GAP Observations: Jan 8, 2021

GAP Observations


RANGES: CH = 496.75 – up 2.75¢ (492.50 – 499.50). WH = 644.25 – up 2¢ (640.50 – 649.50). KWH = 596.25 – down 2.25¢ (592 – 601.75). SH = 1370.25 – up 15¢ (1348.50 – 1375). SMH = 435.30 – up $3.10 (430 – 437.40). BOH = 4407 – up 28 (4343 – 4418)



It was another day of big swing/wide trade ranges into Friday’s full session. More bird flu cases making the rounds around the globe.

1. Open interest: soy -943; soymeal -1098; soy oil -203. CoT report — week ending 29 December out today, post-close.

2. Deliveries: Soybeans 80 contracts — more put out by CHS-Morris Illinois. SM and BO nil.

3. U.S. estimates for Jan WASDE — average yield = 50.5 bu/acre (50.7 bu/acre previous). Production = 4158 mil bu (4170 mil bu previous). Ending stocks = 139 mil bu (105 – 166 mil bu range) vs. 175 mil bu in December. No change to view: A moot point in Brazil soy production holds closer to 129-130MMT than not and Argentina has an average crop (as plenty of 2019-2020 soybeans that can still be crushed as demanded by world SM and BO importers).

4. World soy ending stocks estimate = 82.7MMT (75 – 85MMT) vs 85.6MMT December — implies a loss of 3.8 days of the supply cushion (based on 1MMT/day consumption).

5. Board crush resumes its collapse — new contract lows into Friday’s full session: Mar @ 72.2¢. May @ 64.9¢. July @ 65.7¢.

6. Board spreads: soy reverses back into bull-momentum as inverse widens back out to retest the highs. Spreads mixed in soymeal and soy oil/leans lightly bull-momentum into the weekend.

7. Argentina — more rains being dialed with “significant accumulations in the central region of Argentina” — BAGE update. And other forecasts are taking some of the rain out. On the strike front — they are all officially over. That was a fun December — thanks. Re: weather — until more is known (e.g. — thru Feb and into March), all eyes now shift completely and totally to Argentina for both soy and corn. Brazil is confident in its crop — all but there with a few weeks left but liking the weather forecasts. A record crop is highly likely — the degree of the record remains the o/s point.

8. Bloomberg Commodity Index — has returned to levels of this time last year (in just this week — chart at bottom of this note). Bloomberg commodity index more diverse/better balance for the commodity sectors/silos.

9. Index re-balance — reminder — starts 5th trade session of the new year (today). Will go thru 14 Jan (GSCI) and 15 Jan (BBG). Estimated tables at bottom of this note. Index roll of G contracts starts today.

10. U.S. soymeal market — steady. Some push of FOB numbers as U.S. attempts to ride the coattails of South America. Recent talk of combo vessels (C + SM) into the Med — again, given the lack of confirmation of any SM biz out of the U.S. (during December on the back of Argentine strike) over the past few weeks. Would call much of it routine.

11. China soy complex snapshot — soymeal pricing continues to be the feature to start CY2021 for the soy complex with much of it deferred (+450KMT). SM stocks remain robust at 850KMT. COVID concerns remain/growing. Lunar New Year 11-17 February. In-port soy stocks remain +8MMT. Crush margins — look much better for Brazil origination vs. U.S. origination (by $20-30/MT spread March forward). March margins at +40/MT has private crushers back in the market this week for Brazil ownership. No sales flashed from the U.S. — but it’s a persistent talk of 1-2 cargoes of new crop PNW biz as China starts to build its book there (again, 2MMT/week crush for replacement give or take).

12. Brazil snapshot — ongoing weakness of Real vs. USD (Brazilian farmer — muito obrigado!!) — that’s the real story here when discussing the USD/global ag production revolution-evolution — it’s not necessarily its (USD) outright performance. Rather, it’s the price relationship vs. the Real (soybeans, S products, corn) or Ruble-USD (wheat). Rains continue to grace both Brazil and Argentina. Soy basis — showed a modest recovery-bounce of +5-10 on Thursday. Some of the weaker board — and then there’s been the China biz that’s been done this week. Soymeal steady. Soy oil — not much going on but the bid/offer spread is narrowing. CONAB soy production = 135.1MMT (that is now +600KMT) — going the other way. With these numbers — it becomes a bigger crap shoot/question whether USDA changes its 133MMT production forecast in the Jan reports next week. Export line-up: soybeans = 1.04MMT (nothing loaded). Soymeal = 753KMT (183KMT loaded).

13. Argentina snapshot — more. of. the. same. Soy plantings at 93.5% complete. Soymeal is quiet/unchanged. No change to new crop soy oil. Bids moving towards offers for Feb-March. December soy complex exports ended up pretty miserable. Soybeans = nil. Soymeal = 574KMT. Soy oil = 63KMT.

14. Indonesia biodiesel program — more pressure/talk/lobbying for Indonesia’s government to back off its biodiesel plans-blends until 2022… this would allow for palm oil production to recover in 2021 in both Indonesia & Malaysia.

15. Ocean freight summary (USGC) — Ocean freight traders finally woke up from the holidays and decided it was time to be optimistic and move things higher. Most of the excitement has been in the paper markets with physical markets following as best they can. As has been common in these markets, the first three days of the week exhibited the greatest amount of enthusiasm before running into selling pressure at week’s end. January 2021 daily hire rates for Panamax vessels moved up to $12,400/day. Forward positions for calendar 2021 traded at $11,300/day leaving us with a slightly inverted market.

16. World soybean balance sheet: now predicated on just exactly what SOAM produces in Jan-Feb 2021 forward timeframe/period. Would look for global soy production to be cut 2-3MMT — so in short, the supply cushion will decline 2-3 days based on South America. And then the other adjustment will be what U.S. balance sheet — all that said, it is very likely that the U.S. balance sheet is going to impact the U.S. when it’s all said and done and not necessarily the rest of the world, as Brazil should be back online and rock-n-rolling with soybean exports by March 2021 at the latest.

17. World soy supply cushion = 84.5 days (98.3 days) — down 13.8 days. Daily consumption = 1.01MMT vs 971.5KMT/day. China soy imports = 100MMT (+1.5MMT vs LY). ROW imports are forecast to contract -585KMT vs. LY.


Higher as CH back to flirt with that 500 zone into the weekend and ahead of next week’s January USDA report-apoolza. Ukraine new crop biz most active this week.

1. Open interest +24322 – open interest is up nearly 132,000 in the past seven trade sessions. Money. Pour.

2. U.S. FOB offers ex-Gulf — largely the low-cost FOB offer for the majority of buyers…and then there’s that whole “freight” component of it.

3. Brazil corn export line-up =1.08MMT (893KMT loaded). CONAB production = 103.1MMT (+1MMT vs previous).

4. Argentina corn plantings – 83.5% complete. Market mixed. No bids to speak of. Call it unchanged on the offer side with negotiations/conversations ongoing between the Fernandez administration and the ag sector (export-led) on reopening export registrations.

5. Argentina December corn exports = 900KMT (sad face).

6. China corn imports – USDA at 16.5MMT. I remain content at 20MMT for MY2020-21 (ends 31 August). China has been buying new crop Ukraine + safrinha corn ex-Brazil (Sept – Dec) for the past few weeks (or at least seems the primary bid for both). When discussing China – think there are two things to keep in mind (1) the spread between wheat-corn prices – basically at parity, and (2) there is an off-ramp for China’s government in its quest for food security, and that would be the ethanol segment/sector of its corn use. For 2020-21 – FSI is = 87MMT or 30.5% of domestic demand (this compares = 28.2MMT in 2000). Feed demand = 198.5MMT (92MMT in 2000) or 69.5% of domestic demand. To be frank – China corn import demand has to come to some relief given (1) ethanol growth engine for the U.S. has now stalled out/contracting/mature industry and (2) world corn production + exports continue to expand — and there is clear upside yield potential for the majority of corn producers if one compares to U.S. corn yields. Will discuss this in more detail in this week’s State of Play — week ending 8 January.

7. World DDG cash summary (USGC) — U.S. DDGS values are up $5/MT this week as production rates slow while domestic demand remains strong. Strong rallies in corn, soybean, and soymeal markets have offered outside support for DDGS values as well. Kansas City Soymeal prices are up $6.50/MT this week at $487.50. The DDGS/soymeal ratio currently sits at 0.45, equal to the prior week and above the three-year average of 0.42. The DDGS/cash corn ratio is 117% this week, steady with the prior week and above the three-year average of 109 percent. Brokers and merchandisers report that the DDGS export market has been “thin and illiquid’ this week amid the CBOT rally and post-holiday trading lulls. Despite thin trade, offers are sharply higher following the broader commodity rally. Barge CIF NOLA rates are up $23/MT for spot shipment while FOB Gulf offers are $30/MT higher for January shipment at $302/MT. U.S. rail rates are $12/MT higher while 40-foot containers to Southeast Asia are up $7/MT at $335 for January-March shipment.

8. Average U.S. estimates for the Jan WASDE – average yield = 175.3 bu/acre (175.8 bu/acre). Production = 14470 mil bu (14507 mil bu). Ending stocks = 1599 mil bu (1400 – 1782 mil bu) vs. 1702 mil bu in December.

9. World corn ending stocks estimates: 283.5MMT (269 – 288MMT) vs ~289MMT December.

10. Jan WASDE hot-takes: market looks for a 1-2 bu/acre cut to U.S. corn yield for the final U.S. corn production number.Implies production reduction = 82.5 – 165 mil bu (2.1 = 4.2MMT). World consumes 2.4MMT of corn every day (without China). So call it a loss of about 1 day to 2 days coming out of the U.S. balance sheet as it relates to the global (w/out China) landscape. Not sure if USDA does anything to its Brazil estimate with the safrinha crop being key there – and that’s not in the ground yet. However, clearly there is risk to the downside with this. Same goes for Argentina – would look for a 2MMT cut to that. But again – that’s about 1 day in the supply cushion.

11. U.S. ending stocks = 43.2MMT – holds 44.4% of the world’s (w/out China) stocks (vs 43.2% in the Nov WASDE) – still at multi-year highs if one looks over the past two decades. Looking ahead to the January WASDE –> shows final corn production has been smaller than November for six of the past seven years.

12. World supply cushion = 41 days — loses 3 days vs. LY – lowest level since 2010-11 (38.9 days). World consumption = 2.39MMT/day (2.34MMT/day LY). World feed demand cut another 800KMT in the Dec WASDE –> now +1.8% or 9.6MMT vs LY.


Mixed. KW the leader to the downside. Chicago money flows remain key there to price action in the short-term. EU wheat backs off six-year highs scored earlier this week.

1. Open interest — Chicago -3230, Kansas +1441.

2. French December wheat exports = 797KMT (877KMT November). China = 271.3KMT (34%). Algeria = 213.3KMT (26.8%). Pakistan = 66KMT (8.3%).

3. U.S. winter wheat seeding estimates – will be updated on 12 January. Average estimate of total winter wheat plantings = 31.53 mil acres (30.42 mil acres LY). HRW = 22.14 mil acres (21.36 mil LY). SRW = 5.88 mil (5.56 mil LY). SWW = 3.51 mil acres (3.49 mil LY).

4. Average U.S. estimates for the Jan WASDE — 859 mil bu (837 – 900 mil bu) vs 862 mil bu LY.

5. World wheat stocks estimates: 315.4MMT average (310 – 318.4MMT range) vs 316.5MMT in December.

6. January USDA reports out next Tuesday. Basic fine-tuning for both world and U.S. balance sheets. For the U.S. balance sheet – no major changes are expected with feed adjusted to whatever the 1 Dec quarterly stocks number reflects. No change to opinion there is a downside to the current estimate given the price spread between corn-wheat, clearly favoring corn over wheat. We shall see. On the world front — would look for a possible increase to both Russia (USDA adopts Russian government number) and Australia. On the export side, Russia reduced to reflect the export tax + export quota while Australia should be bumped higher. Argentina minor downward revisions to both production + exports.

7. Reminder: Not that it needs to be said — unless the market wants to trade the 2021-22 winter wheat crop (Russia the focal point) as it did in Q4 2020 — but the reality “wheat is a weed” — that thing has more lives than cats #perspective.

8. World wheat supply cushion — builds 3.2 days = 91.5 days (88.3 days LY). More upside to Australian production and exports. Downside to Argentina production + exports. Russia exports adjusted to account for export tax + quota starting 15 February. Daily wheat consumption (w/out China) = 1.69MMT/day. U.S. will store 15.1% of the world (w/out China) wheat reserves and its own STU at just over 40%.

9. 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. Consequently, 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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