Monthly Archives: July 2021

16 July 2021

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  • HEADLINES: Wheat, soy, canola extend rally; Midday GFS weather forecast much drier in Minnesota.
  • Chicago futures are higher at midday, with wheat and soybeans extended overnight gains. Pictures of very low-quality wheat in Europe are circulating this morning, with Paris milling futures up 5.00-6.00  €uro per tonne ($0.16-0.19 per bushel), while updated early yields from Russia show little improvement. Spring wheat and has scored new rally highs as model guidance has extended warmth and complete dryness in southern Canada into July 26. Canadian weather thereafter will have little or no impact on yield stabilisation. Canadian canola production estimates have cantered on 16-17 million mt, vs. USDA’s 20.2. Canada must ration its available canola supplies moving forward.
  • China this morning bought 134,000 tons of US SRW. Traders are debating whether this is due to quality loss in France or whether this reflects the beginning of state-sanctioned Chinese buying of US products. China’s total purchase of SRW is estimated at 400-600,000 mt. We note that US SRW is expensive in the world marketplace, which suggests that new Chinese demand for new crop US corn and soybeans lies close in the offing. US Gulf soybeans for Sep-Oct arrival are now offered $12-16 per ton below Brazilian origin.
  • Massive logistical issues will continue to plague Argentina, with Paraguay declaring low river levels as a state of emergency. Resources will be allocated to dredging waterways, but real improvement in river levels there will not occur until seasonal rainfall arrives in early/mid-autumn. Little/no rainfall is offered to Brazil/Argentina throughout the next two weeks.
  • A sizeable grain elevator in the Central Midwest, which provided ample liquidity to the US rail market, has been forced into default. Structured contracts that performed well in neutral/bear markets have blown up during this year’s rapid transition to multi-year high prices. This underscores that the US farmer will not make the same mistake as last year in selling too much grain until production is known in Sep/Oct. In fact, our bet is that the world farming community as a whole will sell only what is necessary in the months ahead.
  • Improved Central US weather in July triggered massive fund liquidation. As of Monday, we estimate managed funds net corn long position at 196,000 contracts, vs. 219,000 last Tuesday and vs. April’s peak of 400,000. Funds’ net long in soybean is pegged at 96,000, vs. a recent peak of 175,000. We mention this as North American weather will be a more bullish feature over the next 10-14 days as expansive high pressure ridge meanders aloft the Plains and Midwest. The critical question for the market is whether this pattern lingers into mid-August. Updated EU weather model guidance keeps high pressure ridging intact into Aug 15.
  • Most likely, a tropical storm event will be required to materially change the Central US upper air flow.
  • The midday GFS weather forecast is drier than the morning run across Minnesota and the Central Midwest. The GFS forecast also advertises regionally soaking rainfall in Nebraska, SE South Dakota and Iowa July 28-29, but confidence so far out is lacking. Otherwise, excessive warmth returns to the Central and Northern Plains next Tues-Fri, with max highs reaching the low 100’s across Kansas, Nebraska and the Dakotas. A cooler but very dry pattern evolves across the Central and Eastern Midwest beyond the next 48 hours. Our weather concern stays high.
  • US weather continues to dominate price determination, but there are signs that market focus is shifting to demand as evidenced by this week’s sizeable rally in soybeans. Wheat extends its bull run on Russian yield downgrades. Use nearby weakness in corn to add to supply coverage, as a boost in export demand is imminent amid Brazilian cash prices stay perched above $8.00 per bushel.
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15 July 2021

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  • HEADLINES: Chicago wheat rallies on German flooding and need for protein wheat; Midday GFS weather forecast hot/dry, how long will the Central US ridge last.
  • It is a mixed midday Chicago session with US wheat futures rising while corn/ soybean futures hang in the red in low volume trade. Wheat/corn spreading has been active with excessive European rainfall starting to inflame wheat crop quality concerns. The big export seller of world wheat for August/September has been Germany as their wheat was the cheapest in the world.
  • However, the German/Baltic wheat harvest is delayed by excessive rainfall/flooding, and questions abound on whether German/Baltic hi pro wheat can make export grade. With Russian farmers holding cash wheat off the cash market via lower than expected yield and their floating export tax rate, a quick rise in world wheat fob prices could develop should the EU wheat deteriorate via quality amid cool/wet weather. Importers and end users are short of forward wheat coverage with recent world wheat tenders for nearby or even spot shipment. As we have previously highlighted, world wheat values have formed their seasonal lows and the dire drought in Canada and the flooding in the EU is offering upside market potential into October.
  • Chicago corn/soy futures are slightly lower in a correction of 3 days of rally. Chicago needed a technical breather, the big question for Friday is who will want to be short heading into an important weather weekend with extreme heat forecast. There are suggestions that extreme heat/dryness for 4-6 days would limit US corn yield losses across the Dakotas/Minnesota to 150-300 million bu (these states account for 19.5% of seeded acres). But should the high-pressure ridge hold into August, US corn and soybean production losses could be much larger. As of Sunday, just 8% of the North Dakota corn crop, 5% in South Dakota and 16% in Minnesota was pollinating. The coming heat could not come a at worst time in the last week of July when 40-60% of this areas crop will be in pollination. It is the duration of the NC US ridge that will key prices.
  • Chicago brokers estimate that funds have bought 2,100 contracts of wheat and sold 2,700 contracts of corn and 3,100 contracts of soybeans. In soy products, funds have sold 1,200 contracts of soymeal and 2,100 contracts of soyoil.
  • US weekly export sales for the holiday week ending July 8 were 15.6 million bu of wheat, 5.5 million bu of old crop and 5.2 million bu of new crop corn, and 800,000 bu of old crop and 10.7 million bu of new crop soybeans. The sales were poor as expected due to the US holiday. US export interest is expected to improve with it now costing $1.05/bu to top off Argentine corn boats. We believe that Brazil purchased just over 500,000 mt of Argentine corn yesterday.
  • NOPA’s June crush rate was 152.4 million bu, a 2 year low and some 7.0 million bu less than trade expectations. June NOPA member soyoil stocks were 1.537 billion. The lower-than-expected June NOPA crush of 152 million bu was bullish soy products, but bearish of soybeans. However, Midwest crushers are raising their spot soybean basis bids amid a tightening soybean supply. Bids rest at $0.45-0.65 over August futures are noted. This has limited the bearish aspect of the NOPA report with future weather forecasts driving Chicago soy price direction.
  • The midday GFS weather forecast is slightly drier across E Iowa and the northern Eastern Midwest compared to the overnight run. The forecast holds just a few spits of rain for drought stricken Canadian Prairies, the N Plains, and the NW Midwest. Iowa holds in a dry weather trend for the next 10 days. Extreme heat will prevail across the Plains and into the Canadian Prairies with intrusions into Iowa/Missouri. High temperatures on numerous days will reach into the mid 90′s to lower 100′s. The jet stream is pushed far to the north and is lazy which allows Central US ridge stability into August.
  • Our concern over North American weather is high with the Canadian drought to worsen while extreme heat catches the pollinating corn crop across the Dakotas/Minnesota. A Central US high pressure ridge is the new US weather pattern unless a tropical system can dislodge it in August. The risk in Chicago is to the upside, it is just that market participants are worn out by the back and forth of weather markets.

14 July 2021

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  • HEADLINES: Chicago prices rise sharply on hot/dry Central US weather; Brazil buying 8 cargoes of Argentine corn; Cash fob corn basis rising in Argentina.
  • Chicago corn, soybean and wheat futures are sharply higher at midday. The strong opening fuelled a rally that carried December corn in the chart gap at $5.52-5.735 while November soybeans nearly filled its chart gap at $13.825 ($13.8225 high this morning). The dire 2021 Canadian drought along with the return of hot/dry NC US weather in the final 10 days of July sparked new fund buying and unease from short speculators. Remember, there are few resting orders above or below the market which exacerbates rallies/declines such as today. Chicago has a firm undertone at midday. A sharply higher close is expected as the market adds back weather premium and world fob corn values firm from S America. Firming fob S American corn basis will shift demand to the US.
  • Chicago brokers estimate that funds have bought 11,600-11,900 contracts of corn, 6,300-6,600 contracts of wheat, and 6,500-7,100 contracts of soybeans. In soy products, funds have bought 1,500 contracts of soyoil and 3,500-3,700 soymeal.
  • Egypt’s GASC purchased 180,000 mt of Romanian wheat at an average price of $231.88/mt basis fob. Freight costs ranged from $30.31-35/mt for a wheat delivered price ranging from $262-266.88/mt. The wheat sales price appears to be done cheaply.
  • Based on replacement and GASC specs, we calculate that the wheat was sold on a Black Sea comparable basis at $226-227/mt. We have no idea why 2 exporters would sell Romanian wheat below replacement, except that they maybe needed to clear storage for the new crop harvest. Two firms were the cheap GASC sellers while Ukraine/Russian folb wheat were some $8-14/mt above Romania. There were 17 offers to GASC which is the largest in nearly a year. The GASC wheat price went down cheaply which sets this week’s wheat price baseline.
  • Brazil is rumoured to have bought 8 cargoes of Argentine corn which is cleaning up their offers and firming FOB basis bids for S American corn in general into September. Brazilian corn offers are limited beyond October as domestic supplies tighten. Another hard frost/freeze is expected in coming days across Brazilian corn areas which could further hurt supplies/quality. Brazil is actively seeking additional Argentine corn for import. Brazilian cash corn today is trading above $7.80 and likely to return above $8.00 in coming weeks. Brazilian interior corn is trading $45/mt ($1.15/bu) above export offers which is why some sellers are washing out prior sales. We doubt that Brazil exports more than 20-21 million mt of corn in their local crop year.
  • US weekly ethanol production was 306 million gallons which was down 2% vs 2019. The US needs to produce 294 million gallons of ethanol/week to reach the USDA forecast. This week’s production was 12 million gallons or 4.15 million bu above what USDA is forecasting. We continue to believe that the USDA is 25-40 million bu too low on their 2020/21 US corn ethanol grind. US weekly ethanol stocks fell 887 million gallons.
  • The midday GFS weather forecast is slightly drier across N Iowa and the northern Eastern Midwest compared to the overnight run. The forecast is slightly wetter for Kansas/W Nebraska. Limited rain is offered for the N Plains, Canadian Prairies and NW Midwest. The best chance of rain is over the next 48 hours before a lengthy dry period unfolds as a front sags south to the S Plains, Delta and the SE US as a high-pressure ridge forms across Colorado. This ridge slowly shifts northeast with its mean position across the Plains/W Midwest into July 29 which produces hot/dry W Midwest weather.
  • Opening volume was the largest seen in weeks in Chicago which offers a fresh hint at new fund buying. The Canadian drought will worsen while heat/dryness is featured in the Plains/W Midwest forecast into late July. The big unknown is whether that Central US ridge will be lasting and carry forward into August. That is the key. Fund managers see Chicago values as an opportunity.

13 July 2021

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  • HEADLINES: July corn soars to new contract high; Canadian drought is dire and looks to worsen; Midday GFS weather forecast wetter.
  • Chicago futures are higher at midday (July corn sharply higher at new highs at $7.505) following through with its post report rally on Monday. The 2021 Canadian drought is forecast to worsen over the next 2 weeks and is becoming one for the record books. The volume on the morning Chicago rally has been normal, it is just that uncovering resting sell orders above the market is difficult. We maintain that whether the farmer is in Russia, the Midwest, Brazil, or Argentina, sparking new cash sales is going to be tough to find. This will cause end users/importers to reach for supply in coming weeks by raising cash basis bids. Black Sea/European exporters are banking on Russian farm selling of wheat/barley which heretofore, has not developed. The initial upside price target is open chart gaps at $5.52-5.735 December corn and $13.73-13.825 basis November soybeans. The bears are surprised by the swiftness of the Chicago rally.
  • The US Northern Plains spring wheat crop was slashed to its lowest level since 1969, and spring crops in Canada are in real trouble according to producer sources. The big question that traders are pondering is whether the Western US high pressure ridge can march eastward into the W Midwest in late July and August. The Canadian Prairie forecast is especially threatening amid dryness.
  • Chicago brokers estimate that funds have bought 2,600 contracts of wheat, 8-9,000 contracts of corn, and 4,500-5,000 contracts of soybeans. In the soy products, funds have bought 2,100 contracts of soyoil and 1,900 contracts of soymeal. It is getting difficult to move size in Chicago soyoil futures amid diminished bid/offers either side of traded prices.
  • July corn futures had a massive $0.865 range today {$6.64-7.505) with 313 contracts trading by midday. Chicago indicated that July corn open interest was 245 contracts at the start of trading, so most of the July’s open interest should be liquidated. Yet, the sharp rally of July corn futures reflects the premium cash bids and being short in a discounted futures market. July soyoil is also witnessing a like rally with cash soyoil offered 6 cents above futures. The volume of July soyoil futures has been just 14 contracts with open interest at the start of today’s trading being 185 contracts.

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  • Russian wheat production forecasts are declining with private analysts adjusting their crop estimates downward. The Russian Weather Service pegged the crop between 77-81 million mt with others dropping their production forecasts to 79-82 million mt. Early winter wheat yield data has been disappointing. The USDA has the 2021 Russian wheat crop at 85.0 million mt (down 1 million from June), but likely 4-6 million too large. Amid a sharp fall in North American spring wheat production, a Russian wheat crop over 80 million mt is required. We see 2021/22 Russian wheat exports at 36 million mt, down 4 million from the USDA. The loss of Canadian and Black Sea wheat should boost EU/US/Aussie wheat exports.
  • The midday GFS weather forecast is slightly wetter. Showers/storms are expected to form across S Dakota and push east across Iowa late Wednesday/Thursday. Rain totals are estimated in a range of 0.25-1.50" with locally heavier amounts. The system exits through the E Midwest on Saturday with like rain totals. Highs will range from the 70's to the mid 80's. Mostly dry weather follows as a cold front sags south into the Delta and Gulf States next week. This produces an extended period of dry weather for the Canadian Prairies, Northern US Plains and Upper Midwest.
  • Monday's USDA balance sheets reflect that it does not take much of a corn/soybean/spring wheat yield drop to produce a rather spicy Chicago heading into late summer. Losing 1 bushels/acre of yield in soybeans or 4 bushels/acre in corn produces new contract highs. And world end users/importers are sitting on their hands hoping for lower prices, but their patience is wearing thin amid the dire Canadian drought. The loss of 5-7 million mt of canola and spring wheat is a big deal to longer term price direction. Look to buy rain inspired Chicago breaks would be our preferred strategy.

12 July 2021

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  • HEADLINES: Chicago rallies on the lack of bearish surprises.; US corn, soybean and wheat stocks are historically tight; Largest 2021/22 corn stocks of the year?
  • Chicago futures are holding their morning gains based on a neutral to slightly positive July USSA crop report The report confirmed the USDA’s conservative nature in adjusting US/Canada and Brazilian crop estimates. We believe that the USDA will further cut its Canadian crop and Brazilian corn crop estimates in August and September based on adverse weather. Brazil will suffer another freeze late this week.
  • US 2021 /22 corn end stocks at 1,432 million bu is likely to be the high of the crop year based on a record US corn yield of 179.5 bushels/acre. Remember that the record US corn yield is 176.6 bushels/acre set back in 2018. We, and private analysts, gauge the 2021 US corn yield between 172.5-177.5 bushels/acre due to N Plains drought. US soybean yields depend on August weather. NASS made a sharp downward adjustment on US spring wheat/oat and barley yields based on the worsening drought across the N Plains. The loss of wheat, oats, canola, and other small grain crops is going to have a bullish tailwind that lasts well into 2022 based on Canada’s importance with world exporter corn, soy and oilseed stock/use ratios at record lows.

  • The USDA raised their estimate of 2020/21 corn feed/ residual use by 25 million bu to 5,725 million and cut end stocks to 1,082 million bu. We would argue for another 25-50 million bu increase in feed/residual based on the June stocks data. However, following the recent erratic quarterly changes in US corn stocks estimates, the USDA decided to be conservative. No change was made to the US ethanol grind even with the US gasoline demand running hot in the post pandemic economy. We maintain that US ethanol use should rise another 50-75 million bu which will drag 2020/21 US corn stocks to well under 1,000 million bu.
  • US 2021 /22 corn production was raised 180 million bu based on an additional 1.0 million harvested acres found in the June Seeding Report. The USDA held yield at trend at 179.5 bushels/acre citing that there was crop stress across the N Plains and NW Midwest, but that the index was not low enough to justify a July yield cut. US 2021/22 corn end stocks rose 75 million bu to 1,432 million with an average farmgate price at $5.60  (down $0.10/bu).
  • The US soybean 2020/21 and 2021/22 balance sheets were completely unchanged from June with stocks of 135 and 155 million bu, respectively. Such stocks are historically tight and reflect zero room for adverse weather. A 1.8 bushels/acre drop the 2021 US soy yield would eliminate projected 2021/22 soybean end stocks. Really a 2021 US soy yield less than 49.5 bushels/acre is unacceptable. China’s 2021 /22 soybean imports were adjusted down by 1 million mt to 102 million. The risk in Chicago soy futures is to the upside.

  • NASS pegged US all wheat production 1,746 million bu, vs. 1,898 million in June amid major cuts to spring and durum yields. Combined spring/durum production is estimated at 382 million bu, down 207 million from USDA’s implied forecast in June and down 273 million (42%) from last year. US wheat stocks were placed at 665 million bu, vs. 770 million in June. The loss of spring production will accelerate US stocks contractions, which persists into 2022/23 unless sizeable acreage expansion of 1.0-1.5 million is encouraged (via price?). 2021/22 HRS stocks are forecast to drop to 119 million bu, vs. 235 million in 2020/21, which assumes demand rationing of 131 million bu. Such spring wheat demand rationing only occurs at much higher prices.
  • Major exporter wheat production is pegged at 409 million mt, down 2.7 million from June and up just 2.4 million from last year. Russian production was down 1 million mt at 85. This along with a cut to N American production worth 4.6 million mt more than offset modest hikes in Europe and Ukraine. Exporter wheat stocks in 2021/22 fall to 60 million mt, a new 8-year low. Exporter stocks/use is calculated at 14.2%, a new 14-year low. The long-term bull trend in world wheat markets will be extended into the winter months. We also note that further downgrades to production in Canada and Russia are anticipated in August.
  • Chicago futures will go back to counting raindrops, but midday model guidance maintains the return of dryness across the Central and Northern Plains into July 25. Temperatures warm with time. US/exporter stocks are historically tight even assuming trend US corn/soy yields. Demand-led bull markets is in the market’s future. The 2021 Canadian drought is a big deal with a canola/wheat crops that could easily be 5-7 million mt smaller that WASDE is forecasting.

USDA-Recap-12-July-21

8 July 2021

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  • HEADLINES: Chicago trades lower with wetter midday forecast; Key support in Dec corn below $5.20 and November soybeans below $13.
  • Chicago futures are lower at midday with soybeans/soyoil the upside leaders with wheat/corn in decline. The CONAB Brazilian corn production estimate of 93 million mt was above private estimates, but in line with expectations. Rain is forecast to drop across Iowa on the weekend, but so far this week’s rainfall for the N Plains and the Upper Midwest has been disappointing. The weekly drought monitor portrayed a deepening drought across the Northern Plains and the Western Midwest. The dire nature of the W Midwest/Northern Plains drought implies that regular rainfall will be required through the remainder of the crop year. And with corn pollinating in the area, the number of rows around the cob may be compromised. We doubt that corn/soy/wheat futures have a lot of additional downside price potential with next price move determined by whether a high-pressure ridge setting up across the lntermountain West adds to existing drought conditions across the N Plains and W Midwest. The record large US corn yield is 176.6 bushels/acre, you do not make record yields without all primary Central US crop areas enjoying a favourable summer growing season.
  • Chicago brokers estimate that funds have sold 3,200 contracts of corn and 2,100 contracts of soybeans, while buying 1,400 contract of Chicago wheat.
  • Cash premiums for old crop corn/soybeans are firming (again) on tightening supplies and the need for quality. As farmers sweep the bottom of their bins, they are running into more off quality corn and soybeans. The ongoing strong US corn export program demands additional quality corn to fulfil Chinese purchases. There could be a spike or final push in cash corn and soybean basis in coming weeks unless the cash pipeline is able to uncover greater supply.
  • CONAB admitted that its Brazilian corn production estimate at 93 million mt is from field data that is 20 or more days old. This means that none of the frost/freeze damage of last week was in the total, and the sharp falloff in recent harvested corn yield in Mato Grosso/Goias from late seedings was also missed. We currently stand by a final Brazilian corn estimate of 84-86 million mt in September as additional harvest data is available.
  • US weekly ethanol production was record large for initial week in July and was 2% above 2019. And US ethanol stocks fell to 885 million gallons, which is up 2% on last year. Americans consumed a record amount of gasoline over the July 4 holiday. The US ethanol weekly production total to validate the USADA is 294 million gallons/week. This past week, the US produced 314 million gallons which consumed an extra 7 million bu of corn. The USDA 2020/21 US corn grind estimate remains too low by 45-65 million bu.
  • The midday GFS weather forecast i s wetter in Eastern Iowa this weekend but is otherwise consistent with prior output. Steady rain arrives to the Central Midwest beginning Friday and persists into Monday, with accumulation of 1-3″ to be spread across the entirety of Iowa, Illinois and Ohio. The midday GFS forecast also indicates a secondary system across Central and Eastern Midwest next Thurs-Sun, which produces similar totals across Missouri, Illinois and Indiana. The Eastern Midwest will not be wanting for water into late month, though low-level flooding remains an issue in pocket of IL/IN. Net soil moisture loss resumes across the Plains and Minnesota. Record corn/soy yield remain unlikely.
  • The market’s exclusive focus on rainfall continues into August. The pace that newly harvested crops are used determines fair value in autumn/winter. Our thesis remains that production fails to match consumption in 2021 amid historic Brazilian corn yield loss and the return of Chinese soy demand in bulk beginning late summer.

7 July 2021

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  • HEADLINES: Chicago corn bounces from key $5.20 Dec support; Midday forecast drier for E Midwest with high pressure ridge in extended range; CONAB Thursday.
  • Chicago grain futures are lower while the soybean market hangs in the green on end user pricing and active soy/corn spreading. December corn has fallen back to last week’s low which completely erased last week’s NASS Stocks/Seeding rally. Soy futures are holding firm on US soymeal export demand while wheat futures sag following corn. The USDA July Crop Report will be released on Monday, but traders are focused on Central US weather and the rain that is projected to fall from Iowa eastward. Traders have been very focused on Central US weather.
  • We note that crude oil and a host of other commodities turned lower this morning, which is sparking a “risk-off” trading mentality. Funds appear to be exiting risk in a host of commodity markets which is a bearish Chicago undertow. August crude oil futures has fallen back to $71.07 this morning, which was down over $2/barrel. Lumber prices have reversed early day gains while the US$ rallies and tests the April high. It is the strengthening US$ that has acted to pressure a host of commodities. The upside price target for the greenback is a test of $93.50, the March high. Strong resistance is offered between $94-95.00 for the US$ Index, the late 2020 high.
  • CONAB will be out with their updated Brazilian corn and soybean estimates on Thursday. Of focus will be the winter Brazilian corn crop estimate following the hard freeze of last week. Most of the cold weather damage will NOT be calibrated in tomorrow’s corn yield estimate, but key states like Parana, Mato Grosso Do Sul and even Mato Grosso have been cutting their respective state production estimates that add up to a final Brazilian corn crop as low as 84-86 million mt. Brazil’s corn estimate is in decline based on harvested yield data. The Parana cuts are so large that Southern Brazil will face an acute corn shortage with prices rising sharply. In fact, speculation is growing if the Brazilian Northern Arc may have to export corn to Southern Brazil to ease their acute feed shortage. For now, the function of the Brazilian corn market is to rally interior cash corn prices to levels that are well above export and shift Brazilian corn demand to the US/Ukraine. A Brazilian corn crop of 85 million mt would sharply curtail their annual corn export program by 8-13 million mt. The problem is that the world does not have the corn to make up that difference. The USDA US 2021/22 corn export estimate needs to rise from 2,450 million bu to at least 2,850 million bu. This would drop US 2021/22 corn end stocks closer to 1,100 million bu without a change in old crop US corn end stocks and adding in the additional 1 million harvested acres found in last week’s NASS report. This would use a US corn trend yield of 179.5 bushels/acre.
  • The GFS weather forecast is like the overnight run, except that meaningful heavy moisture across Iowa will be south along the Iowa/Missouri border. This heavy rain will then push into Illinois/Indiana early next week where some localised flooding could occur. Soils here are saturated and need more time to dry down following the 5-12″ of rainfalls of 10 days again. However, the forecast is broadly drier for the S and E Midwest with rain totals being some 1-2″ less than the overnight run. N Illinois and Southern Michigan are the new “bullseye” for soaking rain. Mild summer temperatures persist for the next 7-8 days before warming returns as a high-pressure ridge elongates across the Central US. This is the first strong high-pressure ridge across the Central US in the crop season to date. It will be closely monitored by traders heading into the weekend.
  • Leftover speculative selling pounded Chicago corn early in the day, but the market is recovering and holding its 100-day moving average. The weather models keep reducing rain for the N Plains/Minnesota which adds concern for 2021 US corn/soy yields. Near perfect weather is needed for trend E Midwest corn/soy yields based on the acute dryness of the N US Plains/W Midwest. We are bullish looking for new contract highs in corn and soybeans.

6 July 2021

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  • HEADLINES: Chicago posts limit losses on massive fund liquidation in corn/soyoil; Midday GFS weather forecast knifes rainfall for Iowa/Minnesota/Dakotas next 10 days.
  • Chicago futures are sharply lower to limit down at midday with corn futures trading at the limit 40 cents down in new crop futures. Wheat and soybeans have followed corn with sharp daily losses with KC wheat futures falling back to under $5.80 basis September. Emotions are high with liquidation with December corn futures said to be trading 7-9 cents below the limit. The daily limit in soybeans is $1.00/bu and November has witnessed losses of $0.97/bu. KC wheat futures are at their lowest levels since March, even amid the massive loss of US/Canadian spring wheat crops.
  • Chicago rallied to sharp limit up gains last Wednesday following the USDA June Stocks/Seeding Report. Today’s break has nearly taken back most of those gains amid the emotional weather selling of the morning. We well understand the need and timing of rain for the W Midwest and the Northern US Plains, but the top end of the US corn/soy yield has been lost due to extreme heat/weeks of dryness in the Dakotas, Minnesota, and much of Northern Iowa. Rain will produce stabilisation, but again remember that the record large US corn yield is 176.6 bushels/acre, and even with rain, it is difficult to forecast a US yield larger than 177.0 bushels/acre. Chicago is too cheap relative to fundamentals and coming demand.
  • Chicago brokers estimate that funds have sold 24,000 contracts of corn, 19,000 contracts of soybeans, and 12,500 contracts of wheat. In soy products, funds have sold 8,500 contracts of soyoil and 7,700 contracts of soymeal.
  • US weekly grain export inspections for the week ending July 1 were; 48.7 million bu of corn, 7.6 million bu of soybeans, and 9.5 million bu of wheat. For their respective crop years, the US has exported 2,289 million bu of corn (up 936 million or 69%), 2,110 million bu of soybeans (up 737 million or 54%), and 65 million bu of US wheat early in the crop year. We would remind that Census corn exports are 173 million bu ahead of FGIS at the end of May, so adding this on top of FGIS produces a crop year total of 2,462 million bu. With just under 9 weeks remaining in the 2020/21 crop year, the US must average 43.1 million bu/week to reach the WASDE target. We forecast a total close to 51 million bu/week or a total of 2,925 million bu.
  • US farm sales have shut off on the Chicago decline. N Plains farmers want to see the rain in their gauges before making any new sales. And domestic end users in Brazil are frantically using the Chicago break to make forward cash corn purchases. There is a growing concern in Brazil that winter corn crop will not make the quality with supplies to dramatically tighten on last week’s freeze. Brazilian cash corn prices have rallied sharply in recent days and are not following Chicago sharply lower this morning. It is demand for US corn/soybeans that will be the bull driver once the supply selling is completed. Resting orders in the market are becoming increasingly difficult to uncover.
  • The midday GFS weather forecast is much warmer/drier for the Western Midwest and the Northern Plains compared to what has been offered in recent runs. The GFS midday forecast slashed Iowa rainfall by 1.5-2.0″ with 10-day totals now around 0.6-1.25″. That amount of rain is not going to alter or help declining soil moisture. And the 6–10-day period is warmer with high temperatures returning to the upper 80′s to the mid 90′s. The GFS would maintain a dire drought across the N Plains and the NW Midwest into July 20. Any heavier rain is offered for Missouri, the southern half of Iowa and the Ohio Valley. Hurricane Elsa veers inland across Sarasota tomorrow after raking the Florida’s Western Peninsula with tropical storm force winds. The EU model has been trending drier, but the midday GFS forecast is a concern for a deepening drought across the N Plains and W Midwest. This is not the rain that would end a drought.
  • “Student body right/Student body left” produces acute Chicago volatility with combined corn, soybean, and wheat open interest now back at levels not seen since September. The Brazilian corn crop losses are adding up in a world that is increasingly tight of grain. We see no reason to back away from our bullish outlook with new contract highs forecast. End users should use this break to extend forward coverage well into 2022.

2 July 2021

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  • November Canadian canola futures soared to contract highs on the increasing drought stress that is being placed on the crop. This week’s extreme heat, wind and dryness will knife Canadian crop ratings next week. And the forecast is arid/warm for another 2 weeks.
  • Time is running out for drought stunted Canadian crops which are starting their reproduction phase. Ongoing dryness will have a sizeable negative impact on N American oilseed/grain supplies.
  • Canola oil can be used in US biodiesel production while Chinese import demand is record large. The loss of Canadian canola comes at a time when world vegoil stock/use ratios are at record lows, maintaining bullish price trends.
  • Soybeans traded quietly ahead of the holiday weekend and marked strong weekly gains at Friday’s close.
  • May soymeal exports were reported at 1.05 million short tons, 97% of last year but right in line with the 5-year average. Weekly FAS reporting showed a sharp decline in soybean meal exports through June, as S America ramped up production and exports. Based on the FAS data, we estimate that June meal exports fell below 1 million short tons for the first time since June 2019. Nevertheless, cumulative meal exports at 10.8 million tons will be the largest since 2014/15.
  • S American basis has rallied sharply in the last month, raising the odds that the US picks up additional late summer soymeal export business.
  • This week’s USDA reports showed old crop stocks were tighter than expected, and farmers did not expand their acreage. This places greater importance on the need for a national yield above 50 bushels/acre and supports November soybeans above $13.75. A late summer weather problem could drive November back to $16 (or higher) amid an acute need to ration demand.
  • Dec Chicago corn ended 11 cents lower as Trump’s summer E15 mandate ended for the summer of 2022 and as very light showers are probable across the drier areas of eastern Nebraska and Iowa next Tuesday-Thursday. Rainfall there of 0.25-0.75″ will not materially alter soil moisture and more important over the weekend is whether a pattern of heat/dryness persists across the Plains and W Midwest into the second half of July. Model guidance on Sunday afternoon/Monday morning will begin to peek into post-July 15 precipitation and temperatures.
  • We have reduced 2020/21 US corn exports to 2,925 million bushels. However, this is still 75 million above USDA’s forecast, and ethanol’s demand draw in May was revealed at 448 million bushels, a post-Covid high. June ethanol use is pegged at 445 million. Similar disappearance is expected in Jul-Aug, which suggest USDA’s industrial use forecast is 25-40 million bu too low. And US feed/residual use will also be raised 50 million bu. Today’s E15 decision does not impact US corn demand longer term.
  • The market trades weather exclusively into late month. Our bet is that a pattern of stagnant heat/dryness persists across the Plains amid deeply negative soil moisture anomalies. Breaks early next week are buying opportunities.
  • US wheat futures ended mixed, with Chicago/KC contracts down 13-21 cents and spring wheat futures firm. Downside in spring wheat futures is severely limited as N American yield potential erodes further. We expect the US winter harvest to reach 50% this weekend. Stocks peak in the weeks ahead and supply pressures ease beyond mid-July. We also note that interior HRW basis remains firm despite the advancing harvest. Wheat-specific news on Friday was absent. The market follows corn and soy more directly as row crop reproductive periods lie just ahead. Sep KC’s premium to Sep Chicago corn is a weak $0.27 per bushel, and recall KC does not trade below corn for any length of time. Managed funds were flat in Chicago on Tuesday, and the risk is that substantial new buying emerges if soaking rain and cooler temperatures fail to materialise across the Plains and NW Midwest.
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1 July 2021

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  • HEADLINES: Chicago corrects early day gains on windfall profit taking; Midday GFS/Canadian weather forecasts dry for Plains/NW Midwest; US export sales poor.
  • Chicago futures are correcting early morning gains on windfall profit taking. The morning selling is occurring as the bulls accept windfall gains following Wednesday’s NASS USDA Report. The coming 3-day weekend and uncertainty of US weather which includes a tropical storm has pushed the bulls into taking some risk off the table. We expect a higher Chicago close on Thursday and see the morning break as a buying opportunity. An open chart gap rests at $5.885 in December corn which offers initial support with key support at $5.81. November beans will be underpinned below $14.00, while September Chicago wheat holds $6.75.
  • Corn, soybean, and wheat futures are trading mixed at midday. Minneapolis wheat is the bear leader. The Minneapolis/KC spread has reached out to historical resistance at a $2.20-2.30 premium which has sparked a correction. Spring wheat has reached spread levels that entice end users to switch to other protein wheat classes, such as hard wheat from the Central Plains. We doubt that flat prices of spring wheat have scored a top as domestic and export demand is highly inelastic. Any fall back to $8.25 basis September Minneapolis wheat would be seen as a new buying opportunity. We doubt that any Chicago futures can endure a lasting price break until late summer.
  • Chicago brokers estimate that funds have bought 3,200 contracts of soybeans and 3,100 contracts of soymeal, while selling 3,000 contracts of soyoil, 4,000 contracts of corn and 3,000 contracts of wheat. Managed money was active buyers overnight and then turned sellers on waning upside momentum. End users have used the break to extend their forward coverage.
  • The export sales report indicated that that for the week ending June 24 the US sold 8.3 million bu of wheat, .6 million bu of old and 2.7 million bu of new crop corn, and 3.4 million bu of old crop and 61.4 million bu of new crop soybeans. The sales totals for US corn, wheat and old crop soybeans were bearish. The new crop soybean sales were noticed in the daily reporting system and bullish.
  • For their respective crop years to date, the US has sold 235 million bu of wheat (down 28 million or 8% from last year), 2,738 million bu of corn (up 1,072 million or 64%), and 2,272 million bu of US soybeans (up 625 million or 38%). We expect that US corn, soybean and wheat sales increased last week on the market decline as exporters added forward coverage ahead the NASS June 30 report.
  • Russian interior grain markets are poorly defined with farmers unwilling to sell their new winter wheat harvest. Russian farmers appear willing to store their initial wheat cuttings awaiting a higher cash price, rather than having to participate in the floating weekly export tax. Russian President Putin claimed yesterday that the floating export tax was working and prevented Russian flour prices from rising to even higher levels.
  • The midday GFS weather forecast offers limited rainfall for the Northern US Plains, the Canadian Prairies, and the NW Midwest into Sunday July 11 . A weak frontal pass on July 7-8 looks to produce a few light showers, but outside of S IA, rainfall totals will be limited to less than 0.4″. The remainder of the area is arid with rising temperatures. Hurricane Elsa veers inland across Sarasota on July 7 after raking the Western Peninsula with hurricane force winds. Elsa then curves NE to the North Carolina and returns to tropical strength as it returns into the Atlantic. The GFS forecast has Elsa as a strong hurricane that must be closely monitored. The storm will cause an eastward shift in the Western US high pressure ridge to the lntermountain West and the Western US Plains which will produce numerous days of 90′s across the Plains/W Midwest. This remains a concerning weather pattern for the N Plains, W Midwest and Western US and yield reductions are likely.
  • Bullish US and world grain stocks will underpin Chicago heading into the USDA report on July 12. A deep cut in the Brazilian corn crop will raise US 2021/22 corn exports. And the USDA will very likely cut harvested acre estimates from NASS to account for the ongoing N Plains and NW Midwest drought in corn, soybeans, and spring wheat. We doubt that the USDA will lower yields until crop conditions decline deeper. The risks vs rewards are stacked strongly in the favour of the bulls with $7.50-8.00 corn possible with any US corn yield loss below 175 bushels/acre.