- It has been a mixed but mostly lower session in Chicago. Monday’s largely unexpected drop in corn ratings has triggered modest fund short covering. We estimate that managed funds this morning were short a net 295,000 contracts of Chicago corn, little changed from Tuesday and still just shy of the all-time record. Long wheat-short corn spreads are also being liquidated. This has been the defining feature of trade so far and no major changes are anticipated into the close.
- Dry weather into late week across the Southern and Central Plains will keep the pace of winter wheat harvest there accelerated. Protein levels have been disappointing thus far, and the trade awaits lab results from eastern CO and western KS, hoping quality improves. Generally, looming builds in spot supplies are weighing in global wheat markets, with Paris milling wheat settling €0.75/mt weaker. It is tough to rally wheat in late Jun/Jul without massive supply dislocation. Yield losses in Europe and Ukraine have been digested. A new supply catalyst is needed to counter seasonal harvest pressure.
- The Australian weather forecast maintains a pattern of near normal rainfall in both the east and west into late June. Recall the Australian Bureau of Meteorology in early June projected wetter than normal conditions throughout summer. IRI on Monday followed with a similar outlook. New crop Australian supplies are still months away, but a major rebound in exports is more probable in 2020 than in recent years.
- We mentioned this morning that the Russian government opted not to place a quota on wheat exports between now and December. The arrival of Australian supply in Dec/Jan may reduce the burden of strict Russian wheat export controls thereafter. Work continues to suggest that Southern Hemisphere weather in Sep is key to long term wheat valuation.
- Spot crude is up another $0.15/barrel at $37.30. RBOB gasoline futures are up $.02/gallon, basis spot, and have risen above ethanol for the first time since the early part of March.
- Futures-based ethanol production margins have contracted in recent days but remain profitable. The EIA’s weekly energy report on Wednesday is expected to feature ethanol production through the week ending June 12 of 250-255 million gallons, vs. 245 million the previous week. Ethanol economics are improving, but as a reminder an average of 288 million gallons/week is needed to meet the USDA’s old crop corn industrial use forecast.
- The midday GFS weather forecast is drier next week across MO and IL but is wetter across the Southern Plains and Delta. The broad pattern remains consistent with prior runs as an important pattern shift looms. Light/moderate rain will begin to impact the E Plains, IA and MN on Thurs/Fri. Near daily showers will be featured across the Eastern Plains, Western Corn Belt and Delta thereafter into June 25. The greatest totals into late next week will favour the West and South, but the whole of the Central US will be blanketed by rainfall of at least 1″ in the next 10 days. Note that drought conditions across KS and OK will be eased considerably.
- Northern Hemisphere wheat harvest will make US/world wheat rallies laboured into July. Corn should reach its seasonal peak in the next few sessions as long as extended range forecasts maintain near normal precipitation into the opening days of July. The soy complex is still subject to Chinese demand.
- Dry weather throughout May has triggered a further downgrade in UK crop yields bu the EU’s crop monitoring service (MARS). The outcome is that wheat, winter and spring barley and rapeseed are all forecast below the five-year average with cereals around 1% lower and rapeseed some 3.8% down. Early June rain was seen as beneficial in northern regions but still not sufficient to reverse the downgrades and the south and eastern areas are particularly of concern. Continued rains through June have been beneficial but have been somewhat isolated, localised and variable. UK wheat and rapeseed supplies for 2020/21 are seen as tightening and placing greater reliance upon imports.