- HEADLINES: Chicago little changed from overnight session; Brazilian corn premium widens; US weather forecast extremely wet.
- Chicago ag futures have done little pricewise since the morning opening with soy futures up 7-15 cents, corn down 5-7 and wheat futures down 25-50, with spring wheat contracts in Minneapolis pacing the decline. Breaking news is absent but as large funds typically adjust positions in three-day increments, we would advise against chasing the break in wheat. Additionally, we estimate managed fund length in Chicago wheat at 50,000 contracts, vs. Tuesday’s peak of 88-90,000. Wheat futures’ RSI in the US and Europe is now rather neutral.
- What guidance is available from macro markets leans slightly negative. Global crude futures are flat. The Dow is down another 450 points, with US equity indexes swiftly approaching bear market territory. The arrival of a confirmed equity bear is imminent. This will alternately weigh on ag investments day-to-day, but we maintain that money will flow into ‘stuff’ in the long run. Grain, oilseed, and energy markets in recent weeks have performed well as hedges against inflation and future economic uncertainty. 2022 is unique given rising concerns over food security and less than helpful Northern Hemisphere weather patterns.
- Brazilian corn futures are flat as weakness in Real-based values has been offset by the Real falling to a three-week low. Sep corn in Brazil’s premium to Sep Chicago has widened to $080/bu. This along with the pulling of Argentine fob offers Aug onward suggests competition from S America for late summer/autumn corn trade will be fleeting. US corn (and soy) export excitement fades seasonally in all years during the summer months, but weekly sales benchmarks needed to validate hikes in USDA corn and soy export forecasts are rather low. The sluggish pace of Argentine corn harvest alone will sustain weekly corn export sales of 15-25 million bu into mid-summer. Sales must average only 10 million/week to hit the USDA’s target.
- Global vegoil markets are also in recovery, with spot cash rapeseed oil settling this week at $1.05/lb. Strength in the Ruble has lifted spot cash sunseed oil in Russia to $0.88/lb. Palm futures have shed premium amid the return of Indonesian supplies next week, but end user demand will absorb further breaks quickly and easily.
- Extended range US weather forecasts are trending warmer beyond the next 10 days. In the near-term this is only a threat to row crop production in areas already experiencing severe to exceptional drought across the Plains. However, close attention must be paid to temperature outlooks beginning in early June given the consistency of climate outlooks calling for a sustained period of abnormal Central US warmth this summer.
- The midday GFS weather forecast is wetter again in TX, the Delta region and parts of the Upper Midwest into Northern Plains and Upper Midwest. Confidence in GFS output beyond late next week is low amid the model’s erratic nature in recent days. But should the forecast verify, two-week precipitation totals of 5-9” will impact E TX, AR, IA, IL and W IN. Flood risks will be present in the E Midwest as surplus soil moisture is currently in place there. Cool ttemperatures will blanket the Central US into late next week. Heat returns to the Southern Plains thereafter.
- The casual nature of the ascent of corn, soy and wheat markets is noteworthy. It will be difficult to see the forest through the trees as Mother Nature adds to already extreme volatility. Yet, we maintain that global grain/oilseed consumption will struggle to keep pace with consumption without a string of favourable crop cycles in both hemispheres. This will add to market sensitivity, but the risk of new all-time highs remains intact. End user buying is advised on breaks.