Weekly Cash Comments

Cash Commentary-

Grain basis moved lower this week as a two-week recovery in the futures market seemed to run into headwinds. Farmer selling, especially in the Western Cornbelt has put basis on the defensive.

Corn basis was off 0.6 cents a bushel on average this week across the US thanks to increased farmer sales. Ethanol plants saw the biggest losses with a 1.6 cent a bushel drop with losses of 3 to 5 cents a bushel fairly common across IA, NE & MN. Meanwhile, river terminals had some stability this week as basis at the Gulf bids posted a 2 cent advance.

For soybeans, average basis levels were off 1-cent a bushel and unlike corn, is starting to see some weakness in the export market. Gulf bids were off 1 cent a bushel and upstream river terminals backed off on basis by 1.5 cents this week. Soy plants, which had been weaker the previous week, were mostly unchanged this week.

 

Futures Commentary-

Grains started the week in positive territory but ended the week on a lower footing. Since the Jan 12 crop report, prices have been plagued by directionless, range bound activity, but this week saw some indications that prices may be due to break out to the downside of the range.

Wheat found support early in the week when news out of Russia suggested they may act to curb wheat exports as hyperinflation and a weaker rouble are causing wheat exports there to surge. But, by the end of the week, the Kremlin’s policy stance took an about-face, as leaders hinted they would instead look at ways to reduce wheat export taxes and keep wheat exports moving strong into the world markets. As a result of this news, wheat bounced off of its short-term high of $4.88 basis the March moved back to the $4.70 area.

In corn, large export deals to drought stricken India went to Ukraine this week as the US continues to struggle with the lack of a competitive price thanks to the strong US dollar. Ethanol production was off 2% this week versus last week and reached its lowest reading in 3 months. Ethanol margins are likely in a 10-15 cents a bushel loss when including all costs, although this figure is up since the start of the year with ethanol prices rebounding. Abengoa Energy announced they would sell their 6 first generation grain ethanol plants in the US as part of a bankruptcy deal with creditors. Corn is trading in a narrow range with $3.72 overhead resistance and the gap at $3.64 providing support.

For beans, there is some concerns about dryness in Argentina, and rains in Brazil are keeping the harvest there from getting underway. At the end of the week, USDA announced China had canceled 395,000 MT of US soybeans it had committed to earlier in the season. This sent beans lower by 10-cents. Support is around $8.70 for March beans with overhead resistance at $8.88.

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Morning Comments – January 28

Grains moved lower overnight as the lack of fresh news keeps a lid on this rally off of Jan 12th lows. In outside markets, S&P futures were on a positive trajectory to start the day following yesterday’s 1% loss while crude oil was also in positive territory with modest gains.

The EIA ethanol report on Wednesday showed ethanol production declined -2.2% to a 961,000 bbl/day. Ethanol margins are likely in a 10-15 cents a bushel loss when including all costs, although this figure is up since the start of the year with ethanol prices rebounding. Abengoa Energy announced they would sell their 6 first generation grain ethanol plants in the US as part of a bankruptcy deal with creditors. Corn is trading in a narrow range with $3.72 overhead resistance and the gap at $3.64 providing support.

In beans, Brazil’s harvest will begin in the next few weeks although weather delays are an issue right now. Mato Grosso Brazil is still wet for three days then the rain moves south where it could disrupt early harvest in Parana. The southeastern 20% of Argentina to be dry over the next two weeks. Soybeans moved off of yesterday’s higher close, but the range of $8.88 and $8.70 should be viewed as key resistance and support.

Wheat came under pressure yesterday as Russia said they would be considering reductions in wheat export taxes. Russia plans to hold a meeting on Friday to further discuss export controls for ag and a decision is expected early next week. Support is around $4.66 and overhead resistance at $4.88.

Stocks came under pressure yesterday following the Fed announcement of no interest rate change (not surprising), but they also suggested they have not ruled out an interest rate hike in March. Crude oil continues to try to move higher, as it has posted a $4 a barrel advance off of the 13-year lows set last week. However, it faces a stuff headwind with economic data continuing to purport growing inventories of crude.

Morning Comments – January 27

Grains were sluggish yet again overnight with wheat falling after solid advances in the past four days. Corn also drifted lower while soybeans posted a slight advance. In outside markets, the see-saw patterns continued with S&P and crude oil futures making relatively big declines before morning trade opened.

In Argentina, concerns over dry weather are starting to mount. An analyst for the Rosario Grain Exchange said parts of the Buenos Aires province is burning up and yield loss is possible. Two weeks ago, the Rosario exchange estimated the corn harvest for 2015/16 would be 23.8 MMT, up from 20.2 MMT in the previous season, due to a larger planting area and higher yields. The area hit by drought represented 8% of the main agricultural area of the country, which is also a top global exporter of soy and wheat. Looking ahead, World Weather Inc sees another ten days to two weeks of net drying in Argentina in the provinces of Buenos Aires, Sante Fe and Entre Rios.

Wheat was pressured overnight as Russia’s ag minister proposed to policymakers that the wheat export tax be eliminated or reduced, but would impose taxes on corn and barley exports. This is a seemingly different policy stance when earlier in the week Russia wanted to restrict all grain exports to curb inflation.

Oil prices bounced higher on Tuesday after senior OPEC and Russian officials stepped up vague talk of possible joint action to eliminate one of the largest surpluses in modern times, but any resolution seems unlikely. Meanwhile, U.S. crude stocks rose by 11.4 million barrels last week to 496.6 million, the American Petroleum Institute said, topping analyst expectations for an increase of 3.3 million barrels. That said, oil bulls are gradually starting to emerge, with this month’s drop below $30. The options market shows traders are buying up protection against a rise to at least $40 by the end of the year, and speculators have increased their bullish bets on the price through the futures market.

Morning Comments – January 26

Grains were modestly weaker overnight, while outside markets for the S&P and crude oil were modestly higher following Monday’s sell-off.

In weather, showers exited southeast Buenos Aires, northeast Cordoba, northern Santa Fe, northern Entre Rios, and minor production areas in northeast Argentina in the past day, with additional showers late Wednesday into Friday and next Wednesday/Thursday. While each of these events has the chance to reach up to 1/2 of the corn/soy, the best rain chances are likely to remain in northern/western areas. As a result, dryness concerns (focused on 20 to 25% of corn/soy) in central Cordoba and bordering sections of Santa Fe as well as central/northeast Buenos Aires should continue and potentially threaten minor reductions in yield potential, although heat has subsided.

China imported a record volume of corn and corn substitutes, including distillers’ dried grains (DDGS) and sorghum, in 2015 driven by cheap overseas prices, but imports this year could fall by more than 50 percent, traders and analysts said. China shipped in a record 6.82 MMT of distillers’ dried grains (DDGS) in 2015, a rise of 26 percent from the year before, official customs data showed on Tuesday, as feed mills replaced expensive domestic corn with the cheaper dried grains. However, DDGS imports to China, the world’s top buyer of the grain, a by-product of corn-based ethanol, are expected to decrease by more than 50 percent this year. If so, this could have important implications for US DDGS and resulting ethanol margins, as China accounts for half of all US DDGS exports.

Outside markets were relatively stable following Monday’s sell-off in crude oil and stocks. The Federal Reserve’s two-day policy meeting begins later in the day.   Investors will be parsing the U.S central bank’s message to determine what, if any, effect volatile global markets, plummeting oil prices and heightened fears of a Chinese slowdown will have on the Fed’s previously stated intentions to continue raising rates this year.

 

Morning Comments – January 25

Grains were mixed overnight as wheat found modest support advancing 3 cents, while soybeans were off 3 cents. Corn drifted lower in relatively stable trade in the night session. In outside markets, crude oil started the week with a $1 a barrel loss while S&P futures were modestly lower.

Soybeans saw pressure from good weather prospects in South America. Dry weather across N Argentina (hot too) and S Brazil will give way to wetter conditions over the next 5-14 days. N and NE Brazil have meanwhile seen 125-300+% normal rains with drying beginning next week. Last week (ending Jan 21) saw vegetation deteriorate across much of Argentina and parts of S Brazil. Improvement was seen in Northern Center-West and much of Northeast and parts of Southeast Brazil. Widespread moisture during the next 7-10 days will help numerous areas.

For wheat, prices found support from a cold weather snap in Russia and Ukraine. However, with most areas seeing adequate snow cover the risk to the crop seems limited. Also providing support is a report that Russia’s Ag Minister may be considering limiting grain exports over concern about the country’s inflation and declining rouble.

In corn, India bought 250,000 MT of corn from Ukraine. Technically, the corn market seems to be holding up on the recovery from the $3.50 area. The corn market held its gap last week at $3.64 as we try to push through the $3.70 area. This should give us a bit more strength with a test of the December trade from $3.75 to $3.80. Expect that to satisfy this recovery. Weekly charts also show the $3.75 area key overhead. However, we need a close under $3.63 to shift back down.

For crude oil, prices started the week on a down note as Iraq’s oil ministry said oil output had reached a record high in December. Its fields in the central and southern regions produced as much as 4.13 million barrels a day, the government said.

Weekly Cash Comments

Cash Commentary-

Cash grain basis continued to be at a stalemate this week as basis levels around the country for corn and soybeans were generally unchanged.

In corn, futures prices continued to creep higher but this seemed to have little impact on basis levels. Although, Western Cornbelt basis seemed to have a bit more pressure with a few cent losses on basis being reported at some buyers. Farmers in the Western Cornbelt had a better year on average versus Eastern Cornbelt which should keep basis levels in the West in check for some time. Ethanol plants on average were off 1-cent a bushel this week with 3 to 7-cent losses fairly common at Western Cornbelt plants. River terminals were flat for the week.

For soybeans, river terminals were also unchanged for the week as were soy crushing facilities. As in the case of corn, there was a bit of weakness in soy crushing plants in the Western Cornbelt with losses of 2 cents fairly common at key buyers.

Futures Commentary-

Grains saw modest gains this week as prices continue to firm slightly entering the New Year. Corn led the advances posting a 9-cent gain on the week with wheat up 6 cents. Soybeans drifted lower giving up 3 cents by the end of the week.

Global markets and uncertainty took center stage as gyrations in crude oil and stock markets kept traders on edge. After plummeting to new 12-year lows, crude oil shot higher by the end of the week, albeit on what seemed to be mostly a short-covering rally. Fundamentally, the oil market continues to be plagued by over production. EIA crude oil inventories were up 3.8 million barrels on the week versus analyst expectations of only a 2.8 million barrel increase.  In grains, traders mostly shrugged off the wild swings in outside markets but had little bullish stimulus on their own.

The one bright spot this week was a slight blip in an otherwise dismal US export program. Corn export sales topped 1 MMT for the first time in 6 weeks. However, it will take a continued surge in export business to meet USDA’s expectations. Export sales will need to average 655,000 MT for the remainder of the marketing year to reach USDA’s annual forecast. By comparison, export’s last year for the remainder of the marketing year only averaged 533,000 MT. With a strong US dollar and more competition from Argentina, it seems unlikely to meet that forecast.

For soybeans, exports are tailing off from the early part of the marketing year but still remain seasonally strong. The year-to-date export sales are on pace to reach USDA’s lower forecast for the year. But, for wheat, we also are lagging behind. Year-to-date sales are 13% behind this time last year, while USDA’s annual forecast calls for only a 7% decline.

Look for more downside risk in the near-term. Fundamentally, little has changed in the past few weeks as prices have rallied off of their lows. Weather in South America is adequate to produce a bumper crop, and with the US at a competitive disadvantage for wheat and in many cases corn because of the strong US dollar, it seems unlikely that prices can sustain any meaningful upside potential between now and spring.

Morning Comments – January 22

Grains firmed in the overnight session with soybeans leading the complex higher on 4 cent advances in early morning trade. Outside markets were firm as well with oil bouncing off its lows on a $1.50 a barrel advance and S&P futures were up 1.3%.

Export tender activity has heated up of late although many of the deals seem to be getting done without US participation. Notably, Egypt’s wheat deal yesterday for 235,000 MT was won by Romania, France and Russia. Prices between US and French wheat have been diverging this week thanks to the Euro’s slide against the US dollar. Current FOB prices in France are $32/MT cheaper than the US, which compares to only a $25/MT discount this time last month. India also announced the results of its corn tender which ended up going to a South Korea trading firm.

In South America, the next 7 days look to bring excessive moisture in parts of Northern Brazil while Argentina will see warm and dry weather. For the 7 to 14 day forecast rain should return to northeastern Argentina and southern Brazil boosting soil moisture and ending recent drying.

U.S. oil prices rebounded more than $1 a barrel from 12-year lows on Thursday, posting their biggest daily gain this year as rallying financial markets gave some bearish traders reason to take profits on record short positions. U.S. crude briefly vaulted back to $30 as hopes for easier monetary policy from Europe fueled a recovery in European and U.S. stock markets. Even bearish EIA crude inventory data which showed a 3.8 million barrel increase in stocks versus a 2.8 increase expected didn’t stymie the rally. Instead, the report triggered buying among traders who had feared the figures could be even worse. Still, few traders expected a quick recovery from this year’s 20 percent slump, with oil under pressure from a deepening supply glut and signs of economic weakness in China.

Morning Comments – January 21

Grains posted modest gains overnight while outside markets saw S&P futures up following yesterday’s near collapse while crude oil was hovering in unchanged territory.

In Argentina there are growing concerns about dryness. Net drying occurred in quite a few areas and warmer temperatures have begun to accelerate drying rates. Very warm to hot temperatures into the weekend with restricted rainfall may bring on greater dryness and some crop stress for a little while, but rain late in the weekend and more again late next week will offer a chance for relief – at least in some areas. Another week or two of dry weather could seriously impact plant development for several summer crops, but weekend rainfall and cooling temperatures should be sufficient for a little relief.

Consultancy Strategie Grains on Thursday, forecast a rise in the European Union’s soft wheat exports next season, helped by reduced competition from rival Black Sea origins, mainly Ukraine. In its first estimate for next season’s exports, the consultancy put EU exports in 2016/17 at 28.9 MMT, up from 28.1 in 2015/2016.

Russia’s grain exports in December hit a record high of 3.8 MMT, owing to a weak rouble making Russian grain more competitive on global dollar-denominated markets, SovEcon agriculture consultancy said in a note. Due to seasonally lower demand, grain exports will decline to 1.4-1.5 MMT in January, of which between 1.1-1.2 MMT will be wheat. Grain shipments are likely to gain pace in February and March when many forward contracts signed by traders in December and January must be fulfilled, SovEcon said.

S&P futures were finding support early on, but yesterday’s 3.5% collapse at one-point during the trade session is sending fear throughout the financial markets. Investment managers are warning that the S&P 500, which has lost 9 percent this year, could drop another 10 percent and oil could fall as low as $20 a barrel. Jeffrey Rottinghaus, whose T. Rowe Price mutual fund beat 99 percent of rivals over the past year, also said the U.S. economy may slip into a mild recession.

Morning Comments – January 20

Grains were weaker to unchanged overnight with soybeans giving up nearly 6 cents and wheat down 3. Going into the morning pause in trading, corn was trying to hold onto a fractional gain. In outside markets, S&P futures were off sharply, losing almost 2% of their value while crude oil was off over a $1 a barrel.

U.S. soybeans lost ground on Wednesday, giving up some of last session’s gains as South American supply was seen hitting records despite concerns over wet harvest weather in Brazil. Yesterday, Brazil consultant Agro Consult expected a 99.2 MMT soybean crop which although slightly lower than USDA’s estimate of 100 MMT is still up from last year’s tally of 96.2 MMT. However, Agro Consult pegs Brazil’s corn crop at 85.6, well above USDA at 81.5.

In other news yesterday, Informa came out with forecasts for 2016 US crop acreage. They pegged corn acres at 88.9 MA which is up from 2015 acres of 88.0, while soybeans they suggest will be sharply higher at 85.2 in 2016 versus 82.7 in 2015.

In overnight news, there was some modest tender activity for corn and feed wheat although the deals were announced as optional-origin. Most expect the business ultimately to go to South America on the basis of lower prices.

Global stocks resumed their recent sell-off Wednesday as oil prices sank to a 12-year low and resurgent concerns about global growth snapped a brief bout of stabilization in financial markets. Shares in Asia and Europe were sharply lower and investors favored perceived havens such as the yen, gold and U.S. Treasury’s. Analysts said investors were spooked by further declines in oil prices and a lack of stimulus announcements from Beijing in the wake of data released Tuesday showing slowing growth.

 

Morning Comments – January 19

Grains were higher to start the week with solid advances by soybeans of 7 cents and corn and wheat were up 3 to 5. Outside markets were recovering overnight with oil trying to claw its way back to $30 a barrel and S&P futures posted a better than 12% advance.

South Korea’s Major Feedmill Group (MFG) purchased 55,000 MT of feed wheat to be sourced from Argentina in a deal on Tuesday, European traders said. Low priced Argentine wheat has made a strong reappearance in world markets after the country relaxed export restrictions, with rare sales of Argentine feed wheat to the United States also reported.

In Russia, wheat export prices fell further last week as the rouble dropped close to a record low against the dollar on weak oil prices. Black Sea prices for Russian wheat with 12.5 percent protein content were at $181-182 a MT at the end of last week, down $2-$3 from a week earlier, Russian agricultural consultancy IKAR said in a note. The rouble is down 6% against the dollar since the start of 2016.

Soybeans found support as rains in Matto Grasso, Brazil will limit harvest for the next few weeks. Also, some concerns of dryness in parts of Argentina; although the outlook does call for rain.

Oil prices rose more than 5 percent on Tuesday as investors viewed bullish Chinese oil demand data as a buying trigger, but contracts remained near 12-year lows as the IEA said the market should stay oversupplied this year. Traders said prices drew support from strong oil demand in China. Preliminary Reuters calculations based on government figures showed record oil consumption of 10.32 million barrels per day (bpd), up 2.5% from 2014, defying slowing growth in the world’s second-largest economy.