15 March 2021

Posted on March 15, 2021 by simon

• HEADLINES: Chicago May corn soars on cash tightness and fund buying; NOPA February crush report bearish; Midday GFS weather model adds to southern Brazilian rains.

• Chicago futures are mixed at midday with corn rising strongly on renewed fund buying, heady US weekly export inspections and the difficulty that ethanol producers/exporters are having securing cash corn for replacement. The cash corn market has real strength showing this morning which is relating into old/new crop spreads. Domestic supplies of US corn and soybeans are becoming exceptionally tight while commercial estimates of 2021 US corn/soybean seeding rises. Talk has the US looking to plant 94-95 million acres of corn and 90-91 million acres of soybeans for the March 31 report. We would argue that combined US corn/soybean acres of more than 82 million will be difficult to realise amid expanding sorghum and cotton seeding, but the point is that the world needs additional acres across the fibre and grain spectrum. Today’s rally is linked to the cash market as March futures expired Friday at sizeable premiums.

• Moreover, few analysts/traders have any confidence in the second quarter corn feed/residual use or second quarter residual use in soybeans. History shows that the volatility in NASS March 1 corn/soybean stocks is large and growing. The market has no room for record large corn feed or a residual soybean use.

• US cash corn/soybean markets are tightening with US farm selling being limited on declines. End users needing cash corn/soybeans and have started to raise their basis levels to acquire supply ahead of the March 31 NASS reports.

• Chicago brokers report that funds have sold 11,200 contracts of corn, 3,000 contracts of soybeans and 3,200 contracts of wheat. In the products, funds have bought 2,900 contracts of soymeal and 2,200 contracts of soyoil. Other than some isolated order of long profit taking, there are just not many resting orders above the market.

• US export inspections for the week ending March 11 were; 86.7 million bu of corn, 19.0 million bu of soybeans, and 25.1 million bu of wheat. The corn export total is a multiyear high. For their respective crop years to date, the US has exported 1,179 million bu of corn (up 547 million or 87%), a record 1,951 million bu of soybeans (up 831 million or 74%), and 708 million bu of wheat (up 17 million or 2%). The US corn export program is expected to stay strong with some spring weekly export totals surpassing 100 million bu. China exported 14 million bu of US corn last week with its weekly total expected to expand to 17-22 million bu in the weeks ahead.

• NOPA reported a soybean crush rate of 155.2 million bu, well down from trade expectations of 167-169 million bu, the lowest monthly US crush rate in 17 months. Severe bitter cold in early February likely slowed crush rates as plants moved to maintenance only production. Soyoil supplies dipped to 1,757 million pounds due to the lower monthly crush with daily usage rates holding only steady.

• The NOPA crush data was slightly bearish with the oil/meal peaking overnight and close to longer term downtrend line at 42.5%. Tight US soybean supplies going forward are likely to further lift soymeal prices.

• The midday GFS weather forecast is wetter for S Brazil and drier for Argentina. Argentine rain totals are estimated in a range of 0.25-1.50″ in the next 36 hours with a second similar system late in the weekend and early next week. Cordoba and La Pampa will be favoured with any heavier rain. The GFS forecast stays wet for Brazil with 10 day totals of 3-6.50″. Both the EU and GFS models offer a drier trend in the 11–15-day period. The heavy rains for Northern Brazil should be coming to an end by early April.

• Fund managers are adding to their net long Chicago holdings. Corn has the bullish potential on yield risk for Brazilian winter corn, strong US weekly export loadings and American drivers returning to pre pandemic gas consumption rates. Reported freeze damage to the SW Russian winter wheat crop underpins US wheat with talk emerging for a 2021 Russian wheat crop under 75 million mt. Chicago soy futures hold in a range amid a correction in the oil/meal spread and the worry over Brazilian soybean imports into the US.

12 March 2021

Posted on March 12, 2021 by simon

• HEADLINES: Chicago mixed at midday; S American crop size debate continues; Brazil’s ag minister concerned about winter corn production.

•  Chicago futures are mixed at midday after an early bout of tired long liquidation. May soymeal futures fell below the 100-day moving average which triggered aggressive fund selling following the close below the 50-day average yesterday. Soybeans followed meal lower until cash connected buying pulled May futures back above $400/ton. The RSI on soymeal reached 31%, the most oversold position of any of the Chicago grains since late last summer. US crushers have been processing soybeans for soyoil, but as US soybean supplies tighten and soymeal production declines, a seasonal bottom should be forming in soymeal. Soybeans cannot move too much higher without forming a soymeal futures bottom.

• Corn, wheat and soyoil futures have all recovered with soyoil futures scoring new contract highs. The next upside price target for May soyoil is $0.60/pound as world tropical oil prices flirt with historic highs. We note that there has been active spreading today of corn vs wheat and corn vs soybeans. The corn market should become the next upside leader on S American crop concern (Brazil) and a quick bottoming of FOB basis in Argentina. US farmers are unwilling to sell cash corn or soybeans on a Chicago decline.

• Chicago brokers report that funds have sold 4,200 contracts of corn and 11,100 contracts of soybeans and 1,200 contracts of wheat. In the products, funds have sold 7,900 contracts of meal and bought 3,200 soyoil.

• Harvest operations continue to push ahead throughout Brazil with varied, but often disappointing reports on soybean yield. And now The Brazilian Government is concerned that heavy rainfall is disrupting the planting of winter corn to the detriment of yield. Brazil’s ag minister Dias indicated that domestic corn supplies are already tight but suggested that commodity prices could take another leap without highly favourable weather. Already too much rain has fallen across Mato Grosso which accounts for 54% of the winter corn crop, sunshine and drier weather to root the developing corn crop down is desired.

• The industry expects that NOPA members crushed a record 166-169 million buv of soybeans in February. The unknown in the report is whether Midwest crush was slowed during the Arctic cold onslaught early in the month. February soyoil stocks are forecast to increase to 1.839 billion pounds compared to 1,799 billion at the end of January. The report is expected to once again confirm that price is not rationing demand. US soybean processors report that their cash crush margins are holding above $0.95 cents/bu and that raising basis bids is not stimulating new farm sales.

• We anticipate another week where US soybean exports top 20 million bu while corn is 74-82 million. Vessel counts show an aggressive corn program is underway.

• The midday GFS weather forecast is wetter for Northern Brazil and drier for Argentina. Rainfall totals are estimated in a range of 0.2-1.25″ with a few locally heavier amounts. The best rains fall late next week when a low-pressure vortex pulls through the area. The forecast is generally wet for Northern Brazil with 3.50-6.50″ of additional rainfall. The GFS forecast stays wet for Northern Brazil with 10-day rains of 3-6.50″. And the 10–15-day period is especially wet for N Brazil with another round of heavy rain. Winter corn needs sunshine and less rain to promote root growth. Our concern for the winter corn crop is growing amid ongoing heavy Northern Brazilian rainfall.

• Chicago futures felt extremely heavy this morning with soymeal busting below the 100-day moving average. However, cash connected buying developed on the break and with a new Northern Hemisphere growing season ahead, the downside price risks are limited as the market must building new premium in price. We doubt that few want to be overly bearish heading into the March 31sStocks and Seeding report. A record large first quarter feed use should also produce like demand in the second quarter. The acre risk is that US farmers will plant less than 90 million acres of soybeans. Buy sharp breaks would be our advice.

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

Weekend summary 12 March 2021

11 March 2021

Posted on March 11, 2021 by simon

• HEADLINES: US soybean and corn sales record large for early March; GASC books 360,000 mt of East European/Black Sea wheat; Midday GFS weather forecast wetter for Argentina.

• Chicago futures are mixed in midday trade with corn/soybeans firm, while wheat and soymeal futures decline. The volume of trade is diminished with all eyes on S American weather and the potential for elevated fund participation next week. Fund managers will be able to raise their exposure to corn, soybeans, wheat, and soy products by nearly 75% starting Monday. We look for a mixed close as US equity prices as measured by the DOW scores another record high. Commodity values in terms of stock valuations appear to be historically cheap.

• Soyoil futures scored a new contract high on the decline in world vegoil supplies with palmoil values at a 13-year high. Research indicates that soymeal futures are nearing a low as end users reach for additional soymeal as crush for canola, cottonseed, and other oilseed crops slows. And US crushers are having difficulty replacing stocks amid limited farm selling. The meal market should bottom against the November highs at $400-404/ton.

• Chicago brokers report that funds have bought 3,200 contracts of corn and 2,100 contracts of soybeans, while selling 6,700 contracts of wheat. In the products, funds have sold 1,900 contracts of meal and bought 4,200 soyoil.

• The US weekly export sales report offered 12.1 million bu of wheat sales, 15.6 million bu of corn, and 12.9 million bu of soybeans. All were above trade expectations. And we note that 2021/22 corn sales were 11.3 million bu with soybeans at 7.8. Interest is growing in the new crop position as Chicago futures rise.

• For their respective crop years to date, the US has sold 2,343 million bu of corn (up 1,237 million or 112%), 2,220 million bu of soybeans (up 961 million or 76%) and 886 million bu of wheat (up 18 million or 2%). The US has sold a record 90% of its annual US corn export estimate of 2,600 million bu while selling 99% of its soybean forecast. By late March, the US will likely have sold more beans than USDA is forecasting it will export which will raise questions on the validity of the USDA estimate. We continue to forecast US soybean 2020/21 soybean export rate at 2,350 million bu, 100 million bu larger than USDA which pulls stocks down to below pipeline level of 40 million bu. The longer the soybean market waits to ration demand, the more acute the ultimate rally.

• Finally, US exporters continue to discuss that China’s COFCO has secured another 1.5-2.0 million mt of US corn for summer shipment. COFCO has bought the corn in the US domestic corn market but does not need to announce a US sale until its loaded or ready to be nominated as being shipped to China.

• GASC secured 360,000 mt of wheat at an average price of $283.16, which was down $10.83/mt from their last tender in early February.

• The GFS weather forecast is wetter for Argentina next weekend as it has added back 1-2.00″ of rain for S and C Argentina. The models are pushing heavier rain potential backwards in time which reduces confidence, but the midday GFS is more like the overnight Euro model. The 6–7-day forecast offers limited rain with high temperatures in the 80′s to lower 90′s into March 18. Thereafter, the GFS upped rain totals to 1-2″ for S Argentina during March 19-21. Dry weather follows in the 11–15-day period.

• The GFS forecast stays wet for Northern Brazil with 10-day rains of 3-6.50″. And the 10–15-day period is especially wet for N Brazil with another round of heavy rain. Winter corn needs sunshine and less rain to promote root growth.

• Wheat futures are in liquidation on the pending abundant rain for the US Plains. The N Plains misses out on the moisture but HRW areas will get a welcome 1-3.50″ of rainfall. S Midwest and Delta corn seeding will be delayed by surplus soil moisture. Soyoil is the bullish stalwart of Chicago with meal likely to join in the party as US crush rates decline. This is no place for new sales!

10 March 2021

Posted on March 10, 2021 by simon

• HEADLINES: Chicago falls on March 17-20 Argentine rain prospect; CONAB out Thursday morning with March Brazilian crop estimates; US ethanol demand solid/improving.

• Chicago futures are sharply lower at midday based on long liquidation in thinning volume. Improving rain potential for Argentina and the Central US Plains has pushed all Chicago values sharply lower. May corn, soybean and KC May wheat have declined to their key chart-based support areas at; $5.30-5.35,  $13.90-14.10, and $6.00-6.10, respectively. Cash connected end user pricing is noted on the decline, especially in summer soymeal futures.

• May soymeal futures are getting close to a major buy point at $401-406/ton, a test of the November highs. May soymeal from the January high is down $56/ton and end users see May and forward soymeal futures as an enticing purchase ahead of a new Northern Hemisphere growing season. Soymeal has been used as the short leg of most Chicago spreads for the past 6 weeks as vegoil prices rocketed to a litany of fresh contract highs. The oil/meal spread is out to historical resistance.

• Chicago should be close to forging a trading bottom. As we have been suggesting for some time now, this is a supply driven/commercial market as fund positions have moved very little since November and Chinese buying slowed. Commercial/supply driven markets imply that rallies nor breaks carry-through. Therefore, we have advised against buying sharp rallies or selling sharp declines as Chicago valuations hold in a broad range trade.

• Chicago brokers report that funds have sold 21-23,000 contracts of corn, 14,000 contracts of soybeans, and 6,700 contracts of wheat. In soy products, funds have sold 1,900 contracts of soyoil and 5,400 contracts of soymeal.

• Brazil must be closely monitored as a new variant of Covid-19 is spreading rapidly and straining hospitals. The BBC is reporting that social unrest could worsen in the weeks ahead if unchecked, which could impact trucking, ports and logistics. No such worry is noted today, but it is a rapidly developing issue.

• US weekly ethanol production was impressive with a weekly gain of 26 million gallons to 276 million. This is well above the weekly total needed to reach the USDA annual US ethanol demand forecast of 4,950. The US consumed 873 million gallons of gasoline last week, the best in a year as pandemic worry subsides. Summer gasoline consumption should be close to 2019, a big change from last year, which would boost the US corn grind by 200 million bu to 5,150 million bu.

• The midday GFS weather forecast is following the overnight forecast with a wetter solution for Argentina. The forecast offers no rain with high temperatures in the 80′s to lower 90′s into March 17. Thereafter, the GFS forecast upped rain totals to 1-2″ for Argentina in the March 18-20 period. Dry weather follows in the 11-15 day forecast with seasonal temperatures. The arrival of 1-2.00″ of Argentine rainfall will help stabilise crop yields.

• The GFS forecast is wet for Northern Brazil with rains of 3-6.50″. And the 10–15-day period is especially wet for N Brazil with another round of heavy rain of 2.50-6.00″. Such heavy rains will further slow harvest and the seeding of winter corn. Such a wet finish is highly unusual and detrimental to yield!

• The prospect of an Argentine rain in the 7–10-day period is pressuring Chicago values. Yet, 7 weeks of dry/warm weather and excessive rain across N Brazil have not aided crop yields. CONAB will be out Thursday with an update on Brazilian corn/soy production (We look for a modest crop cut from their February forecast). And on Monday, funds can expand their net position, which will produce new buying. A Chicago trading low is close at hand on tightening US cash corn/soybean supplies.

9 March 2021

Posted on March 9, 2021 by simon

• HEADLINES: March USDA report a carbon copy of February; Chicago declines and recovers as traders point to speculative position bump next week; awaiting CONAB Thursday.

• The March USDA crop report failed to offer any excitement with Chicago futures in decline on liquidation. Historically, the USDA is passive in March due to the more important Stocks/Seeding Report that is due on March 31. However, this month’s report was ultra-passive with the USDA not making any change to US 2020/21 corn, soybean, or wheat balance sheets. The biggest change was USDA raising their estimate of the Brazilian soybean crop by 1 million mt to 134.0 million.

• The Brazilian soy crop increase was partially offset by a 500,000 mt decline to 47.50 million mt of Argentina. Brazilian farmers would argue with USDA’s soy crop increase, due to excessive rainfall across N Brazil and dryness for RGDS. However, the market must now await the expansion of Chicago speculative limits that starts Monday along with N Hemisphere weather to push Chicago price upwards. Our advice is to use the break to position for a spring rally. The cash market is tightening with farmers unlikely to sell stored crop on a break

• The USDA left US corn 2020/21 corn end stocks at 1,502 million bu choosing not to raise exports or alter feed/residual use. The average on farm price held at $4.30 on the completely unchanged balance sheet. Surprisingly, the USDA left the Argentine corn crop at 47.50 million mt and the Brazilian corn crop at 709 million mt. USDA was willing to trim the Argentine soy crop by 1%, but left corn unchanged. 2020/21 world corn end stocks were cut 1 million to 286 million mt, while China’s imports held at 24 million mt. The world corn balance sheet is about as boring a monthly report as can be produced.

• US 2020/21 soybean end stocks held at 120 million bu with exports of 2,250 million bu and crush at 2,200 million bu. The USDA tweaked its residual by 1 million bu with seed use raised 1 million bu to 104 million bu. This compares to 96 million bu of seed last year, an 8% increase. If seeded acres were raised by a like amount, it would boost seedings to a record large 90.4 Mil acres. Such acres would be slightly above the USDA 2021/22 balance sheet. The average farm price holds at $11.15.

• US 2020/21 soyoil stocks rose by 19 million pounds to 1,733 as biodiesel use held steady at 8,300 million pounds. US soyoil exports were lowered by 150 million pounds while production rose on a better oil yield of 11.65lb/bu. We look for another 200 million pound decline in US soyoil exports as the discount of palmoil to soy widens. The US soyoil balance sheet is slightly bearish.

• US wheat end stocks were steady at 836 million bu, but USDA raised white wheat exports and cut HRW based on pace analysis. US HRW wheat end stocks rose to 383 million bu (up 21 million from February) while white stocks fell 19 million bu to 64 million bu with SRW wheat stocks falling 1 million bu to 99 million bu. There are rumours today that China is seeking modest tonnages of US SRW wheat.

• The midday GFS weather forecast is drier than the overnight run for Argentina/S Brazil. The forecast offers virtually no rain for the next week (into March 16) with a weak cold front to produce a few widely scattered thunder storms. Rain totals are estimated in a range of 0.1-0.8″ with coverage reduced to 35% of the area. Such rain following weeks of dryness is not going to produce much benefit for Argentine yield/crops. High temperatures look to range from the 80′s to the mid-90s, warmer than normal into March 17.

• The GFS forecast is wet for Northern Brazil with rains of 3-6.50″ forecast. And the 10-15 day period is especially wet for N Brazil with another round of heavy rain. The rain will further slow harvest and the seeding of winter corn.

• The USDA March report produced the expected Chicago price break as bullish news was lacking. Price direction will be determined by S American weather/yield, new speculative inflows (start Monday), and tightening US cash markets. This is a commercial marketplace with spec longs not changing very much week-to-week. We look for a rally effort into the March 31 NASS report on the need for record large/combined US corn/soy seeding. S American weather remains concerning which should produce lower crop totals in April/May. Buy breaks, but a sustained Chicago rally will now have to wait until April.

8 March 2021

Posted on March 8, 2021 by simon

• HEADLINES: Chicago grains retreat in pre USDA crop report liquidation; Soybeans hold strong on rising world vegoil values; Too much rain for northern Brazil.

• Chicago corn/wheat futures are weaker at midday with the soy complex higher on tightening US supplies amid the fear of Brazilian crop losses. The Northern Brazilian weather forecast stays too wet while Argentina and S Brazil are too dry. S American crops are in retreat which underpins Chicago values on breaks.

• We have to admit that we are a surprised by the veracity of the Chicago morning corn/wheat decline with May corn futures back under $5.40 and May KC wheat sliding to longer term support at $6.00-6.10. The point is that neither corn nor wheat has much additional downside risk as measured by stock/use ratios relative to price. Post the USDA March report, we will look at both KC wheat and corn as new purchasing opportunities.

• This week’s USDA nor CONAB reports will show much of a decline in Brazilian corn/soy production. The stage is set for falls in coming monthly USDA reports. Remember, the USDA is to reflect crop sizes as of March 1. We looks for a mixed Chicago close following the midday price trend. The risk vs. reward in the grain markets is turning back in favour of the bulls. Grain futures selling is due to risk reduction ahead of Tuesday’s USDA reports.

• Chicago brokers estimate that funds have bought 5,400 contracts of soybeans, while selling 3,200 contracts of wheat and 7,600 contracts of corn. In soy products, funds have bought 3,100 contracts of soyoil and 1,900 contracts of soymeal. We note that on the morning decline, the March/May corn spread pushed out to new high with March trading at a $0.19 premium. March soybeans are also trading at a 3-cent premium to May. The premiums of March to May corn/soybeans does not argue for lasting bearish price trends on tightening cash supplies.

• US weekly export inspections for the week ending March 4 were; 60.8 million bu of corn, 21.6 million bu of soybeans, and 17.7 million bu of wheat. Last week’s soybean inspection total was raised 4.6 million bu to 36.9 million bu while corn was increased a hefty 16.2 million bu to 80.6 million bu. The vessel counts show that the US corn export pace is likely to stay large for weeks to come.

• For their respective crop years to date, the US has exported 1,087 million bu of corn (up 495 million or 84% from the same week last year), 1,932 million bu of US soybeans (up 830 million or 75%), and US wheat exports are 683 million bu (down 25 million or 2.5%). China shipped out 13.7 million bu of corn and 4.8 million bu of US wheat. Exporters report that China will continue to pick up their pace of US corn exports into August. China shipped out just 7.3 million bu of US soybeans, all off the PNW last week. The US has exported a record large 1,932 million bu of soybeans (FGIS) in the first half of the crop year or 94% of the annual WASDE forecast. China has shipped out most of its purchases.

• There are rumours that Mato Grosso may declare a state of emergency as some 3 million hectares of crops struggle with excessive rain/flooding. The state of emergency will help farmers who cannot meet their contract sales obligations. And the new worry is winter corn where clouds, mud and excessive rain are causing fertiliser leaching and poor seed germination. Follow this closely.

• The midday GFS weather forecast is bone dry into March 16 (Tuesday) before a front produces some showers. What is interesting is that the forecast models keep pushing he rain chances forward. This lowers confidence beyond the next 7 days. Regular and heavy rains falls across Northern Brazil in a pattern that appears to be stuck. The 10-15 day period is especially wet with 4-8.50″ of rain. S American crops are likely to decline with Argentine crop ratings to fall farther on Thursday. The forecast is too wet for N Brazilian winter corn.

• The USDA report is not expected to show any change, but the report could raise US 2020/21 corn exports another 50 million bu based on the sales pace. March futures are strong on tight US cash corn/soy supplies, these supplies will be even tighter during May delivery. Be a buyer of wheat/corn on price breaks.

5 March 2021

Posted on March 5, 2021 by simon

• HEADLINES: Chicago rallies on adverse S American weather; US January census soybean exports record large at 324 million bu; Midday weather forecast holds dry Argentine trend.

• Rising Chicago prices amid concern for S American weather is the theme at midday with corn, soybean, and wheat futures all in the green. US non-farm payrolls jumped 379,000 in February, a larger than expected gain showing strength to the US economic outlook. As a larger share of the US population is vaccinated, confidence in spending/jobs will elevate the US GDP rate well into year-end. The reflation trade is the right investing theme heading into April.

• Chicago May soybeans tested key resistance above $14.30/bu but were unable to score new contract highs. Research doubts that such highs will be seen until it is clear (early next week) that excessive rain stays focused on Northern Brazil while Argentina/RGDS hold in an arid weather trend.

• Sunday’s overnight trade will be volatile because of S American weather pattern confirmation or denial. It will not be a weekly start where soybean futures are up or down 1-3 cents. Corn/wheat will be followers of the complex, but there could be some real fireworks on Sunday’s opening. Soybeans will be the upside leader, but corn will follow in a close second place. It can be argued that the impact on Argentine/Brazilian corn could be more important than soybeans.

• Chicago brokers estimate that funds have bought 7,000 contracts of corn, 6,500 contracts of soybeans, and 1,200 contracts of wheat. In soy products, funds have bought 4,400 contracts of soyoil and sold 800 contracts of soymeal. Traders are looking for soyoil net length to be near record large while funds have cut their net long corn, soybean, and soymeal length.

• Census reported February Trade data this morning. The US exported a record large 324.4 million bu of soybeans in February. This marked the fifth consecutive month of record large US soybean exports. However, the February Census total was 3 million bu under FGIS inspection data which narrows the Census to FGIS inspection gain. Census soybean exports were running well above FGIS for months. The US also exported 328 million pounds of soyoil {up 203 million pounds or 162% from last year. US soymeal exports were 1,147 thousand short tons vs 782 thousand short tons last year. January US soy exports from all angles, soybeans and producers were stellar.

• The US exported 229 million bu of corn during February, up 47 million bu from December and up 131 million bu or 134% from last year. The US corn export pace is gathering steam as China looks to export 17-24 million bu/week on average into the end of the crop year. US weekly corn exports are forecast to average 70 million bu with there being some weeks where exports reach nearly 100 million bu. It is the export pace of US corn that will pull US cash basis levels higher along the river and a good reason why March corn futures are trading at a 15-cent premium to May, and a massive 26 cent premium to July.

• US January Census wheat exports were 73 million bu, equal to December but 3 million bu better than last year. The US wheat export pace has been regular but could improve amid EU shortfalls and the €50 Russian export tax.

• The midday GFS weather forecast is like the overnight solution with seasonal Argentine temperatures following a hot weekend. Rain will be limited for Argentina and S Brazil into March 16. And near to above normal rain will fall for N Brazil. The considerable Mato Grosso wetness is causing 25% quality discounts on soybeans and replant for corn. Very few years in history do Brazilian farmers replant corn due to excessive rain. The lack of sunshine/excessive soil moisture is slowing the establishment of Brazil’s winter corn crop. Concern is growing.

• It all comes down to S American weather early next week (supply driven bull) with a continuation of the current dry Argentine and wet/ N Brazil pattern producing new contract highs in soybeans and a test of the February highs in corn. Wheat is a follower, but a seasonal low is being formed if the Plain’s dry weather pattern is maintained. Chicago inflows are the feature after March 15 as fund managers increase their risk on the position limit expansion. We remain bullish on S American weather.

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

Weekend summary 5 March 2021

4 March 2021

Posted on March 4, 2021 by simon

• HEADLINES: Soybeans retest contract high on rising SE Asian vegoil price/adverse S American weather; Oil/Meal share at best level since 2013, Wheat follows.

• Following a disappointing FAS weekly US corn, soybean and wheat export sales, traders turned their attention to S American weather and a likely decline in Argentine/Brazilian soy/corn production due to too much rain across N Brazil and too little across Argentina/RGDS. Moreover, rumours of China buying Brazilian soybeans and rising Asian vegoil values pushed Chicago soyoil futures to fresh highs. Wheat and corn have been followers, but Argentine crop progress/condition estimates this afternoon will be closely followed. Crop condition falls are expected following the recent dry weather trend.

• The midday market holds a bullish tone with soybean contract highs within reach heading into the weekend. It is S American weather and the USDA March Crop Report on Tuesday that will direct Chicago valuations next week. Grain charts are turning the corner with May corn holding support at $5.30, May KC wheat at $6.20 while soybean futures push to highs.

• Chicago brokers estimate that funds have bought 3,000 contracts of corn, 9,600 contracts of soybeans, and 2,200 contracts of wheat. In soy products, funds have bought 6,200 contracts of soyoil and 1,100 contracts of soymeal.

• It appears that OPEC+ is agreeing that it will keep oil production flat this spring with Russia/Kazakhstan allowed modest production gains. The world was hoping that Russia would boost production 1-1.5 million barrels/day to cool rising prices. However, OPEC+ pricing power is strong as the US fracking industry remains hobbled by COVID-19 and limited new investment due to the Biden Administration’s desire to push away from fossil fuels in coming years. The OPEC+ decision could push crude prices back to $70-75 by mid-summer.

• US export sales for the week ending February 25 were 8.1 million bu of wheat, 4.6 million bu of corn, and 12.3 million bu of soybeans. The US corn sales were a marketing year low. For their respective crop years to date, the US has sold 874 million bu of wheat (up 23 million or 3%), 2,328 million bu of corn (up 1,279 million or 122%), and 2,210 million bu of soybeans (up 960 million or 77%). The US has now sold 88% of the USDA’s corn export estimate and 98.5% of the soybean export forecast. The US shipped out 42.6 million bu of soybeans and a crop year high 79.0 million bu of corn last week. China shipped 14 million bu of corn and 12 million bu of soybeans. China has exported a record 34.5 million mt of US soybeans with open sales of only 1.2 million mt. Corn switching from unknown to China raises their US corn purchase total to 18.7 million mt with 7.1 million shipped. We anticipate that China will purchase/ship 21-23 million mt of corn in 2020/21.

• Rosmeteo (Russian Crop Service) issued their winter wheat condition report this afternoon which showed falls in conditions relative to the past 5 years. The biggest surprise was that 10.2% of the Ural crop was rated as poor. The Russian winter wheat crop ratings were well down from last year with an estimated 1.4-1.8 million ha (3.5-4.4 million acres) needing to be reseeded. It is expected that these failed acres will go into spring barley/sunflowers. Research maintains a 2021 Russian all wheat crop estimate of 76-78 million mt.

• The midday GFS weather forecast is like the overnight solution. Near to above normal rain will fall for N Brazil and while a flash drought deepens across Argentina into March 20. Heat will be a feature for Argentina with highs in the 90′s to the lower 100’s for another week. The warmest period will be on the weekend when readings rise to the lower 100′s. The combination of heat/dryness is taking a toll on the Argentine crop yields.

• Fed Chairman Powell indicated that the US Central Bank would be patient with transitory increases in inflation. This suggested that a policy of low rates and rising asset prices (reflation) will persist. S American crop losses due to adverse weather could be especially bullish for US corn amid the growing delay in the Brazilian winter seeding while Argentina’s first and second crops both enduring acute stress during pollination. Research expects that China will secure an additional 2-3 million mt of old crop corn this spring and export all the 10 million mt of open sales. However, the US$ is rising which has taken some of the lustre away from midday Chicago valuations.

3 March 2021

Posted on March 3, 2021 by simon

• HEADLINES: Chicago can hold a trend; Reverses Tuesday’s market with corn/wheat pacing the decline; Mato Grosso corn reseeding/soy crop quality issues on the rains.

• Chicago is in reverse at midday with corn, soybean, and wheat futures lower with the market taking back most of Tuesday’s gain. The fear of another week of slow US export sales on Thursday along with the inability to extend Tuesday’s rally has left Chicago in a sort of price direction limbo. Both the bears and the bulls have talking points in recent days.

• The selling started in wheat and then spread to corn/soybeans in modest volume trade. It is not taking much size to push Chicago values around with funds already long and waiting for the March USDA data before they can start adding to positions. China pricing which was evident on Tuesday has not returned into midday. However, world cash grain and soy markets keep climbing which is likely to underpin futures markets. And US farmers will not sell in a down market, so cash basis levels keep rising to secure grain. We believe the morning selling to be somewhat overdone to the downside amid shrinking S American crop ideas.

• Chicago brokers estimate that funds have sold 9,500 contracts of corn, 2,600 contracts of soybeans, and 2,700 contracts of wheat. In the soy products, funds have sold 1,400 contracts of soymeal and 200 contracts of soyoil.

• Mato Grosso is a big place (the size of Texas), but producer reports on soybean yield/seed quality is worsening. Producers report that soybean seed moisture ranges from 19-26% and is not declining amid the constant rain. Commercials are docking moisture laden soybeans by as much as 25% with soybeans said to be sticky. The moist beans make transportation difficult with end users worrying about heating/mould. Moreover, an estimated 10-15% of the already planted winter corn (IMEA estimated progress at 50% through Friday) will have to be replanted due to poor seed germination. The wet Mato Grosso weather is causing serious concern to producers who are fighting the calendar to get corn seed in the ground. The situation must be closely followed, and the latest yield data argues for a decline in the Brazilian soy crop as yield/quality disappoint.

• Central US cash corn basis levels are firming as Chicago declines and the cash market tries to pull supply from tight fisted farmers. Traders are debating whether China will ship all the corn that it has purchased from the US with weekly exports needing to average (to reach the USDA annual forecast) 65 million bu/week. This is a big export ask, but the US soybean export program last autumn showed that China is following through on its Phase One commitment. Moreover, with China not feeding 30 million mt of food waste, it needs the corn to replace the feedstuff. One should always question a big export program that is just starting, but the record high domestic cash basis level in Central IL tells us that China will likely export most of its purchases. And export sources report that China will book another 2-3 million mt of US old crop corn before the end of the 2020/21 crop year.

• The midday GFS weather forecast is wetter across S Brazil (RGDS), but otherwise unchanged with above normal rains for N Brazil and well below normal rainfall for Argentina. Both the excessive rain in N Brazil and the flash drought for Argentina is becoming increasingly concerning. Heat will remain a feature across Argentina and S Brazil with daily highs in the 90′s to the lower 100′s. The warmest period will be on the weekend when some Argentine and S Brazilian crop areas will endure highs in the mid 90′s to the lower 100′s. The combination of heat/dryness is really starting to take a toll on the Argentine and S Brazilian soybean/corn crops. S American crop sizes are in retreat amid unfavourable weather conditions.

• Chicago values are pushing lower on chart related selling as the bull’s tire of the back-and-forth trade. S American soy quality (too much rain in Mato Grosso) and quantity (too little rain in Argentina) are in decline. And vessels are having to wait 40-45 days to berth and load at Brazilian ports. Making matter worse are the low water levels of the Parana River which is increasing the cost to load a panamax of corn in Argentina. China shows no willingness to cancel or push back their corn purchases amid a strong domestic feedgrain market with import margins being extremely profitable. We see breaks like today as buying opportunities.

2 March 2021

Posted on March 2, 2021 by simon

• HEADLINES: Chicago reverses overnight losses on S American crop concern; China used the break to price; Record 19 million mt of vessels awaiting to load Brazilian soy.

• A Chicago turnaround is underway with corn, soybeans and wheat futures recovering from Monday’s decline. Adverse S American weather and talk of increased Chinese pricing of soybean/corn purchases has sparked the Chicago rally. China has locked down a considerable cache of Brazilian soybeans (estimated at 35-37 million mt) and US corn (estimated at 19.0 million mt including 1.4 million mt in the unknown destination category) which a modest portion was priced on the break. Chinese buyers use Chicago weakness to fix their basis contracts. This is placing a base of support under Chicago corn/soy valuations.

• We note that the focus on Northern Hemisphere weather is starting amid the dryness in the Western US Plains and extreme soil moisture surpluses in the Gulf States/Delta where corn seeding starts in a few weeks. The focus on Northern Hemisphere weather will be acute in coming months amid the pure EU grain stocks shortfall and forecasts for record low US soybean stocks. Mother Nature is going to kill the EU wheat and US corn/soybean crops several times which will hike volatility. We should be preparing for a further expansion of daily price ranges and volatility heading into the NASS March Stocks/Seeding Reports.

• Chicago brokers estimate that funds have bought 4,300 contracts of wheat, 8,900 contracts of corn, and 6,400 contracts of soybeans. In the products, funds have bought 1,200 contracts of meal and 2,200 contracts of soyoil.

• The 2021 March-May corn spread has pushed out to a 16 cent March premium. The last time that this spread pushed out to such heights was back in March of 2013 when the spread reached a 31 cent March premium. Chicago rallied into the March Stocks/Seeding report in 2013 with the corn stocks total being bearish. Forecasting March 1 US corn stocks with any accuracy has become increasingly difficult in recent years due to NASS stocks inconsistencies. The NASS report is a high-risk report for the marketplace.

• The USDA reported a 175,000 mt US corn sale to Japan. This was the first daily sale reported in weeks. Last Thursday’s USDA weekly export sales report was bearish due to the Asian Lunar New Year. We expect that this week’s totals will be larger and with US soybean sales accounting for 98% and corn 88% of their annual USDA forecast, weekly totals do not have to be large to be bullish. In the future, it is going to be difficult for the FAS weekly sales data to be bearish. Due to adverse S American weather, any weakness on the sales report will be purchased heading into the weekend.

• Cash basis levels are firming amid limited US farm sales along with a continued record large US soybean crush rate. And China’s soyoil prices are at multi-year highs which makes pulling world crush margins lower very difficult.

• The midday GFS weather forecast is like the overnight solution with meaningful/heavy rain for N and C Brazil. The regular rains will slow the soy harvest and seeding of winter corn. Most N Brazilian farmers are against seeding corn after March 10 as seasonal tropical rains seasonally stop in late April or early May. Even 95-day maturity corn will not get post March 10 corn to pollinate before the dry season starts.

• The midday Argentine weather forecast maintains dryness with warm to hot temperatures with highs in the 90′s on most days. The 6-10-day period will be exceptionally hot with highs in the mid 90′s to lower 100′s. The Argentine heat/dryness will accelerate stress on reproducing corn/soy crops. Our concern for S American weather is increasing amid the N Brazilian wetness and Argentine drought.

• Chicago values bottomed overnight and are pushing back to chart-based resistance. If the S American weather forecast stays wet across N Brazil and dry across Argentina/S Brazil early next week, a push to new rally highs could occur heading into the March 9 USDA report. The two week forecast into Mar 16 shows a continuance of the existing/concerning pattern. It is S American weather and the resulting supply impact that drives Chicago. There is a record 19 million mt of vessels waiting to load soybeans in Brazil which is testament to strong world oilseed demand.