- HEADLINES: Chicago decline deepens on macro financial sell off; China securing US soybeans with another 4-6 cargoes sold today; Midday GFS weather forecast consistent.
- Chicago futures are mixed at midday. Chicago continues to measure US yield while also seeking a price that builds demand for US corn/wheat. US corn purchases by importers have not ramped up, while US wheat is the most expensive in the world. This has produced a Chicago correction of last week’s USDA Crop Report gains. Price is looking for a level that sparks enlarged consumption.
- We see price support below $5.60 in December corn and below $13.50 in November soybeans while Dec KC wheat should hold support at $7.10-7.20. Paris wheat futures are sharply lower which is causing the weakness in US futures. Paris and Black Sea wheat were the upside leaders on the $1.30/bu world wheat rally. Black Sea wheat is holding much better than Paris which suggests that the break is largely corrective and technical.
- We forecast that Chicago corn, wheat, and soybean futures will form a secondary seasonal bottom before the end of August. This is the wrong time of the year to turn bearish as August weather has been less than favourable. A couple of good finishing rains are required, but crop scouts report firing of lower corn leaves and that soybeans need a good drink. As witnessed last year, August and early September Midwest weather have an important impact on yield.
- Chicago brokers estimate that funds have sold 6,400 contracts of wheat, 6,500 contracts of corn, and 3,500 contracts of soybeans. In soybean products, funds have sold 1,500 contracts of soymeal and 2,000 contracts of soyoil. The fund selling is ongoing at midday on corn taking out yesterday’s low while soybeans were unable to rise above yesterday’s high.
- China keeps pecking away at US soybean purchases, but at a pace that is well below last year. China purchased 198,000 mt of US soybeans with another 132,000 mt sold to an unknown buyer. China has purchased 5.0 million mt of US soybeans on a known basis with another 3-3.5 million likely held in an unknown destination category, a total of 8-8.5 million mt. A year ago, China had purchased around 12 million mt of US soybeans. China is behind on its purchase pace. It has cut back on US soybean purchases amid a larger S American import program. China is still seeking offers for Brazilian soybeans for late September and October, so our bet is that it is related to the bigger S American soybean imports. Yet, China has as much as 30 million mt of US soybeans to purchase in the months ahead which should provide support below $13.50 basis spot soybean futures. China will likely scale into additional purchases on Chicago breaks.
- The Twitter feed from the Pro Farmer Tour is reflecting solid or near record corn yields in Indiana. We would expect that as the tour gets into some of the areas that endured water damage from the late June excessive rain, yield will tail off slightly. Otherwise, another round of strong corn yield data is expected with soy pod counts down from expectations when participants walk into a field.
- The midday GFS weather forecast is consistent with the overnight run in that rains start to arrive in the N Plains on the weekend and push south and east early next week. Temperatures sag with more seasonal 70′s and 80′s arriving for daily highs. The mean position of the jet stream will allow for better rain chances across the drier regions of Canada and the Northern US beyond the weekend. However, there will be patches of the Midwest that will be missed and the extended range 10–15-day forecast is warmer/drier. We maintain that crop condition ratings will slide again next Monday and that traders/producers will be discussing a decline in yield in September from the initial NASS August estimate.
- The DOW is down 450 plus points as the US$ rallies and it is a risk off macro day. We doubt that the US or world economic outlook will darken dramatically due to the Delta variant of Covid. Seasonal Chicago lows are likely already in place during July. China is forecast to be a sizeable scale down buyer of US soybean futures as margins turn green. Wheat prices may retreat as Russian CPT (carriage paid to) wheat values reached levels that triggered farmer selling. A deeper 10-20 cent break would produce a new buying opportunity.