- HEADLINES: Chicago mostly lower on negative macro input, higher dollar; Egypt buys Russian and Romanian wheat.
- Midday Chicago futures reversed overnight gains rather quickly this morning amid weighty macro markets, wet Plains/W Midwest forecasts and as FAS’s daily reporting system was void of new soybean demand from China or others. Rating firm Fitch downgraded US debt from AAA to AA+, a move significant enough to pull the Dow down 230 points and spot WTI crude oil down $2.00/barrel to $79.30. The labour market is tight. ADP data features net jobs gains in July of 324,000. But the forward US/global economic picture is murky amid middling manufacturing index performance in the US and China. Some research suggests positive grain/oilseed fundamental input lingers in the background, but the trade is aware that seasonal trends are not overly supportive in early/mid-August and wheat futures worldwide are reluctant to add Black Sea risk premium.
- Weekly EIA data leans neutral of corn and ethanol but longer-term positive crude and distillate markets. US ethanol production in the week ending July 28 totalled 314 million gallons, vs. 322 million the previous week but 2% above the same week in in 2022 and right at the USDA’s forecast. USDA is unlikely to adjust industrial corn use in its August WASDE.
- US crude stocks less reserves on Friday totalled 439.8 million barrels, down a sizeable 17 million from the previous week. Available crude stocks now exist just 3% above last year, crude stocks were up 12% year on year in mid-June, and total US stocks, including strategic reserves, total just 787 million barrels, the down 12% from last year and the lowest since 1985. Energy markets are unlikely to embark on a lasting bullish trend until reserves stocks are replenished and global production rises, and we believe that OPEC is unlikely to change output levels materially below $85, spot WTI. Soy oil’s demand story is intact. Dec soyoil has reversed morning losses.
- Egypt’s GASC received offers worth 1.77 million mt of wheat, of which a majority were Russian origin at the newly established floor price of $250/mt and ultimately Egypt purchased 300,000 mt of Russian and 60,000 mt of Romanian supply. We would note that Russian wheat at $250 reflects the first rally there since September 2022, and the spread between German and Russian milling wheat has narrowed to $20/mt, vs. $33-37 last week. EU/Russian supplies will be large in late summer, but the value of cash wheat in the global market, particularly hi-pro milling, is forecast to rise seasonally into mid/late winter. Lows have been scored. The degree of the coming recovery will hinge upon the evolution of conflict in the Black Sea. Risk has not been eliminated.
- EU and Canadian canola are steady/higher following the recent collapse in Canadian vegetation health. The US dollar index is up 0.5% at a newer three-week high.
- The midday GFS weather forecast is again drier in the Eastern Midwest relative to morning guidance but maintains soaking rainfall of 2-4+” in western NE, northern IL, IL and the mid-South. The major forecasting models agree that an elongated ridge of high pressure between now and mid-August will stay confined to Southern Plains and Delta, which opens the Central Plains and Midwest to near normal temperatures and active showers. Not all areas will benefit but convincing new US supply threats are absent.
- Volatility continues. Daily moves of at least 1% have become commonplace in all markets. Managing risk on a daily basis will stay challenging indefinitely. Wheat and soy outlooks are fundamentally bullish, while corn scores a lasting low once US crop size is known. The fact that processing margins are profitable, extremely so in the case of US soy crush, is important.