- HEADLINES: Wheat again tests recent lows amid Black Sea headlines; GFS warmer in Plains in 6–10-day period.
- Corn, soy markets stay firm. Wheat tests recent lows on strength in the US$, arrival of ships at Ukrainian ports and US pledge to buy Ukrainian supply. GFS forecast arid in C Plains/W Midwest, wet in South.
- Chicago ag markets are mixed at midday, with row crops consolidating recent losses and wheat dragged lower by headline risk and weaker trade in Europe. Five vessels are now scheduled to arrive at Ukrainian ports today. The US through its USAID program has pledged to spend $68 million to secure and ship, and possibly store, an estimated 150,000 mt (6 billion bu) of Ukrainian wheat. Ukraine’s export corridor is gaining momentum and UN/US participation is working to provide confidence regarding future private purchases. Spot Paris milling wheat looks to settle €5.25/mt ($0.16/bu) lower, with Sep’s premium to Dec narrowing to €10/mt, vs. €16/mt two weeks ago. Paris corn futures are also down sharply as Ukrainian grain supplies get shaken from storage.
- US and world wheat markets are also contending without another round of US$ strength, which in turn has pulled importer currencies to/near record lows, which is negatively impacting purchasing power.
- Energy markets are steady/higher, with weekly EIA data leaning neutral corn/ethanol and supportive petroleum markets. US ethanol production though the week ending August 12 totalled 289 million gallons, just 1 million below the pace needed to meet the USDA’s forecast. Spot cash corn across the W Midwest this morning is quoted at an average of $7.03/bu, which amid ethanol at $2.40 and DDGs at $230 leaves ethanol plant revenue well above variable costs.
- More importantly, US gasoline disappearance last week was 9.35 million barrels per day, the highest since early July and unchanged from the same week in 2021. Weekly gas consumption has been rather volatile, but national average retail prices below $4.00/gallon, vs. $4.55 a month ago, appear to have stimulated miles driven. Motor gasoline stocks last Friday fell to 216 million barrels, down 5 million from the prior week and down 5% year on year. Crude stocks less reserves fell 7 million barrels to 425 million, down 2% from the previous year. Enlarged energy production is needed to better balance supply and demand, but refinery capacity remains an issue. We note that gasoline stocks contraction continues seasonally into Oct/Nov. Despite the recent correction, crude above $85 leans positive future biofuel production.
- It remains that production (and full access to Black Sea grain) is needed to solve food inflation entirely. Another two weeks of arid and warming weather lies ahead in Central and Northern Argentina. Wheat yield prospects continue to erode, and pattern of regular rain is needed by mid/late Sep to facilitate early first-crop corn seeding.
- The midday GFS weather forecast is slightly further south with Southern Plains rainfall next week and is warmer across the Central Plains and Upper Midwest relative to million output. Expansive high-pressure ridging is forecast to keep the mean position of the jet stream aligned north and east of the principal Ag Belt into Aug 27. Gulf moisture and active showers will produce heavy/soaking rainfall across TX, LA, AR and MS next Mon-Wed. Central US temperatures will be variable as meteorological summer comes to end, but the GFS has raised max temperatures next week across KS, NE, SD and W IA into the low/mid-90s Aug 23-26.
- We do note that the tropics are likely to become more active, with the GFS forecast for two consecutive days hinting at the potential for tropical storm impacting the E Gulf during the final days of the month. Confidence in this is low, but Atlantic disturbances will be monitored more closely.
- We advise against chasing daily moves but would urge end users to use near-term seasonal weakness to position long over the next 2-3 weeks. Recent crop tour updates have so far found excellent potential in N IL/E IA but pollination issues increase as one travels west.