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Monday, 13 July 2020

` growth phase in the coming months will

Weekly Overview remain at the main drivers of prices. July
Price changes week on week month for Corn and Aug for soybeans are the
crucial months for ensuring an above-trend
Price Change Change% 30 Day Low 30 Day High
Soybeans 890.75 -6.00 -0.67% 861.25 906.25 yield.
Soybean Oil 28.84 0.09 0.31% 28.08 29.56
Soybean Meal 300.1 -4.10 -1.35% 288.6 306.0
CBOT Wheat 539 39.25 7.85% 484.00 539.00
Corn 344.75 -8.75 -2.48% 325.25 360.50 There are two primary models used in
Kansas Wheat 464.25 17.50 3.92% 441.00 490.75
Crude Oil 41.25 0.14 0.34% 37.40 41.41 forecasts, the GFS and the EU model. Both the
Dollar Index 96.614 -0.69 -0.71% 95.950 97.577
weather models are now in consensus that the
next couple of weeks will have favourable
Mixed week for grain and oilseeds. July 10
weather for yields. The likelihood of realizing
USDA report did not offer any significant
the forecast is higher when both the models
surprises. Drier weather forecasts added
agree. The adverse forecast, which was
support earlier in the week, however, as the
reported earlier, was more likely a weather
threat of larger crop damage subsided, prices
scare.
retreated to lower levels. Wheat prices rallied
inline with world wheat prices, driven by
increasing concerns on Russian wheat crop
size due to initial low yields.

The market has now fully factored in the

impact on reduced acreage on corn. Though
the change in acreage was significant, its
impact on the balance sheets and carry out
estimates was not strong enough to
fundamentally change burdensome stock
outlooks for corn. Corn prices decline to post
the large fund position unwinding.

As we have mentioned in our earlier reports,

we don't expect any substantial changes in
acreage from current estimates. The driving
factors in the coming months will be the size
of the total Chinese demand for US
agriculture, and the weather during the critical
Weekly Report 13th July 2020

COT Report Managed Money Positions as of 07 July 2020

Position Change Max Long Max Short Average

Corn (142) 60 429 (322) 78
Soybean Meal (22) 31 134 (77) 26
Soybean Oil 19 19 127 (110) 14
Soybeans 99 31 254 (169) 61
Wheat (34) 5 67 (162) (43)

Grains

Wheat prices were higher in line with the rally

Good levels of soil moisture and the
accumulated precipitation levels over the
western parts of growing areas should offset
any mild adverse weather events. If the
forecasts start calling for lasting dryness, then
we expect yield could be adversely impacted,
which is not the case now.
Funds nearly halved their net short position on
corn on the back of reduced acreage. Funds
still hold 142k contract net short. However, it
is far less than their net position of close to
300k short contracts.
Intestinally, we have seen funds long built
upon soybeans. It could be due to a potentially
tighter balance sheet in case there is adverse
weather in Aug or on the back or expected
Chinese demand for soybeans.
in black sea wheat prices. Black sea export
season has seen a slow start raising concerns
on the yields and crop size there. A successful
black sea export program is critical this year to
keep a lid on prices until the beginning of the
Southern hemisphere export program.
Current disappointing yields seen so far from
Russia is one of the key drivers of prices.
However, usually, the yields increase as the
harvest progresses to the north. Russian aims
to use to grain quota mechanism that it
introduced earlier in the year; the likely impact
of the same will probably be felt closer to the
end of the marketing year. Russia also plans to
start building the state grain stockpile by
about 2.5 to 3.5 million, which is not a
significant amount compared to the total
export program of ~35 mmts.
Weekly Report 13th July 2020

The market will need to see an excellent

southern hemisphere crop, mainly anchoring
on Australian production. Australian crop will
be dependent on late August to early
September weather.

World wheat values may be past the seasonal

bottom, but further price action will depend
on the developing US weather and actual
yields from the Black sea yields.
Weekly Report 13th July 2020

USDA pegged corn stocks at 2.248 billion bu The presence of Chinese demand for American
compared to average estimate do 2.28 for old soybeans remains one of the critical numbers
crop. For new crop, carry out is at 2.648 vs. essential in keeping the carry numbers at
market guess at 2.715. estimated levels.

Though the major reason for the decline in

estimated stocks was the drop in planted
acreage, the carryout projection is still well
above 2.5 billion bu. This estimate is using a
yield of 178.5, while it is still very much
possible to have a yield higher than 180 bu
given the forecast for favourable weather.
Meanwhile, negative ethanol margins will
keep a lid on the demand estimates. However,
China did buy 1.35 million mts of US corn, both
from old crop and new crop. This purchase is
likely part of the trade deal.

As we have mentioned earlier, in our view,

balance sheet changes due to the acreage will
not change supply and demand to a bullish
outlook, which makes such a level of implied
volatility level overpriced; hence, a selling
opportunity.

Oilseed complex

Though soybean prices traded higher in the

week, they closed lower on the back of
improving weather forecasts and lack of any
significant surprise from the USDA. USDA
pegged new-crop carry out at 425 million bu,
very close to the market estimated number of
424.
Weekly Report 13th July 2020

There is no change on the demand side, meat

demand struggling to recover as cases of
COVID-19 continue to increase in the united
states, likely pushing some states to go back
into partially closing their economies.

Key months for Soybean crop is the forecast

for Aug, where most of the yield is
established. A yield of over 50 bu/acre will
still result in a carryout number of close to
400 million bushels, which will not be bullish
overall.

Long-range forecasts still call for favourable

weather in Aug. in the absence of an adverse
weather event, and US soybeans prices
should remain rangebound.

Trade Recommendations

Soybeans: keep positions close to home ahead of the crucial August month. Cover supply chains.

Corn: look to establish short position over 350 level on December corn; hold position.

Corn implied vol: look to sell September implied volatility above 30%

Wheat : we are stopped out on the short position on wheat.

Weekly Report 13th July 2020

Food for Thought: is there an incredible shift in demand for Agri products possible from the meat
replacers industry?
Weekly Report 13th July 2020

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