argentine crop potential and could catch the second corn crop during pollination. S American crop risks are elevated.
  • An acute Chicago demand rationing rally is underway in soybeans with China short bought and set to return from their New Year’s holiday late week. The next upside target rests at $16-18.00 March, a wide range. And any additional yield loss to the Argentine corn crop could spark a like dramatic rally in Chicago corn futures. Wheat is lagging on Russian aggression uncertainty with new contract highs forecast if Putin sets foot on the wrong side of the line. Soy/corn are big bull markets with extreme volatility. Our stance stays bullish.

31 January 2022

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  • HEADLINES: Grains correct on chart-based selling; Soybeans add premium as Brazilian crop estimates continue to slide; Heat returns to N Argentina/Paraguay.
  • Chicago futures are mixed at midday with soybeans/soymeal higher while corn, wheat and soyoil futures correct recent gains. The break this morning is corrective in nature following the push to new contract highs in corn/soyoil overnight. Wheat futures are waxing and waning with the market trying to measure Russian intentions regarding Ukraine. Comments from Russia that it does not intend to invade Ukraine nearby were taken as slightly bearish. However, no country announces it is going to invade another beforehand. Russia would not announce to the UN that it was planning a Ukraine invasion. Wheat has become a political market tied to daily flow of Russian intention news regarding Ukraine.
  • We doubt that corn/soyoil futures have scored important highs and like a host of world financial markets, that market volatility is ramping up that produce daily 10-20 cent price swings in the grains and 20-30 cent price swings in soybeans and more than 1-2.00 cent daily price swings in soyoil. Be prepared for wide swinging markets with an upward bias in the weeks ahead.  The market has not yet reached price levels that ration enough world soybean demand to prevent a dramatic tightening of US 2021/22 and 2022/23 end stocks.
  • Chicago brokers estimate that managed money has bought 2,600 contracts of soybeans, while selling 7,600 contracts of corn, and 3,900 contracts of wheat. In soy products, funds have sold 3,200 contracts of soyoil and bought 3,600 contracts of soymeal.
  • Private crop surveys in Brazil have estimated the 2022 Brazilian soybean crop at 125.1 million mt and the corn harvest at 106.0 million mt. The Brazilian soybean crop is based on sizeable yield falls in Parana, Santa Caterina, RGDS and MGDS. Deral in Parana and RGDS have already forecast sizeable crop declines based on harvested yield data.
  • Compared to early season estimates, a 125 million mt Brazilian soybean crop would call for a drop of 19 million mt of production. And early Brazilian corn production was estimated to be cut just over 9 million mt. The combined fall amounts to nearly 30 million mt of crop. The losses are massive and will cause a large shift of world demand back to the US. Already US soybeans are nearly competitive with Brazilian offers for late July and August. We understand that China is still bidding for US soybeans for late summer delivery. New crop US 2022/23 soybean end stocks have tightened dramatically and with this smaller Brazilian harvest, US exports will grow.
  • US export inspections for the week ending January 27 at 40.8 million bu of corn, 51.9 million bu of soybeans, and 13.3 million bu of wheat. Weekly soy shipments were above expectations. Wheat and corn data is unexciting, but corn shipments are beginning to rise seasonally. Weekly corn export inspections reach 50-60 million bu by mid/late Feb.
  • The midday GFS weather forecast is consistent with the morning run in that meaningful S American rainfall into Feb 10 will be confined to Central and Northern Brazil. A few light/moderate showers are possible in La Pampa and Buenos Aires, but the main portion of Argentina’s ag belt will see cumulative precipitation through the period of just 0.1-0.50”. Most important is that this appears to be the return of a La Niña-based climate pattern in Argentina, with below-normal precipitation most probable in Argentina into the middle of next month. Additionally, we note that max temperatures will again reach into the upper 90s/low 100s across N Argentina, Paraguay and RGDS in far southern Brazil into late week. This year’s heat has been thye primary thief of yield in Argentina/Paraguay/S Brazil.
  • The market has traded tighter US/exporter stocks/use relative to current USDA forecasts, but the market has not yet digested the sheer size of US export potential between now and the very end of 2022. Extreme volatility lies ahead, but corn and soy (particularly Nov 22) are undervalued. Spot Brazilian corn today is quoted at $7.90/bu.

28 January 2022

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  • HEADLINES: New contract highs in soybeans/soyoil as demand rationing need rises on smaller S American crop potential; GASC wheat purchase news awaited.
  • Chicago futures are sharply higher at midday with corn, soyoil and soybean futures posting new contract highs. News that China continues to secure old and new crop soybeans out of the US reaffirms S American crop losses and the need for acute demand rationing. If S America has lost 24-28 million mt (880-1,025 million bu) of soybeans from initial season estimates that lost demand must flow to others, namely the US. This is a big demand shift with price trying to ration demand. Whether $14.75/bu rations demand has yet to be seen, but China’s short bought position heading into their Lunar New Year would suggest that any chart-based corrections will be well supported. Corn is following soybeans with traders discussing larger Argentine corn yield losses and enlarged US corn exports. China’s near record corn price into early 2023 has many traders betting that China will return to the US corn market following their holiday. We look for a sharply higher close with soybeans/soyoil and corn the upside leaders.
  • Chicago brokers estimate that managed money has bought 4,600 contracts of soybeans, 5,900 contracts of corn, and 4,400 contracts of wheat.  In soybean products, funds have bought 4,100 contracts of soyoil and 4,800 contracts of soyoil. This will be the highest weekly settlement in soyoil since July with the next upside price target being contract highs at $73.74. We doubt that the old contract high will halt this rally amid rising energy values and the new renewable diesel refineries that are coming online.
  • FAS reported in its daily reporting system that 251,500 mt of US soybeans were sold for the 2021/22 crop year, and 264,000 mt to China for 2022/23. And 141,514 mt of US soybeans to Mexico for 2021/22. In total, there was 393,014 mt of soybeans sold in an old crop position and 264,000 mt in new crop. S American export premiums continue to rise with the US nearly competitive for LH July. Based on smaller S American soy crop estimates, the US will enjoy sizable late summer world soybean export demand of 3-4 million mt.
  • Indonesia, the world’s largest palmoil exporter, has moved to raise domestic supplies, boost domestic biodiesel production, and cap exports with this week’s new government regulations. Adding to the complexity of world palmoil trade is a ruling by the US that the world’s largest palmoil plantation, Malaysia’s Sime Darby, uses forced labour which allows its produced goods to be seized at US port. Since Sime Darby production is hard to identify from Malaysia, importers will have difficulty assuring identity of a Malaysian producer. The US move further tightens available US vegoil supplies.
  • Traders are still awaiting the results of the GASC wheat tender.
  • Reporters on the border of Ukraine indicate that Russia is moving medical supplies/stored blood to the front lines, a new concern for an invasion. Traders have been watching to see if Putin moved in medical supplies to the front line for a heightened invasion worry. Something new to worry about.
  • The midday GFS 10-day weather forecast is slightly drier in far W Argentina but otherwise consistent with the overnight run. A classic La Niña dry pattern is offered, but light showers may sneak into Argentina and S Brazil from time-to-time. A high-pressure ridge will hold across the area and spur below normal rainfall into mid-February from Parana in Brazil southward. High temperatures are forecast to return to the 90’s to lower 100’s in the 11-15 day period. And heavy/unwanted rain returns to Central and Northern Brazil which will slow the harvest. High temperatures hold in the 80’s to the lower 90’s.
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27 January 2022

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  • HEADLINES: Markets mixed; Brazilian soy crop estimates falling rapidly.
  • Chicago futures are again mixed at midday, with soy complex values higher, wheat down 7-14 cents and corn unwilling to move in either direction. Wheat values worldwide have reacted to rumours suggesting high odds of a NATO-Russian resolution, but this is completely unfounded, and we expect Black Sea tensions to be ongoing as an easy exit is not available for either party. Soybeans continue to account for declining S American soybean estimates and government entities in Brazil are beginning to corroborate sharply lower private estimates this week.
  • Deral, the crop monitoring body for the state of Parana in Brazil, now estimates soybean production there at 12.8 million mt, down 5.6 million mt (30%) from December. This adjustment alone would trim CONAB/USDA Brazilian soy crop estimates to 133-135 million mt. Mato Grosso do Sul has also pegged soybean production in that state at 11.4 million mt, vs. CONAB’s 12.6, and so a sub-130 million mt Brazilian soy crop is feasible. The domestic market in Brazil continues to outbid the exporter, and amid weak S American soy carryover supplies, any tonne lost in Brazil becomes US export demand, or the market works to slow world trade as a whole. Both are bullish relative to current prices.
  • Most importantly, the Brazilian cash soy market is rising rapidly despite harvest beginning, which is historically rare. Spot fob basis in Brazil for March shipment is now quoted at $1.00/bu over Chicago futures. This compares to basis of $0.60 in mid-January. Additionally, ship waiting times in Brazil are beginning to rise as vessels are slow to be filled. Demurrage is costly now, and US soybeans are priced competitive against Brazil for early spring delivery. S American soy yield loss bodes most favourably for new crop US soy export demand, rising total costs in Brazil will boost interest for US soy in the near-term as well.
  • US weekly export sales were at/slightly above trade estimates. Corn sales through the week ending Jan 20 totalled 55 million bu, vs. 43 million the previous week and a 6-week high. Soybean sales were 38 million bu, vs. 25 million the previous week. Wheat sales were a crop year high 25 million bu. US exporters sold another 27 million lbs of soyoil, with cumulative soyoil commitments as of Jan 20 a record 74% of the USDA’s annual forecast, with 36 weeks left in the marketing year. Soyoil’s long term bull story centres on expanding renewable diesel production, but nearby it is exports that warrant additional price premium. Recall Malaysian palm oil overnight scored a new all-time record high. We also note that China secured 8 million bu of US sorghum last week. China will be more active in securing US corn during the spring months.
  • Interior corn markets are reflecting a growing export program, with St. Louis paying $0.25/bu over. This compares to $0.10/bu under in late December. Cash markets are strong worldwide.
  • China will be on hiatus next week as the Lunar New Year collides with the beginning of the winter Olympics. China this week has been moderately active in securing spot beans from Brazil and new crop supplies from the US.
  • The midday GFS’s 10-day weather forecast is wetter in far Western Argentina but otherwise consistent with prior runs. A classic La Niña set up lies ahead, and though light showers may sneak into Argentina and Southern Brazil and pattern of below normal precipitation is anticipated into the first full week of February. Heavy and unwanted rain returns to Central and Northern Brazil. Heat in the next 10 days will remain cantered on Rio Grande do Sul in far Southern Brazil.
  • Our outlook into early summer stays bullish as current prices have not digested the size of S American crop loss, and associated boost in US export demand. Periodic profit taking can be expected but the path of least resistance is up into May/early June.

26 January 2022

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  • HEADLINES: New high for soybeans on smaller MGDS crop estimate; US tells Americans to leave Ukraine; US central bank decision before the close.
  • Chicago futures are sharply mixed at midday with wheat sharply lower, soybeans sharply higher while corn trades in-between. The midday Chicago volume is active with spreaders bull spreading corn but exiting long wheat/corn. Resting orders are lacking which enhances daily market volatility. Chicago brokers report inflows from investment funds, but at a rate below yesterday.
  • It will be interesting to monitor the financial market’s reaction to the US Central Bank interest rate decision. Amid the sharp stock market sell off, a relief rally is likely. We look for a mixed Chicago grain close. We doubt that President Putin will flinch while amassing troops at Ukraine’s border. Putin has already gamed out his next move of either invasion or holding troops along the Ukraine border for a considerable amount of time until his demands are met. Putin will not come home as a loser.
  • It does not require much volume to push Chicago grain markets sharply in either direction. Today’s varied direction is based on differing fundamentals. Wheat is easing as Putin masquerades his troops while soybeans are sharply higher on a smaller soy crop.
  • French President Macron will be speaking to Putin at the end of the week. The problem is that Europe is not offering a cohesive package for withdrawal of Russian troops. And NATO appears to be floundering in a package that meets Putin’s demands. And the US Government is suggesting that all Americans leave Ukraine immediately. The suggestion of a US evacuation does not indicate that Putin is backing down or that the world has dissuaded him from invading. To sum it all up, Ukraine President Zelensky told its people to; “Protect your body from viruses, your brain from lies and your heart from panic”. These maybe are the new words for a wheat trader to live by.
  • Chicago brokers report that funds have bought 6,200 contracts of soybeans, while selling 5,400 contracts of wheat and 4,900 contracts of corn. In soy products, funds have bought 2,600 contracts of soyoil and 800 contracts of soymeal.
  • Mato Grosso Do Sul state agency Farmasul indicated that its soy yield would fall 20% to 50.5 bags/ha vs. an early season trendline estimate of 62.84 bags. The yield reduction was a surprise in that MGDS weather was better than either Parana or RGDS. Assuming the RGDS state agency soy crop total of 10.7 million mt is correct (down 10.3 million mt) and Parana’s soy loss exceeds 9.3 million mt, a Brazilian soybean crop below 127 million mt is the making. It is the sheer size of the Brazilian soy crop loss that has pushed Chicago soybean futures to new highs. Total S American soy crop losses are now surpassing 24 million mt, a big deal that calls for additional demand rationing. Chicago soybean futures are too cheap if S American soy production is down 25-30 million mt.
  • Chicago corn futures are going to find it difficult to sustain a break as world fob corn values rise and domestic US cash basis firm amid cold temperatures and expanding export demand. There are rumours that Decatur paid 24 cents over while the St Louis barge market is trading $6.65/bu. March corn futures should keep rising and trade at premium to May/July with flat price at $6.40-6.60.
  • The midday GFS weather forecast is similar/consistent with the overnight run with a below normal rainfall trend for Argentina and S Brazil.  Near to above normal rain returns to N and C Brazil which will slow their soy harvest. It is Argentina, RGDS and Paraguay where extreme drought will deepen amid a below normal rainfall pattern. The only good news is that temperatures will moderate to seasonal 80’s/90’s.
  • Informa estimated 2022 US corn seedings at 91.5 million acres with soybeans at 87.8 million acres for a total of 179.3 million acres. We agree with the Informa corn seeding total, but we have US 2022 soybean acres at 89.0 million acres. The point is static US corn/soy acres cannot plug the S American drought shortfall. We remain bullish of soy/corn, with the wheat break unlikely to be sustained. KC wheat near $8.00 is a buy in our opinion.

25 January 2022

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  • HEADLINES: Wheat to a fresh multi-month high; March corn above $6.30; US cash market leads Chicago advance on push for supply.
  • Chicago futures are sharply higher at midday with corn, soybeans and wheat leaping higher as the US equity market slides for the 7 day out of 8. March corn has posted a new rally high with wheat soaring above the December highs on short covering.  March KC wheat is posting gains of nearly 30 cents taking values back against $8.50. March corn reached above $6.30 with the contract high at $6.40 the next upside target. Soybeans have followed the grains with traders lamenting how S American soy crop losses will further tighten world vegoil supplies. Canola, rapeseed and palmoil are already at record high prices (record low stocks) with sunoil values in tow. Soyoil joins the more bullish vegoils crowd as world demand is more exclusively focused on the Gulf based on rising S American premiums. The tone of Chicago is bullish with the March/May corn spread trading 37,000 contracts as March holds a 3.25 cent premium. Cash corn movement has been active over the past 2 trading sessions with futures showing limited impact. In fact, end users are raising basis trying to expand the movement. Soybean movement has been poor as US farmers are well sold on old crop stocks. We look for a strong Chicago close on fund manager interest in their long commodity short stocks macro market play.
  • Brokers report that funds have bought 9,200 contracts of wheat, 12-14,000 contracts of corn, and 4,500 contract of soybeans. In the products, funds have bought 3,200 contracts of soyoil while being flat in soymeal. Funds are showing a strong interest to cover shorts in wheat and own additional corn.
  • US interior cash markets are leading the rally in corn/soybeans as end users and exporters search for supply. Barge corn is trading above $6.60 at St Louis while interior Central IL corn bids are 15-25 cents over. Ethanol and livestock producers are now fighting enlarged Gulf corn export demand for nearby supply. The cold/snowy weather across the Northern Midwest is slowing cash movement and causing barge freight rates to soar. Cash bids are exceptionally strong, like last year, and there will be less feed wheat available for Plain’s cattlemen. The record US corn demand is expected to maintain strong cash corn bids into early spring.
  • Falling 2022 Brazilian soybean production keeps pushing export premiums higher. The Southern Brazilian province of RGDS estimated soybean yield losses of 49% with the worst hit fields showing drought losses exceeding 70%. RGDS was expected to produce a soybean crop of nearly 21 million mt, but that production estimate has now been cut by at least 10 million. RGDS corn losses are estimated at 3-3.5 million mt. Brazilian soybean crop losses are rising with Mato Grosso yields not being as good as hoped for. A Brazilian soy crop under 130 million mt is realistic with Brazilian export premiums rising to levels just below the US Gulf for May-June-July. The US should see sizeable late summer soybean demand.
  • The midday GFS weather forecast is similar/consistent with the overnight run with a below normal rainfall trend for Argentina and Southern Brazil into February 5. Near to above normal rain returns to Northern and Central Brazil which will slow their soy harvest. It is Argentina, RGDS and Paraguay where extreme drought will deepen. Crops have been damaged by weeks of record heat/dryness and the forecast does not call for a pattern change. The S American weather pattern looks to be returning to its December form of too much rain across the north and too little across the south. The long- range models deepen the Argentine drought during February. Close attention should be paid to N Brazilian rains (harvest) and Southern Brazilian dryness.
  • Last year Chicago corn rose to $7.75 and soybeans to $16.00 for seasonal highs in April/May. This year’s S American soy crop losses are far more important and acute demand rationing is required. March corn’s next upside target is $6.40, then $6.80 and $7.00-7.20. March soybeans should score new contract highs with resistance noted between $14.50-14.75. Russian/Ukraine tensions will keep wheat values pointed upwards with contract highs at $8.85 in focus. Our Chicago outlook remains bullish.

24 January 2022

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  • HEADLINES: Macro meltdown ahead of US central bank meeting; S American crop estimates decline; China buying soybeans on morning break.
  • Chicago futures are mixed at midday with wheat futures rising to sharp gains on rising Black Sea political tensions while corn/soybean futures falter on fund profit taking, weekend rainfall across the southern half of Argentina, and the macro market meltdown of the past 8 days. The DOW has now corrected 10% while Bitcoin has fallen more than 50%. US/world equity values are posting sharp losses with portfolio managers shedding market risk ahead of the US January Central Bank meeting that starts Tuesday and concludes Wednesday. A hawkish policy response is expected from the FED amid to the highest US inflation rate in nearly 40 years of 7.1%. Fear of a Russian invasion of Ukraine and fear of a hawkish US Central Bank for the next 2 years is hitting Chicago grain futures. Emotion always soars on days like these, but it is long commodities and short equity values that should prevail into midyear.
  • Chicago brokers estimate that managed money has sold 6,700 contracts of soybeans, while buying 4,400 contracts of wheat and a net 3,200 contracts of corn. In the products, funds have sold 3,400 contracts of soyoil and 2,900 contracts of soymeal. March soymeal is near downside support at $385/ton and below.
  • US crude oil futures are down nearly $3.00/barrel and the US$ higher. Wheat and corn are performing very well amid such financial market losses with the March-May corn spread pushing out to a 3.5 cent premium. Soybeans came under selling pressure due to the charts. The strength in the grains reflects the concern for the several of the world’s largest exporters, Russia and the Ukraine. One does not want to be short of grain should Russian set foot on Ukrainian soil in an aggressive manner.
  • Questions abound on the availability of seed/fertiliser and chemicals within Ukraine with the spring seeding season just 7-8 weeks off. Producers report that crop input supplies are snarled at the border due to the Russian conflict. The impact on summer row crop seeding/yields is something to closely monitor. If Russia holds their troops along the northern and eastern borders, Ukraine crop inputs for 2022 will likely be in short supply. Ukraine farmers have halted grain sales which is causing exporters concern amid the geopolitical uncertainty.
  • US export inspections for the week ending January 20 were 43.9 million bu of corn, 47.7 million bu of soybeans, and 14.7 million bu of wheat. Soybean/corn exports were above trade expectations, while wheat exports were routine. For their respective crop years to date, the US has exported 647 million bu of corn (down 97 million or 13%), 1,276 million bu of soybeans (down 398 million or 23%), and 485 million bu of wheat (down 108 million or 18%). China is active booking US soybeans for late summer and new crop due to their coming Lunar New Year holiday which starts on Monday. China also has interest for US corn on below $6.00 March.
  • Brazilian farmers have halted new crop sales amid falling production.  Crop yields are coming in well short in Northern Brazil due to excessive rainfall during November/December. A sub 128 million mt Brazilian soybean crop, sub 6.0 million mt Paraguayan and sub 44 MMTs Argentine soy crop adds up to a S American soy production loss of 27 million mt vs the October WASDE forecast, a very big deal!
  • The midday GFS weather forecast is similar/consistent with the overnight run with a below normal rainfall trend for Argentina and Southern Brazil into February 3. Near to above normal rain returns to Northern and Central Brazil which will slow their soy harvest. It is Argentina, RGDS and Paraguay where extreme drought will deepen. S American crops have been damaged by weeks of record heat/dryness.
  • The rallies in wheat/corn are noteworthy with the DOW off nearly 1,000 points at midday. We expect the portfolio mindset of buying commodities and selling equities to prevail. This should help rally Chicago grain markets amid the export and new crop uncertainty out of the Black Sea. A close above $8.10 KC March wheat and $6.20 March corn turns price trends upwards. We also see considerable value in November soybeans below $13.00. We stay bullish the grains and look to secure soyoil and new crop soybeans on this break.

21 January 2022

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  • HEADLINES: Corn gains on US price competitiveness; China said to be buying US soybeans for August; US/Russia talk – no deal just talk.
  • Chicago futures are mixed at midday with corn/soyoil trading firmer while wheat, soybeans and soymeal hold in the red. The morning Chicago rally took corn to its early January highs at $6.17 with news emerging from Geneva, Switzerland that the US/Russia would continue to have dialog on Ukraine. This pulled Chicago grain values off their highs. The US pledged to provide a written document to address the demands of Russia early next week. Russia wants the US/European nations to pledge that they will never allow Ukraine to join NATO or any other Western Nation alliance. And to reduce military armaments pointed at them.
  • It is possible that Russia could stand down via the US documentation which would prevent a Ukraine invasion, or Russia could use the US document as a bait and switch campaign, saying that they were tricked into thinking that the US and Europe had plans to alter Ukraine’s independence. We doubt that the brewing Russia/Ukraine dispute is resolved.
  • Chicago brokers estimate that managed money has bought 3,500 contracts of corn and 400 contracts of Chicago wheat while selling 6,200 contracts of soybeans. In meal, funds have sold 4,600 contracts while buying 1,500 soyoil. Traders are questioning the massive 34,000 contracts of March soymeal that traded overnight and why active periods of trade did not move the market more.
  • FAS reported for the week ending January 13, the US sold 14.0 million bu of wheat, 43.0 million bu of corn, and 24.7 million bu of soybeans. For their respective crop years to date, the US sold 607 million bu of wheat (down 179 million or 23%), 1,584 million bu of soybeans (down 521 million or 25%), and 1,675 million bu of corn (down 168 million or 9%). US soybeans are becoming competitive again in the July/August timeframe with China said to be active in securing August import need.  China is also said to be seeking US soybeans for March via their reserve.
  • FAS announced the sale of 132,000 mt of US soybeans to China and 247,800 mt of corn to an unknown destination. Most are pointing to Mexico or China as the unknown corn buyer. Chinese demand for US soybeans reflects the US’s competitive price position for July/August.
  • March/May corn at 3 cent and July/November soybeans at a $1.13 premium reflects tightening US grain stocks and improving export demand profile. The task of the market is to push demand forward into new crop. China cash corn is trading near/above $11/bu, Brazilian cash corn at $8.40/bu and EU cash corn at $7.40/bu, which makes Chicago corn at $6.15/bu look cheap. US corn is cheaply priced.
  • And the July/November soybean spread at $1.13 argues for 2021/22 US soybean end stocks below 250 million bu on a hike in US export demand during July/August. S American crop losses will push world soybean demand back to the US. Paraguay has been the hardest hit with their soy crop cut by more than 50% to 5.0-5.5 million mt. This will reduce soybeans into Argentina for processing.
  • The midday GFS weather forecast is similar/consistent with the overnight run with needed rain dropping across Central/Southern Argentina with 1-3.50” totals over the next 10 days. Rains will be limited across the Southern 2/3’s of Brazil next week with better chances in the 7–12-day period.  The heat/dryness is pulling S American corn/soy crops further downward. Northern Brazilian weather will favour the harvest.
  • The first week of August was the last time that a Chicago soybean futures contract settled the week above $14.00/bu. Soyoil is taking a breather, but its fundamentals are extremely bullish. Chicago corn is too cheap amid rising world feed pricing and US corn export demand looks to gain. Fund flows into commodities are expected to persist next week. We hold to bullish corn/soyoil/KC wheat.
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20 January 2022

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  • HEADLINES: Soybean futures to new contract highs with March at $14.29; Russian worry to dominate into the weekend; US ethanol grind recovery.
  • Chicago summer row crop futures are sharply higher heading into the midday hour with soyoil, corn and soybeans providing the bullish leadership. Early wheat selling uncovered new speculative buying with few traders wanting to be short heading into the weekend with Russia threatening to invade Ukraine. March soybeans have forged a new contract high at $14.295, while March corn is back near chart resistance at $6.14-6.17. And a close above $8.00 KC wheat and March corn at $6.17 will turn all chart trends higher. We see new crop soybeans, soyoil and corn as being the best bull value. November soybeans below $13.00 are too cheap (in our opinion) based on coming US demand next Sept-December.
  • Brokers estimate that funds have bought 7,400 contracts of corn, 12,900 contracts of soybeans, while being net flat in wheat. Funds were early wheat sellers and then bought 4,000 contracts back. In soy products, funds bought 3,200 contracts of soymeal and 5,400 contracts of soyoil. March soyoil futures has a new upside price target of $.65, or a test of the summer price highs.  By way of note it took just one minute to rally March soybeans $0.14/bu on order flow of just 3,000 contracts. There are no resting orders above the market.
  • Geopolitics has become important to world grain pricing this week. Russia invaded Crimea back in February/March of 2014 as soils froze and the world had their focus on the Winter Olympics in Sochi, Russia. World politicians fear that a similar invasion of Ukraine could occur as China’s hosts the Olympics this year. Russia continues to amass troops along Ukraine borders including Belorussia which is causing a sharp escalation of political fear. We have been asked if there is any economic indicator that would hint at Putin’s future Ukraine plan. Our response is the weakening Russian Ruble is one, but Putin will do what Putin wants as he sees reuniting the USSR territories as his legacy.
  • Few Russian grain exporters want to sell fob/cif corn/wheat too far in the future amid the uncertain geopolitical situation. This is creating a defacto Russian grain embargo. Importers wish to secure Black Sea grain only on an optional origin basis which forces sellers to secure from others, namely the EU or US. Australia has sold its grain export elevations through May with Asia active in booking June/July. Argentina has nearly sold its recent wheat harvest with the Government capping exports at 12.5 million mt, some 2 million below issued export licenses. The point is that Russian 2021/22 wheat exports could be below 30 million mt which implies the US will enjoy world wheat demand in March-May.
  • World cash corn markets are firm and rising. Brazilian cash corn is trading at $8.20-8.40 throughout the south, with Chinese cash corn prices rising above $11/bu. EU corn values are nearly $9/bu as Ukraine actively exports corn to China. Chicago spot corn below $6.00 is too cheap as world feedgrain prices rally.
  • US weekly ethanol data showed a recovery from last week with a corn grind of 310 million bu vs. the USDA weekly average needed of 296 million bu. The US corn ethanol grind is running hotter than the USDA forecast and further upward revision of 50-75 million bu in demand is required which would drop US 2021/22 corn stocks to 1,425-1,450 million bu in round figures.
  • The midday GFS weather forecast is similar/consistent with the overnight run with any meaningful rain persisting across Central/Southern Argentina with 1-3.50” totals over the next 10 days. Rains will be limited across the Southern 2/3’s of Brazil with totals of 0.25-1.50” into Jan 30. Extreme heat will batter S Brazil, N Argentina with highs in the 100’s. The heat/dryness is pulling S American corn/soy crop further downward.
  • March/May Chicago corn is trading at a premium which reflects strong demand and tight cash supplies, just like last year. The upside price target for March soybeans rests at $14.75 as private reports of a Brazilian soybean crop under 130 million mt flourish. Short covering in wheat will persist on the Russian invasion worry.  This is no place to be making new sales.