- HEADLINES: Chicago mixed at midday; GFS weather forecast trends wetter in North Dakota but confidence in forecast low.
- Chicago is mixed at midday, with Turnaround Tuesday in full effect in corn following better than expected Midwest crop ratings, while wheat soy and wheat find relatively better support. Volume has been somewhat mediocre and key in the next few days is whether looming Central US heat and dryness is extended into the latter part of the month. We would highlight that weather pattern stagnation has been featured in both hemispheres in recent years, which makes the abrupt shift in N American weather more concerning. Yet, the market must see and feel ongoing drought expansion before accelerating the addition of weather premium.
- Spring wheat futures will be the leader in the very near term as yield concerns across the US Northern Plains and Canada is more immediate. Spring wheat crop ratings in early June correlate poorly with final yield potential, but conditions in early July do provide solid guidance with respect to production potential. Recall the current spring wheat rating is the lowest in decades. Without dramatic improvement in the next 30 days, yield loss of 15-20% relative to trend can be expected. This will drop US HRW stocks below 150 million bushels for the first time since 2008.
- Spring wheat futures in Minneapolis have sustained overnight strength and are unlikely to experience fund liquidation until near-term forecasts include widespread soaking precipitation. Cumulative rainfall of 6-10″ is needed in North Dakota to eliminate drought there prior to July 1. The forecast remains dry into at least June 16.
- There is also no indication in global cash markets that supplies will be adequate without perfect weather. Brazil’s interior corn market has recovered quickly this week and is again perched above $8.10 per bushel. EU rapeseed futures are up €4.50 per tonne amid rising concern over drought intensification in Canada. We note that Canadian canola exports account for 60-65% of world canola/rapeseed trade. Even yield loss of 5% in Canada mandates the elimination of global rapeseed demand. Malaysian palm oil futures have held major chart-based support throughout the 12 months, and it is clear that rising vegoil prices and rapeseed supply issues will provide a strong pillar of support to Chicago soybeans, Midwest weather aside.
- The continued rise in crude and gasoline futures has lifted spot Chicago ethanol to $2.48 per gallon, the highest price since March 2014. OPEC’s plan to only gradually boost production rates, during the peak Northern Hemisphere driving season, will sustain firm crude/gas prices, and this requires enlarged ethanol and biodiesel production throughout the summer months. The spot futures-based ethanol production margin is calculated at $0.45 per bushel, vs. $.30 last week. Margins were negative just 30 days ago.
- The EIA on Thursday is expected to reveal another week in which US gasoline disappearance was at or above the level of 2019. We also mention that restaurant traffic in recent weeks, too, has exceeded the level of 2019. Slowing demand due to potential yield issues will be tough amid post-Covid economic expansion.
- The midday GFS weather forecast is much wetter in North Dakota and Minnesota beginning June 11 compared to the morning release. The GFS forecast advertises a brief relaxation in high pressure ridging late next week, which will allow needed showers to move across the Northern US and Canada. However, confidence in this outlook is low. Key will be whether the better performing EU and Canadian models include this shift this afternoon. Our overall concern stays elevated as strong high pressure ridigng meanders across the US Ag Belt in the first half of June.
- The collision of demand growth and weather concerns will keep breaks isolated to periodic profit taking. Use modest weakness to add to supply coverage. Soaking rain across the Northern and Western US is needed no later than late June.