- As reported yesterday, UK wheat import requirements in the coming season look to be increased and global supply dislocation could well be interesting to watch as it will have a direct bearing upon import price levels and thereby import parity pricing levels. With the US wheat harvest under way, and rapidly progressing with favourable weather conditions, prices are coming under pressure. The French soft wheat crop condition is only 56% good/excellent, the lowest since 2011, and with export volumes for the 2019/20 season at a record level of 13.45 million mt we could be looking at a reduction in opening stock levels together with a reduced harvest volume; double whammy! This could herald something of a more bullish picture than we have seen for some while. Added to this, dry soils in Ukraine are pointing towards a reduced wheat crop this coming harvest. Indeed, their economy minister projected the harvest some 5.3 million mt at 23.0 million, and as a result we are starting to see new crop export offers creep higher; is this the sign of things to come?
- It has been a mixed morning of Chicago trade as heavy opening selling in soybeans and soymeal did not uncover follow through. December corn tested Monday’s low with a fund buying 4,900 contracts in a minute bringing values back to unchanged. Wheat prices are lower on the ongoing massive fund selling. Wheat open interest rose 14,000 contracts on Tuesday as funds piled into new net shorts. The wheat selling is against the cash markets which are showing firm or rising cash basis bids. We look for a mixed Chicago close.
- Cash connected sources report that China secured 2-5 cargoes of US soybeans off the PWN for October. There are rumours that China has started asking for price offers US HRW Gulf wheat and US ethanol. We cannot confirm any Chinese of other US ag products, except US soybeans.
- On the international front, Brazil is becoming more aggressive in offering corn while Russian wheat exporters are quietly being given Government annual export tonnage targets for the 2020/21 season. The combined total that Russia is targeting is uncertain, but likely less than 36 million mt that WASDE forecasts.
- Chicago traders estimate that funds have sold 5,100 contracts of wheat and 3,000 contracts of soymeal. On the buy side, funds are buyers of 3,500 contracts of soybeans, 4,200 contracts of corn and 2,300 contracts of soyoil. Funds are aggressively adding to a net short KC wheat futures position.
- S American soyoil basis offers fell 100-150 points on news that Brazil National Oil/Gas and Biofuel’s agency reduced the blending requirements for biodiesel production from 12% to 10%. The reason for the diminished blend rate is due to Covid-19 and its reduced supply. The S American vegoil market took the news as bearish with soy crush operations likely to contract.
- US weekly ethanol production surprisingly fell last week to 247 million gallons of ethanol, a bearish surprise. Last week’s grind consumed 87 million bu of corn. This is well below last week’s WASDE forecast and argues for an additional ethanol demand cut in the in the July WASDE.
- A favourable progressive weather pattern will hold across North America over the next 2 weeks (ending July 3). This will provide a nice mixture of rain, sunshine and cooler temperatures. The midday rainfall forecast is consistent with prior runs and offers high probability of locations/amounts. The 10-day rain forecast offers 1.50-3.50″ of rain for the E Plains/W Midwest. The E Midwest will receive rain totals of 1-2.50″. The coverage of the rain will be high. High temperatures will retreat from the 80′s and mid 90′s to seasonal 70′s to mid 80′s starting on the weekend. The coming rain and cooler temperatures will be ideal for crops.
- The near record corn short has traders nervous about being too bearish until the rain starts to drop across the Plains and the Midwest. The timing of the rain in falling in the last 10 days of June could not be better for soon to reproduce corn. We hold a bearish corn view and view rallies in November soybeans to $9.00 as offering a sales opportunity. Wheat is near seasonal lows as import demand starts to improve.