- HEADLINES: July corn soars to new contract high; Canadian drought is dire and looks to worsen; Midday GFS weather forecast wetter.
- Chicago futures are higher at midday (July corn sharply higher at new highs at $7.505) following through with its post report rally on Monday. The 2021 Canadian drought is forecast to worsen over the next 2 weeks and is becoming one for the record books. The volume on the morning Chicago rally has been normal, it is just that uncovering resting sell orders above the market is difficult. We maintain that whether the farmer is in Russia, the Midwest, Brazil, or Argentina, sparking new cash sales is going to be tough to find. This will cause end users/importers to reach for supply in coming weeks by raising cash basis bids. Black Sea/European exporters are banking on Russian farm selling of wheat/barley which heretofore, has not developed. The initial upside price target is open chart gaps at $5.52-5.735 December corn and $13.73-13.825 basis November soybeans. The bears are surprised by the swiftness of the Chicago rally.
- The US Northern Plains spring wheat crop was slashed to its lowest level since 1969, and spring crops in Canada are in real trouble according to producer sources. The big question that traders are pondering is whether the Western US high pressure ridge can march eastward into the W Midwest in late July and August. The Canadian Prairie forecast is especially threatening amid dryness.
- Chicago brokers estimate that funds have bought 2,600 contracts of wheat, 8-9,000 contracts of corn, and 4,500-5,000 contracts of soybeans. In the soy products, funds have bought 2,100 contracts of soyoil and 1,900 contracts of soymeal. It is getting difficult to move size in Chicago soyoil futures amid diminished bid/offers either side of traded prices.
- July corn futures had a massive $0.865 range today {$6.64-7.505) with 313 contracts trading by midday. Chicago indicated that July corn open interest was 245 contracts at the start of trading, so most of the July’s open interest should be liquidated. Yet, the sharp rally of July corn futures reflects the premium cash bids and being short in a discounted futures market. July soyoil is also witnessing a like rally with cash soyoil offered 6 cents above futures. The volume of July soyoil futures has been just 14 contracts with open interest at the start of today’s trading being 185 contracts.
- Russian wheat production forecasts are declining with private analysts adjusting their crop estimates downward. The Russian Weather Service pegged the crop between 77-81 million mt with others dropping their production forecasts to 79-82 million mt. Early winter wheat yield data has been disappointing. The USDA has the 2021 Russian wheat crop at 85.0 million mt (down 1 million from June), but likely 4-6 million too large. Amid a sharp fall in North American spring wheat production, a Russian wheat crop over 80 million mt is required. We see 2021/22 Russian wheat exports at 36 million mt, down 4 million from the USDA. The loss of Canadian and Black Sea wheat should boost EU/US/Aussie wheat exports.
- The midday GFS weather forecast is slightly wetter. Showers/storms are expected to form across S Dakota and push east across Iowa late Wednesday/Thursday. Rain totals are estimated in a range of 0.25-1.50" with locally heavier amounts. The system exits through the E Midwest on Saturday with like rain totals. Highs will range from the 70's to the mid 80's. Mostly dry weather follows as a cold front sags south into the Delta and Gulf States next week. This produces an extended period of dry weather for the Canadian Prairies, Northern US Plains and Upper Midwest.
- Monday's USDA balance sheets reflect that it does not take much of a corn/soybean/spring wheat yield drop to produce a rather spicy Chicago heading into late summer. Losing 1 bushels/acre of yield in soybeans or 4 bushels/acre in corn produces new contract highs. And world end users/importers are sitting on their hands hoping for lower prices, but their patience is wearing thin amid the dire Canadian drought. The loss of 5-7 million mt of canola and spring wheat is a big deal to longer term price direction. Look to buy rain inspired Chicago breaks would be our preferred strategy.