- Macro market selling has pressured Chicago row crop values this morning as the US DOW falls over 600 points amid the fear of a world economic slowdown. Germany, the strongest economy in the EU is no longer growing and China’s growth is fading. The worry is that the world’s economic cold could be pushed into the US which results in reduced raw material demand. The numerous geopolitical flash points and now economic slowing has acted to cap the overnight Chicago rally.
- Chicago brokers reportthat funds have sold 12,000 contracts of December corn and 6,500 contracts of soybeans, while buying 1,900 contracts of wheat. In soy products, funds have sold 1,600 contracts of soymeal while buying 2,500 contracts of soyoil. Funds are now entering a net short corn position with their selling active in the morning trade. We note that several large funds do not trade in the overnight session, and only position during the day session.
- The Argentine Peso is trading at 59.50 vs 1 US$ this morning, down another 4%. The Brazilian Real is weaker at 4 :1 while the Russian Ruble has fallen to 66 :1. The strength in the US$ heading into Russian winter wheat seeding and S American production cycles will spur additional grain production in 2020. The US$ is a safe haven investment in times of economic adversity. The greenback should continue to rally amid the outlook for US economic strength. The Chinese Yuan is priced at 7.025, their best levels in a year.
- US weekly ethanol production rose slightly to 1,045,000 barrels/day, up 5,000 barrels from last week. This will produce 306 million gallons of ethanol vs 307 million last year. US ethanol stocks rose to 1,003 million gallons, up 4% from last year. US crude oil stocks rose to 440 million barrels, up 6% on last year.
- US corn is priced well above other world origins, while the spread between US 12.5% HRW wheat vs Russian offers is narrowing. Russian 12.5% wheat is trading at $194/mt this morning vs US HRW Gulf wheat at $204/mt. Russian wheat is always 1% less on protein than what is stated, but the point is that the fob vs fob spread is the tightest since early spring. Although we do not expect any new N African or Mediterranean wheat demand to be filled by the US anytime soon, the fall in US KC wheat values is nearing levels that should be underpinned at $3.75 basis September futures amid a trend of rising Black Sea wheat values during September and October. US soybeans are the cheapest in the world by $0.75 vs Brazilian September offers. All non-Chinese import demand will be shifted to the US on price.
- The midday GFS weather forecast is wetter from the overnight run for the next 10 days with showers/storms focused across the Central Midwest through the weekend. Then, a series of short waves will produce showers across the E Midwest on each day next week. The rains would be a big help to E Midwest summer row crops that are in need rain. The wet weather trend persists during the 11-15 day period, and a good finish to the month.
- Tropical storm activity is evident across the Gulf, which reduces our confidence in the GFS forecast. However, there is no lasting extreme heat and the coming rain would be ideal for the blooming/podding soy crop. 2019 Midwest crops were late seeded which means that mid and late August weather matters.
- Funds are selling Chicago corn /soy for chart based reasons amid the weakness in US financial markets. December corn is within cents of our downside price target of $3.65-3.70. End user pricing has been less than expected on the decline as they already have hefty forward coverage. Wheat should be the first Chicago grain to bottom as harvest is completed, but much uncertainty remains for 2019 US corn/soy yields. US weeklyexport sales are out Thursday morning.