- HEADLINES: Brazilian FOB corn premiums rally, US Gulf competitive: World grain prices rally; GFS weather forecast hot in the 9–12-day period.
- Chicago futures are higher at midday in thin volume as traders adjust risk ahead of Friday’s USDA August Crop Report. The bears are taking profits which is providing some lift to midday valuations. Few traders are willing to place large new bets on what NASS/USDA will say with this being the first survey-based estimate of the crop year. NASS has asked farmers to gauge their yield potential which will be supplemented with field visits in September. NASS abandoned field surveys in 2020 due to COVID and cost cutting and have continued to mostly use farm responses to gauge yield. We anticipate a strong response to Chicago valuations post report on Friday. And remember that most world traders won’t respond to the USDA report until Monday as they will be already enjoying the weekend.
- Chicago brokers estimate that funds have bought 1,600 contracts of wheat, 2,200 contracts of corn, and 2,800 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soymeal while selling 2,400 contracts of soyoil. Fund managers are also unwinding profitable oil share spreads.
- Brazil’s CONAB estimated the 2023 soy crop at 154.0 million mt and corn at 130 million mt. Both crop estimates are below private industry and WASDE forecasts. The USDA estimates the Brazilian corn crop at 133 million mt and soybeans at 156.0 million mt. Private industry has pegged the Brazilian corn crop as large as 139 mmy. However, yield data with the harvest beyond 70% points to a final crop of 131-132 million, which is still under WASDE. Some argues that industry total corn production estimates above 133 MMmillion mtTs are too high. We do not expect that WASDE will change their Brazilian corn/soybean crop estimates tomorrow.
- World feed prices are rising while Chicago and US cash values decline. This dichotomy is important to understand and its impact on future US corn export demand. September Brazilian fob corn is offered this morning at 82 cents over September Chicago futures with the US Gulf at 60 cents over. Stated another way, Brazilian September corn is 20-22 cents more per bushel vs US corn to world importers. This is the first time since January that US corn is competitive in the world market which will act to underpin futures.
- And US SRW Gulf fob wheat is priced at the same level as Russian 12.5% wheat for the first time in more than 1.5 years at $255/mt. The two wheat classes are not comparable for a miller, but in terms of the US SRW wheat becoming competitive in the world market, it is priced $8/mt below French fob wheat at $263/mt. Again, the point is that non-US wheat values are rising on tightening supplies and record large world wheat trade. The key question is whether US SRW values need to decline further amid tightening 2023/24 US wheat stocks.
- US export sales for the week ending August 3 were 20.9 million bu of wheat, 55.2 million bu of soybeans and 35.9 million bu of corn (both crop years combined). US corn and soybean export demand is seasonally improving based on the newfound price competitive position of US and PNW offers.
- The midday GFS weather forecast is slightly wetter across the Midwest through Sunday with a drier trend thereafter. Any heavier rain will be confined to MI/IN with 10-day totals of 0.5-2.00”. Otherwise, rain totals will range from 0.1-1.00” on 55-65% coverage. Starting Monday, a drier pattern unfolds with warming temperatures. A high-pressure ridge builds across the lower 48 with expanding warmth. Highs will range from the mid 80’s to the mid 90’s with limited rain. The 11–15-day forecast offers extreme heat under a strong high-pressure ridge with readings in 90’s/100’s.
- Due to strong world demand and falling non-US grain production, we see any bearish NASS August Report as providing a buying opportunity. We see world grain prices rising amid Chinse/Indian shortages.