1 March 2021

Posted on March 1, 2021 by simon

• HEADLINES: Chicago futures sag at midday on fund long liquidation; S American weather forecasts threatening; Traders want crop damage confirmation.

• It has been a mixed morning of Chicago trade with corn/soybean futures trading on either side of unchanged while wheat sags on large KC wheat deliveries and lacklustre US wheat export demand. The new month should produce new investor interest, but with Brazil now exporting 2.5-3.0 million mt of soybeans/week, the US demand driver has been lost. Cheaper Argentine corn and Brazilian soybeans are stealing the demand lustre from the US. This means that rising Chicago values demands a S American crop loss (supply) and tightening US cash markets.

• Research forecasts a mixed Chicago close with old/new crop spreads deflating. Today’s bull story is in the new crop and whether US farmers will seed a combined record 182 million acres of corn and soybeans. The old crop bull market demands adverse S American weather that boosts US old crop corn /soybean sales/exports. Traders are loath to trade Argentine dryness until it is clear that crop conditions are in retreat. That confirmation could come out Thursday afternoon with a new weekly statistics of Argentine corn/soybean progress/ratings. Last week’s Argentine crop ratings improved which is giving a pause to fresh Chicago buying.

• Chicago brokers estimate that funds have sold 10,500 contracts of corn, 5,400 contracts of wheat and 2,200 contracts of soybeans. In soy products, funds have sold 2,400 contracts of soyoil and bought a net 2,100 contracts of meal.

• For the week ending February 25 the US exported 64.5 million bu of corn, 32.3 million bu of soybeans, and 10.0 million bu of wheat. Weekly US corn/soybean exports were above trade expectations. Last week’s US soybean exports were revised upwards by 3.0 million bu to 29.5 million. And China shipped out 11.3 million bu last week or 38% of the US soybean export total. We look for the US corn export pace to keep rising in the weeks ahead and reach 70-100 million bu routinely through June as China begins its shipping program into S China livestock areas.

• For their respective crop years to date, the US has exported a record 1,906 million bu of soybeans (825 million or 76% more than last year), 1.010 million bu of corn (451 million or 81% more), and 663 million bu of wheat (29 million less or 4.2%). Today marks the mid-point in the US corn/soybean 2020/21 crop year while the wheat market is in its last quarter. The US wheat export pace is disappointing which could lead to a USDA reduction on 9 March.

• The corn market has the potential for a 1-2 bullish punch from S American weather. Already the first Argentine corn crop was hurt by extreme December heat/dryness during pollination. Now the second and more important crop is being stressed by like weather and could see significant yield losses. And Brazilian winter corn seeding is the slowest in a decade with losses likely.

• Mother Nature looks to be “unkind” to S American corn crops which will have an impact of accentuating US corn export demand. The Brazilian winter corn crop is of utmost importance to world corn valuations in ApriI/May.

• The midday GFS weather forecast is like the overnight solution with any meaningful rain north of RGDS in Brazil and through all of Argentina. The Argentine forecast maintains 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 lower 90′s to lower 100′s. The Argentine heat/dryness will stress reproducing corn/soy crops. And above normal rainfall will further slow the Brazilian soybean harvest and winter corn seeding. Weather leans bullish.

• Supply driven markets are more volatile/sloppy than a demand driven bull with futures at 8-year highs. Dec corn and Nov soybean futures are supported on the need to incentivise record large US summer row crop seeding. And the only way to measure China’s ASF hog feed impact is through China’s weekly crush pace. Post-holiday Chinese crush rates are always tepid as the herd is rebuilt. It is the loss of Argentine corn/soy crops which drives values higher late week. Weekly price lows should be scored early Tuesday. The bull market is not completed, it is just taking a rest.

26 February 2021

Posted on February 26, 2021 by simon

• HEADLINES: Chicago month end selling pressure is maintained at midday; Argentine weather forecast offers developing heat; Undelivered US corn sales are massive.

• Risk off into the end of the trading month is the mindset at midday with corn, soy and wheat futures all under pressure. Gold is off nearly $50/oz while Bitcoin has fallen below $45,000 and is looking at its largest weekly loss since the US pandemic started in March of 2020. The US$ is firming on the prospect of an economic recovery while the US stock market tries to recover some of its losses of yesterday. We look for thinning Chicago volume heading into the weekend with traders willing to wait on Sunday’s S American weather forecast to decide on new trades. We anticipate a late day bounce off the midday weather forecast, but without much confidence.

• Chicago brokers estimate that funds have sold 6,600 contracts of corn, 4,300 contracts of wheat and 7,500 contracts of soybeans through midday. In soy products, funds have sold 5,400 contracts of soyoil and 2,300 contracts of soymeal. Money managers are booking gains ahead of the end of the month.

• For the week, spot Chicago corn is up 9 cents, spot soybeans are up 14 cents with Chicago wheat up 13 cents. It is spread trade that has aided March futures.

• The March/May corn spread is trading at a new high at a 7.5 cent March premium while March soybeans are holding at 1 cent discount to May. The March/May Chicago wheat spread is priced at 3.5 cent discount. The strong premium of March corn reflects the cash premiums being paid currently for Midwest cash corn. The US has a massive amount of corn that is sold, and likely to be exported in coming months.

• In the EU, the Paris March/May wheat spread is trading at a historic high premium of a €15/mt premium. EU Paris corn is also at a record high premium to the May. Open interest in March Paris wheat is staying high and there are rumours that buyers are willing to stand firm for delivery. EU cash wheat and corn markets keep rising daily amid supply shortfalls and monitoring how the Paris March/May wheat spread finishes will be interesting. We would point out that farmers will not find any more wheat before the onset of the harvest in July/August, so extreme tightness will only worsen.

• Ukraine corn offers are limited and at much higher prices, so it is difficult to understand how the EU will solve its looming feedgrain shortage. At some point, cash markets look likely to just soar like vegoil markets.

• Emerging market currencies are sharply lower this morning with the Brazilian Real at 5.55:1 US$. Although Chicago soybeans have falling sharply, prices for Brazilian farmers are little changed. And Brazilian soy yields have improved in recent days and some are raising their crop forecast to 129.9 million mt.

• The midday GFS weather forecast is like the overnight solution with any rain only being north of Argentina’s crop areas. The forecast maintains warm to hot temperature trends with highs in the 90′s on most days. The heat/dryness will stress reproducing corn/soybean crops, while rainfall stays near to above normal for Northern Brazil. The rain is causing real issues with soybean seed moisture levels.

• Sunday’s S American weather forecast will be highly important to next week’s Chicago trade ahead of the March 9 USDA report. The weather forecast models are struggling in their solutions, but it appears that an arid trend will persist across Argentina with warming temperatures. This will underpin Chicago soybeans. The US corn market is waiting for evidence of enlarged shipments to China. At some point, US corn exports should reach near 100 million bu/week. Our long term view stays bullish, but market volatility is going to stay extreme into the Northern Hemisphere spring.

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

Weekend summary 26 February 2021

25 February 2021

Posted on February 25, 2021 by simon

• HEADLINES: Brazilian precipitation and export cancellations pressure ag markets.

• Chicago futures are sharply lower at midday in a volatile trading session. Soybeans have traded in more than a 50-cent range while corn/wheat follow to sharp losses. May Chicago corn fell to key support at $5.35-5.40 while May soybeans declined under $14.00. Paris wheat futures were unable to rise above their key monthly downtrend line, which has sparked Chicago selling. Chicago trading volatility is on, with S American weather forecasts helping to direct daily direction. And the macro financial markets are weaker on the continued rise in US long-term bond interest rates. US mortgage rates have reached levels that are causing investors to have second thoughts on inflation.

• The heightened volatility in a host of commodity/financial markets is causing investor pause. Advisors argue that the easy money has been made in commodity and equity markets. The extra volatility adds to market risk and traders should be reducing their positions.

• Chicago brokers estimate that funds have sold 8,200 contracts of soybeans, 12,300 contracts of corn, and 6,500 contracts of wheat. In soy products, funds have sold 4,500 contracts of soymeal and 2,700 contracts of soyoil.

• Through the week ending Feb 18, US exporters sold 18 million bu of corn, vs. 39 million the previous week, a net 6 million bu of soybeans, vs. 17 million the previous week, and 6 million bu of wheat, vs. 15 million the prior week. FAS reported soybean sales cancellations from China/unknown destinations of 13 million bu of soy and 14 million bu of corn. This follows the weakening of Brazilian soy fob basis for March onward and the return of competitive Argentine corn offers. US meal sales were 160,000 mt, vs. 263,000-322,000 in the three previous weeks.

• The USDA’s 2020/21 US corn and soy export forecasts are still too low, but as discussed previously, sizeable new demand is needed to sustain an unabated bullish trend in the marketplace. This in turn comes in the form of confirmed S American crop loss, and accurate S American corn and soy production estimates are unlikely to materialise prior to mid/late March, when the bulk of crops harvest. The USDA’s March WASDE report is unlikely to feature major adjustments to Brazilian and Argentine crop sizes.

• The midday GFS weather forecast is wetter in Southern Brazil, with 10-day accumulation in Parana, Mato Grosso do Sul and Sao Paulo pegged upwards of 5-8″. This region of Brazil has seen only 35-60% of normal precipitation over the last 10 days. The coming boost in soil moisture will aid later planted soy crops as well as trigger a solid jump in moisture available for early safrinha corn growth. Showers keep soy harvest in Mato Grosso slowed. The GFS forecast is drier in Northern Argentina. Net soil moisture loss persists across Argentina’s primary ag belt amid a lack of rain and rising temperatures.

• Chinese demand growth and the need for near-perfect weather this summer remain intact, and drive demand growth in 2022/23. Yet, S American exporters are working to find  demand, which is different from the last 6 months. The US cash market must drive futures significantly higher, with physical supply shortages unlikely until early summer. We caution against chasing breaks and rallies into NASS’s Stocks and Seedings release.

24 February 2021

Posted on February 24, 2021 by simon

• HEADLINES: Spot soyoil soars to chart target at $0.51 March on massive 10,000 contract plus fund buying; US corn ethanol grind plummets; Brazil harvest gains speed.

• Soyoil Futures Score Fresh 9 Year Highs with March above $.SO

• Sharply higher Chicago soyoil futures have been the theme of day as the oil/meal spread pushed out to a new rally high. Soyoil’s long held upside price target of $0.51-0.52 was reached in March futures this morning. Traders will be closely monitoring how March soyoil acts going home against the $0.51 resistance. This is a key price for Chicago soyoil futures heading into first notice day.

• Chicago brokers indicate panic end user pricing of soyoil with money managers already holding a record long. Soymeal declined from strong overnight gains on active oil/meal spreading. The rally in crude oil above $63/barrel has helped underpin soyoil, but biodiesel production margins have turned negative. US soyoil export sales are needed to confirm an acceleration of the Chicago rally.

• May soybean futures are nearing the January contract highs at $14.33. The soybean rally stumbled against $14.28/bu yesterday and this morning. November soybean futures have pushed to a new contract high of $12.3775 with an upside target of $12.50. Following the USDA Outlook Forum, it is new crop corn and soybean futures that have been pulling the “bull up by its tail”.

• Chicago brokers estimate that funds have bought 5,200 contracts of soybeans, 5,300 contracts of corn, and 3,200 contracts of wheat. In soy products, funds have bought 400 contracts of soymeal and 10,700 contracts of soyoil. The fund buying of soyoil has been massive.

• US weekly ethanol production plummeted on last week’s cold Central US weather with production declining to just 193 million gallons, down 75 million gallons from the week prior or 28%. In the worst of last spring’s pandemic, the US ethanol industry was producing 160 million gallons per week, so this week’s fall was acute. The good news is that plants have returned to normal operations this week and run rates have returned with the mild temperatures.

• US ethanol stocks fell to 957 million gallons, down 63 million gallons which was down 6% from last week and 8% from last year. The seasonal expansion in US gasoline consumption is expected to keep US ethanol stocks in check into summer.

• It is reported that the Brazilian soybean harvest is hitting its stride across N and C Brazil with winter corn seeding strongly advancing. It is expected that by early March, Mato Grosso will have harvested 80% of its soybeans and planted 75% of its winter corn.

• The midday GFS weather forecast is consistent with the overnight model with limited rain across the southern third of Brazil and the entirety of Argentina. And there will be numerous days with high temperatures in the 90′s. And near to above normal rain will drop across the Northern third of Brazil with high temperatures in the 80′s to lower 90′s. The 10-15 day period forecast is volatile, but a drier solution is offered in the midday run.

• Research has been professing that it is S American weather that will drive Chicago price direction into mid to late March. China has shifted its buying to cheaper S American soy supply, the US demand led bull market has ended. The Chicago market is supply driven and closely following each S American weather forecast. US cash is not leading with March soyoil/soymeal futures liquidated with just 19,000 contracts open in each. But March corn futures still has 154,000 contracts open with covering to follow.

• We do not expect large changes from the USDA in their monthly March 9 report. Thereafter, it is the unpredictable March 31 Stocks/Seeding Report and the spring growing season. We have been a soyoil bull, but finds values stretched right now. Meal must find its bullish heart for soybeans to score new highs. Corn/ wheat stay in a volatile/rising price range.

23 February 2021

Posted on February 23, 2021 by simon

• HEADLINES: Chicago May soybeans test contract high against $14.30 on fund buying; S American weather forecast consistent; Brazilian soy products below US Gulf.

• Money managers pile into new soybean length on chart pattern.

• Sharply higher Chicago soy futures is the keynote of the morning with May soybeans seeking to test contract highs in the lower $14.30′s while soyoil pushed to another new contract high at $49.27. Fund managers have piled into new soy length based on a bullish chart pattern of breaking out of an upside pennant. The market appears to be following chart patterns with no major change in fundamentals, outside of the coming warm/dry weather pattern for Argentina and Southern Brazil.

• Corn has followed soy to the upside while wheat futures have held in the red in an active morning of trade. The Chicago tone is bullish, and traders are trying to decipher the amount of fresh fund buying that is yet to come. Amid the deepening Brazilian soybean harvest, we find this a difficult place to chase a rally. Funds are already holding a large net Chicago long, but they are being paid for that market stance. Traders believe that funds will be largely finished with their soybean buying by Wednesday’s midday trade which could cause prices to sag.

• Chicago brokers estimate that funds have bought 9,100 contracts of soybeans and 4,900 contracts of corn, while selling 1,900 wheat. In soy products, funds have bought 5,400 contracts of soymeal and 3,300 contracts of soyoil.

• The soybean chart pattern appears to the upside driver that is pulling in new fund buying. But there are macro features that are helping as the US$ is weaker, Monday’s strong crude oil rally and the news that EPA will be enforcing the principles of the 2007 Energy Bill. There is no one bullish driver this morning in Chicago, it is a combination of technical and macro financial factors.

• Last week’s Central US bitter cold weather likely caused a decline in the weekly corn grind (for ethanol) as plants reduced runs or pushed to maintenance only to withstand the chill. The weekly ethanol production decline could lean bearish on Chicago corn on headline risk, but most plant managers are back to normal production starting on the weekend. The weekly report will be released by EIA early Wednesday.

• Ukraine reported that its total February 1 grain stocks were 18.2 million mt, 3.5 million less than the same date in 2020. The data comes from its State Statistical Agency which advised that the Ukraine has been an active exporter of wheat/corn. The 2020 Ukraine grain harvest fell to 65.4 million mt from a record 75.0 million in 2019 due to poor late summer growing conditions.

• On March 15, Chicago position limits will rise to 57,800 contracts in corn (from 33,000), 27,300 contracts in soybeans (from 15,000 contracts), and to 19,300 contracts in wheat (from 12,000 contracts). The position limit increase comes at a time of additional fund interest in Chicago grain.

• The midday GFS weather forecast is consistent with the overnight model with limited rain across the southern third of Brazil and the entirety of Argentina. And there will be numerous days with high temperatures in the 90′s. And above, to much above, normal rain will drop across the Northern third of Brazil with high temperatures in the 80′s to lower 90′s. The forecast models are consistent in hinting at better Argentine rainfall after March 7.

• Supply driven bull runs are never linear or march like the demand led bull market from September into mid-January. Research advises against chasing today’s soy/corn rally amid the quickening Brazilian harvest and their resulting cheaper fob offers. And WASDE may wait for expanding Brazilian yield data before making a crop adjustment in March. S American soyoil/meal are offered well below the US Gulf which will cap US export demand. This latest rally world vegoil prices appears to be speculative in nature. Be careful with today’s Chicago rally.

22 February 2021

Posted on February 22, 2021 by simon

• HEADLINES: Chicago mostly higher at midday with November soybeans to close above $12.00 for the first time since July 2014; Argentine/S Brazilian dryness into March 6.

• Spreading and charts cap old crop soy futures; grains rise on S American weather worry.

• Mixed in declining volume is Chicago trade at midday. November soybeans and corn/wheat futures have paced the morning rally while bear spreading and March liquidation pressure old crop March soybean futures. March soymeal is (again) bouncing off support at $420/ton while November soybeans look to close above $12.00 resistance for the first time in years.

• The last time that a November soybean futures contract was able to muster a close above $12.00/bu was back in July of 2014. Assuming the WASDE US 2021/22 stocks/use ratio of 3.2% is correct, it would justify November soybean futures reaching $13.00 pre-planting to entice additional acres.

• To date, US farmers are not showing any willingness to break away from current summer row crop rotations. And Dakota farmers are strongly complaining about dry soils and that neither soybeans or corn have an economic advantage. Unless soy futures rally strongly, it may be difficult for NASS to report 90-91 million acres in its seeding/stocks report on March 31. NASS will start their March Seeding and Stocks survey later this week.

• Chicago brokers estimate that funds have bought 3,400 contracts of corn and 3,600 contracts of wheat, while selling 2,900 contracts of soybeans. In soy products, funds have sold 2,500 contracts of soymeal while being flat in soyoil. The oil/meal spread could be near a short term price peak.

• The Brazilian Real has declined sharply to 5.50:1 US$ on news that Brazilian President Bolsonaro replaced the CEO of state-run oil company Petrobras, with a retired general of the military to lower fuel prices and halt the sale of unprofitable assets of the company. The prior CEO, Roberto Branco was a favourite of investors due to his trusting hand and ability to lower costs of the state-run company. Active selling in the ADR (ordinary shares) of Petrobras pressured its price to $7.80, a nearly 20% decline as world crude oil prices soar. The BOD of Petrobras will be meeting Tuesday. The drop in domestic diesel prices was greeted favourably by Brazil’s truckers as it cut cost in their transit the Brazilian soybean crop to crushers and exporters.

• US weekly FGIS exports for the week ending February 18 were 49.0 million bu of corn, 26.5 million bu of soybeans, and 12.0 million bu of wheat Last week’s US soybean export estimate was raised 4.2 million bu to 33.9 million bu.

• For their respective crop years to date, the US has exported 945 million bu of corn (up 421 million or 80.5), 1,870 million bu of soybeans (up 812 million or 77%) and 653 million bu of wheat (down 14 million or 2%). US soybean exports are record large and indicate that future shipments must average just 14.4 million bu/week.

• World ocean freight rates are rising with panamax/handy costs at 10-year highs. We understand that the April/May cost to transit Brazilian soybeans to the SE US Coast is $35-37/mt ($1.00/bu) not including off load/inland transit fees. This means that one would need a margin of at least $1.20/bu just to breakeven bringing in Brazilian soybeans. The current fob spread is $0.35/bu, which means that Brazilian beans are a long way from working into the US.

• The midday GFS weather forecast is consistent with the overnight model with limited rain across the southern third of Brazil and the entirety of Argentina. And there will be numerous days with high temperatures in the 90′s. And above to much above normal rain will drop across N Brazil with 80′s to lower 90′s. The N Brazilian harvest is slow.

• Demand rationing is required in both old/new crop soybeans, and to a lesser degree in corn. Any breaks will be well supported with tightening cash availability to underpin spot futures. The US farmer has limited old crop left to sell as adverse S American weather slows the harvest. Parana soy yields are not matching producer expectations. As freight rates rise and the July/Nov soybean spread comes in, rationing old crop soy is becoming difficult. A close above $13.92 is bullish May soybeans.

19 February 2021

Posted on February 19, 2021 by simon

• HEADLINES: Option related selling presses Chicago corn/wheat; USDA Forum suggest that China will import 25-35 million mt of world corn for years to come.

• March option expiration today produces grain futures selling.

• Chicago grain futures are lower at midday which is tugging soybeans off their early opening highs as short March put holders sell futures to cover their risk. There was a flurry of buying on the opening, but as that new demand faded, grain futures fell on option related selling. Corn and wheat futures are lower at midday with March futures enduring much of the selling pressure.

• The option related selling could carry forward into Monday, but we doubt that March corn or March Chicago wheat can decline much more. The chore of the market is to rationing tightening domestic supplies, and there is no statistical evidence of such rationing starting.

• Soybean futures are holding independently strong on rumours that China has booked 4-6 cargoes of Brazilian soybeans for June-July as their crush margins sit at multiyear highs. Post-holiday vegoil demand started out strongly in China, but it is next week’s cash meal trade that will be important to monitor. China entered the New Year with limited forward meal coverage and the restocking of China’s pig herd should spark fresh buying.

• Chicago brokers estimate that funds have sold 8,400 contracts of corn and 5,100 contracts of wheat, while buying 3,900 contracts of soybeans. In soy products, funds have sold 2,200 contracts of soymeal while buying 3,900 contracts of soyoil. Once again, the soyoil market has scored new contract highs with the next upside price target being $0.50/lb.

• The USDA Outlook Forum painted a longer-term bullish outlook for US corn with speakers expressing confidence that China could secure 25-35 million mt of corn for years to come. What was not discussed was that if China is shifting to a more of a westernised (feed) diet for pigs, it also implies more soymeal as food waste is disposed of rather than being fed. Brian Lohmar of the US Grains Council estimated that China will import 30 million mt of world corn for years to come as 30 million mt of food waste is disposed of due to the risk of ASF. Such massive corn imports are a new demand driver that will limit growth in US corn/soybean end stocks in the crop years ahead.

• FAS weekly export sales for the week ending February 11 were; 14.7 million bu of wheat, 39.3 million bu of corn and 16.8 million bu of soybeans. US corn/wheat sales were at trade expectations while soybeans were better. The US has now sold 2,200 million bu of soybeans or 98% of the annual USDA export forecast, while corn sales stand at 2,305 million bu or 87%. US crop year to date wheat sales are 860 million bu or 43 million more than last year. Research argues that US 2020/21 corn sales are 200-250 million bu and US 2020/21 soybean sales are 100-150 million bu too low. Demand rationing or imports are needed to prevent soybean shortfalls.

• There is no supply cushion that will buffer any N Hemisphere weather adversity. Market volatility will stay raised. And if S American corn or soy crops are reduced due to adverse weather, the Chicago impact is sizeable.

• The latest GFS weather forecast is consistent with the overnight model with limited rain across the southern third of Brazil and the entirety of Argentina. Above to much above normal rain will cause crop quality issues and harvest slowdowns for N Brazil. The models show no sign of change into March 2. The extended range forecast offers no real change in the overall weather pattern. A concern for S American crop yields/production.

• The USDA Outlook Forum produced longer term bullish 2021/22 balance sheets for corn, soybeans, and wheat. Next week, S American crop size becomes highly important. Brazilian soybean yields are down from last year with seed moisture a growing problem across Mato Grosso. And Argentine/S Brazilian soil moisture is in fast retreat while seeding the Brazilian winter corn crop is well behind normal. S American weather Sunday night will be the big price driver into March.

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

Weekend summary 19 February 2021

18 February 2021

Posted on February 18, 2021 by simon

• HEADLINES: Chicago soybeans/corn sag on charts in low volume trade; China soy crush margins return to best levels in years; Wheat rallies on elevated winterkill fear.

• Old, wise traders adage – “Never Sell a Low Volume Break in a Bull Market”

• Midday Chicago futures are mixed with wheat futures soaring while corn/soybean futures ease lower in limited volume. At midday (and including the overnight trade) just over 56,000 contracts of March soybeans and just over 52,000 contracts of March corn have changed hands. This compares to more than 35,000 contracts of March Chicago wheat which is above the prior two-week average.

• The morning Chicago corn/soy decline appears to be based on technical considerations rather than any new fundamentals. The USDA 2021 corn seeding estimate of 92.0 million acres was below trade expectations while soybeans was slightly larger 90.0 million acres, close to the record.

• The tone of Chicago is apprehensive heading into Friday’s March option expiration and weekly US Export Sales Report. Poor US sales are anticipated due to cheaper price offers from Brazil and Argentina.

• Chicago brokers estimate that funds have sold 3,600 contracts of corn and 4,200 contracts of soybeans, while buying 5,500 contracts of wheat. In soy products, funds have sold 3,600 contracts of soyoil and 4,100 contracts of meal.

• Mato Grosso’s IMEA report that the Mato Grosso soybean harvest should reach 40% complete by this weekend. Farmers are cutting beans in the rain and reporting poor quality amid broken/wet seeds. Yields stay disappointing with few farmers boasting or sending pictures from their combine yield monitors. The poor soybean crop quality is causing issues with drying needed to make sure that the soybeans can store. The drying is causing new costs and delaying movement of the new crop to export ports. Sources report that the Mato Grosso soybean crop is one of the poorest quality crops in a decade. Farmers are pushing the soybean harvest to have a chance of planting winter corn. Winter corn seeded in early March could produce a reduced yield due to seasonal May dryness. The Parana harvest is also uncovering poor quality beans.

• The USDA Outlook Forum painted a longer-term bullish outlook for US corn/soy and ag demand in general with 2021/22 exports forecast at a record high $157 billion. China was forecast to take a record $31.5 billion. US 2021/22 corn exports are estimated at 2,700 million, which we estimate would drop 2021/22 US corn end stocks to a tight 1,400 million bu. USDA forecast the average 2021/22 farmgate price of corn at $4.20 (-$0.10/bu), soybeans at $11.25/bu (up $0.10) with wheat at $5.50/bu (up $0.50). USDA credited the rapidly rising China pig herd for the elevated US crop imports.

• Chinese traders will be returning from the week long Lunar New Year holiday facing their best soy crush import margins in years based on the rising price of domestic soyoil. The heady March crush margin should boost imports from Brazil. Chinese crushers see the break as a buying opportunity.

• The midday GFS weather forecast is consistent with the overnight model with limited rainfall across the southern third of Brazil and the entirety of Argentina. Above, to much above, normal rainfall will cause crop quality issues and harvest slowdowns across N Brazil. The models show no sign of change into March 2. The extended range offers Argentine showers during March 3-5, but confidence that far out is extremely low.

• Brazilian soy quality and disappointing yield data sets the stage for a rally with heat/dryness becoming a yield issue for Argentina/RGDS in S Brazil next week. We look for WASDE 2021/22 corn/soybean balance sheets to offer tight stocks, even with combined record large US corn/soy seedings. The weekly downtick in US ethanol production was expected on weather. Do not sell this break, would be our best advice at this time! Research sees the downside limited to 5-10 cents in corn and 10-15 cents in soybeans. S American crop concerns come to the forefront of the market next week.

17 February 2021

Posted on February 17, 2021 by simon

• HEADLINES: Wheat paces decline as Tuesday’s buyers are Wednesday’s sellers; USDA unlikely to offer bearish new crop balance sheets; Argentine weather forecast stays dry.

• It has been a mixed session in Chicago with corn/soy futures trading both sides of unchanged while wheat has retraced yesterday’s gain. Chicago midday volume has been modest with China and most of S America still out for holidays. For today, the sagging wheat has been a bearish catalyst for the summer row crops, but unease about warming/dry Argentine/S Brazil weather has limited any fresh selling. Most fund managers are likely to wait until Sunday/Monday before embracing a more bullish stance on RGDS/Argentine crops as the key reproductive periods for corn/soybeans lie ahead in March. The sharp falls in Argentine and Southern Brazilian soybean crops would create a new Chicago rally leg based on a more acute need for rationing and a diminished chance of soybean imports into the US by mid-summer.

• Chicago brokers estimate that funds have sold 4,100 contracts of corn, 2,600 contracts of soybeans, and 6,200 contracts of wheat. In the soy products, funds have sold 1,900 contracts of soyoil and bought 1,700 contracts of meal.

• It is Ash Wednesday and the Carnival Parties have ended, and it will take a few days before life returns to normal in S America. Across Mato Grosso, regular/excessive rainfall has limited harvest with short season soy varieties showing disappointing yields. Longer season varieties are hoped to show better yield, but even then, most producers doubt that yields will surpass last year.

• The Parana Rural Development Institute (IDR-Parana) is reporting that 6 weeks of cloudy /wet weather is causing considerable fungal diseases with soybean pod abortion becoming more worrisome with farmers reporting yield losses of up to 100%. IDR claimed that harvest yield results will be disappointing with the hope that RGDS can make up for Parana’s smaller and poor-quality soybean crop

• The USDA will hold its Annual 2021 Outlook Forum starting Thursday. Within the Forum, the USDA will offer its first 2021/22 US major crop seeding/ balance sheets. It should be noted that the 10 year Baseline Report was released today which offers 2021 seeded acres of 90.0 million acres of US corn, 89.0 million acres soybeans and 46.0 million acres of wheat, a combined gain of just under 8 million acres. The Baseline Report indicated trend yield estimates of; 180.5 bushels/acre in corn, 49.1 bushels/acre in wheat, and 50.6 bushels/acre in soybeans. The USDA will also use trend yields in their balance sheets. The question is one of acres/export demand.

• The USDA’s Baseline Report utilised November USDA end stocks for 2020/21 of 290 million bu (170 million bu too large based on Feb USDA) produced 2021/22 end stocks of 255 million bu. If the February 2020/21 USDA end stock total of 120 million bu is used as carrying, 2021/22 US baseline US soybean end stocks would be just 85 million bu (instead of 255 million bu). Such stocks are less than pipeline. It will be difficult for the USDA to come out with a bearish 2021/22 US soy stock total, even with record 2021 seedings and a trend line yield of 50.6 bushels/acre.

• The midday GFS weather forecast is consistent with the overnight model (and prior day runs) in that a trend of well below normal rainfall will continue across the southern third of Brazil and the entirety of Argentina. The S America’s upper air flow blocks meaningful rain from Argentina/S Brazil while it funnels regular rain into Mato Grosso, Goias, and NE Brazil.

• It is a low volume Chicago decline ahead of the USDA Forum tomorrow. We do not expect bearish surprises from the USDA with the 2021/22 US soy balance sheet offering up an acute need for favourable Midwest weather before a market decline can be sustained. 2021/22 corn end stocks should come in around 1,600-1,650 million bu while US 2021/22 wheat end stocks are between 825-850 million bu. Such stocks do not pressure Chicago values.

16 February 2021

Posted on February 16, 2021 by simon

• HEADLINES: January NOPA crush at 184.6 million bu is record large; Midday GFS weather forecast dry for Argentina/S Brazil.

• Chicago values are higher at midday on weather and the fear of supply loss of US HRW wheat production and S America in the coming dry/warm weather forecasts.

• The volume of trade has been reduced as China and S America are on holiday. We look for Chicago volume to expand next week as Asia fully returns to work while the Brazilian’s will become more active in their harvest. We anticipate a higher Chicago close, but without much volume or vigour. The world’s largest soy buyer needs to return for the soy complex to have bull support.

• Chicago soyoil futures have pushed to new rally highs, but soymeal has been a reluctant follower on crush margin. This has capped the soybean rally at $13:86 March. Also, March/May soybean spreads are moving to a discount while March/ May corn holds at a 2-cent premium. The record large Brazilian soybean harvest along with slowing US export demand has capped the Chicago rally. Traders will be watching the premiums in the Parnagua paper trade for signs of a seasonal low. Scattered Brazilian soybean yield data from Mato Grosso and Parana are disappointing. The Brazilian soybean harvest is the slowest in a decade and the weather forecast promises a good chance of daily showers through the next 10 days.

• Chicago brokers estimate that funds have bought 4,200 contracts of corn, 3,900 contracts of soybeans, and 5,400 contracts of wheat. In the soy products, funds have sold 3,900 contracts of meal and bought 4,900 contracts of soyoil.

• Multinational exporters and local cash traders continue to have discussions with the Russian Government over its proposed floating export tax that starts on June 2. The groups are making progress informing the Russian Government as to how unworkable the proposed tax is. Research maintains that the Russian Government will substantially alter or end the tax before its implementation. The adverse impact on the Russian farmer is severe. In addition, no Russian exporter will be able to sell wheat/grain ahead with the tax set on the week of shipment by the Moscow Grain Exchange. Spring weather and the coming size of the 2021 Russian wheat harvest will determine whether Russia goes ahead with a floating tax.

• Weekly US Grain Export Inspections were better than expected in corn, but less than hoped for in soybeans/wheat. For the week ending Feb 12, the US exported 52.0 million bu of corn, 29.7 million bu of soybeans, and 14.4 million bu of wheat. Last week’s soybean export estimate was revised up by 3.9 million bu. Based on vessel counts, we expects that this week’s soy exports will be revised up 3.5 million bu

• For their respective crop years to date, the US has shipped 640 million bu of wheat (down 11 million or 2%), 897 million bu of corn (up 410 million or 84%), and 1,840 million bu of soybeans (up 802 million or 77%). US wheat exports are falling behind expectations and we will adjust down our 2020/21 export estimate.

• NOPA’s January soybean crush rate jumped to a record large 184.6 million mt, a record for January and the second largest on record for any month. This the fifth consecutive month of record large US soybean crush rates with their being no evidence that US demand rationing is occurring. NOPA member soyoil stocks grew by a 100 million pounds to 1,799 million pounds, below last year’s 2,013 million pounds.

• The midday GFS weather forecast is consistent with the overnight model (and prior day runs) in that a trend of well below normal rainfall will continue across the southern third of Brazil and the entirety of Argentina. The S America’s upper air flow blocks meaningful rain from flowing across Argentina and S Brazil and funnels regular rain into Mato Grosso, Goias, and NE Brazil. High temperatures will range from the 80′s to the lower 90′s in Argentina/Southern Brazil.

• Record large US crush rates have provided adequate soymeal supply to exporters/domestic end users. But such crush cannot continue, or the US will simply run out of soybeans amid Brazil’s slow start of harvest. Yet our new concern is an Argentine/S Brazilian drought which will adversely impact corn/soy yields. Low volume Chicago breaks in meal/soybeans are buying opportunities into the weekend. Chinese buyers will return early next week, and they will have future import needs to cover.