- HEADLINES: Chicago recovers as US heat/dryness extended into early September.
- Global ag markets are in recovery mode this morning, with volume still rather tepid, as contracts worldwide reach or come close to oversold territory. Nov Chicago soybeans maintains a neutral chart-based trend. Major technical healing is needed in wheat and corn. Dec corn’s major moving averages are clustered around $5.18-5.20 and Dec Chicago wheat is around $6.85-6.90, but we continue to caution against adding to short positions here as the timing of normal seasonal bottoms approaches. Key in the near term will be the verification of 10–12-day US weather forecast, which maintain rapid drying across the entirety of the Central US. This is likely to weigh on pod weights. Note that Pro Farmer’s extensive tour of the Midwest kicks off Monday.
- Oilseeds have added considerable premium to grain markets, and not just in the US. November rapeseed in Paris has rallied €15/mt since Monday. November canola in Canada has rallied 4%. Unfortunately, a much wetter pattern lies ahead in far southern Canada and across the N fringe of Canadian production areas as expanding high pressure pumps Pacific moisture into the region. Rain in Canada is now unwanted as harvest begins. There is no room for canola quality loss.
- Our message is that amid the seasonal soaring of Brazilian soybean fob premiums and rising rapeseed/canola futures, US soy is the world’s cheapest oilseed. Board crush margins are nearing $3.00/bu. China still has large tonnages to buy for autumn/winter delivery, while coming Central US heat threatens a 50+ bushels/acre US soy yield.
- EIA data this week leans supportive corn and crude but explains the recent erosion in Midwest cash ethanol prices. US ethanol production in the week ending 314 million gallons, vs. 301 million the previous week and right at the level needed to meet the USDA’s 2022/23 industrial corn use target. Production has expanded counter-seasonally as margins return. US ethanol stocks on Friday totalled 984 million gallons, up 23 million from the prior week and adequate to meet near-term demand. Spot ethanol in the swap market has $2.20/gallon last week to $2.13 currently. US crude stocks less reserves were 440 million barrels, down 5 million week on week. Note that total crude stocks, including reserves, are a concerningly low 788 million barrels, vs. 886 million last year and 1,057 million in mid-Aug 2021. A lasting break in energy values is not anticipated.
- The midday GFS weather forecast is almost exactly unchanged from this morning’s release. The model does intensify Gulf storm activity in the 6–10-day period, but US landfall is not indicated into Aug 26. Otherwise, a pattern of compete dryness and soaring temperatures lies ahead, and importantly the GFS forecast maintains that heat stays in place across the C and E Midwest into next Sat-Sun. An expansive and abnormally strong high-pressure ridge will be anchored aloft the C Plains/Midwest Sat-Fri. Ridging returns to the Delta and S Midwest Aug 29-30. The second half of August will be defined by heat and dryness. Temperatures across the C Plains peak Sunday. Heat migrates into the principal Midwest beginning Tuesday.
- Every ton of produced, or not, matters immensely, which keeps volatility elevated. In fact, we expect volatility to be extended well into mid-2024. Sales are on hold, with autumn recoveries forecast. Soybeans remain the bullish leader, and crop condition changes over the next two weeks are critical.