- HEADLINES: Chicago weakens on collapse in macro markets, energy; US weather forecast trends wetter again.
- Chicago futures are sharply lower at midday, with corn and soybeans falling to initial chart-based support while wheat undergoes its first meaningful correction in three weeks. Coincidentally, July Chicago wheat began its decline exactly at early March’s peak. There is no real catalyst for today’s break, but wheat markets worldwide must reconcile heavily overbought chart patterns and macro markets lean negative. Spot crude is down $2/barrel despite a draw in stocks last week. The Dow at midday is down 775 points amid lingering fears of the rising cost of money and the slowing global economic growth. Chicago volume is mediocre and open interest data on Thursday is expected to confirm today’s action is simply corrective in nature. Paris milling wheat looks to settle down only $0.15/bu. EU corn is down only $0.05/bu.
- Exporters this morning sold 10,0000 mt of soybeans to unknown destinations for old crop delivery and 219,000 mt for new crop arrival. Other news is limited to the EIA’s weekly energy update, which leans bullish crude/gasoline but slightly bearish industrial corn demand. Export sales Thursday morning will be unexciting.
- US ethanol production in the week ending May 13 totalled 291 million gallons, unchanged from the prior week and down 4% from mid-May a year ago.
- Our work suggests weekly ethanol grind must average 304 million gallons during the summer months to meet the USDA’s annual target. This is no doubt reasonable given seasonally rising gasoline disappearance June onwards, but ethanol stocks remain large at 1.0 billion gallons (up 22% year on year), and there won’t be an urgent need to boost production until summer.
- However, EIA data did show US crude stocks at 421 million barrels, down 4 million from the prior week despite the ongoing modest release of reserve supplies. In fact, strategic crude reserves are down 27 million barrels from early April and there has been no noticeable increase in available supplies. US crude stocks on May 13 were down 13% from the prior year. Motor gasoline stocks on May 13 totalled just 220 million barrels, down 4% from last year and the lowest for mid-May since 2014. US energy prices have built in Ukrainian conflict premium, but the US market’s own fundamentals are highly supportive relative to $100, spot crude.
- The midday GFS weather forecast is wetter in the Central Plains and across the Midwest through the next two weeks. A rather active flow of moisture returns late in the coming weekend and persists into the opening days of June. If verified, cumulative rainfall of 3-5” will be spread across the Delta/Southeast and Midwest over the next two weeks. Confidence in GFS output is low, but other forecasting models have trended wetter in the last 24 hours. The midday GFS forecast also offered needed rainfall of 0.50-1.00”+ to eastern CO and western KS May 24-25.
- End users are advised to add to summer corn supply coverage on further weakness as our downside target of $7.75-7.80, July, has been reached. There is no indication in cash markets that supplies are loosening. Yet, we must be prepared for extreme volatility as the 2022 growing season begins in earnest. The long-term outlook remains bullish in our opinion.