6 December 2021

Posted on December 6, 2021 by simon

HEADLINES: Backing and filling should produce a turnaround Tuesday; Biden/Putin to talk Tuesday; US soybean exports hold steady.

The pending USDA December report and the expectation that it will be slightly bearish for soy/wheat has caused Chicago to give back some of Friday’s gain. Midday volume has slackened following active early day managed money selling in corn, wheat, and soymeal futures. We look for a mid-range Chicago close today as bullish or bearish passion is lacking.

“Backing-and-filling” best describes today with exceptionally strong cash markets underpinning values near the morning lows. US ethanol and soy crush margins are historically strong for early December, and processors are paying “overs” for nearby cash which is producing $6.00 Midwest corn bids.

And December corn futures are priced at a rare 1.5 cent premium to March. The December premium to March is a record looking backwards for early December. In 2012, December corn traded at a 15-cent premium to March during the heart of the summer drought. This year the US corn crop looks to be the second or third largest on record and it is demand that is pulling cash corn and futures spreads upwards. This is a demand led Chicago rally in the summer row crop futures.

USDA reported that China booked 130,000 mt of US soybeans. Cash traders indicate that the 2 cargoes were sold for late January. Traders are also discussing that China has issued TRQ’s in November but has not activated them. Friday’s cash connected rumours that a private Chinese buyer took 5 cargoes of US corn is likely correct. Often, private Chinese importers secure grain ahead of TRQ issuance/activation. China (through TRQ’s licenses) must secure 7.6 million mt of world corn and 9.4 million mt of world wheat to follow their 2001 WTO pledge.

Chicago brokers estimate that managed money has sold 3,000 contracts of wheat, 5,500 contracts of corn, and 4,500 contracts of soybeans. Funds have also sold 4,700 contacts of soymeal while buying 1,200 contracts of soyoil. The fund selling was active in the first 20 minutes of the morning opening.

US weekly export inspections for the week ending Dec 2 were 29.9 million bu of corn, 82.5 million bu of soybeans, and 9.0 million bu of US wheat. The wheat export total was less than trade expectations while corn/soybeans were in line. We note that the US is now consuming 130-140 million bu of soybeans each week, which amounts to nearly 6.5 billion bu annually. Seasonally, the US will see a significant decline in export loadings in February. The recent string of large US weekly soybean exports will cause WASDE to be slow in cutting their 2021/22 soybean export estimate.

USDA is not expected to change their S American soy or corn crop estimates in Thursday’s December WASDE report. It is too early in the growing season for CONAB/WASDE to be exact on S American corn/soy yields. It is the reason why S American weather forecasts have diminished importance until mid-December. It is the February and forward S American CONAB/WASDE crop estimates that matter.

Russia has amassed 175,000 troops on the border with Ukraine, surpassing last spring’s build up by early 70,000. And additional troops and armaments are on their way from Moscow. President’s Biden and Putin will be talking Tuesday, but most sources doubt that Putin will back down. Sanctions will likely include the world banking system and some ban on ag/energy exports. Neither would help EU/world inflation and would be bullish to world corn/wheat values. It is important to monitor the situation closely.

The midday GFS weather forecast is slightly wetter than the overnight run for Southern Brazil including the state of Parana. Yet, high-pressure ridging aloft across Argentina/Southern Brazil will restrict the flow of moisture. Temperatures are variable highs ranging from the 80’s to the mid 90’s. Crop-critical weather lies ahead with S Brazilian soil moisture in retreat. It is the forecast following Thursday’s USDA report that becomes critical.

It is just too early to get overly bullish on dry S Brazilian/ Argentine weather. However, that view will change in a few weeks with stress on Southern Brazilian crops increasing. US President Biden has decided to diplomatically boycott the Beijing Winter Olympics for human right abuses, which harms the political atmosphere. Yet, we doubt it will change China’s demand for US ag goods. Don’t sell breaks on tightening US cash supplies and the growing concern that the US/NATO will place economic sanctions on Russia.

3 December 2021

Posted on December 3, 2021 by simon

HEADLINES: Wheat falters as offers submitted to Saudi in weekend tender; China still securing Ukraine corn, China TRQ’s coming.

It has been a summer row crop rally in Chicago this morning as corn/soy futures rises, while wheat sags on the fading hope that US HRW wheat will be included in the Saudi tender while Russia continues to discuss its export quotas for wheat (and all Russian grains) which will start on February 15. The tone of Chicago is bullish for corn/soybeans on Southern Brazilian and Argentine weather worry. We look for a mixed Chicago close with market volatility staying high on thinning volume ahead of the end of the year amid high prices and tight cash supplies. A widely swinging Chicago will persist with volume tapering off even more following next week Thursday’s USDA Crop Report.

Chicago brokers estimate that funds have bought 5,600 contracts of corn and 4,900 contracts of soybeans, while selling 4,300 contracts of wheat. In the soy products, funds have bought 4,300 contracts of soymeal and 3,800 contracts of soyoil. Investment managers appear willing to add to their existing market length in corn and soybeans, while paring back on wheat. Funds have not really embraced a sizeable net long wheat position except in KC futures.

FAS/USDA reported that an unknown destination secured 122,000 mt of US soybeans overnight. Commercial sources report that China has booked 24-28 cargoes of Brazilian/US soybeans this week with 15-18 of those cargoes being sourced from the US. China is 50-60% covered on January soy import needs.

E European cash traders report that the Ukraine continues to book corn with purchases nearing 500,000 mt or about 8-9 cargoes. Why China is willing to pay up for Ukraine corn for nearby shipment is unknown. US Gulf corn is cheaper, but Chinese purchases would also be more transparent due to the US’s Daily Reporting system.

China is in a timeframe when TRQ’s could be issued for the New Year. These TRQ import licenses are for corn/wheat, which would produce some immediate buying amid heady import margins. We should be closely watching for the China Government to issue TRQ import licenses in the weeks ahead.

Interfax is reporting that the Russian Government is considering setting an export quota of 14 million mt for all grains in 2022. This would include 9 million mt of wheat from February 15 to June 30. We calculate that if the rumours are correct, Russia would export 31.5-32.0 million mt of wheat, well below the WASDE forecast of 36.5 million. Such a quota would be longer term bullish. However, WASDE will not change their Russian wheat export estimate until the government officially announces the quota and places it in the federal registry. This would likely occur in the January WASDE report.

The midday GFS weather forecast is slightly wetter than the overnight run for Southern Brazil including the state of Parana. Yet, high-pressure ridging aloft across Argentina/Southern Brazil will restrict the flow of moisture next week. Temperatures start to warm this weekend under the ridge with highs ranging from the mid 80’s to the mid 90’s. Crop-critical weather lies ahead with S Brazilian soil moisture in fast retreat. The GFS ensemble model is drier for Southern Brazil (than the operational) which follows the existing weather trend. There could be a few showers in mid-December for Southern Brazil, but the rains do not appear to be drought breaking.

Chicago and Paris wheat futures are sagging intraday, but cash markets in the Black Sea and Europe are holding strong. We doubt that any break in KC March wheat can be sustained much below $8.20. Corn/soy futures will be closely following S American weather with a March corn close above $5.90 turning all chart-based price trends up. The continuous daily corn chart illustrates how important the $5.90 level has been looking backwards to July. March soybeans target $13.00 with ongoing dry weather for S Brazil into mid-December.

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

Weekend summary 3 December 2021

2 December 2021

Posted on December 2, 2021 by simon

HEADLINES: Wheat soars on US export opportunity to Saudi Arabia; China buying Ukraine corn and Aussie wheat; Russia/Ukraine conflict?

Wheat/corn futures are pacing the morning Chicago rally with the talk growing that the Saudi tender for April-June wheat could include US HRW from the Gulf. And corn futures are higher on cash reports that China is back securing Ukraine corn and Aussie wheat, while drought fears for Southern Brazil and Argentina are noted in the background on any setbacks. Chicago has a firm tone at midday and a higher close is forecast into Friday’s Stats Canada report. Traders are looking for a further cut in 2021 Canadian wheat, canola, and oat crops. Remember that Stats Canada (like ABARES in Australia) conjures up their crop estimates from satellite analysis. This creates disparity in years where there are large deviations in yield due to an adverse climate. Research argues for a further cut in the Canadian crop and that ABARES will at some point, itemise abandoned fields as the grain has stood too long in water to be cut. The future supply risks of world crops is pointed downwards into 2022.

Chicago brokers estimate that funds have secured 6,400 contracts of corn, 4,300 contracts of wheat and 3,700 contracts of soybeans on the morning rally. Soy products purchases include 3,100 contracts of soymeal and 1,900 contracts of soyoil. Funds were net sellers of soyoil at the opening but have turned buyers on the rally.

US export sales for the week ending November 26 (Thanksgiving) were; 2.9 million bu of wheat, 40.2 million bu of corn, and 39.1 million bu of soybeans. For their respective crop years to date, the US has sold 526 million bu of wheat (down 153 million or 22%), 1,395 million bu of corn (down 112 million or 7%), and 1,365 million bu of soybeans (down 555 million or 29%). China and an unknown destination booked 294,000 mt of US soybeans. China is rumoured to be showing interest in US PNW soybeans for February. US soybean exports last week were pegged at 85.5 million bu which compares to inspections of 78.7 million bu. China showed up again as a large buyer of US sorghum.

There are strong rumours that China has booked 5 cargoes of Ukraine corn for late December/January shipment. China is also bidding for Australian wheat, but the quality of the wheat being booked is unknown. Normally China would secure hi protein Aussie wheat with a Hagberg of 300 or better. Research doubts that much of the 2021 Aussie wheat crop will be able to achieve this quality measure amid the low protein crop of W Australian and all the rain for E Australia. China’s recent interest in booking Ukraine corn for nearby shipment and wheat from France/Australia is noteworthy and counters talk that China will secure less corn/wheat in 2021/22 than in 2020/21. Research looks for China to import like or greater quantities of world grain this year.

The Saudi tender for over 500,000 mt of April-June wheat is likely to include US HRW wheat for May/June. No Russian exporter is willing to offer new crop wheat amid all the uncertainty of the floating export tax rate.

The floating Russian export tax rate will limit their new crop sales in the months ahead. And EU wheat stocks are declining rapidly amid strong world demand. The Saudi tender will be interesting to monitor, but the tender should reflect that extreme tightness that prevails for world protein wheat.

Brazilian millers are unwilling to take Argentine wheat without assurances that the wheat has zero GM material. With Brazilian millers to receive late December shipments, the debate over GMO Argentine wheat is starting to heat-up.

And the amassing of Russian and Ukraine troops along their common border is worrisome. Russia under the cloak of night is now moving heavy artillery and more than 100,000 troops to the Ukraine border. US Sec of State Blinken has argued that these feels different from prior border engagements. If any shots are fired, world grain markets will react strongly to the upside as both are key grain exporters. This political hotbed has to be closely monitored into 2022.

The midday GFS weather forecast is unchanged from the overnight run. High-pressure ridging aloft across Argentina/Southern Brazil will restrict the flow of moisture for the next 2 weeks. Temperatures start to warm this weekend under the ridge with highs ranging from the mid 80’s to the mid 90’s. Crop-critical weather lies ahead with soil moisture in fast retreat.

It appears that first notice day lows were scored in Chicago markets on Tuesday (or Wednesday in the case of KC wheat) as the new variant virus caused speculative liquidation. However, the tightening of world grain stocks is ongoing with S American weather concerning. Bull Chicago trends persist. Look for investment managers to boost their net long positions into late year.

1 December 2021

Posted on December 1, 2021 by simon

HEADLINES: Row crops lead recovery; More attention being paid to S American weather.

Chicago ag futures are steady to higher at midday as energy and equity prices find stability. Corn and soy have led the advance as short, and long-term weather outlooks in Argentina and southern Brazil turn worryingly dry. Weekly EIA energy data was somewhat dull but still longer-term supportive corn and ethanol prices. US exporters sold 150,000 mt of corn to Colombia this morning. Volatility will stay elevated for the foreseeable future, but our work maintains that breaks from current prices will be brief and shallow. Spot WTI crude is up $1.60/barrel at $67.70. The Dow is up 230 points.

US ethanol production through the week ending Nov 26 totalled 304 million gallons, vs. 317 million the previous week and the lowest since early October. However, weekly production must average only 296 million to meet the USDA’s 2021/22 corn grind forecast. Additionally, ethanol stocks were up only slightly at 853 million gallons and are still down 4% from last year. Production must stay enlarged to prevent further stocks contraction, and weekly ethanol grind tends to stay elevated in December and rises again during the spring months. Production margins remain incredible profitable, with cash ethanol across the Midwest perched above $3.20/gallon.

The US’s release of strategic crude reserves will occur over an unspecified time period, but US crude stocks (less reserves) last week totalled 433 million barrels, down 1 million from the previous week and down 11% from last year. Motor gasoline use last week was 8.8 million barrels/day, up 10% from the same week a year ago. Our message is that the US biofuel story remains positive for row crop markets.

OPEC meets today and tomorrow but the group is unlikely to stray from their plan to boost output by only 400,000 barrels/day beginning in January. Energy market direction in near term will hinge upon just how widespread travel restrictions become this winter due to Covid’s Omicron variant.

16-30 day climate guidance in S America extends coming dryness in Argentina and Southern Brazil into the very end of December, with the two-week forecast offering very little precipitation to the region. Mid/late December forecasts must be watched very closely to gauge whether the coming draw down in soil moisture triggers a pattern of excessive heat in Argentina/S Brazil. We also note that dryness in S Brazil will been more far reaching than expected, with abnormally low soil moisture now established in RGDS, Parana, Mato Grosso do Sul and Sao Paulo, which combine for 40% of Brazilian soy production and 50% of first-crop corn production.

Paris milling wheat is up €2/mt ($0.05/bu). EU corn is up €3/mt ($0.07/bu), and EU rapeseed is up a massive €16-17/mt.

The midday GFS weather forecast is wetter in Goias and Minas Gerais in Central but is unchanged elsewhere. Expansive high-pressure ridging aloft Argentina next week will restrict the flow of moisture there, and while this ridge dissipates beginning Dec 10, there just isn’t much rain in the two-week forecast. Argentine soil moisture is adequate for early crop growth but recall only 30% of the corn crop has been planted. Crop-critical weather lies ahead. We also note the GFS forecast advertises a warmer temperature pattern in Argentina beyond the coming weekend, with highs to reach into the 90s and low 100’s by mid-month. Outside of Central Brazil, S American weather concerns are elevated.

Money flow and macro market activity will have an outsized impact on ag price determination into late year. Yet, new end user purchases are advised on Covid-based weakness. The market cannot tolerate additional exporter supply dislocation.

30 November 2021

Posted on November 30, 2021 by simon

HEADLINES: Markets plunge on macro fears; EPA misses deadline; S American weather concerning.

Global ag, financial, and other raw material markets are sharply lower at midday as the overnight’s ‘get me out’ mentality spreads and intensifies. The Dow is down 600 points, with spot WTI crude down $4.30 per barrel at $65.60. Renewed uncertainty over global consumption/travel patterns is noted, and recent heavy fund buying of raw materials has exacerbated the market’s liquidation mode. We believe the break is fundamentally overdone, but corn, Chicago wheat and soybeans have fallen below their respective 20-day moving averages, which has added a new layer to speculative selling.

Brazilian fob soybeans for Feb delivery are quoted at $482 per ton, vs. US Gulf beans at $493. Widening Brazilian soy discounts are fairly routine in early winter, but this does validate the fact the US’s period of soybean export dominance will be closing in the next 60 days. The US wheat market’s chore of keeping exports slow, amid relatively tight stocks, has also become easier as European cash markets follow futures lower.

Yet, we strongly advise against chasing the break with new sales. In fact, end user purchases are advised at current levels.

The wheat market has digested ABARES’ record Aussie wheat production forecast, but whether a reduced Canadian crop offsets this will be known on Friday morning. Additionally, The EU and GFS weather models have added yet more rainfall to New South Wales and Queensland Dec 7-11. Open harvest weather there will be confined to just a few days next week. Soaking precipitation worth 2-3” is expected in the 6-10 day period, and wheat harvesting is estimated at just 25% complete this week in NSW. Cumulative moisture of 5-8” (snowfall worth 20+”) will keep rail repairs in Western Canada slowed.

We note that it is historically rare for ag market highs to be set in December. Technical healing will be needed but lingering in the background are worrisome S American climate forecasts, while additional net soil moisture loss occurs across the US Southern and Central Plains, both due to La Niña.

La Niña is not forecast to peak until January. The ongoing cooling of the equatorial Pacific will work to shift S American precipitation well north of major crop areas in Argentina, Paraguay and Southern Brazil. This pattern is now featured in the 10-day forecast and Dec-Feb climate guidance maintains similarly arid conditions. Heat will be absent from Argentina/S Brazil in the near-term, but the loss of soil moisture over time raises the odds that heat develops in late Dec/Jan. In the long run, weather takes priority over macro market fear/weakness.

US exporters sold 132,000 mt of soybeans to unknown destinations this morning.

The EPA looks to miss the statutory deadline to release its mandated volume requirements. EPA did propose an extension in this deadline, but little else is known about volumes or the timing of publication.

The midday GFS weather forecast is drier in far Southern Brazil over the next weeks but is otherwise consistent with the morning solution. A lengthy period of dryness/mild temperatures remains probable in Argentina and across the southern half of Brazil’s primary ag belt. This is very much in line with the development of La Niña, and amid consistency in Dec-Feb climate outlooks, S American weather must be monitored more closely. S Brazil poses the most immediate risk amid reports of very unhealthy summer corn in Rio Grande do Sul. S Brazilian dryness is also more expansive than previously expected, with large swaths of soy acreage now impacted.

It is impossible to know the potential impact of new Covid strains/mutations, but we highlight that global grain/oilseed consumption was record large in 2020.

29 November 2021

Posted on November 29, 2021 by simon

HEADLINES: Markets slide on Aussie production estimates; Midday GFS maintains dryness in Argentine/S Brazil.

Chicago ag markets are weaker again at midday as liquidation persists amid a sharply rally in the US$. Crude and gasoline futures remain firm but are well off session highs, and otherwise liquidation has been spread across the global commodity sector. Renewed concerns over Covid and consumer spending patterns during the winter months are noted, but we view today’s break as simply a function of money flow. FAS’s daily reporting system failed to include new US export demand and grain markets are digesting better than expected rainfall across Central Argentina over the weekend. ABARES in Australia boosted its Aussie wheat production forecast to a record 34.4 million mt, vs. USDA’s 31.5 million.

We do note that international cash markets have not fully participated in the recent break. Russian interior wheat and flour prices continue to score new seasonal highs on a weekly basis. Brazil’s interior cash corn market has stabilised at $6.40/bu. In the US, interior basis levels are steady with corn and soy basis in Central IL perched at $0.15-0.20/bu over Chicago futures for spot delivery.

ABARES projects Australian barley production in 2021/22 to be 13.3 million mt, the second largest on a record and 1.3 million above USDA’s current forecast. Australian canola production is pegged at 5.7 million mt, a record and 900,000 tonnes from USDA’s forecast. ABARES’ crop estimates lean slightly bearish wheat and canola/rapeseed markets, but quality and logistics issues persist. We doubt Australia can export more than 25 million mt of wheat in 2021/22, and so much of this boost in production will raise end stocks but will not find the world marketplace. Additionally, eastern Australia’s spot wheat future has rallied to $310/mt, vs. $260/mt in early November. This reflects a modest premium to spot Chicago.

The intensity of rainfall in eastern Australia has been downgraded, but another 2-4” will fall across crop-heavy areas of New Sales Wales and Queensland in the next 10 days.

US export inspections through the week ending November 25 included 30 million bu of corn as well as an 8 million bu upward revision to the previous weeks’ shipments to 33 million. Soybean inspections were 79 million bu and the previous week’s shipments were raised a sizable 27 million bu (44%!) to 89 million. Chinese demand for all-origin beans is robust, with Chinese imports in December likely to reach/top 11 million mt. Wheat export inspections totalled 9 million bu, vs. 7 million the previous week. It is clear Gulf fobbing capacity will favour soybeans in the near term. Improved wheat/corn shipments are due Feb onward.

NASS’s will publish its final winter wheat crop rating this afternoon. We look for the crop nationally to be pegged at 43-44% good/excellent, vs. 46% last year in late November. Warmth and dryness remain most probable across the Southern Plains throughout winter. Slow/steady drought expansion there is anticipated.

The midday GFS weather forecast is consistent with morning output in projecting a lengthy period of dryness in Argentina and across the southern third of Brazil. Normal/above normal rain will be ongoing in central and Northern Brazil. Closer attention must be paid to Argentine weather in early December as the GFS forecast hints at structural high pressure ridging there beginning Dec 15. This is too far out to place much confidence in, but the coming pattern reflects a classic La Niña signature.

The recent slide in crude cannot be ignored but we caution against adding to sales on breaks. Chart-based support lies at $5.80, March Chicago corn. KC/CBT wheat can lose another 10-15 cents and remain in a clear bull trend. It is Dec-Jan S American weather that determines fair value longer term, and concern over La Niña-based drought in Argentina/S Brazil remains elevated.

24 November 2021

Posted on November 24, 2021 by simon

HEADLINES: Wheat corrects, row crops follow; S American weather favourable into early December.

Chicago ag markets are lower at midday in a reversal from the overnight trade, with wheat pacing the break on profit taking. As previously mentioned, grain markets worldwide are heavily overbought and profit taking will occur periodically with wheat at 9-year highs. The wheat market this week has now digested excessive/unwanted rainfall in eastern Australia. Dec-Jan climate forecasts remain dry in Argentina and southern Brazil, but additional precipitation will fall across Central and Northern Argentina into the weekend. Argentine corn crop ratings will stay historically high in the near-term. The volume of trade has been surprisingly robust for a pre-holiday session.

FAS announced that US exporters sold 330,000 mt of soybeans to unknown destinations, 100,000 mt of corn to Mexico and another 30,000 mt of soyoil to India. Weekly US soyoil export sales through the weeks ending Nov 18 and 25 will be an impressive 70-90 million lbs, which follows sales in the week ending Nov 11 of 149 million. Firm palm oil and lofty rapeseed oil prices have funnelled global vegoil demand to the US soyoil market. Cash rapeseed oil in Europe this week is quoted at $0.80/lb, vs. $0.77 last week.

There is still no word on the EPA’s revision to biofuel blending mandates, but EIA’s weekly energy report confirmed that the US ethanol industry continues to operate at 95% of capacity. Ethanol production in the week ending Nov 19 totalled 317 million gallons, vs. 312 million the previous week. Recall weekly production must average only 296 million gallons to meet the USDA’s 2021/22 ethanol grind forecast, which is at least 150 million bu too low.

Motor gasoline consumption last week was 9.33 million barrels/day, up slightly from the prior week and up 1% from 2019 (pre-Covid). Gasoline use will be sharply this week as holiday driving patterns have normalised. Weekly ethanol production must stay elevated to prevent further stocks contraction, with Midwest cash ethanol prices clearly sending the signal of the need for additional supply. US ethanol stocks last Friday totalled 847 million gallons, down 3% from 2020. Cash ethanol in IA is quoted at $3.30, vs. $1.30 a year ago in late November.

The US’s release of 50 million barrels of strategic crude reserves over the next several months will temper energy market rallies during the winter months, but non-reserve stocks will still be below 2020 levels even assuming this 50 million gallons was released today in one tranche. Crude oil’s turnaround on Tuesday indicates that downside risk below $75, basis spot WTI, is limited.

Next week’s dry weather in Australia will be welcomed, but we note that the midday GFS weather forecast has added another soaking rain event to New South Wales and Queensland Dec 4-6. Whether the EU model includes this wetter change will be monitored.

The midday GFS forecast is wetter in Mato Grosso do Sul and Goias in Central Brazil in the 11-15 day period but is otherwise consistent with the morning solution. Moderate rains begin to fall across Argentina in the next 24 hours, with heavier amounts due over the weekend. 5-day accumulation in Cordoba and Santa Fe is pegged at 0.50-2.00”. Additional soil moisture improvement lies ahead. Needed showers will also impact Rio Grande do Sul in Southern Brazil on the weekend, while normal tropical showers persist in Central and Northern areas. South American weather into early Dec is favourable.

A correction in wheat was needed and March Chicago can lose another 15-20 cents and still maintain a longer-term bullish trend. End users are advised to add to supply coverage only on nearby corrections. Longer term, grain/oilseed price determination will hinge upon S American weather almost exclusively beginning in mid-December, and whether dry Dec-Jan climate outlooks in Argentina/S Brazil are proven correct.

23 November 2021

Posted on November 23, 2021 by simon

HEADLINES: Wheat leads as Australian forecast trends wetter.

Chicago futures are mixed at midday with KC wheat higher, soybeans weaker and corn caught in between. It is a typical pre-holiday session in terms of volume and enthusiasm. Firm closes are anticipated. Global crude oil futures have reversed earlier weakness and are trading sharply higher, which has acted to support Chicago soyoil.

There is not much fresh news available, including US export demand. FAS failed to announce any new US exports sales for a fourth consecutive day. Yet, market focus remains on weather issues in Australia, concern over future weather in Argentina and Southern Brazil, and rather strong interior US soybean meal and oil basis levels. Recall this particular week typically features new buying, while positive seasonal corn, wheat and soy price trends linger in the background.

The midday GFS weather forecast has added yet another frontal system to Eastern Australia Nov 30-Dec 2, with 10-day precipitation accumulation in New South Wales and Queensland now pegged in a range of 4-5”, with locally heavier amounts possible. Harvest progress will be halted entirely until after the first week of December.

This wetter near-term forecast also helps validate long range climate models, which feature a pattern of above normal rainfall in southern and eastern Australia into the end of next month. It is nearly impossible to quantify quality loss, and most in the trade expect the Australian wheat crop size to be 2-3 million mt above USDA’s 31.5. But the Aussie cash and futures market will be the best measure of changes to supply and demand, and both of have found renewed bullish vigour this week. A lengthy period of dryness is desired.

Paris milling wheat futures look to settle €2.50/mt higher at a new all-time record (in €uro) €311-312/mt ($9.55/bu). Grain market excitement in Europe has been cantered on wheat, but the corn market there has also found new seasonal highs amid the growing need for imports. We note that spot Paris corn holds a premium to Ukrainian fob prices of just $4/mt. Much higher prices are needed to prevent regional shortages of corn in Europe beyond winter. Our message is that international grain markets will continue to act as a buoy for US futures until much more is known about 2022 production potential.

The EIA’s weekly energy report on Wednesday is expected to show an ethanol grind last week of 312-317 million gallons. Recall just 296 million gallons per week is needed to meet the USDA’s 2021/22 corn grind forecast. US ethanol and gasoline stocks are unlikely to build until early 2021 as holiday driving patterns return to pre-Covid levels. Cash ethanol across the Midwest is now quoted firmly above $3.00/gallon, vs. $1.20-1.30 a year ago.

The midday GFS weather forecast is wetter in Cordoba and Northern Argentina into the weekend but is otherwise consistent with prior output. The outlook in Argentina and far Southern Brazil remains one of highly favourable conditions into early December but a growing risk that dryness becomes stagnant thereafter into mid-winter. More attention will be given to daily changes in Argentina’s forecast beginning next week. Daily showers will continue in Central and Northern Brazil indefinitely. A better mix of rain and sun would be welcomed in Mato Grosso and Goias, but soil moisture there has been fully replenished following last spring’s drought.

Downside risk in late year is limited. Positive grain market fundamentals will increasingly collide with the speculative community’s desire to own raw materials. Wheat will stay the bullish leader into late winter.

22 November 2021

Posted on November 22, 2021 by simon

HEADLINES: Wheat soars to new highs on E Australian rain and concern about Canadian loadings; US weekly exports uninspiring.

Chicago futures are higher at midday with wheat the upside price leader. Since the opening 30 minutes of morning trade, volume has really fallen off amid the pending holiday. We look for this to be a low volume week with traders not wanting to add to their risk profile. Adding to the uncertainty is that December options expire in a shortened trading session on Friday with first notice day against December being Friday. The market has a bullish tone at midday, but it feels that the range for the day is already in. Unless fresh news arrives on Tuesday or Wednesday, Chicago could just chop awaiting Australian, Central US and S American weather forecasts.

Chicago brokers estimate that funds have bought 5,500 contracts of corn, 7,400 contracts of wheat, and 3,100 contracts of soybeans. In soy products, funds have bought 2,700 contracts of soyoil and 1,200 contracts of soymeal. Funds are adding to their net long position across Chicago. However, the managed money tends to be put to work early in the trading session, leaving values to then sag going home. It is then repeated during the next trading session. We continue to see/hear investment funds looking for more exposure to raw materials including energy. Research argues that energy has formed a trading bottom.

USDA/FGIS estimated weekly US exports for the week ending November 18. The US shipped out 24.3 million bu of corn, 61.9 million bu of soybeans, and only 6.5 million bu of wheat. US corn/wheat weekly exports were well below trade expectations.

For their respective crop years to date, the US has exported 299 million bu of corn (down 67 million or 18%), 667 million bu of soybeans (down 246 million or 27%), and 385 million bu of wheat (down 71 million or 15%). Hurricane Ida had a big impact on US grain exports during September/early October as operations were slow to come back online. December and January exports will offer final indications as to whether then US can make up for any of these lost sales.

Russian fob wheat is trading at $351/mt fob today with interior CPT (carriage paid to) prices at 17,550 Rubles/mt. The Russian farmer has not shown any willingness to part with stored supply ahead of the coming winter. For each day that now passes, the Russian farmer will get into holiday mode, with sales likely on hold until after the end of the Orthodox Christmas holiday in late January. Russian farmers are concerned by their new crop prospects due to regional dryness. The world wheat market will have difficulty forging a top until the Russian farmer engages in sales. The calendar is starting to suggest that any volume of sales will hold off until early 2022.

Russian troops continue to mass along the Ukraine border which is a geopolitical concern to the world grain markets. If Russian troops were to push into Ukraine in a show of force, grain markets would quickly rally. Europe and the US (NATO) would likely call for an immediate embargo of Russian trade (ag included), which would force importers/millers to seek wheat elsewhere. We see the odds as remote that Russia pushes troops into Ukraine, but heading into a holiday week, traders are loath to enter shorts.

The midday GFS weather forecast is slightly wetter across Southern Argentina with near to above normal rainfall to persist across Northern and Central Brazil. The extra rain for S Argentina would be helpful as the 9-15 day forecast (week 2) shows below normal rain totals and warming temperatures. High temperatures will range from the 80’s to the lower 90’s.

Seasonal Chicago trends are higher into Friday with cash markets firm on reported $2.40/bu soybean crush and $2.40/bu cash ethanol grind margins. The massive profits of the US biofuel and soy crush industries underpins Chicago on breaks. US energy futures are also scoring trading lows with WTI January crude bouncing off $75 support following a $9/barrel decline. The next stopping point for wheat is $9.00/bu as wet weather causes damage to the E Australian wheat crop. March corn has resistance above $5.90 and March soybeans above $13.00.

19 November 2021

Posted on November 19, 2021 by simon

HEADLINES: Crude oil futures plummet on coordinated release of strategic reserves; Wheat rallies on Aussie wet weather; Corn/soy mixed.

Chicago futures opened lower, but quickly uncovered investor demand based on strong ethanol/soybean crush margins. Soybeans and wheat rallied while corn futures bounced off their overnight lows. Sinking crude oil futures has capped the rally, but the tone of Chicago remains bullish. Investment funds have a sizeable amount of capital to place in the commodity space before the end of the year. Grain and livestock breaks uncover support from managed money and institutional investors that want to add “stuff” to their portfolios. It is investor flows that will support a rally in grain/commodity values into the holidays.

Brokers estimate that funds have bought 2,200 contracts of wheat, 3,300 contracts of corn, and 2,100 contracts of soybeans. In soy products, funds have bought 1,300 contracts of soymeal while selling 2,300 contracts of soyoil. The prospect that the EPA will announce 2020, 2021 and 2022 biofuel mandates either today or no later than November 30 has sparked selling in soyoil futures on the risk of bearish headlines. Again, we would remind that we expect that EPA will raise the 2022 biofuel mandates which will be longer term bullish to US soyoil demand.

European traders indicate that China booked 200-250,000 mt of French feed wheat in the past 36 hours. Last week, China booked 700-900,000 mt of Ukraine corn with total Ukraine 2021/22 purchases estimated at 7-10 million mt. The Chinese buying of French feed wheat has raised eyebrows just as China harvested a record corn crop of 270-273 million mt. China’s domestic corn market is resting near historical highs. It is the huge margin between China’s domestic cash corn market and world feedgrains which is facilitating the buying. We estimate that China has now booked 19-21 million mt of world corn, on its way to another year of importing 28-32 million mt. This is a key reason why the downside in Chicago corn futures is limited, the risk that China secure US cash corn next.

Wheat futures have rallied to strong gains on the forecast for additional soaking rains for Eastern Australia. Farmers here were able to get a few days of harvest completed, but next week’s deluges look to cause fresh worry over wheat quality and yield. As we have previously reported, W Australian protein levels are low, which places added importance on E Australian wheat quality. The world cannot afford to lose E Australian wheat quality due to a shortage of high protein milling wheat as world spring wheat crops were knifed due to dire droughts in the US, Canada, and Kazakhstan.

Soyoil futures have fallen to key trendline support connecting the lows of June, September, and early November. Renewable diesel demand will be ramping up in 2022, and the bull market in vegoils is ongoing. Sunoil prices have rallied sharply in prior weeks, with shortages of palm and canola ongoing.

The midday GFS weather models are having trouble with a short wave that is expected to pull across Argentina next Thursday/Friday. The EU model has the front (and rainfall) further north, while the GFS is moving the system in this same direction, but at a slower pace. Note the rain across Central Brazil late next week with totals of 0.25-1.50”. Research argues that the GFS is overdoing the rainfall. The models will have the next week to decide on rainfall locations and amounts more fully.

Moderate to heavy rainfall will persist across N Brazil with totals of 3-6.00” into Nov 29. Brazilian farmers prefer more sunshine and drier weather conditions to slow emerging disease pressure on soybeans.

The big fall in US energy values is keeping fund managers from chasing Chicago values on the upside with meal/oil spreading pressuring soyoil. The volume of Chicago trade is modest today as traders will be taking off for the US Thanksgiving Day Holiday next week Thursday. December options expire in the holiday shortened trade session next Friday. Yet, US ethanol/crush margins are fantastic, limiting the downside on the premium cash basis bids heading into first notice day against December. Don’t sell breaks or chase rallies for now.