• The E Midwest is becoming involved in a flash drought with poorly rooted crops suffering more with each dry/warm day. The graphic reflects percent of normal rainfall since July 1 and notice that Central IL has been missing the rain. Moreover. temperatures have averaged above normal leading to acute soil moisture shortages. It is the lack of rain across the key areas of the Midwest which move us back into a semi bullish corn/soy market stance until a weather pattern change with better rains is indicated. US corn and soybean crops are again in sharp decline. 

• Wednesday was an exceptionally slow day of trade in Chicago soybean markets that left futures a cent higher at the close. An early morning break in other US commodity and financial markets weighed on the soy trade, but the upcoming August Crop Report, along with widespread Midwest dryness offered support. Brazilian cash soybean prices are moving higher as Chinese demand remains focused on Brazilian supply, while the US$ continues to rally against the Brazilian Real. The strong US$ is putting additional Brazilian Reals into the Brazilian farmer’s pocket. Brazilian producers report that they expect the US/China trade war to last least another year and that they intend to expand their soybean acreage by another 2-4% this year (planting season to begin mid-September). Pre report positioning is expected to keep soybean markets quiet at the end of the week. The next major move comes with the USDA August Crop Report on Monday, with prices to respond to the acreage and yield estimates.

• Dec corn ended 2 cents higher as a trend of below normal rainfall looks to persist east of the MS River. Heat develops early next week with highs in the low/mid-90s which will add stress to pollinating corn . The weekly EIA ethanol data was also supportive, and so there was little for the bears to grab onto on Wednesday. The US ethanol stocks fell sharply on a boost in weekly export disappearance. Ethanol stocks are still record large for early August, but no longer are burdensome. We expect ethanol production to slow in the weeks ahead. This will reduce corn’s demand draw but will quickly allow balance to return to US ethanol supply and demand. The longer-term feedgrain outlook is bearish as Black Sea and S American yields accelerate. But in the near term, falling US corn production potential in IL, IN and OH and uncertainty of actual seedings argue against chasing breaks. This is still a market dominated by the US supply bulls vs the long term demand bears.

• Chicago wheat futures began the session weaker but ended 4 cents higher. Breaking news is absent, but we estimate that managed funds in Chicago have fully liquidated their net long position since last Tuesday. World cash markets remain flat. US export demand will remain limited to traditional importers. However, more attention will be paid to lingering dryness in Australia in the next 30 days. The attached graphic shows Aug 1-21 % of normal precipitation. Assuming the two-week forecast verifies, the Aussie wheat-growing season will again start with severe/widespread drought in NSW and Queensland. EU and Black Sea markets continue to compete for demand, and Russian export commitments in August are struggling. End user demand surfaces below $4.80. US exports slow further above $5.10. Rangebound trade is seen into early autumn.

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Weekend summary 2 August 2019

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Fund positions disaggregated data

• Carryover technical fund selling has pressured Chicago this morning as funds continue to shed stale length. Wheat has been the downside price leader with corn/soy futures in tow. December corn has fallen back to the 200-day moving average at $4.065 which is offering some initial support, but it is the pressure from declining US wheat futures that is the keeping pressure on the summer row crops.

• September Chicago wheat has fallen to fresh lows since the early July high was scored which is pushing funds to exit all length. The late May lows at $4.74 are offering some support, but Sept wheat futures appears to be heading back to long term support offered at $4.00-4.10 basis spot KC wheat and $4.55-4.65 Chicago. US wheat lacks an export story with sales starting to decline amid cheaper world values. And the spring wheat harvest will start to gain speed in coming weeks which will add to the high protein world wheat supply.

• We caution about becoming too bearish corn, wheat or soybeans on this break with the key August crop report still ahead. Chicago has declined to key support and initial downside price targets. We would not advise new sales here and this would be a good level for consumers to add to forward coverage.

• Chicago brokers estimate that funds have sold 9,000 contracts of wheat, 13,000 contracts of corn and 4,500 contracts of soybeans. In soy products, funds have sold 3,200 contracts of soymeal and 2,100 contracts of soyoil. The fund selling in the grains has been much larger than the soy complex as they are still shedding market length. Funds are marginally short in soybeans.

• US weekly export sales for the week ending July 25 included 14.1 million bu of wheat, 10.7 million bu of corn (both crop years combined), and 16.5 million bu of soybeans (both crop years combined). The sales were paltry and reflect the large premiums that US corn/wheat is offered in the world marketplace. US soybeans are more in line with S American fob offers, but Chinese demand is not evident which limits US new crop sales.

• For their respective crop years to date, the US has sold 327 million bu of US wheat (up 63 million or 24%), US old crop corn sales stand at 1,964 million bu (down 373 million or 16%) while US soybean sales stand at 1,790 million bu (down 346 million or 16%). Research maintains that WASDE should trim US 2018/19 corn exports another 75-100 million bu while reducing US 2018/19 soybean exports by 20-25 million. It is too early in the crop year to make any comment on the USDA annual export estimate for wheat.

• Illinois, Indiana and Ohio producers are bemoaning July’s dry weather and the stress that it is producing on corn/soy crops. Shallow rooted crops struggle for moisture and yield potential is being harmed. Rain is in immediate need.

• The midday Central US GFS weather  forecast has shifted rainfall next week from the Southern and Eastern Midwest into IA, MN, WI and northern IL. The models in the days ahead will continue to work out details surrounding next week’s precipitation. A wetter pattern lies ahead, but confidence in exact rainfall placement and amounts is low.

• The GFS forecast allows high pressure riding to return to the Southern Plains. This will push the mean position of the jet stream into the Dakotas and Upper Midwest early next week and beyond. Meaningful rainfall will favour the North, but again much of IL looks to be short-changed.

• Dec corn has fallen to key support and a trading low is being formed. This is no place to be turning bearish of corn, soybeans or wheat with so much still unknown about 2019 US summer row crop sizes. Bottoms should be forming with some sort of short covering bounce expected into the August 12 USDA report. Research is tilting short term bullish for a bounce into the close.