- Midday Chicago values are mixed as traders position into the July USDA Crop Report. The volume of morning trade has been limited with few wanting to take on additional risk amid report uncertainty. For those that are positioning, it is been mostly one of reducing net short soybean and long corn positions. Hence the rally in soybeans and modest fall in corn. We note that traders are looking for USDA to produce a modest increase in 2019/20 corn, soybean and wheat stocks. The surprise may be the reduction in 2018/19 US corn and soybean exports that raises old crop end stocks. Most traders are not thinking about reduced old crop corn/soy exports. We look for mixed close in Chicago with Central US weather and world crop production directing values following the report. As previously suggested, we doubt that prices can sustain a bearish price trend until there is more certainty regarding US summer row crop planted/harvested acres and yield.
- It is the US supply uncertainty and abundance of world grain supply that is causing Chicago to trade in a broad range. New adverse weather concern must arise for fund managers to pile additional market length. Fear needs to come forward again in terms of US supply if there is to be a new leg upwards.
- Chicago brokers estimate that funds have sold 2,300 contracts of wheat and 3,500 contracts of corn, while buying 4,400 contracts of soybeans. In soymeal, the funds have bought 1,900 contracts while being flat in soyoil.
- US weekly ethanol production fell 3% last week to 308 million gallons, down 10 million gallons from last week. This was the lowest US production total since May. US ethanol stocks rose 7 million gallons to 966 million, the largest since the first week of May. US ethanol production margins are close to zero and the economic incentive for producers to expand their production is lacking. Via near breakeven margins, ethanol companies are considering taking additional downtime. And at just $0.16/gallon, there is no incentive for Brazilian imports
- Russian wheat harvest yield data is in decline with crop prospects falling. Private and commercial estimates that follow the Russian wheat harvest data (23% completed) argue for a crop of 78 million mt or less. USDA may keep its Russian crop estimate at 78 million, but be aware that future estimates could be lower if the harvest data does not offer a change from trend.
- WASDE does not have to follow NASS, but in the case of the June report, it would be a big break in protocol if they did not use a corn planted area of 91.7 million acres and soybean planted area of 80.0 million acres. Note that the NASS June report confirmed that 10 million acres were left fallow (maybe PP). WASDE could and likely will adjust their corn yield and could lower their soybean yield amid late seeding dates. It is yield not acres, that are the big question mark.
- The midday Central GFS weather forecast is drier across much of the N Plains and the Upper Midwest with a tropical storm system (Barry) being farther east than the EU and overnight GFS models. We suspect that the midday model is too far east with Barry. Note that although the midday is drier across the N Plains and the Upper Midwest, rainfall of 0.5-1.50” is still projected to drop in the next 10 days. The 6-10 day forecast is warmer than the overnight runs with temperatures with lots of 90’s with the mean position of the ridge retracing back westward in the 11-15 day period. This will allow for improved shower chances/cooler temperatures. Yet the noon run is not as cool as the overnight or 6am model run. We do not see a lasting period of heat/dryness that adds stress to corn/soy crops.
- The USDA report looms large on Thursday amid uncertain Central US weather. The GFS forecast just does not do a good job of handling tropical storm systems. Cash basis levels remain strong, but in a world of abundant world grain supplies, Chicago needs another supply fear to push values to new highs. We look for Thursday’s weekly export sales report and the USDA July Crop report to be slightly bearish.