- Chicago bounces on US inflation data/weaker US Dollar; GFS weather forecast drier in E Midwest.
- Chicago ag markets are firm as the US dollar tests recent lows amid better than expected US inflation data for the month of July. CPI in July fell to 2.9%, vs. the trade’s guess of 3%, and which is below 3% for the first time since April 2021. Fed policy over the next several months will transition from managing inflation to encouraging full employment, which implies at least one rate cut between Sep and Dec. Yield on the 10-year treasury this morning has fallen to 3.8%, vs. 4.3% in late July. The Dow at midday is up 200 points.
- The question of ag market value will also be a focal point as the USDA’s Aug crop report has come and gone, and as seasonal trends in corn and wheat begin to point upward in late Aug/early Sep. As mentioned this morning, the soy balance sheet is heavy and stays that way until/unless S American crops are threatened. But cash crush margins are elevated, spot cash meal in IL is still quoted $45/ton above spot Chicago, and US corn is viewed as undervalued amid abnormal strength in international cash basis and as $4.00 cash corn triggers expansion in industrial consumption.
- US ethanol production in the week ending August 9 totalled 315 million gallons, vs. 316 million the prior week and up fractionally from the same week in 2023.
- Ethanol production in the last four weeks as reported by EIA is a record 1.28 billion gallons, up 2% year on year, and even assuming ethanol yield improvement we maintain USDA will hike 2023/24 industrial corn use by 10-15 million bu. That old crop corn export sales and ethanol production have responded to price so quickly is noteworthy. We doubt weekly grind falls all that much in Aug/Sep amid profitable margins and as unlike recent years there will be no issues with corn supply availability.
- Crude futures are down slightly on a surprise build in US stocks last week. Commercial crude stocks on Friday totalled 431 million barrels, up 1.4 million on the previous week but down 9 million from early August a year ago.
- Spot Russian fob wheat is stable at $218/mt following Tuesday’s $4/mt break. Spot Ukrainian fob corn is unchanged at $207/mt, vs. US Gulf quotes of $181-185 for Sep-Oct delivery. Paris milling wheat and corn have fallen to newer lows on strength in the €uro, which is testing mid-winter’s high of 1.10:1.
- The Central US midday GFS weather forecast is drier in IN, OH and KY as it concentrates rainfall over the next 48 hours across IA, IL, and the Upper Great Lakes. The model is consistent in projecting widespread dryness and expanding warmth in the 3-10-day period, with the Southern and Central Plains and Delta regions targeted with highs this weekend/next week in the 90s and low 100s. The principal Midwest avoids extreme heat, but normal summer-like temperatures are probable in IA, IL, and IN. A dry second half of August is likely.
- Wednesday’s recovery is so far a function of deeply oversold soybean futures and modest macro-based buying as currency relationships change. Substantial rallies will struggle until Pro Farmer’s tour is completed next week. We favour corn and wheat with pronounced recoveries in autumn/winter, while the soy market stays centred on Chinese demand. S American rainfall will be more closely monitored in September.