- HEADLINES: Chicago early rally fades on macro financial meltdown; Central US weather stays threatening at midday; Kazakhstan moves to limit grain trade.
- Chicago futures are mixed at midday as traders are unwilling to chase an early Chicago rally with the US’s macro financial markets in decline. A growth scare being offered by the Delta variant of Covid along with the expectation that US corn and soybean crop conditions will increase led to early Chicago weakness. The DOW is suffering losses of over 900 points, making it the largest daily loss for 2021 to date. Crude oil is down $5.00/barrel which pressured the biofuel crops of soyoil/corn. The macro weakness has cast a bearish pale across Chicago this morning, but no trader or farmer is willing to make fresh sales with a threatening weather forecast ahead. The selling has all been in relation of risk aversion and if the DOW/energy markets stabilise, a quick rally to the upside will ensue. The break this morning is ALL related to macro market declines and nothing to do with US/world corn, soybean, and wheat fundamentals. The weather and fundamental aspects of Chicago are bullish.
- Managed money has sold 6-8,000 contracts of soyoil and 2-3,000 contracts of soybeans. Managed money has bought 3,400-4,000 contracts of wheat, 2,400 contracts of corn, and 2,100 contracts of soymeal. Funds were active buyers overnight and then sold back some of those purchases this morning.
- The USDA/FGIS reported that for the week ending July 15, the US exported 39.4 million bu of corn, 5.3 million bu of soybeans and 18.1 million bu of wheat. For their respective crop years to date, the US has shipped out 2,368 million bu of corn, 2,123 million bu of soybeans and 103 million bu of wheat. Remember that US Census corn exports are running 173 million bu above inspections. We expect that China will be more robust in their US corn/soybean program during August.
- Kazakhstan has moved to limit their wheat exports amid a dire drought that has dramatically cut production and raised domestic prices. It is expected to move to limit wheat and ban animal feed exports starting on August 15. The decision was made at the meeting of the Multiagency Commission of the Government. The political decision will further raise grain prices for nearby importers, but the policy move will be reviewed in 6 months. The limitation of Kazak wheat (spring wheat) is another loss of a world hi-protein supplier.
- A weekend Brazilian freeze likely caused additional damage to corn and winter wheat crops according to sources. The cold could have nudged corn production downward by 500-900,000 mt and a yet to be determined loss in wheat. The cold onslaught produced freezing temperatures across the Southern third of Parana and through Santa Caterina/RGDS. The weekend cold offered another cut to the Brazilian corn crop which many now peg at or below 86 million mt. We now estimate the 2020/21 Brazilian corn crop at 85.9 million mt which could cut Brazilian corn exports through their local marketing year to just 18-20 million mt. Brazil may import 2-2.5 million mt of corn into southern livestock areas.
- The midday GFS weather forecast is drier through Iowa and the Northern half of Illinois with better rains across Wisconsin and Indiana compared to the overnight run. The entire Plains, the Canadian Prairies and the W Midwest are barren of meaningful rain. A high-pressure ridge that is located over the lntermountain West shifts south and east this week with temperatures rising into the 90′s to lower 100′s across a vast majority of the Central US. The GFS forecast continues to run hotter than other models, but this is a trend that now extends for days. The Western US high pressure ridge is progressing east due to the monsoonal flow out of Mexico. There will be ridge-riding rains across the N Lake States of Wisconsin/Michigan and Ohio, but Illinois will be on the dry side for at least 12-13 days. Our concern is that a tropical storm is needed to dislodge the ridge from its Central US location during August.
- It’s a macro-Monday with Chicago “risk off” the theme due to near 1,000-point fall in stock market and near $5.00 plus drop in crude oil values. The Central US/Canadian weather are threatening with hot/dry conditions. This is not a market to be short, when world financial markets stabilise, a sharp Chicago rally follows. The Canadian drought is one for the ages and US crop losses across the Northern Plains and the W Midwest will be building into August.