- HEADLINES: Chicago prices rise sharply on hot/dry Central US weather; Brazil buying 8 cargoes of Argentine corn; Cash fob corn basis rising in Argentina.
- Chicago corn, soybean and wheat futures are sharply higher at midday. The strong opening fuelled a rally that carried December corn in the chart gap at $5.52-5.735 while November soybeans nearly filled its chart gap at $13.825 ($13.8225 high this morning). The dire 2021 Canadian drought along with the return of hot/dry NC US weather in the final 10 days of July sparked new fund buying and unease from short speculators. Remember, there are few resting orders above or below the market which exacerbates rallies/declines such as today. Chicago has a firm undertone at midday. A sharply higher close is expected as the market adds back weather premium and world fob corn values firm from S America. Firming fob S American corn basis will shift demand to the US.
- Chicago brokers estimate that funds have bought 11,600-11,900 contracts of corn, 6,300-6,600 contracts of wheat, and 6,500-7,100 contracts of soybeans. In soy products, funds have bought 1,500 contracts of soyoil and 3,500-3,700 soymeal.
- Egypt’s GASC purchased 180,000 mt of Romanian wheat at an average price of $231.88/mt basis fob. Freight costs ranged from $30.31-35/mt for a wheat delivered price ranging from $262-266.88/mt. The wheat sales price appears to be done cheaply.
- Based on replacement and GASC specs, we calculate that the wheat was sold on a Black Sea comparable basis at $226-227/mt. We have no idea why 2 exporters would sell Romanian wheat below replacement, except that they maybe needed to clear storage for the new crop harvest. Two firms were the cheap GASC sellers while Ukraine/Russian folb wheat were some $8-14/mt above Romania. There were 17 offers to GASC which is the largest in nearly a year. The GASC wheat price went down cheaply which sets this week’s wheat price baseline.
- Brazil is rumoured to have bought 8 cargoes of Argentine corn which is cleaning up their offers and firming FOB basis bids for S American corn in general into September. Brazilian corn offers are limited beyond October as domestic supplies tighten. Another hard frost/freeze is expected in coming days across Brazilian corn areas which could further hurt supplies/quality. Brazil is actively seeking additional Argentine corn for import. Brazilian cash corn today is trading above $7.80 and likely to return above $8.00 in coming weeks. Brazilian interior corn is trading $45/mt ($1.15/bu) above export offers which is why some sellers are washing out prior sales. We doubt that Brazil exports more than 20-21 million mt of corn in their local crop year.
- US weekly ethanol production was 306 million gallons which was down 2% vs 2019. The US needs to produce 294 million gallons of ethanol/week to reach the USDA forecast. This week’s production was 12 million gallons or 4.15 million bu above what USDA is forecasting. We continue to believe that the USDA is 25-40 million bu too low on their 2020/21 US corn ethanol grind. US weekly ethanol stocks fell 887 million gallons.
- The midday GFS weather forecast is slightly drier across N Iowa and the northern Eastern Midwest compared to the overnight run. The forecast is slightly wetter for Kansas/W Nebraska. Limited rain is offered for the N Plains, Canadian Prairies and NW Midwest. The best chance of rain is over the next 48 hours before a lengthy dry period unfolds as a front sags south to the S Plains, Delta and the SE US as a high-pressure ridge forms across Colorado. This ridge slowly shifts northeast with its mean position across the Plains/W Midwest into July 29 which produces hot/dry W Midwest weather.
- Opening volume was the largest seen in weeks in Chicago which offers a fresh hint at new fund buying. The Canadian drought will worsen while heat/dryness is featured in the Plains/W Midwest forecast into late July. The big unknown is whether that Central US ridge will be lasting and carry forward into August. That is the key. Fund managers see Chicago values as an opportunity.