- HEADLINES: Chicago August soybeans rise back above $17.30; GFS adds rain on midday run for W IA, NE/KS, US inflation reached its peak?
- August soybean futures push back above $17 (new contract highs) which extended the new crop rally. Corn/wheat are following on ebbing US inflation. The peak in US inflation has formed, which could cause the US Central Bank to be less aggressive in future rate hikes. US financial markets have enjoyed a “relief rally” with raw material prices rising on the sharp fall in the US$.
- Chicago grain futures are sharply higher at midday with old crop soybean futures leading the bullish charge. August soybeans have rallied back above $17.30 (new contract highs) to find any unsold old crop beans and bridge the supply gap to new crop. August soymeal has rallied to $531/ton, a fresh summer high on the tight supply of meal and the premiums being paid throughout the E Midwest. The soybean bull is being pulled upwards by its horns as last trading day approaches against August futures. US soybean exports are active while crush margins are resting at record highs. The combination is causing crushers and exporters to fight for supply.
- The USDA announced that China purchased 196,000 mt of 2022/23 US soybeans. China has now booked corn or soybeans each looking backwards to late last week. However, traders question if the purchase pace will pick up during the new crop harvest amid the frosty US/China political relations.
- The US weekly export sales pace should expand modestly on Thursday AMmorning, but totals will still be below where seasonal averages should be for August. We estimate US wheat sales at 350-450,000 mt, corn 700-850,000 mt with soybeans at 800-900,000 mt. US soybeans are not the cheapest in the world into early 2023. Traders will be watching the EU to see how much US corn its feed compounders secured.
- The US reported a CPI of 8.5% with core CPI up 5.9%. Real average weekly earnings were up 0.5% in July. US food prices rose 1.1% while energy prices slid 4.6%. We expect that the August CPI will only be up 7.2-7.5% which will produce a trend of ebbing US inflation. This argues that the US Central Bank will raise its lending rate by 0.5% in September with 2 additional 0.25% rises in the coming months to get to a 3.00-3.25% fed funds rate by yearend.
- The US$ has fallen sharply with the Brazilian Real rising to 5.05:1 this morning. The surging Real has shut down Brazilian farm selling, even with the Chicago rally. If the Real continues to gain vs. the US greenback into September, it could have a negative impact on their spring seeding intentions. Brazilian farmers are closing down following the value of the Real amid its volatility.
- Chicago brokers estimate that funds have bought 5,200 contracts of wheat, 7,500 contracts of corn, and 5,600 contracts of soybeans. In soy products, funds have bought 3,800 contracts of soymeal and 5,400 contracts of soyoil.
- The midday GFS weather forecast is wetter with needed rain across NE/W IA and KS early next week. A sagging cold front and short wave combine to produce 0.5-1.50” of rainfall early next week. The retrograding ridge and the front is the right set up for moisture across the Plains/W Midwest. Until then, hot/dry weather prevails which will further stress crops. Several shower events will keep the E Midwest crops well-watered. The midday run is favourable for much needed Plains/W Midwest rain.
- The run up in Chicago prices ahead of the USDA August report makes it difficult to produce a strong bullish post report reaction. Central US weather is highly important with the cooler temperatures aiding filling corn. We remain longer term bullish, but this is no place to be chasing corn/soybean futures higher. The market has reached our short-term upside price targets. A bullish mindset is advised longer term, but for soy producers, this is a rally to make cash sales.