- HEADLINES: Row crops stabilise; Wheat extracts premium on hope for better rainfall in Canada.
- Chicago ag markets are mixed but mostly lower, with wheat values shedding premium on the GFS forecast’s call for better rain chances in Canada and with row crops beginning to stabilise. Dec corn and Nov soy are trading slightly higher as of now, and while fundamental price discovery June 1 onward hinges entirely upon Northern Hemisphere weather patterns/forecasts, Chicago corn and soy futures are deeply oversold, which must be reconciled. This either occurs via a quick recovery or a lasting sideways trend. Our bet is that the addition of new shorts will be far more measured, and the monitoring of seeding dates transitions to crop ratings and vegetation health. A critical growing season lies just ahead. Ideal weather is needed.
- This morning’s weekly export sales showed net corn cancellations worth 13 million bu, a new all-time high, net wheat cancellations of 1.6 million bu and net soybean sales of 0.6 million. Wheat trade globally is in seasonal retreat as harvests occur in North Africa and across equatorial latitudes. The bulk of row crop trade has been funnelled to S America, and the recent erosion in corn/soy export demand has rapidly eased fears of sub-pipeline minimum stocks.
- For their respective crop years to date, US exporters have sold 1,498 million bu of corn, down 35% year on year, 1,866 million bu of soybeans, down 14%, and 694 million bu of wheat, down 3%. USDA is expected to trim 2022/23 US corn exports another 25-50 million bu in its June WASDE. Pace analysis suggests wheat and soy forecasts are correct, though ultimately the pace of soy demand needs to improve in late summer to prevent a modest hike in 2023/24 soy carry in.
- We would note that US soy crush margins continue to improve. The spot futures-based margin at midday is up $1.00/bu, vs. $0.44-0.55 in early May. Chinese meal prices are also rising amid slowed crush, due largely to vessel delays at ports. Spot Dalian meal has rallied 7% in the last 30 days. Work continues to point toward upward revisions to both old and new crop Chinese soy imports.
- NOAA’s long-lead summer forecasts released this morning feature additional drought erosion across the Central Plains and a lack of meaningful guidance elsewhere. A warm June is probable, but otherwise there are equal chances of above/below normal precipitation and temperatures across a majority of the Plains and Midwest throughout the summer months. Climatologists suggest generally normal climate patterns are being assumed and highlight the decidedly arid pattern forthcoming across the Great Lakes and Central/Eastern Midwest into June 1. This is by no means an issue today, but keep in mind subsoil moisture anomalies are often solid indicators of summer temperatures. Amid a lack of tolerance for supply dislocation in 2023/24, our message remains that a few weather scares are probable between now and late July.
- The midday GFS weather forecast is slightly drier in Canada but is otherwise similar to the morning run. Precipitation in the next 10 days will favour the Southern and Central Plains, where it is most needed, while little/no rain is offered to MO, IA, IL, IN and OH. Widespread warmth is indicated by early next week. Max temperatures in the upper 70s and 80s will blanket the Central Plains Sun-Wed. Most important in the short run is whether heavy rains are allowed to impact Canadian Prairies. The GFS forecast, while drier at midday, maintains much better rain chances in Alberta and Manitoba next week. The EU solution this morning was dry.
- Supply drives both bullish and bearish price action, with Dec corn at $5.00 and Nov beans below $11.80 digesting initial USDA new crop balance sheets. Rallies are selling opportunities, but we caution against expected perfect El Niño-inspired N Hemisphere weather this summer. Recent volatility in wheat foreshadows what is to come in corn and soy.