- HEADLINES: June swoon in financial market vs. Mother Nature in Central US/Europe.
- “June Swoon/Macro Monday” – Chicago futures are mixed at midday following the acute weakness in world financial markets due to rising May inflation with rumours US Central Bank Head Powell will raise US interest rates by 0.75% as a shock treatment for inflation on Wednesday. The DOW has lost over 2,200 points since Wednesday’s close with the S&P resting at its lowest level since March 2021. Fear is gripping the market with the VIX (Chicago Board Options Exchange’s CBOE Volatility Index) at a 2-year high which usually suggests that a trading low in the DOW is near. We note that although traders worry about a US recession, there is no indication of acute economic weakening. Inflation is cutting the disposable spend of consumers, but so far whether its miles driven or restaurant traffic, there is no indication of slowdown of the US consumer. We expect that the US economy will slow by late year, but it will take much higher lending rates. This should not have any lasting impact on US grain or food consumption. Chicago values are down in sympathy, not because of the selling in equites. There will be days where commodities/equities follow each other, but longer term, stuff will outperform stocks. This is no place to turn bearish of Chicago grains or oilseeds.
- Chicago brokers estimate that funds have sold 9,000 contracts of corn, 4,500 contacts of wheat, and 8,700 contracts of soybeans, and 4,500 each of meal/oil.
- FGIS indicated that for the week ending June 9, the US exported 47.2 million bu of corn, 22.2 million bu of soybeans, and 14.3 million bu of wheat. For their respective crop years to date, the US has shipped out 1,769 million bu of corn (down 365 million or 17%), 1,854 million bu of soybeans (down 242 million or 11%), and 22.6 million bu of wheat (down 2.9 million or 12%). This was the first full week of US wheat exports that was reported for 2022/23. We note that US Census exports for both corn/soybeans are running well ahead of FGIS.
- US farmers in the Dakotas/Southern Canada and Minnesota report that they have reached their cut-off on the calendar for spring seeding. Today’s weekly NASS crop progress report should be an indicator of the number of Prevent Plant (PP) acres that will be recorded this year. Our total 2022 PP acres are pegged between 3.5-5.0 million acres compared to 1.6 million last year. The high cost of fertiliser, chemicals and fuel had farmers opting out of the summer growing season and accepting the 55% of estimated revenue payment from the US Government. This is one reason why the price of urea/potash have fallen so sharply in since mid-May. We see the break in fertiliser prices as a good buying opportunity for farmers that has storage to hold over the supply into 2023.
- The coming heat/dryness for European grain crops could not have come at a worse time with winter wheat/barley in the reproduction stage. The German wheat harvest will not start for another 4-5 weeks, and recent heat/dryness has likely cut EU wheat production by at least 5-6 million mt. We see the EU wheat (and durum) harvest at 130-131 million mt, well down from WASDE’s 136 million mt estimate.
- The midday GFS weather forecast is like the overnight run in projecting intense/expansive high pressure ridging aloft across the Central US for the next 10-14 days. The mean position of the ridge is from Kansas/Missouri into Arkansas/Mississippi with an extension into the Northern Plains and Upper Midwest from time-to-time. Any storm systems will be riding the edge of the high-pressure ridge producing light to moderate showers across the N Plains/Upper Midwest. The Central Plains and the S Midwest hold in a drier flow. Extreme heat (90’s to lower 100’s will prevail) with any cooling relegated to Ohio or Minnesota, Wisconsin, and Michigan. The Central US ridge shows stability into the closing days of June. Our concern for Central US weather is high on Central US ridge persistence in a La Niña year.
- Following early selling the corn/wheat markets should snap back on threatening US/European/Chinese weather. Chicago will add weather premium for the risk of hot/dry weather extending into July. Soybeans are weaker on China’s partial lockdown against Covid. We doubt that the lock down lasts long, but it is concerning that China will not abandon its 0% Covid policy. We stay bullish on new world wheat import demand (Morocco) and hot/dry weather. The world cannot withstand any yield loss.