- HEADLINES: Midday weather forecast model runs (still) at rainfall odds for next 10 days, which forecast is correct? Biden debates biofuel mandate trim for 2021-2022.
- Biofuel miscalculations amid uncertain Central US weather. Chicago futures are mixed at midday with corn/wheat futures trading stronger while soyoil sags to sharp losses on a Bloomberg wire story that states the Biden Administration is weighing a small cut in the renewable fuel mandates for 2021 and 2022 in a nod to the refinery industry and their labourer’s. Whether the Administration will offer to trim or hold the 2021 and 2022 mandates steady is under debate. In March, the Biden Administration updated 2019 and 2020 Biofuel mandates and their compliance. No timeframe is announced as to when a decision will be reached.
- The Biden Administration will also be abandoning a program that incorporated waivers that were used by President Trump. Although a modest cut in the biofuel mandates would be seen as slightly bearish, the miscalculation by the market is that renewable biodiesel demand growth is not being pushed by mandates. Plants are coming online via a desire for reduced carbon and tax credits. Renewable Biodiesel demand is unaffected by 2021 or 2022 RFS mandates. The demand outlook or US vegoils is exceptionally bright and based on the volumes of plants under construction, it is difficult to find enough feedstocks for all to run at capacity. The soyoil fall produces a long-term purchase opportunity.
- Brazil approves US GMO corn varieties for import. Brazil has given the green light for US corn imports from a phytosanitary measure by approving US GMO seed traits. However, Argentine corn remains cheap both on a fob and freight position. We doubt that any old crop US corn will sell into Brazil with their winter corn harvest underway across Mato Grosso.
- Chicagog brokers estimate that funds have sold over 1,500 contracts of soybeans and 6,300 contracts of soyoil, while buying 9,500 contracts of corn and 3,200 contracts of wheat, and 3,900 contracts of soymeal. Active oil/meal spread unwinding is occurring this morning.
- We estimate that some 900,000-1.2 million acres of crops may be lost or called failed for crop insurance purposes across the Delta and Gulf States due to excessive rainfall/flooding. Insurance sources argue that this total could rise even higher depending on the track of a tropical storm this weekend. An extended period of drying is needed following regular heavy rains that added up to 200-400% of normal for the month of June. Also impacted on double cropped soybean acres and the ability of farmers to harvest SRW wheat. Some quality loss to SRW wheat in Arkansas, Mississippi and lower Tennessee appears to be unavoidable. Monitor the path of the tropical storm closely.
- Rumours are flying that China has advised its state-owned trading firms to liquidate length in overseas commodity markets to tap down on inflationary pressures. We believe that such liquidation orders have occurred in the metal markets, but we doubt that such orders exist in Chicago markets, such as soybeans or the grains. COFCO Geneva did release 26 cash traders in late May, but that release was not based on speculative futures trading. The Geneva office is a freight/logistics procurement office. The release of COFCO cash traders was based on performance according to European sources. If China wanted to tap down on inflation, they would import additional ag goods.
- The midday GFS weather forecast is like the overnight run with short waves embedded within a southward sagging jet stream producing rain for Iowa/Illinois and much of the E Midwest on the weekend and through much of next week. Rain totals for Iowa/Illinois/ Wisconsin and Michigan are estimated in range of 1.00-2.50″ with locally heavier amounts. The best rain is slated to drop across the southern half of Iowa, Southern Wisconsin and Northern Illinois with 10-day rain totals over 2.00″. The remainder of the Midwest receives 0.4-1.50″ with only the Plains short changed. Heavy rains would exacerbate the flooding across the Gulf States with a tropical storm to make landfall across New Orleans on Saturday. This system then slows its north/northeast path to produce heavy rains of 2-8.00″ across Mississippi/ Alabama. The storm is further east. A strong ridge rebuilds across the Southern US and retrogrades west to the lntermountain West by June 28 returning a hot/dry pattern.
- One forecast is wet and the other is dry, which is one is correct? The interaction of tropical systems and Midwest rain is always difficult. Traders will square positions heading into the weekend amid the uncertainty. A blend of the forecasts is likely right, which means that Iowa soils will stay drier than producers desire.