- HEADLINES: UN to hold an afternoon press conference to report on Russian/Ukraine grain export corridor; Central US weather threatening.
- June year on year inflation runs hot at 9.1%, Rumours of China seeking US corn, Russian/Ukraine talks in Istanbul end in Russian demands.
- Chicago grain futures are rising with soybean futures in tow. Soybeans have been reluctant to join the morning’s bullish party on China’s slowing of imports during June, and the new one year low in palmoil futures that was scored overnight. Both have acted as a drag on soybeans this morning. December soyoil futures are back testing recent support against $0.55/lb which should underpin this break. Increasing renewable diesel demand looks to dramatically increase US domestic soyoil demand in the months ahead. Key at the close is whether corn/wheat values can close higher on value of the US$. A lower close of the US greenback would suggest that a US$ top is being scored.
- Chicago brokers estimate that funds have bought 7,700 contracts of corn, 3,100 contracts of wheat, and a net 3,300 contracts of soybeans. In soy products, funds have bought 2,300 contracts of soymeal while selling 4,500 contracts of soyoil. Active soyoil/soymeal spreading has been noted this morning.
- The July CPI report reflected a June Inflation rate of 9.1%, well above estimates of 8.6-8.8% on the rising cost of energy and food. The inflation rate as the highest since 1981 and will have the US Central Bank raising its lending rate by 0.75% later this month. Additionally, we look for another 0.5% rate hike in the FED’s September meeting.
- However, June marks the high in US inflationary cycle on a month to month and year on year basis. Prices of all goods including real estate have come down in the past 3 weeks, with broad pressure noted in a host of markets on the fear of a recession. And by September the monthly and yearly comparable will be higher which will tap inflation down to 3-4.5%. This will push the US Central Bank to balance inflation vs. recession with just 0.25% rate hikes going forward. Stagflation is likely to be the economic word that becomes popular in 2023 and beyond. Energy and food prices will stay elevated which the US economy gets back to growing at a 1-1.50% pace.
- There is fresh talk this morning that China private buyers have secured 4-5 cargoes of US Gulf corn. So far, no indication that COFCO or SinoGrain has joined the purchase parade, but private buyers that are expected to receive TRQ’s see US prices as highly profitable for import.
- US ethanol production and gasoline consumption fell in the week following the July 4 holiday. The US produced 297 million gallons of ethanol last week with a need of producing 308 million gallons to reach the USDA annual forecast. US gasoline consumption fell 13% to 8.06 million barrels/day.
- Russia/Ukraine/Turkey ended their Istanbul talks without resolve as the Russian’s put forward demands that call for the ending of economic sanctions. However, the UN will be holding a press conference later this afternoon. The press conference could enlighten the world on potential progress.
- There was little change in the midday GFS weather forecast with rain to impact the E Midwest while the W Midwest and the Plains hold in a hot/arid weather pattern. Concern for a flash drought across the Plains and the W Midwest is high. Extreme heat will be felt in the Plains/W Midwest on numerous days. The forecast progresses the ridge to the South Central US in the 9-15 day period.
- Today’s Chicago recovery following yesterday’s beating and soaring inflation indicates that seasonal lows are being formed. We will monitor the UN Press Conference to gauge if any progress has been scored in the opening of a grain export corridor out of Ukraine.