GAP Observations

Welcome to GAP Observations – a bi-weekly, no-nonsense analysis of curated market drivers and data for global corn, wheat and soy complex futures, by industry consultant Emily French.

RANGES: CH = 519.25 – down 5¢ (514.50 – 522.75). CH = 648 – down 12.75¢ (643.25 – 659). KWH = 626 – down 9.75¢ (621.75 – 634.25). SH = 1353.50 – down 16.75¢ (1339.50 – 1367). SMH = 434.80 – down $3.40 (428.80 – 437.60). BOH = 4310 – down 33 (4265 – 4346)

USDA DAILY SALES: 123KMT sorghum to China this year. 136KMT soy to China this year (again — confirms the PNW Feb biz).

U.S. export sales — week ending 14 January

Wheat = 329.6KMT (unknown = 75.5KMT. China = 65KMT). Exports = 264KMT

Corn = 1.44MMT (Mexico net = 574.1KMT). Exports = 886.7KMT

Sorghum = 293.5KMT. Exports = 220.5KMT

Soybeans = 1.82MMT (China = 450.2KMT net. Netherlands). New crop = 831KMT (unknown = 452KMT. China = 319KMT). Exports = 2.38MMT

Soymeal = 468.5KMT – MY high (Morocco. Colombia. Ecuador). Exports = 239KMT

Soy oil = 52.3KMT (Guatemala, DR). exports = 29.7KMT

U.S. export sales bookings — week ending 14 January

U.S. soybean export bookings = 57.37MMT vs 31.2MMT LY– up 26.2MMT (+25.3MMT LW, 25MMT 2W, 25.43MMT 3W) (USDA forecast exports = 60.7MMT/94.5% complete)

1. China = 34.41MMT vs 11.61MMT LY – up 22.8MMT (+22.2MMT LW, +21.6MMT 2W, +21.3MMT  3W, 20.86MMT 4W) or (87% of this year’s gains vs LY)
2. Unknown = 4.59MMT vs 2.12MMT LY – up 2.47MMT (2.18MMT LW, +2.4MMT 2W, +3.1MMT 3W, 3.47MMT 4W) (9.4% of this year’s gains vs LY
3. Europe = 3.34MMT vs 3.18MT LY – up 5% or 160KMT (-2.9% or 90KMT LW, -5.5% or 160KMT 2W, -6.3% or 170KMT 3W)
4. Mexico = 3.64MMT vs 3.18MMT LY – up 14.4% or 460KMT (+18.9% or 560KMT LW)

U.S. soymeal export bookings = 6.76MMT vs 6.63MMT – up 2% or 130KMT (+5% or 300KMT LW, +6% or 340KMT 2W). USDA forecasts exports = 12.93MMT – up 1.3% vs LY (52.3% complete)

U.S. soy oil export bookings = 554.5KMT vs 520.1KMT LY – up 6.6% (+8.2% LW, +14.7% 2W, +14.5% 3W, -1% 4W). USDA forecasts exports = 1.25MMT – down 3.1% vs LY (44.4% complete)

U.S. corn export bookings =  46.82MMT (45.38MMT LW, 43.94MMT 2W, 43.2MMT 3W) vs 20.3MMT – up 26.5MMT (26.1MMT LW, 25.4MMT 2W, 24.85MMT 3W) vs LY (USDA forecast exports = 64.8MMT/72.3% complete

1. China =  11.77MMT (11.77MMT LW, 11.68MMT 2W) vs 60KMT LY – up 11.71MMT (no change vs LW) (accounts for 44.4% of the gains vs LY)
2. Japan =  6.35MMT (5.93MMT LW) vs 3.61MMT LY – up 2.74MMT (2.7MMT LW) (10.3% of the gains)
3. Mexico =  10.54MMT vs 9.33MMT LY – up 13% or 1.2MMT (+9.8% or 880KMT LW)
4. Unknown =  7.79MMT vs 1.34MMT LY – up 6.45MMT 6.59MMT (+6.59MMT LW, 6.15MMT 2W, +6.1MMT 3W) (24.3% of the gains vs LY) – portion of this will be China directed

U.S. wheat export sales bookings =  21.39MMT (21.06MMT LW) vs 20.28MMT – up 5.5% or 1.11MMT (+7.6% or 1.48MMT LW) — export forecast = 26.81MMT vs 26.28MMT LY – up 2% vs LY (80%)

1. HRW  = 7.25MMT (7.22MMT LW) vs 7.43MMT LY – down 2.4% or 180KMT (up 1% or 70KMT LW)
2. SRW =  1.59MMT (1.59MMT LW) vs 2.12MMT LY – down 25% or 530KMT (no change)
3. HRS =  6.27MMT (6.11MMT LW) vs 5.8MMT LY – up 8% or 470KMT (+9.5% or 530KMT LW)
4. SWW =  5.63MMT (5.56MMT LW) vs 4.1MMT LY – up 37.4% or 1.53MMT (+41.8% or 1.65MMT LW)
5. Durum =  659.7KMT vs 814.2KMT LY – down 154.5KMT or 19% (-221.2KMT or 27.3% LW)

SOY COMPLEX

Solidly lower.  

1. Open interest: soy +629 soymeal +1292 soy oil +1854 — this will be the first lower weekly close since the first week December
2. U.S. soymeal export sales – yes, they hit a MY high — but again slipped vs previous gains of last year and are now up only +2% vs LY (were +5% LW and +6% 2W) — despite a massive slowdown/basically shutdown of Argentina in December (and persistently low crush levels July-November). So, Argentina loses crush of nearly 2MMT vs December 2019 — and yet, here it is for the U.S. SM export program. SM export bookings are up “only”130KMT vs LY: Europe = 374.7KMT vs 196KMT LY — so up 178.4KMT and basically accounts for all the gains ++ vs last year. Zzzzzzzz
3. U.S. soybean export bookings — sales came in at a very high 1.8MMT for the current MY to take bookings to 94.5% complete vs USDA’s export forecast — and are now +26.2MMT vs last year
4. China U.S. soybean ownership is now +22.8MMT vs this time LY and account for 87% of the gains for this year’s U.S. export program MYTD
5. Weekly “need” soy complex sales pace: soybeans = 4.4 mil bu / 120KMT to hit USDA’s export forecast. SM sales need to average = 152KMT/week. Soy oil = 18.3KMT/week.
6. Board crush — Mar @ 77.2¢ (69.7¢). May @  63.3¢ (56.6¢). July @ 63.3¢ (59¢)
7. Oil share — 33.14% — over all the major moving averages this week (50d, 100d, and 200d MA). Mid-point of the trade range for oil share
8. China soy complex snapshot — Dalian soy complex closes at 2-week lows. COVID lockdowns — expanding cases. ASF case. Weak SM pricings. Weaker crush margins. More wheat being fed vs corn = reduces protein need. Daily soymeal pricings super pathetic at just over 30KMT with flat prices trending solidly lower and SM stocks stable. Edible oils close the week mixed. In-port soy stocks remain closer to 8.4MMT than not. Record levels. Crush margins have really taken a hit this week and new crop margins are even more horrendous (Q4 CY2021). Reminder that AFS is not going away — that has also spooked the market or certainly served up a dose of reality
9. Brazil snapshot: More of the same. MT harvest at 3% (#1). Parana (#2) very little. Rains on tap pretty much through month-end. Will provide a slow start harvest but a fabulous finish to the mid-later planted soybeans. Give some/get some. China in-port soy stocks are v. comfortable and crush margins are “less than” right now — so don’t see China chomping at the bit to get their vessels loaded. Soybeans and soymeal — call it unchanged. Soymeal finds support from the domestic market. Soy oil defensive — with lack of domestic and export demand. Export line-up: soybeans = 5.63MMT (30KMT loaded). Soymeal = 1.17MMT (533KMT loaded)
10. Argentina snapshot: Continues to plod along. A little selling every day — but the market will take it as it was pretty much none thru Nov-December. Crush margins still hold nicely for those that have soybeans/can get soybeans. December crush came in = 808KMT (2.75MMT Dec 2019). Despite December crush loss of this magnitude from the world’s largest soy oil and soymeal exporter — both SM and BO markets are much weaker. ERGO = DEMAND DESTRUCTION that NO ONE wants to TALK ABOUT. SM continues to fall under its own weight — bids fading another $3-5/MT into the weekend. BAGE soy crop rating: 21% good-excellent (17% LW). 69% fair (63% LW). Production range: 46.5-48MMT. If February rains deliver — would look for that number to sneak closer to 50MMMT than not
11. IHS Vantage (Informa) – using 90.1 mil acres for its 2021-2022 U.S. soy plantings (+645K from Dec) and +7 mil acres vs this year
12. World ocean freight summary (USGC) — Dry-bulk freight markets played their normal game this week; indices and rates were up for the first three business days and then ran into selling pressure at week’s end. The selling activity caused prices to scale back from their weekly highs. Overall, markets are slightly higher from the prior week, but volumes are shallow and nothing dramatic is taking place. This will likely be the scenario for most of 2021. Dry-bulk rates are expected to gradually creep upward, but it will be a struggle, and nothing is expected to cause much market drama. Container rates have already made their dramatic move for 2020-2021, and they are expected to moderate after past Q2. Logistics are the challenge in these markets
13. REPEAT: Soybean charts — 1410 was the 61.8% retracement back to the all-time high. Check the box on the retracement measures. As for that 61.8% retracement — it is very strongly noted that when 61.8% is hit to upside, there is likely a fill/re-test of that 61.8% retracement over time. That would = 1030. Before this — is the 38.2% retracement = 1190 (that is also the LT swing point), and the 23.6% point = 1280
14. REPEAT: Can the grains/oilseeds continue to go it alone? Clearly, these markets have outperformed. That is a significant understatement. It set a new record vs its performance vs energy in 2020. And continues to widen its premium to other commodity asset sectors (notably energy). But it’s not just that — it’s also livestock futures. This market has taken a complete and utter bath to start CY2021 — not only live cattle and hogs, but Dalian’s recently launched live hog contract found itself with multiple days of limit-down movements. #awareness of what is going on around you
15. World soy supply cushion = 83.2 days (98.2 days LY — 31 August 2020) — down 15 days. Daily consumption = 1.01MMT vs 971.4KMT/day. China soy imports = 100MMT (+1.5MMT vs LY). ROW imports are forecast to contract -33KMT vs LY

CORN 

Solidly lower. China the bid right now in the world market with Jun-July biz ex-both U.S. and Ukraine. August forward Brazil more competitive than U.S. 

1. Open interest +13615 — this will be corn’s first weekly lower close since the first week of December
2. U.S. export bookings continue to build vs last year — now up 26.5MMT with China accounting for 44.4% of those gains
3. China known U.S. corn ownership — no change vs LW at 11.77MMT vs 60KMT this time LY — there are now ~6MMT in o/s sales (vs nil LY) and 5.79MMT that has been shipped in the past 4 1/2 months
4. Weekly “need” export sales pace = 21 mil bu/533KMT to hit USDA’s forecast
5. U.S. sorghum export bookings = 5.57MMT vs 1.14MMT — up 4.43MMT vs LY. China the factor (no shock) = 4.5MMT vs 403KMT LY
6. Brazil export line-up = 858KMT (1.87MMT loaded). China sniffing for more Brazilian ownership. Rumor of LH July trading but nothing confirmed. Aug forward Brazil now discount to U.S. FOB
7. Argentina crop rating (BAGE) — 28% good-excellent (15% LW). 64% fair (39% LW). Production estimated = 47MMT. Moisture conditions called 93% adequate (80% LW). Continues to improve. As rains hit this weekend and to start February — would look for the market to head higher with production estimates
8. IHS-Vantage (Informa) out with its 2021-2022 U.S. corn plantings = 94.2 mil acres (+3.1 mil acres vs Dec estimate) – and would be +3.4 mil acres vs 2020
9. U.S. cattle on feed report — out post-close today with market looking for a low 99.4% for 1 January and December placements @ 97%:  This is what CONTRACTION looks like
10. World DDG summary (USGC) — U.S. DDGS values continue to rally amid lower production and strong demand for feedstuffs and agricultural commodities. FOB ethanol plant values are up $7.50/MT this week even as Kansas City soymeal values have moved $23/MT lower on weakness in soymeal futures. The DDGS/cash corn price ratio currently sits at 118%, up from last week and above the three-year average of 110%. The DDGS/soymeal ratio is up from last week at 48%and is above the three-year average of 42%. So far in the 2020/2021 marketing year, FOB Gulf soymeal prices are up 40% while FOB Gulf DDGS values have risen 47%. Industry sources say the volatility in corn and soybean markets and concerns with container freight rates are complicating forward sales. Reportedly, container lines are hesitant to lock in rates more than four weeks forward, which is making DDGS sales from March forward more difficult. Southeast Asian buyers still need to purchase a large portion of their Q1/early Q2 needs but are being cautious amid rising commodity prices. Barge CIF NOLA values are up $3-4/MT this week while FOB NOLA offers have declined $4-6/MT for February and March shipment, decreasing netbacks to merchandisers looking to move product on the river. U.S. rail rates are down $2-3/MT this week while offers for 40-foot containers to Southeast Asia are mostly steady at $349-350/MT
11. REPEAT:  Corn story vs corn futures + board spreads: with rains improving for Argentina — this really sort of changes the conversation in the nearby. World corn demand has been largely covered thru Q1 and into Q2. With the rains and February forecast for Argentina — there will be a new low-cost sheriff in town starting April forward (FOB Argentina now at discount to U.S). In other words — feels like the market is a bit long in the tooth here in the front end given the current state of play in the physical market. Totally concur that the delay in Brazil’s soy harvest will push that safrinha corn planting into a more dangerous window for its pollination/crop development. However — even with that crop (regardless of the size) — it is not a market factor/physical player until August at the earliest. That coincides with the market having a handle on the U.S. plantings/crop development. In other words — corn has had a nice run here. However, given the knowns — would argue the fundamental landscape looks far more compelling when it comes to bullish arguments in the deferred part of the corn futures curve (CZ21 forward) — not the front end (esp. when one looks at the U.S. current drought monitor and the long-term weather outlook)
12. REPEAT: U.S. plantings for 2021-2022 – plenty of discussion already on this topic even as we await the full start of Brazil’s soy harvest (as well as Argentina). A brief hot-take on this topic: (1) The key on most of this acreage “battle” will be the average prices in February — it is the average February price that sets the crop insurance price. As we all know — crop insurance plays a very influential role now. (2) A lot of fall fieldwork was already done — well ahead of the previous two fall seasons…so that acreage is more/less committed. (3) The planting ratio really needs to get EXTREME to influence the farmer to abdicate the normal crop planting rotations that are so vital/key/important to the land management/soil condition of the crop. (4) Spring conditions — at the end of the day, Mother Nature rules the roost. If too wet — more soybeans will be planted…regardless of the planting ratio, etc., etc. And finally, (5): The total planted area in the U.S. over the previous two planting cycles has been much smaller due to overall economics + prevent planting. In other words — a lot more acreage is out there than perhaps what the market is giving credit to at this point in time
13. Brazil corn export line-up = 925KMT (1.8MMT loaded) — no change vs previous day
14. REPEAT: Indian corn exports — only forecast at 600KMT this year (1.34MMT in 2019-2020). Keep an eye on this as there is discussion the government may give/grant an export subsidy to get some of this corn moving off its shores (brings more currency back home). Largest Indian corn export programs were in that “peak” price period of 2007 – 2013 with a high = 4.71MMT in 2012-13. India’s role in the export grid when it comes to wheat, corn, or soymeal — it plays a bearish “spoiler” on the physical supply side
15. World supply cushion = 39.2 days – loses 4.8 days vs LY — lowest level since 2010-11 (38.9 days). World consumption = 2.37MMT/day world feed demand cut again — now up less than 1% or a “mere” 3.2MMT. FSI demand is forecast to increase 1.5% or 4.9MMT — this is a major risk given ethanol economics and potential off-ramp by China with its own domestic ethanol industry/use of corn as a fuel (vs food security)

WHEAT

Double-digit losses to the downside led by Chicago. 

1. Open interest — Chicago +2337 Kansas -209
2. U.S. export bookings are now up 1.1MMT or 5.5% (continue to slip vs previous weeks’ gains vs LY) and are now 80% complete. There are 4 1/2 months left in the MY
3. China U.S. wheat ownership = 2.45MMT vs 194.1KMT LY- – up 2.26MMT. W/out the gains in China biz vs LY — U.S. export bookings would be down 1.16MMT vs LY
4. Weekly “need” export sales pace = 10 mil bu/272KMT to hit USDA’s export forecast
5. Russian farmers — have now found their voice and are protesting the government’s export taxes across the ag space. Petition has started to demand the withdrawal of the export tax. If that is the case, they will likely need to put their money where their mouth is and unload this last year’s crops into the physical markets in the weeks ahead to validate said position
6. World import trade — reminder that it is CHINA that accounts for 90.3% of the increase in world wheat import trade vs LY. Said another way — if China did not increase their imports from 9MMT to 5.4MMT LY — world import trade would “only” be up 400KMT or 8 panamaxes. #perspective
7. World wheat supply cushion = 90.8 days (88.1 days LY) — up 2.7 days. More upside to Australian production and exports. Daily wheat consumption (w/out China) = 1.69MMT/day. U.S. will store 14.9% of the world (w/out China) wheat reserves and its own STU at 39%
8. Bottom-line: U.S. will continue to do what it does best –> act as a transparent backstop for a majority of world importers for various classes of wheat. So, no change there, vs previous years. Certainly, no bullish theme on its own. The biggest question for 2020-21 is the demand side of the equation and the price relationship between corn-wheat in forthcoming weeks + months.

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Disclosure: The risk of loss in trading futures and/or options is substantial. Past performance is not indicative of future results. The information in this message derived from third-party sources is believed to be accurate and reliable; Coquest does not guarantee the accuracy or completeness of the information. Opinions expressed in this material are subject to change without notice. This report should not be interpreted as a request to engage in any transaction of futures, options, and/or OTC derivatives. The information contained in this material is not to be relied upon in substitution for the exercise of your independent judgment. Seek independent financial, tax, legal, and accounting advice from your own professional advisers, based upon your particular circumstances.

Emily French

Consultant and Global Ag Protein (GAP) Founder Emily French has been part of the world’s agriculture revolution for 25 years, formerly as a trader, analyst,…

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