• HEADLINES: Midday weather forecast model runs (still) at rainfall odds for next 10 days, which forecast is correct? Biden debates biofuel mandate trim for 2021-2022.

• Biofuel miscalculations amid uncertain Central US weather. Chicago futures are mixed at midday with corn/wheat futures trading stronger while soyoil sags to sharp losses on a Bloomberg wire story that states the Biden Administration is weighing a small cut in the renewable fuel mandates for 2021 and 2022 in a nod to the refinery industry and their labourer’s. Whether the Administration will offer to trim or hold the 2021 and 2022 mandates steady is under debate. In March, the Biden Administration updated 2019 and 2020 Biofuel mandates and their compliance. No timeframe is announced as to when a decision will be reached.

• The Biden Administration will also be abandoning a program that incorporated waivers that were used by President Trump. Although a modest cut in the biofuel mandates would be seen as slightly bearish, the miscalculation by the market is that renewable biodiesel demand growth is not being pushed by mandates. Plants are coming online via a desire for reduced carbon and tax credits. Renewable Biodiesel demand is unaffected by 2021 or 2022 RFS mandates. The demand outlook or US vegoils is exceptionally bright and based on the volumes of plants under construction, it is difficult to find enough feedstocks for all to run at capacity. The soyoil fall produces a long-term purchase opportunity.

• Brazil approves US GMO corn varieties for import. Brazil has given the green light for US corn imports from a phytosanitary measure by approving US GMO seed traits. However, Argentine corn remains cheap both on a fob and freight position. We doubt that any old crop US corn will sell into Brazil with their winter corn harvest underway across Mato Grosso.

• Chicagog brokers estimate that funds have sold over 1,500 contracts of soybeans and 6,300 contracts of soyoil, while buying 9,500 contracts of corn and 3,200 contracts of wheat, and 3,900 contracts of soymeal. Active oil/meal spread unwinding is occurring this morning.

• We estimate that some 900,000-1.2 million acres of crops may be lost or called failed for crop insurance purposes across the Delta and Gulf States due to excessive rainfall/flooding. Insurance sources argue that this total could rise even higher depending on the track of a tropical storm this weekend. An extended period of drying is needed following regular heavy rains that added up to 200-400% of normal for the month of June. Also impacted on double cropped soybean acres and the ability of farmers to harvest SRW wheat. Some quality loss to SRW wheat in Arkansas, Mississippi and lower Tennessee appears to be unavoidable. Monitor the path of the tropical storm closely.

• Rumours are flying that China has advised its state-owned trading firms to liquidate length in overseas commodity markets to tap down on inflationary pressures. We believe that such liquidation orders have occurred in the metal markets, but we doubt that such orders exist in Chicago markets, such as soybeans or the grains. COFCO Geneva did release 26 cash traders in late May, but that release was not based on speculative futures trading. The Geneva office is a freight/logistics procurement office. The release of COFCO cash traders was based on performance according to European sources. If China wanted to tap down on inflation, they would import additional ag goods.

• The midday GFS weather forecast is like the overnight run with short waves embedded within a southward sagging jet stream producing rain for Iowa/Illinois and much of the E Midwest on the weekend and through much of next week. Rain totals for Iowa/Illinois/ Wisconsin and Michigan are estimated in range of 1.00-2.50″ with locally heavier amounts. The best rain is slated to drop across the southern half of Iowa, Southern Wisconsin and Northern Illinois with 10-day rain totals over 2.00″. The remainder of the Midwest receives 0.4-1.50″ with only the Plains short changed. Heavy rains would exacerbate the flooding across the Gulf States with a tropical storm to make landfall across New Orleans on Saturday. This system then slows its north/northeast path to produce heavy rains of 2-8.00″ across Mississippi/ Alabama. The storm is further east. A strong ridge rebuilds across the Southern US and retrogrades west to the lntermountain West by June 28 returning a hot/dry pattern.

• One forecast is wet and the other is dry, which is one is correct? The interaction of tropical systems and Midwest rain is always difficult. Traders will square positions heading into the weekend amid the uncertainty. A blend of the forecasts is likely right, which means that Iowa soils will stay drier than producers desire.

• The market this week so far has shed considerable weather premium based on favourable changes to Midwest 6-15 temperature and precipitation forecasts. However, it is only mid-June and weather/supply risks remain sizeable. In fact, our concern over soil moisture and yield potential remains the highest since 2012.

• The afternoon run of the EU weather model, the last of the day, trended significantly drier across all but the far Upper Midwest. The EU’s latest guidance confines rainfall to MN, WI and parts of northern IA. Heavy rain is also offered to the Delta/Southeast, where it is unwanted. Market action in recent weeks is evidence that the trade will be incredibly sensitive to both bullish and bearish weather forecasts. This won’t change until the middle part of August. Latest EU weather model guidance leans bullish as widespread soil moisture erosion continues into late June.

• Soybean futures fell for the third day on technical pressure and forecast rains at the end of the week.

• NOPA’s soybean oil stocks declined for the fourth consecutive month. NOPA soybean oil stocks were down 11% from a year ago at a 6-month low of 1,671 million lbs. This was also the smallest May stocks figure in 6 years. Based on the NOPA data, we look for NASS to report total US stocks near 2,140 million lbs.

• The midday weather models maintain that rains will begin falling at the end of the week, with cooler temperatures next week. But for today, crops in the West are suffering under 100+ degree temperatures. Quantifying any crop losses at this stage is impossible. But the need for record yields has not changed. Support for November soybeans holds around the 50-day moving average near $13.60.

• Chicago corn futures ended mixed, with July adding premium as delivery approaches. New crop futures ended weaker, but we strongly caution against chasing this break. On the margin, weather model guidance has trended drier in Iowa and Minnesota, and there are doubts as to whether soil moisture will improve at all in the next two weeks. Heat and dryness have also returned to the Black Sea region, which we note as climate forecasts have targeted Ukraine and Russia with adverse summer growing conditions. There has been no change to this year’s massive weather risks.

• Dec Chicago corn has held major chart-based support at $5.60. An outright weather pattern change is unlikely across the Plains and Midwest prior to early July. Brazil’s interior market remains perched at $310 per ton, which keeps exporters there out of the world marketplace until safrinha harvest reaches 50% complete in late summer. A recovery in price is anticipated prior to NASS’s June stocks and seedings release.

• US wheat futures ended mixed, with winter contracts lower but spring wheat stabilising on the return of arid/warm weather to the US Northern Plains. We also mention that soil moisture loss will continue across much of Central Russia and Kazakhstan into the end of June. The spring wheat’s market goal is to prevent acreage contraction next year, and further breaks are unlikely until North American spring wheat yields are known.

• Elevated fob prices and soaring freight costs pushed Egypt’s GASC to cancel this morning’s tender for August supply. Note that only three vessels were available to Egypt this morning, and the availability of freight will be more closely watched moving forward. Actual demand is strong, but logistical issues already are disrupting early season grain flows. Note that ocean freight rates do not tend to peak until early autumn.

• Some measure of downside risk remains present in Chicago/KC contracts as harvest looms. But work indicates Sep Chicago is undervalued below $6.50. Sep KC is too cheap below $6.00. Continue to use nearby weakness to add to long-term supply coverage. Concern over corn yield potential remains elevated, which lends further support to wheat on breaks.

• HEADLINES: Chicago stays weak but rebounds from morning lows; GFS weather forecast trends in drier in Central Midwest at midday.

• Chicago futures are sharply lower at midday, but they have recovered some of their early losses on end user pricing and short covering. The expectation that US corn/soybean crop condition ratings will fall 3-5% and spring wheat 1-2% in the good/excellent category this afternoon has offered support. Today’s fall in ratings heightens the importance of coming rainfall this weekend and early next week. The coming rains are a “big deal” for US corn and soybean yield potential.

• We would argue that the top end of 2021 corn/soy/spring wheat yields have been curtailed by the hot/dry late spring. The market will be extremely sensitive in the location/amount rainfall this weekend. Key will be whether Iowa and the surrounding drought areas receive the needed relief.

• Iowa’s soil moisture as measured by the US Drought monitor is at its lowest point looking backwards to 2000. With Iowa the US’s first or second producer of corn/soybeans, rain/cooler temperatures will be of the upmost importance. The marketplace will use crop condition ratings, weather and yield modelling and satellites crop health measurements to gauge yield. By late week, a 2021 US corn yield of 174-176 bushels/acre will likely become popular with private analyst estimates.

• Chicago brokers estimate that funds have sold over 22,000 contracts of corn, 13,000 contracts of soybeans, and 5,500-6,000 contracts of wheat. In the soy products, funds have sold 5,500 contracts of soyoil and 4,900 contracts of soymeal.

• US weekly export inspections for the week ending June 10 were 60.8 million bu of corn, 4.7 million bu of soybeans, and 17.6 million bu of wheat. For their respective crop years to date, the US has shipped out 2,124 million bu of corn (remember that Census US corn exports are running ahead of FGIS by 153 million bu for a total of 2,277 million bu), 2,087 million bu of US soybeans (Census ahead by 124 million bu for a grand total of 2,211 million bu), and 24.7 million bu of wheat (down 5 million or 21% for the second week of the new crop year). China shipped out 21.5 million bu of US corn last week as their shipping total now exceeds 620 million bu. China has another 290 million bu of corn that looks to be exported by the end of the crop year in late August. This works out to exporting a little more than 25 million bu of US corn per week. We maintain a US 2020/21 US corn export estimate of 3,050 million bu, another 175 million bu larger than the USDA’s latest estimate.

• Some are pessimistic that the Biden Administration will alter or change their existing biofuel rules. This offers a low probability of their enacting biofuel refinery waivers, which Biden campaigned against prior to the election. Several key US farm congressional leaders have sent Biden letters urging that there be no change. Like the Obama Administration, we expect that EPA will hear out refiners, but change existing proposals.

• The midday GFS is much drier next week than the overnight run across the Plains and Central Midwest as the looming tropical system turns abruptly eastward into the Southeast on Sun/Mon. Moisture available for the remainder of the Central US will be scant, leaving rainfall across the Plains and Midwest over the next 10 days limited to regional event. Totals of 1.00″ or better next Tues-Fri will be rather scattered in nature. We also mention max high temperatures this week will reach into the 90s and low 100s, with much of the Western Plains to labour under max temperatures of 102-105.

• Precipitation details next week hinge upon the path of this tropical storm, and clarity won’t be available until next week. Widespread soil moisture loss persists over the next 5-6 days. Whether it continues thereafter is key to market direction.

• Today’s break shows clearly the market’s sensitivity to even modest changes in the Central US climate pattern. Our concern over drought expansion/intensification remains elevated. Next week’s projected precipitation MUST fall as indicated to prevent the trimming of soy/corn yield potential. We advise against chasing this break.

• Managed funds on Tuesday were long a net 416,000 contracts of corn, Chicago wheat and soybeans combined. This compares to 432,000 contracts the prior week and following late-week liquidation in wheat and soy, we estimate current managed fund length at just 381,000 contracts – the smallest since September.

• The market has been content to wait on weather improvement as crop moisture demands are low currently. However, this changes dramatically in the next 2-3 weeks. Should the Central US pattern fail to change by late June, managed fund length in Chicago ag markets will score new highs.

• We have previously mentioned how even small perceptions in supply change have a massive impact on even daily price determination. Watch weather forecasts intently.

• Palm oil market weakens on rising production but stocks unable to gain: Spot Malaysian palm oil futures have fallen 20% from highs scored in mid-March. Asian palm oil production continues to climb seasonally, with Malaysian output in May up 3% from April at 1.57 million tons. Palm oil production peaks in June amid concern over Covid-based demand weakness in India, the market understandably shed premium. Additionally, amid tight global vegoil stocks, elevated volatility can be expected.

• Yet, we would reiterate that the palm oil market remains tight. Despite the seasonal boost in production, Malaysian palm oil stocks in May totalled 1.57 million tons, up just 1% from April and down 23% from May 2020. Monthly stocks/use actually contracted in May. Palm oil will be the weakest of the world’s vegoils moving forward, but seasonal lows will be scored $0.40 per pound, vs. $0.20 a year ago. The world’s vegoil market structure stays bullish. Soaring biodiesel production and consumption compounds US soyoil supply issue long-term.

• Soybeans fall following western rains: Soybeans were under pressure to start the day as some better-than-expected rains fell in the Plains. Rains were a welcome relief for crops in the areas that received them, but not enough to break drought conditions.

• Selling accelerated at midday following a news report that said President Biden was considering a number of small refiner waivers. The report sent RIN prices sharply lower and took soybean oil futures to limit losses. Given the administration’s hard-line stance on climate change, it would be a surprise to see any relief on the RFS granted.

• The CoT report showed another big week of liquidation in soybeans and soybean meal. Funds bought 2,695 contracts in soybeans, 5,835 contracts in soybean meal, and sold 4,764 contracts in soybean oil.

• November soybeans found support under $14.30, and we maintain our bullish outlook on breaks. Rain in the Plains offered mild relief in the areas that got it. But drought continues to spread across IA and MN, while crops in N IL are now under weather stress.

• Dec Chicago corn ends weak on North Dakota/W Iowa rains; Forecasts next week critical: Chicago corn futures ended lower on Friday, but Dec ended the week up 19 cents amid the addition of weather premium. Any rainfall is welcomed across the driest areas of the North Central US, but moderate/scattered totals will not solve long-term moisture issues. As of June 9, rainfall of 10 or more inches is needed across the Dakotas, IA and portions of the Great Lakes to end drought prior to pollination. Dry/warm conditions are most probable into late month.

• Forecasts late next week begin to peek into the opening days of July. The models have been abysmal in forecasting extended range weather as of late, but for better or worse extended range guidance drives price action nearby.

• There will be no tolerance for sustained heat/dryness, and in fact such a pattern will make any acreage hikes on June 30 somewhat irrelevant. We would strongly advise against chasing breaks as weather becomes critical to yield and price determination.

• Amid record old and new-crop demand, even minor corn yield loss is bullish. Managed funds on Tuesday were long only 276,000 contracts vs. 290,000 the prior week and vs. April’s peak of 402,000.

• Spring wheat drags Chicago wheat lower: US and European wheat futures ended lower as unexpected rain impacted swaths of North Dakota. Short-term regional benefits to spring wheat yield have occurred, but concern over massive production loss is intact as heat/dryness resumes across the Northern Plains over the next 10 days. Close attention will also be paid to ongoing heat and dryness across the Black Sea spring wheat belt. Little to no moisture relief is forecast into late month. Soaking rain is needed across Central Russia and Kazakhstan during July.

• Managed funds on Tuesday were net short 1,400 contracts of Chicago wheat. There will be no shortage of world wheat supply in the short-term as the Northern Hemisphere harvest begins in July.

• Yet, cash HRW in W Kansas this evening is quoted $60 per ton below cash corn for July-Aug. EU wheat’s discount to corn has reached $59/mt. And importers have returned to the market despite new crop fob prices being some $60-65/mt above last year’s seasonal low.

• We doubt that the spec community opts to hold a short position for any length of time. The new crop harvest gets absorbed quickly by record global consumption. Sep KC wheat below $6.20 and Sep Chicago wheat below $6.50 are places to add to forward end user coverage.

• HEADLINES: USDA leans bullish corn; Central US drought continues expansion.

• The June USDA report is mixed in terms of statistical data. US corn stocks data was bullish, while the 15 million bu cut in US crush rate was seen as slightly bearish. And the 2021 US wheat crop expanded just 26 million bu (1,898 million bu) with 2021/22 wheat end stocks declining by 4 million bu to 770 million bu.

• In general, the USDA is moving closer to the weekly data that calls for an increase in the 2020/21 US ethanol grind and US corn exports. It is a process! USDA cut 2020/21 US corn end stocks to 1,107 million bu, a 150 million bu reduction as exports were raised 100 million bu to a record large 2,857 million bu while ethanol use was increased 50 million bu to 5,025 million bu. We would argue that the USDA is still 150-175 million bu too low with 2020/21 US corn export estimate and 25-75 million bu too low on ethanol. This would pull final old crop US corn end stocks to 925 million bu. Any change in the feed/residual use estimate will have to wait until the June 30 Stocks Report, but the old crop US corn balance sheet cannot afford to find any additional feed demand. The finding of feed demand is likely based on soaring cash sorghum/barley prices. US 2021/22 corn end stocks fell to 1,357 million.

• NASS should find an additional 1.5-3.0 million acres of US corn seeding in the June report, but that will not be enough to prevent US corn end stocks from reaching levels not seen since 2012, assuming trend line yield of 179.5 bushels/acre. If the US corn yield were to fall to last year’s 172 bushels/acre or less, we have no way of modelling how high is high for US corn/feedgrain prices.

• The USDA lowered the 2021 Brazilian corn crop to a conservative 98.5 million mt, down 3.5 million. This was slightly above the average trade guess of 97.0 million mt, as million mt is just too conservative in making a deeper adjustment. Brazilian 2020/21 corn exports are a still far too high 33 MMTs (down 1 million from May) which is only down 2.3 million mt from the year prior. We estimate the 2020/21 Brazilian corn crop at 89.5 million mt, and the USDA will not reach this lower estimate until August. At that time, it will have to aggressively raise 2021/22 US corn exports to make up for the Brazilian shortfall. The USDA is being too slow in sending the right market message in Brazilian corn crop adjustment. 2021/22 world corn end stocks are estimated at 289.4 million mt with China importing 26.0 million mt. US corn exports at 2,450 million bu are too low by 500-600 million bu.

• The USDA increased US 2020/21 soybean end stocks by 15 million bu to 135 million bu and adjusted new crop by a like amount to 155 million bu. Amid June-August US crush margins that are deeply positive, the cut must be made on local supply shortages that slow crush operations. This does not alter the bullish soy outlook.

• 2021/22 US wheat end stocks were lowered 4 million bushels from May amid reduced carry-in (higher old crop exports) and as a 26-million-bushel hike in winter wheat production was partially offset by enlarged feed use.

• NASS pegged 2021 HRW production at 771 million bushels, up 40 million from May but very close to expectations. SRW production was raised 3 million bushels to 335 million. White winter production was lowered another 18 million bushels amid ongoing drought in PNW, and at 202 million bushels will be the smallest since 2015 and down 44 million (18%) from Last year. Additional downgrades to winter white wheat production are anticipated. And spring wheat production is likely to be dropped 100-130 million from last year resulting in a year-over-year decline in US wheat output of 30-60 million bushels.

• The 2021/22 world wheat balance sheet was Loosened slightly as combined EU/Black Sea production was raised 4.5 million tons. Global consumption was raised only 2.4 million tons. Yet, global spring wheat yield risks are high as crops across the Northern and Western US, Kazakhstan and Russia labour under heat and dryness.

• The USDA’s June release was largely in line with known input, though US corn and soy demand is still understated. A further reduction in Brazilian corn production results in an ongoing re-shuffling of the global corn trade matrix, to the benefit of US exporters. Otherwise, it is back to watching weather and gauging if a shift from ongoing Central US warmth and dryness occurs prior to July 1. We remain bullish.

• HEADLINES: Midday weather forecast leans hotter/drier with additional rain for Dakotas Thursday pm/Friday; US old crop corn demand understated?

• Chicago futures are mixed at midday with July corn trading in the green while soybeans/wheat slide in risk off trading ahead of the USDA June Crop Report due tomorrow. The USDA report and rain for portions of the Dakotas have set a slightly bearish market tone this morning. However, since the medium and extended range forecasts offer limited rainfall for the Plains and W Midwest, any selling pressure has been modest. And outside of July corn futures, it is more a lack of buying than any aggressive Chicago selling.

• We look for a mostly lower Chicago close today with US weekly export sales to be uninspiring ahead of the USDA/CONAB June Crop Reports. Buyers would rather wait until after the USDA June report to make sure they are not sideswiped with any bearish surprises.

• July corn futures are firm relative to new crop corn as the index fund roll is in its third day and US old crop corn demand shows no sign of abating. We mentioned that US Census corn exports through April are 153 million bu above weekly FGIS inspections (allows for 3,050 million bu of 2020/21 US corn exports) and that the weekly US ethanol grind is nearly back to 2019 levels, and well above where the USDA forecast the US corn ethanol grind for the 2020/21 crop year.

• The point is that 2020/21 US corn demand could be understated by some 350-400 million bu (not including any change in feed/residual). The high price of corn has not had much (if any) impact on US corn exports or the US ethanol grind as Americans return to their old driving ways. This old crop demand would drop US corn end stocks to just 900 million bu. And we would argue that the USDA is making an even larger demand mistake in 2021/22 US corn demand with exports and the ethanol grind too low by a huge 650-750 million bu. Why should US 2021/22 corn exports be any smaller than 2020/21 with Brazil losing 18-22 million mt of corn and China importing corn throughout the entire crop year.

• Chicago brokers estimate that managed money have been sellers of 2-3,000 contracts of corn, 2,500-3,000 contracts of wheat, and 7-8,000 contracts of soybeans. In soy products, funds have sold 2,600 soymeal and 4,700 contracts of soyoil.

• US weekly ethanol production was 314 million gallons, down just 3% from a comparable week in 2019 and up 10 million gallons from last week. US ethanol stocks stand at 838 million gallons, down 8% from last year. US ethanol margins are highly profitable, and we would argue that the USDA should raise their ethanol corn grind by 75 million bu for 2020/21. A USDA bump of 50-75 million bu is expected Thursday. The midday GFS weather forecast is like the overnight run with showers/storms for the Dakotas on Thursday night/Friday with rain totals of 0.25-1.25″ favouring the western halves of each state. A few light showers also fall on Nebraska, Iowa, and Missouri on the weekend. Unfortunately, only a few spits of rain are offered for Minnesota, Wisconsin and Michigan as their soil moisture levels sharply decline.

• A ridge of high pressure then expands across the West Central US producing another lengthy period of heat/dryness with high temperatures returning to the mid-80s to the mid-90s next week. As the summer season progresses, a high-pressure ridge will become dominate across the West Central US. We remain concerned by the N American pattern of ongoing heat/dryness into July.

• December corn futures nearly filled an open chart gap at $5.9275 before reversing. November soybeans fell to support at $14.15-14.30 with wheat unable to engender any downside momentum as Black Sea producers are not willing to sell a new crop that is 2-3 weeks away from harvest. Corn has the most bullish story followed by soybeans. We continue to lean towards a bullish corn surprise from USDA tomorrow on demand.

• HEADLINES: Chicago tentatively higher on concerning Central US weather; Census 2020/21 corn exports 153 million bu over FGIS, tightening US corn stocks.

• Chicago futures are sharply higher at midday as the market adds weather premium to price amid the fall in US spring wheat and corn crop conditions. We now believe that US corn/soybean crop conditions have set their highs for the 2021 year on their initial release. Adverse weather and seasonality will produce a slide in weekly ratings going forward. Traders and analysts will look to each week’s crop conditions as a measure of yield. Today, using trend yield in corn at 179.5 bushels/acre and soybeans at 50.8 bushels/acre is the starting point, a level that traders/analysts will subtract yield from in the future.

• The parched W Midwest and N Plains 2-week forecast is likely to have the industry discussing a US corn yield of 174-176 bushels/acre and soybean yield of 48.8-50.1 bushels/acre by June 21. This opens the market up to additional upside risk on the expansion of weather premium at historically high prices.

• North American weather markets tend to rally on each end of the week and sag in the middle. This is due to traders willing to take on more risk on Monday (than Friday) with a Friday rally sparked by the bears as they cover shorts (amid the concern that US crop conditions will deteriorate over the weekend and that weather trends will persist). Like markets, weather is trend following and the acute dryness across the Western half of the US is extremely worrisome.

• Chicago brokers estimate that managed money have bought 7-9,000 contracts of corn, 2-3,000 contracts of wheat, and 5-6,000 contracts of soybeans. In soy products, funds have bought 1,900 contracts of soymeal and 2,200 contracts of soyoil. It does not take much order size to move the market with their being nothing above the market in terms of resting sell orders. US and S American farmers have pulled offers with some W Midwest farmers feeling uncomfortably with new crop corn and soybean sales of 50-70% of estimated 2021 production.

• The USDA will be out with their June Crop Report on Thursday. The highlight of the report will how far they cut the 2021 Brazilian total corn crop. Most of the private industry is estimating Brazil’s total corn crop around 90 million mt. Early Mato Grosso yields are coming in below producer expectations, but the harvest will have to push south into MGDS/Parana for a deeper corn crop cut. Deral, The Dept of the Rural Economy, in Parana kept this week’s corn good/excellent ratings at 22% with 32% of their winter crop rated poor/very poor. Just 1% of the Parana corn crop has been harvested, so it will be a few more weeks before Parana corn yield data is available.

• Traders are now positioning amid the weather model’s biases. We note that traders are selling Chicago ahead of the midday GFS forecast based on its being wetter than the EU/Canadian model forecasts. However, traders cover their shorts after the GFS forecast release to position for a late session rally when the European model forecast is available. The drier EU forecasts have been starting the overnight markets higher for the past 10-12 days. It is all about weather (forecasts).!

• The US exported a record 334.6 million bu of corn, 96.1 million bu of wheat, and 51 million bu of soybeans in April. The strong export pace of US corn and soybeans is ongoing and the USDA is expected to boost US 2020/21 corn exports by 500-100 million bu on Thursday. Just 827,541 bu of US soybeans were imported in April, well below expectations. The USDA’s soybean import estimate of 35 million bu is too high. Census corn exports for the crop year through April is 153 million bu above FGIS weekly export inspections.

• The midday GFS weather forecast added rain for the N Dakota on Friday. The often more accurate Canadian model is drier. The GFS forecast pulls a secondary system through N Dakota on Friday which produces 0.25-1.50″ of rain. Like recent weeks, the GFS forecast may be right in seeing the rain, but its coverage is too broad and extensive. More likely, the rains will be widely scattered and not offer much assistance in ending the drought. Thereafter, the high-pressure ridge forms in the SW US and progresses eastward creating a broad ridge/trough pattern across the Central US. This a generally dry weather pattern.

• The market will keep adding weather premium in a concerning overall SW US ridge pattern. Any modest Chicago correction will find end user and importer pricing. We see no reason to alter our bullish outlook into late June. Our concern for N Plains and W and N Midwest weather and crop yields stays at the highest levels since 2012, which was a drought year described as one of biblical proportion.

• HEADLINES: Chicago corrects off overnight highs on index fund roll and expectation of strong crop ratings; Spring wheat crop suffers under weekend heat.

• Chicago futures are mixed at midday with an early Chicago wheat break unable to follow through to the downside on tightening world wheat supplies and talk that the Black Sea wheat harvest will be delayed by 2-3 weeks. The initial wheat selling was tied to the GFS operational weather forecast model that is trying to place needed rain across the drought-stricken Dakotas. The Dakota rain is desperately needed, but as has been the case for months, the GFS forecast has been overpromising and underdelivering on actual rainfall totals. The Canadian and European forecast models offer far less rain for the Plains/W Midwest over the next 10-14 days.

• However, the GFS weather model is free to the public and is often cited by analysts. Chicago values are all about US weather forecasts with concern building that 2021 could be a close sister to the 2012 Central US drought year. The next few weeks will be key in this price determination. The lack of a US old crop supply cushion in terms of stocks produces an acute focus on US 2021 crop yield potential with the market trying to decipher the price that finally starts demand rationing. Currently, there is no evidence that demand is being rationed by $7.00 cash corn or $16.00 cash soybeans. November soybeans and soyoil futures scored new contract highs today.

• Chicago brokers estimate that managed money have sold 2,900 contracts of wheat, while buying 7,800 contracts of corn, and 3,900 contracts of soybeans. In soy products, funds have bought 3,600 contracts of soyoil and 2,100 contracts of soymeal. Resting orders above or below the market are limited on the widening daily trade ranges.

• FGIS/USDA reported that for the week ending June 3, the US exported 55.6 million bu of corn, 8.7 million bu of soybeans, and 15.4 million bu of wheat. The US corn export total was disappointing with vessel loading calling for a significantly higher total. For their respective crop years to date, the US has exported 2,063 million bu of corn (up 887 million or 75%), 2,082 million bu of soybeans (up 767 million or 58%, and 4.7 million bu of US wheat (not yet comparable to last year). The US will have to export circa 72 million bu of US corn per week to reach our 3,000 million bu export estimate for the 2020/21 crop year. China exported just 17 million bu of US corn last week, down from loading counts which called for a total over 40 million bu. We anticipate a large upward revision in next week’s report.

• Private crop scouts assessing the coming Ukraine and Russian winter wheat crops bemoan that although yield prospects are promising, the harvest will be delayed due to slow maturity by 2-3 weeks. This raises the risk of heat/dryness impacting yield in the last 2 weeks of June and first 2 weeks of July. Moreover, old crop stocks are already tight in Ukraine/Europe which makes old crop supplies dearer. European corn values are trading well above feed wheat and compounders are anxious for the coming winter wheat harvest.

• Private traders fear that ongoing hot/dry weather has produced big yield/crop falls in the Iranian, Turkish and Pakistani wheat crops. Well placed private sources estimate that Iran’s 2021 wheat crop will only be 5-6 million mt vs the USDA estimate of 15.0 million. And Turkey’s wheat crop has declined from 17 to 13 million mt. Iran and Turkey are actively seeking additional world wheat supplies.

• The midday GFS weather forecast has cut its rainfall estimate almost in half of the overnight run for the Dakotas with totals of 0.25-1.50″. A ridge of high pressure sets up residence across the 4-corner area and the lntermountain West creating an arid NW Upper air flow through the N Plains and W Midwest beyond Friday. This produces warm/dry weather which further reduces soil moisture as the flow of Gulf moisture flowing northward is shut off. High temperatures range from the mid 80′s to the mid 90′s. Gone are readings in the lower 100′s until the mean position of the ridge progresses back eastward.

• The index fund roll and the prospect of high US corn and soybean crop ratings has pulled Chicago values from their overnight highs. However, the Central US weather forecast is threatening, and any corn/soy market fall will likely be modest.

• As of Tuesday, the managed money net long position was a combined 432,000 contracts, up 20,000 on the previous week. The spec community has been reluctant to add to net length established just after the USDA’s January crop and stocks report. However, the N American growing season has begun in earnest, and increasingly there is a new bullish story to grab onto in the face of unwanted heat/dryness. Depending on yield perceptions, December corn and November soybeans are modestly to extremely undervalued.

• Our bet is that the managed fund community more actively participates in the ag space this summer. Extended range forecasts will key day to day trade. If a pattern change is not indicated in late June, expect a large influx of capital in corn, soy, and wheat futures markets.

• North Central drought concern rallies soy futures; Yield less than trend unacceptable: Soybeans/soyoil finished the week with heady gains. The weather forecast for the Northern Midwest and Northern Plains offers limited rains for the next two weeks with the extended range calling for the arrival of Midwest heat.

• The nearby Chicago soybean crush spread turned higher after falling to an 8-month low last week. Estimated cash crush margins are still $0.50-0.55 over Chicago at $7.20-1.25/bu, $0.50 higher than a year ago. Historically high soyoil prices and record high cash basis bids are the contributors to margin calculations.

• And the Chicago soyoil share of crush reached a 12 year high today at 47.8%. US soybean processors will crush soybeans until old crop supply is exhausted.

• Last week, the EIA reported 791 million gallons of renewable fuel production capacity in operation in the US. Private estimates of existing and planned expansion suggest that the industry could nearly triple in size within several years. US domestic demand for fats/oils is rising sharply.

• Initial soybean ratings will be out Monday with ratings of 68-71% good/excellent expected. Chicago soy is all about weather with a 2 bushels/acre acre yield loss creating an argument for $16-17/bu basis November futures.

• Chicago corn soars on weather; Massive disappearance continues through summer: Chicago corn futures ended sharply higher with December futures taking over the bull leadership. There is no reliable indication that North Central US heat/dryness will end prior to the second half of June. Corn’s bullish outlook is cantered on sizeable cash demand that will persist deep into autumn.

• US old crop export sales through the week ending May 27 totalled 21 million bu. Sales of only 5 million per week are needed to meet the USDA’s annual forecast. Pace analysis continues to suggest a final export figure much closer to 3.0 billion bu. Outstanding old crop sales are a record 702 million bu, which highlights the pace of shipments expected between now and August. China has NOT cancelled cargoes since early May and is not expected to throughout the duration of summer. US corn export inspections on Monday are pegged in a range of 75-85 million bu based on loadings with shipments to China estimated at 45-50 million bu.

• Old crop US corn consumption rates will be record large through the summer on record large US export shipments and the return of normal American driving habits (ethanol).

• The addition of weather premium will accelerate if next week’s North Central US weather forecast fails to include rainfall. The coming heat/dryness will cause a 1-3% drop in good/excellent crop ratings on Monday.

• Spring wheat futures score 8-year high; Black Sea spring wheat production concern rising: US wheat futures ended sharply higher with spot Minneapolis rising another 35 cents. Without a dramatic shift in weather across the N Plains/PNW in the next two weeks, spring wheat yield loss of 15-20% relative to trend is assured. Unfortunately, hot/arid conditions are most probable into the second half of June. Additionally, April 1-June is predicted to show just 15% of normal rainfall across spring wheat areas of Central Russia/Kazakhstan. Concern there stays elevated. Spring wheat production in Russia accounts for 25% of its total production.

• The USDA already assumes total US wheat demand growth in 2021/22 of just 7 million mt. US export prospects are poor, but net production losses moving forward must be taken from end stocks. Longer term, wheat stocks continue to contract unless acreage expands. Tight exporter stocks/use and the need for wheat to compete with row crops for seedings is bullish longer term.

• How high is high is unknown given eroding spring wheat yield potential and rapidly rising concern over corn yield performance.

• Expanding Iran/Turkish and SE Asian demand underpins any world wheat fob correction of $5-10/mt. A post USDA report break offers a new wheat purchase opportunity.

OUTLOOK:

BEANS: Soyoil may see less demand due to premium to other oils.

CORN: Hot and dry forecast may support more buying short-term.

WHEAT: Record heat for Dakotas and hot and dry two-week outlook.

FUNDAMENTAL OVERVIEW:

SOYBEANS: The further advance in soybean oil helped to support the bounce overnight. The November soybean technical action is bullish as the close above $14.09¼ opens the door for a resumption of the uptrend with $15.12½ as the next upside target. November soybeans traded up to the highest level since May 13 overnight.

CORN: December corn closed slightly lower on the session yesterday with an inside trading day as the market consolidated recent gains. The market jumped 85¼ cents from Thursday’s lows as threatening weather for the Dakotas and for much of the northern and Western Corn Belt. The first crop condition report of the year showed better than expected ratings with 76% of the crop rated good/excellent which is up 5% versus the 10-year average.

WHEAT: December Minneapolis wheat is up 15 cents this morning and within 3 cents of the contract high. July wheat closed lower with an inside trading session yesterday and July Kansas City wheat also closed lower as winter wheat crop conditions improved 1% for the week to 48% good to excellent. December Minneapolis wheat closed 13 cents higher on the session and tested the May 7 contract highs and the nearby contract hit the highest level since July 2017.

• HEADLINES: Chicago futures retreat as midday GFS forecast adds rain to Northern Plains for next week; Canadian midday stays dry with US ensemble model also drier.

• Chicago futures are slightly lower in back-and-forth trade as the market tries to gauge early summer Central US weather, and what will be the US pattern heading into July 7. Traders understand it is only June 3, it is the Central US weather pattern in future weeks that will have a far more important impact on crop yields. As such, Chicago rallies struggle while breaks uncover support. Tight stocks and premium cash markets offer a bullish old crop story, but it is Mother Nature that dictates longer term price direction.

• We note that the midday GFS forecast added rain for the Dakotas next week which caused the midday Chicago retreat. Whether this rain chance is confirmed by the EU model near the close will be closely followed. The Canadian forecast did not indicate the rain, casting doubt on the GFS model.

• Brokers estimate that funds have sold 4,500 contracts of wheat, 5,500 contracts of corn, and 2,300 contracts of soybeans post the 8:30 opening. In soy products funds have sold 2,200 contracts of soymeal while buying a net 1,900 contracts of soyoil. Managed money has been lightly selling on the mid-morning decline.

• Russian exporters are having trouble securing cash winter wheat from SW Russian farmers amid the existing tax structure. Most Russian farmers are not willing to sell wheat with the floating tax pressuring domestic bids. The winter wheat harvest starts in just a few weeks across far SW Russia and the lack of cash bids/offers is a shock to the domestic Russian grain market. The lack of farm selling could keep Russian wheat exports at a low level. It will be important to monitor Russian new crop wheat cash movement as the harvest commences, but for today, there is limited forward selling occurring.

• US ethanol production has finally returned to 2019 levels according to this week’s EIA report, a healthy sign for the US ethanol industry. The US produced 304 million gallons of ethanol last week, up 35% from last year and nearly equal with 2019. US ethanol stocks increased to 823 million gallons, a gain of 26 million. Such stocks are still down 26% from last year.

• As Americans return to their normal driving habits, we look for US gasoline consumption to hold firm. We maintain that the USDA is understating the US 2020/21 ethanol grind by 50-75 million bu and 125-200 million bu in 2021 22. We estimate today’s current US corn ethanol margin at +$0.53/gallon.

• The midday GFS weather forecast is delayed. The forecast increased rainfall potential for the N Plains mid next week while also keeping the C and E Midwest well-watered. The change for rain across the N Plains and portions of the NW Midwest is not supported by other models. Confidence in the GFS forecast rainfall of 0.5-1.50″ for the N Plains is low. The better preforming Canadian model has none of the rain that was advertised by the GFS forecast. In fact, the GFS ensemble model is also far drier with rain of just 0.1-0.6″ across the N Plains and the NW Midwest through next week. The GFS midday model has been the worst performing of the models and confirmation will be required by the EU model which comes out later today. The 11-15 day period builds a ridge of high pressure across the lntermountain West which pushes the jet stream northward into S Canada.

• Chicago futures are retreating at midday on the prospect of rain for the N Plains and portions of the NW Midwest. Our confidence is the GFS forecasted rain is low, other models are not confirming the frontal pass. We see Chicago as choppy until more is known about the coming summer weather pattern. Our bet is that the better performing Canadian model has a better handle on the coming 10-14 day N American weather pattern.