- HEADLINES: GFS weather forecast stays dry for Plains/W Midwest with blast furnace heat; China secures US wheat; Europe drought expands.
- Grains battle back from US central bank’s war on inflation; Big range trade in summer row crop prices; US wheat to China in weekly sales report.
- Chicago grain futures came under acute early selling pressure with the US DOW falling to more than a 600-point loss, the US$ swelling to a new 20 year high while spot crude oil futures fell below $89.00/barrel for the first time since February. The abundance of selling was based on the fear of the US Central Bank’s war against inflation and the coming recession. Energy, livestock, grain, and metal futures all fell to sharp losses on risk-off positioning. The coming US/world recession looks to cut demand which has been a worry and market theme for the past three weeks. The economic sky is falling!
- Chicago futures battled back from the early financial selling pressure with the market led by the summer row crops (corn/soy on weather concern). At one point after the opening, November soybeans were more than 30 cents lower. They have rallied back to trade 15 cents higher in a range of 47 cents. Corn has traded in a daily range of 19 cents and wheat 32 cents. The volatility of Chicago futures is increasing due to the war of the US Central Bank vs. inflation and threatening Central US weather. And yes, an export corridor for Ukraine grain.
- Chicago brokers estimate that funds have bought 7,000 contracts of corn, 2,100 contracts of wheat, and 2,800 contracts of soybeans. In soy products, funds have bought 2,700 contracts of soymeal and sold 3,200 contracts of soyoil. Please be advised that it does not take much volume to move Chicago futuChicago either sharply higher or lower. Market volatility is causing funds to have a more prominent role in CBOT price determination.
- China secured US wheat (as we indicated last week). China booked 1 cargo of SWW wheat, 1 cargo of HRS and 2 cargoes of SRW wheat for a total of 265,000 mt. We understand that there is another 65,000 mt of US SWW wheat that was sold to an unknown destination that will end up being China for a combined purchase of 330,000 MTs, their biggest one-week purchase of US wheat in years.
- For the week ending July 7, the US sold 37.4 million bu of wheat, 2.3 million bu of old crop and 13.7 million bu of new crop corn, with old crop soybean cancelations of 13.3 million bu. US new crop soybean sales were 4.2 million bu.
- For the respective crop years to date, the US has sold 260 million bu of wheat, equal to the pace of last year. 2,378 million bu of corn (down 372 million or 13%), and 2,184 million bu of soybeans (down 90 million or 4%). The net cancelations will have us and WASDE cutting their old crop US soybean export estimate and adding those bushels to end stocks. The problem is that the cash market is staying incredibly strong with crushers on the hunt for cash beans. July soybeans look to expire above $16.00!
- There are considerable unknowns regarding the Ukraine export corridor. The Ukraine Government now asking for security agreement that Russia will not attack or seize Ukraine ports or ocean vessels. This request could become a problem amid the ongoing war, and besides, which vessel owner wants to put their boat at risk in mined waters. And which insurance agent will insure it, and which bank will finance it. There are too many unknowns to assess an export corridor and gauge whether it will last. We are sceptical that the corridor will stay open to feed the world. Once Russia captures the Donbas, will their military attention turn to capture S Ukraine, and its ports.
- There was little change in the midday weather forecast with rain to impact the E Midwest while the W Midwest and the Plains hold in a hot/arid pattern. Concern for a flash drought across the Plains/W Midwest stays high. Extreme heat will be felt in the Plains/W Midwest on numerous days. The ridge progresses to the South-Central US in the 10-15 day period.
- It is a battle between financial market weakness (recession) and the droughts that are building across the EU/spine of the Central US. Supply (weather) should dominate Chicago price direction into September. US, EU, Canadian, and Argentine crop sizes are in retreat due to adverse weather. It is deciphering the duration of the adverse weather and counting the supply that has been lost. Expect extreme market volatility to persist.