- HEADLINES: Chicago futures rise on massive fund demand tied to Putin retaliation; Gulf barge traffic improves but flows problematic; USDA report ahead.
- Chicago grain futures are sharply higher at midday. The grains have been the upside leaders on the worry over Black Sea export supplies. The attack on the Kersch Bridge and promise of retaliation by Russian President Putin amid the volley of rockets sent into Ukraine overnight has caused fresh anxiety that the war is escalating. This has implications for current and future Black Sea grain supplies. Wheat/corn are the upside leaders with soybeans being dragged along. The soybean market struggles on rallies above $14.00 basis spot futures while December corn reached its best price since June 21. An open chart gap remains open in December corn at $7.25, that fateful weekend when US weather improved, and traders debated the then fresh Jay Powell statement on pushing US inflation back into its 2% target. We note that NASDAQ has fallen to its lowest level since May of 2020, Covid lows, on US recessionary fears.
- Paris wheat futures are back rising to their 50% correction of the summer decline with an upside price target at €370/mt. This level offered to support a bounce in the market last May as India announced that it was going to ban exports. World wheat futures are following Chicago, and it will be interesting to see if importers are going to be willing to chase the advance. We understand that some freight and insurance companies have halted offering prices for new Black Sea business until they are fully aware of what the wrath of Russia looks like in terms of retaliation. Insurers may return to the market later this week if the barrage of Russian rockets hitting Ukraine subsides.
- Chicago brokers estimate that finds have bought 25,500 contracts of corn, 9,900 contracts of wheat, and 6,600 contracts of soybeans. In the products, funds have sellers 4,200 soyoil and 1,900 contracts of soymeal. This is the biggest morning of fund buying since late spring. Note that farmer selling has also been brisk, farmer selling caps rallies, it does not produce market breaks.
- The latest modelling of ENSO shows that La Niña should reach a peak in November followed by a rapid demise into Q2 2023 with El Niño possible mid to late next year. The La Niña demise should help restore soil moisture to portions of Argentina and Southern Brazil with time. Unfortunately, the Argentine rains are not expected to fall until mid-November or later, which means that some of their initial corn seedings will struggle. And the wheat crop will continue to suffer through drought conditions. We fear that the final Argentine wheat harvest could drop to 15.0-15.5 million mt.
- The midday GFS weather forecast has added rain like the European model in recent days across the far Southern US Gulf. A southern branch of the jet stream has formed which is expected to become more active with time. This jet should allow better rains for KS/OK with time, but any water will be appreciated by the lower Mississippi River nonetheless. Most of the remainder of the Central US holds in below to much below normal rainfall pattern with widely scattered showers forecast from west to east on Tuesday/Wednesday/Thursday. The rains will prove to be far less than what is needed and our concern for the Mississippi River barges/transit stays elevated.
- The Chicago corn rally reached long held upside price targets at $7.05 December. The Mississippi River water woes have not ended, and our fear is worsening flows in the weeks ahead. This will harm US export demand with US corn/wheat non-competitive. We look for the USDA to trim yields slightly, but a big cut is not expected. $7.20 plus spot Chicago corn is not justified with US export sales down 500 million bu. We see the rally in wheat/corn as offering new sales opportunities. Soy stays bearish on S America crop sizes.