- Traders and Chicago are struggling amid a lack of fresh news (bulls need to eat every day) and the realisation that there is much to be known on US summer row crop production.
- Chicago corn prices have rallied nearly $1.20/bu while July soybeans have rallied $1.30/bu based on sharp fall in US supplies. Wheat has followed, even though US production expectations are well above recent years. It has been a supply driven bull market with the market guessing a 2-2.25 billion bu corn loss.
- Yet, it is tough to buy December corn above $4.60 without greater supply loss confirmation. There is much that the market does not know; How many acres will US farmers enroll in the Prevent Plant option, and what will the final US 2019 corn and soybean yield be. And will US crops make it to full maturity in October/November. It is nearly impossible to produce a US 2019/20 corn or soybean balance sheet that can be trusted. Accordingly, Chicago is consolidating awaiting fresh supply news. US corn yield forecasts as low as 135 bushels/acre from an IA State economist have been supportive, but the point is no one really knows.
- Amid a Central US weather forecast that shows improvement, Chicago needs fresh US supply loss confirmation to accelerate its rally. Remember that Ukraine, Brazil and Argentine corn production in their last harvest cycle was up 1.9 billion bu (on the prior year) which helps to partially offset the forecast US corn crop loss of 2-2.25 billion bu. This does not help US corn end users, which means that any demand rationing effort (rally) is a domestic effort.
- This effort can include substitution/import of other grains such as wheat or barley. Corn bulls are frustrated on the nonperformance of recent days, but the market is at four year high and needs additional US supply loss confirmation.
- Funds are net buyers of; 3,200 contracts of beans, 3,000 contracts of corn while selling 3,400 contracts of wheat. In soy products, funds have bought 2,800 contracts of soyoil while selling 1,200 contracts of soymeal.
- US weekly ethanol production slipped 1.5% last week to 318 million gallons, down 4 million gallons from the prior week. US ethanol stocks fell 9 million gallons to 907 million, which is equal to last year. US blender profitability is now at its lowest level since December at just $0.01/gallon. There is no economic incentive for Brazil or others to seek/buy US ethanol for import.
- US HRW OK/TX/S KS wheat yields are strong and, in most cases, record large. The cool/wet May and June weather has really favoured kernel size/weight and disease pressure has been less than expected. The wheat is finding buyers with feedlots seeing the discounted (vs corn) HRW wheat as a feedgrain opportunity. The midday GFS weather forecast is sharply drier for than the overnight run for IN/OH with rain totals reduced by 1-2.50″. This is similar and in line with the EU model overnight. Rainfall for the next 5 days is forecast to range from 0.75-2.00″ across 65% of the Midwest.
- However, note that compared to forecasts, recent heavy rain totals have been less widespread which correlates with the arrival of summertime and afternoon thunderstorms. One must be careful in that heavy rainfall totals will be localised and not as widespread as suggested. A SW US ridge of high pressure is forecast to lift the jet stream northward mid next week as it forms over the Plains and the Intermountain West. The ridge will produce more normal Midwest rainfall with above normal temperatures.
- A correction is underway in Chicago amid a lack of fresh news and a market that is laden with longs. Traders need fresh news to push a further supply bull case. There is much we don’t know regarding US seedings and yield. The market will trade day-to-day weather until there is more clarity. Bull traders are concerned that the June Seeding report will not catch all the US seeding losses.