Monthly Archives: June 2022

16 June 2022

Posted on June 16, 2022 by simon

• HEADLINES: Chicago adds weather premium to price on rising risk of drought; Chicago swims against sharply lower US equity markets.

• Chicago grains are mostly higher on threatening weather with soyoil sagging under oil/meal spread unwinding. The US stock market has fallen sharply with the DOW down another 800 points on liquidation via “risk off” from investment managers. The DOW is now under 30,000 for the first time in nearly 2 years.

• The prospect that the US lending rates may have to rise to 3.5-4.0% in early 2023 to slow inflation has unhinged investors. They are reaching for the safety of cash. In fact, cash has become a new asset class.

• We anticipate investors will seek the safety of cash or another alternative. Whether that investment be in energy, ag or metals, the waterfall drop of world stock markets will not provide the needed increase in raw material supplies/production.

• Supply that is needed to stem inflation, but the blunt instrument of interest rate hikes will try to slow demand. Supplies will continue to fall which will stymie world central bankers.

• Sympathy selling that causes Chicago falls or on days like today, limits rallies. A recession is not expected until 2023, but even then, history suggests that world recessions do not have an adverse impact on world grain demand.

• The sharp fall in the US/EU financial markets is limiting demand for Chicago grain, futures would be much stronger if not for the worry over a recession. Yet, it is related back to the narrowing of equity vs hard asset valuations.

• Chicago brokers estimate that funds have bought 6,500 contracts of corn, 3,900 contracts of soybeans, and 4,100 contracts of wheat. In soy products, funds have sold 3,600 contracts of soyoil and bought 4,300 contracts of soymeal. Active oil share spread unwinding is ongoing and pressuring soyoil futures.

• NOAA/Climate Prediction Central indicated that the coming 3 months will be warm to hot across the entire US and dry for the Plains and most of the W Midwest. The forecast was released this morning. Long range weather forecasting is always more of an art than a science but based on the prevailing Central US high pressure ridge and a dramatic slowing of the Jet Stream, the weather outlook for July has become hotter/drier. We have been raising the alarm over the summer weather pattern since the opening days of June. Each new run of the European weather model is more threatening. We have avoided using the GFS based on NOAA shifting its supercomputer from IBM to Cray. NOAA released a statement in late May on its diminished reliability.

• EU grain traders report that searing heat across France, Germany and Italy is producing acute stress and lowing winter wheat/barley yield potential during reproduction. Temperatures are forecast to reach 102-108℉ in coming days that will set new records. The EU wheat crop is sliding below 130 million mt.

• FAS reported that for the week ending June 9, the USDA reported that 8.7 million bu of wheat, 11.7 million bu of old crop and 15.0 million bu of new crop soybeans, and 5.5 million bu of old crop and 5.5 million bu of new crop corn was sold. Old crop soybean sales are supportive, but US corn/wheat sales are disappointing. US SRW wheat is the cheapest in the world and is gaining some fresh demand.

• The midday GFS weather forecast is consistent in projecting an intense/expansive high pressure ridging pattern across the Central US. The forecast is dry for the next 6 days with a few isolated light showers following. Heat holds for another 2-3 days before subsiding.  A below normal rainfall trend persists with the Central Plains/SC Midwest dry. The overnight EU forecast is 3-7 degrees warmer and more threatening. We favour the EU model based on its favourable track record. Our weather concern stays high.

• US fob wheat export prices are the cheapest in the world which had Indonesia booking a few US SRW Gulf cargoes this morning. US corn/soy crop ratings are expected to decline in the coming weeks with European/Central US weather forecasts flashing drought risks. Midwest cash corn/ soybean basis are strong with end users seeking supply. Stay Bullish.

15 June 2022

Posted on June 15, 2022 by simon

• HEADLINES: Chicago eases from morning high as GFS midday offers less heat in the extended range; Awaiting Fed’s rate decision.

• Chicago futures are mostly higher with KC/Minneapolis wheat being weaker on the spread unwind. New crop soybeans are gaining on old crop on rumours of China rolling 4-5 cargoes of US July/August soybean purchases to Brazil.

• The volume of Chicago trade remains modest as traders await the market’s reaction to the US Central Bank raising interest rates by 0.75% this afternoon.

• US financial markets have digested today’s 0.75% US Central Bank rate hike and are forecasting that the Fed will raise rates by 1.9% through its September meeting. That implies two 0.75% and one 0.5% rate hike before the Fed hits the pause button. The US 10-year Treasury Note pushed out to 3.4% with traders expecting a rise to 4% later this year.

• There is no evidence of a US recession, but the Fed’s rate hikes will act to slow sectors of the economy including the US housing market. However, it is important to understand that US/World inflation is produced by a shortage of goods/supplies. To fix inflation means that you must fix the supply chain and raise raw material production, especially energy. A capital fix for US refinery operations and a boost in crude oil production will take years. The US Central Bank does not have the right tools to boost US supplies.

• Chicago brokers estimate that funds have sold 3,400 contracts of soybeans and 2,600 contracts of wheat, while buying 1,900 contracts of corn. Funds are sellers of 2,600 contracts of soyoil while buying 1,700 contracts of meal.

• The USDA reported that 100,000 mt of US old crop soybeans sold to an unknown destination were cancelled. We hear that 4-6 cargoes of US old crop soybeans have been switched to Brazil. However, the Brazilian export pace is seasonally declining with strong interest from crushers to limit the supply of soybeans that are not committed. The Brazilian soy sales season is coming to an end.

• Informa estimated US 2022 corn seeded acres at 90.9 million acres (up 900,000 acres from USDA), with soybean seeding at 88.7 million acres (down 2.3 million acres) with spring wheat seeding at 10.5 million acres (down 700,000 acres). We maintain that Informa is too high on corn seeding and sees the total at 89.5 million aces with soy seeding at 90.3 million acres. The cost of planting corn was prohibitively high and Informa was too high on corn acres for much of last year. Dakota and Minnesota farmers cut back on corn/spring wheat seeding.

• US ethanol production remains near a record high and above the weekly average to reach the WASDE annual forecast. The US must average 306 million gallons of ethanol production per week to reach USDA’s forecast.

• NOPA members reported a record May soybean crush of 171.1 million bu surpassing the prior record of 169.6 million bu set in 2020. NOPA soyoil stocks fell to 1.774 billion pounds, down 2.2% to its lowest level since September on strong domestic demand by renewal diesel producers. The bull product story stays in soyoil.

• The midday GFS weather forecast is consistent in projecting an intense/expansive high pressure ridging across the Central US. A few showers are possible across WI/N IL in the next 24 hours, but otherwise the forecast is dry through Wednesday. The ridge then amplifies to produce another round of heat. The Central Plains and the SW Midwest hold in an arid flow. Extreme heat (90’s to lower 100’s prevails) with any cooling relegated to Ohio, Minnesota, Wisconsin, and Michigan. The GFS model is of low confidence beyond the next 10 days with the EU Ensemble offering a far more correct forecast on temperatures/rainfall.

• A massive and amplified high pressure ridge will hold across the Central US into late June. The odds are high that this ridge will stay or return during July. Risk off has been the theme in a host of asset classes as the US Central Bank raises rates. Look for a Chicago recovery into the long US holiday weekend.

14 June 2022

Posted on June 14, 2022 by simon

• HEADLINES: Another day of risk off ahead of Fed rate announcement; Central US ridge looks to hold for next 2 weeks, likely longer.

• Chicago futures are mixed with wheat values sagging on the expanding US harvest and seasonal considerations while corn/soybeans hold on the prospect of heat/dryness impacting an expanding area of the Central US into July. The volume of Chicago trade has slowed from recent day activity as traders await the decision of the US Central Bank on lending rates tomorrow. A 0.75% rate increase is expected as the US Central Bank is behind the curve in its war against inflation. We note that the US Central Bank can raise rates several times, but world inflation is based on limited supplies, not surging demand. Our point is that the Fed does not have the right tools to fight supply inflation. Raising rates into 2023 will work to slow demand, not boost grain, energy, or metal supplies. We expects that at some point, the US will work to lower trade tariffs on China for inflationary relief on consumer goods in Q4.

• Otherwise, the US Central Bank has a war on its hands as it tries to battle limited and tightening supplies of raw materials. We look for a mixed close with values to rise into the weekend amid North American weather concern. It is not only the heat/dryness for the Central US, but too much rain looks to drop across Southern Canada. The forecast is unfavourable for both countries.

• US WTI crude oil futures pushed back to their March highs on solid demand and the record prices paid for gasoline/diesel. US refinery demand stays strong, but US Nat Gas prices fell sharply because of an explosion/subsequent shutdown of the Freeport LNG Texas plant which provides 20% of US LNG export capacity. The sharp fall in natural gas prices jump US ethanol grind margins. US corn ethanol producers are back looking at a huge $0.80-0.90/bu grind margin.

• Chicago brokers estimate that funds have sold 5,500 contracts of corn, 2,900 wheat, and 4,400 contracts of soybeans. In the soy products, funds are sellers of 3,200 contracts of soyoil and selling 2,500 contracts of meal.

• US domestic cash grain markets are holding strong. Corn bids based on Decatur are +0.65-0.70 with soybeans bid at $0.70-$1.20 over July. First notice against July is only 16 days off and ethanol/soy crushers are pushing for supply. We believe that domestic users are seeking nearby cash corn/soybeans, but movement from the farmer is limited. The coming heat/dryness and large farmer forward sold position (new crop) will keep the US farmer tight fisted with limited old crop stocks. Although the July/Dec corn spread has weakened, research expects that the July-December spread will have another push back upwards to 60-70 cents over.

• Russia has made a big offensive into Ukraine’s primary Donbas wheat area which could not only impact this year’s harvest, but the seeding of a new crop in August and September. Ukraine farmers are becoming worried about war duration.

• Ukraine farmers are suffering from a lack of fuel and operating capital to seed future crops. Few Ukraine farmers expected the war to linger which impacts not only this year’s harvest, but also next years. The lack of future Ukraine wheat supplies exacerbates tightening world exportable wheat supplies.

• Ukraine’s Ag Minister said the war would likely cause a production shortage for three seasons, due to mined wheat fields and destroyed storage and infra-structure; 2023 winter wheat planting is seen “significantly lower” due to the war. June grain exports are seen topping 2 million mt, up from 1.7 million in May.

• The European Union Crop Monitoring Service estimated Ukraine’s 2022 wheat crop at 26.9 million mt, down 16% from 2021, with corn at 35.3 million mt, down 16% from last season. Sunflower seed output was pegged at 12.1 million mt, down 26% from last year, with rapeseed up 28% year on year to 3.75 million mt in 2022.

• The midday GFS weather forecast is consistent in projecting an intense/expansive high pressure ridging across the Central US. A few showers are possible across WI/NE IA in the next 24 hours, but otherwise the forecast is dry through Tuesday. The ridge then sags south to the Delta with a trough pulling through the Prairies of Canada and far Northern US. The Central Plains and the SW Midwest hold in an arid flow. Extreme heat (90’s to lower 100’s prevails) with any cooling relegated to Ohio, Minnesota, Wisconsin, and Michigan. The Central US ridge shows stability and soil moisture levels will be collapsing with crop stress building in late June and July.

• It is about timing. Risk off ahead of the US Central Bank decision on interest rates is keeping Chicago values compressed. However, the weather forecast is threatening in a world that has poor forward purchase coverage in wheat/corn and vegoils. The world cannot afford to lose a bushel or acute demand rationing is required. Do not sell breaks. Chicago values should add weather premium ahead of the long US weekend once the Fed raises rates. The jet stream continues to weaken implying that the Summer 2022 weather pattern is forming for the Central US.  Pattern stagnation is the worry heading into mid-July.

13 June 2022

Posted on June 13, 2022 by simon

• HEADLINES: June swoon in financial market vs. Mother Nature in Central US/Europe.

• “June Swoon/Macro Monday” – Chicago futures are mixed at midday following the acute weakness in world financial markets due to rising May inflation with rumours US Central Bank Head Powell will raise US interest rates by 0.75% as a shock treatment for inflation on Wednesday. The DOW has lost over 2,200 points since Wednesday’s close with the S&P resting at its lowest level since March 2021. Fear is gripping the market with the VIX (Chicago Board Options Exchange’s CBOE Volatility Index) at a 2-year high which usually suggests that a trading low in the DOW is near. We note that although traders worry about a US recession, there is no indication of acute economic weakening. Inflation is cutting the disposable spend of consumers, but so far whether its miles driven or restaurant traffic, there is no indication of slowdown of the US consumer. We expect that the US economy will slow by late year, but it will take much higher lending rates. This should not have any lasting impact on US grain or food consumption. Chicago values are down in sympathy, not because of the selling in equites. There will be days where commodities/equities follow each other, but longer term, stuff will outperform stocks. This is no place to turn bearish of Chicago grains or oilseeds.

• Chicago brokers estimate that funds have sold 9,000 contracts of corn, 4,500 contacts of wheat, and 8,700 contracts of soybeans, and 4,500 each of meal/oil.

• FGIS indicated that for the week ending June 9, the US exported 47.2 million bu of corn, 22.2 million bu of soybeans, and 14.3 million bu of wheat. For their respective crop years to date, the US has shipped out 1,769 million bu of corn (down 365 million or 17%), 1,854 million bu of soybeans (down 242 million or 11%), and 22.6 million bu of wheat (down 2.9 million or 12%). This was the first full week of US wheat exports that was reported for 2022/23. We note that US Census exports for both corn/soybeans are running well ahead of FGIS.

• US farmers in the Dakotas/Southern Canada and Minnesota report that they have reached their cut-off on the calendar for spring seeding. Today’s weekly NASS crop progress report should be an indicator of the number of Prevent Plant (PP) acres that will be recorded this year. Our total 2022 PP acres are pegged between 3.5-5.0 million acres compared to 1.6 million last year. The high cost of fertiliser, chemicals and fuel had farmers opting out of the summer growing season and accepting the 55% of estimated revenue payment from the US Government. This is one reason why the price of urea/potash have fallen so sharply in since mid-May. We see the break in fertiliser prices as a good buying opportunity for farmers that has storage to hold over the supply into 2023.

• The coming heat/dryness for European grain crops could not have come at a worse time with winter wheat/barley in the reproduction stage. The German wheat harvest will not start for another 4-5 weeks, and recent heat/dryness has likely cut EU wheat production by at least 5-6 million mt. We see the EU wheat (and durum) harvest at 130-131 million mt, well down from WASDE’s 136 million mt estimate.

• The midday GFS weather forecast is like the overnight run in projecting intense/expansive high pressure ridging aloft across the Central US for the next 10-14 days. The mean position of the ridge is from Kansas/Missouri into Arkansas/Mississippi with an extension into the Northern Plains and Upper Midwest from time-to-time. Any storm systems will be riding the edge of the high-pressure ridge producing light to moderate showers across the N Plains/Upper Midwest. The Central Plains and the S Midwest hold in a drier flow. Extreme heat (90’s to lower 100’s will prevail) with any cooling relegated to Ohio or Minnesota, Wisconsin, and Michigan. The Central US ridge shows stability into the closing days of June. Our concern for Central US weather is high on Central US ridge persistence in a La Niña year.

• Following early selling the corn/wheat markets should snap back on threatening US/European/Chinese weather. Chicago will add weather premium for the risk of hot/dry weather extending into July. Soybeans are weaker on China’s partial lockdown against Covid. We doubt that the lock down lasts long, but it is concerning that China will not abandon its 0% Covid policy. We stay bullish on new world wheat import demand (Morocco) and hot/dry weather. The world cannot withstand any yield loss.

10 June 2022

Posted on June 10, 2022 by simon

• HEADLINES: USDA’s latest report leans bearish grain, bullish soy; Report largely ignored; US forecast stays dry.

• On paper, the USDA’s June WASDE leans slightly bearish grain and neutral oilseed markets. US and global corn stocks were increased slightly amid lower projected US exports, which makes little sense, and as NASS boosted its US national winter wheat yield estimate 0.3 bu/acre, with this SRW and winter wheat production hike adding 8 million bu to 2022/23 US wheat stocks. Yet, once again, the market has shrugged off USDA data and is instead focused on incredible cash market strength and the coming lengthy period of US heat and dryness. End users were hoping for a post-report break to extend coverage, and so far, it appears this has occurred.

• Old crop US corn exports were trimmed 50 million bu, with USDA citing Census exports in April and May inspections data. We view Census data as supporting an increase in US corn exports, and we note that inspections may test recent highs in the weeks ahead amid a growing corn ship line-up. We maintain a final 2021/22 US corn export estimate of 2,700 million bu, vs. USDA’s 2,450. New crop industrial corn use was lifted 5 million bu, but otherwise no changes were made.

• Old crop US soy exports were raised 30 million bu to better account for the pace of sales and shipments data. 2021/22 stocks were cut by a like amount, with 2022/23 stocks lowered 30 million to 280 million bu amid reduced openinfg stocks. We look for another 25-50 million bu hike in old crop US exports, which maximises the burden being placed upon growing conditions this summer. USDA’s new crop seasonal average cash soybean price was pegged at $14.70, vs. $14.40 in May.

• World balance sheet adjustments, too, lean slightly bearish but the market understands that USDA remains far too high on Black Sea and Indian wheat exports. Global soy end stocks will expand by just 14 million mt in 2022/23 assuming S American production rebounds by a massive 31 million mt.

• WASDE lowered Indian wheat production and exports a token 2.5 and 2.0 million mt respectively, while a vast majority of the trade has Indian wheat production at 99-100 million mt, vs. USA’s 106, and exports at just 1-2 million mt, vs. USDA’s 6 million. Ukrainian corn production was lifted to 25 million mt, vs. 19.5 previously, amid seedings data from the Ukrainian government. However, Ukrainian corn exports were left untouched at 9 million mt, vs. 20 million in 2021/22, and even this number may by 2-3 million mt too high if Russia’s blockade isn’t lifted by late year.

• Importantly, as supply is debated, WASDE left 2022/23 global wheat trade unchanged at 205 million mt, vs. a projected 199 in 2021/22. World soybean trade in 2022/23 is pegged at 170 million mt, vs. 156 million in 2021/22.

• Global corn trade is projected to decline 13 million mt in 2022/23 to 183 million as the USDA assumes some measure of rationing occurs amid the lack of Ukrainian supplies. This will either be proven or not based on actual physical global trade beginning in October.

• The midday GFS weather forecast is similar to the overnight run in projecting intense/expansive high pressure ridging aloft the Plains and Midwest beginning early next week. Maximum temperatures in the 90s/low 100s will be widespread. The GFS forecast does allow cooler/wetter conditions to slide into the E Midwest beginning June 21, but confidence in this is low. EU and Canadian models will be monitored for confirmation.

• WASDE reports have not provided market guidance since late 2022 and the June release is no different. Cash markets and Northern Hemisphere weather dominate price discovery in the near-term and it is critical that Russian wheat exports show improvement once the current quota system ends in mid-summer. Otherwise, supply rationing will be needed by winter. Minor spring crop yield loss in the US, Canada, Europe, or Black Sea forces a test of recent highs. We maintain a strategy of buying breaks.

9 June 2022

Posted on June 9, 2022 by simon

• HEADLINES: Chicago soybeans mark record summer prices while July corn breaches 50-day moving average.

• Chicago agriculture futures have been sharply mixed through Thursday’s trade. Chicago wheat futures have been the downside leader and were down as much as 20-25 cents early this morning on Ukraine/Russia news, but the market has recovered, and losses have been cut to just a few cents at midday. July corn has been up 15 cents and pushed above the 50-day moving average.

• Soybean futures have once again charged ahead into new contract highs, with July briefly trading over $17.78/bu (+38 cents) while November has been over $15.80 (+12 cents). On a nearby basis, spot soybean futures have traded at the highest price since September 2012. We note that high occurred in September futures, just ahead of expiration. Today’s high in July soybeans marks a record high price that any July contract has ever traded at, and never before has a November contract ever traded above $15.80 in the month of June.

• Chicago brokers estimate that funds have bought 2-3,000 contracts of wheat during the day, have been big buyers of 7-10,000 contracts of corn, and buyers of 10-12,000 soybean contracts. In the soy product markets, funds have bought 3-5,000 meal contracts and are flat in the soybean oil market.

• The FAS Export Sales report showed that corn export sales last week rose to a 4-week high of 11 million bu, with weekly exports of 54 million bu. Old crop export commitments of 2,343 million bu are down 14% from a year ago on sharply lower outstanding sales, but still the second largest commitment figure on record. New crop corn sales are off 62% from a year ago as world grain traders anxiously hope for a summer decline in US/world prices.

• In wheat, exporters sold 17 million bu of wheat for the 2022/23 marketing year that started on June 1. Combined old/new exports totalled 13 million bu.

• Exporters also sold 16 million bu of old crop soybeans and exported nearly 18 million bu. Total export commitments now stand at 2,203 million bu versus the May WASDE export forecast of 2,140 million. The USDA is likely to raise the annual export forecast in Friday’s WASDE report. We have long held an export forecast of 2,200 million bu, but even our more bullish forecast looks to be in danger of being too low. New crop soybean sales reached a 13-week high of 22 million bu, increasing the new crop sales volume to a record 467 million bu.

• The midday GFS weather forecast is consistent with prior runs with the model offering a change in the US weather pattern as a high-pressure ridge builds/holds across the Central US due a slowing/split of the jet stream. This looks to be the new summer weather pattern which is consistent with a La Niña year. Extreme heat will build from south to north with a below normal Central US rainfall pattern starting after the weekend. Immature crops can withstand this pattern initially, but beyond the next 10 days, the pattern will become adverse. Our drought concern is building. The GFS forecast has had a tropical system in the 12-15 day period that we have low confidence in. Long range forecasts are poor predictors of tropical storm systems.

• Tight Midwest cash corn/soybean supplies (and strong and rising cash basis bids) warns against being short July futures heading into first notice day in just 3 weeks. Futures will rise to cash bids. And the threat of a summer Central US drought will underpin Chicago new crop futures. Amid a world that is extremely short grain/oilseed stocks, any new crop yield loss would be explosive for Chicago. Do not be short, the upside price risks are considerable. End users hope for a bearish USDA report for new purchases.

7 June 2022

Posted on June 7, 2022 by simon

• HEADLINES: Row crops up sharply; Wheat sags; Extended US forecast stays hot/dry.

• Chicago ag markets are mixed, with corn and soy sharply higher and wheat down on profit taking in Chicago, KC and European wheat futures amid headlines still hopeful for the creation of an export corridor in Ukraine. Yet, Ukraine’s Deputy Admin of Agrarian Policy stated that combined grain exports in 2022/23 would be no larger than 2 million mt/month if Russia’s blockade remains in place. Ukraine has NOT been invited to participate in Wednesday’s meeting in Istanbul, and so there is nothing that come from Turkey/Russia that will be accepted by Ukraine. Most importantly, Russia requires the de-mining of ports and inspections of vessels by Russia, both of which are nonstarters.

• FAS and FGIS continue to undercount US corn, soy and even wheat shipments as evidenced by updated Census data released this morning. Official US corn exports in April totalled 275 million bu, vs. FGIS shipments of 241 million bu. This 14% discrepancy is historically large for April and is mostly a function of enlarged/record demand from Canada and Mexico. Canada in April imported 21 million bu of corn from the US, and since Sep 1 has imported a record 193 million bu. Note that USDA pegs total 2021/22 Canadian corn imports at just 150 million bu. This alone warrants a modest hike to the USDA’s US annual export forecast. Cumulative Sep-Apr Census corn exports are 290 million bu above what has been reported by FGIS.

• Census soy exports in April totalled 134 million bu, 13% above FGIS and 84 million above last year.

• Official US wheat exports in April were 66 million bu and cumulative Jun-Apr exports rest at 753 million. Oddly, this is 39 million bu above total commitments (shipments plus outstanding sales) as of May 26 as reported by the USDA’s FAS. The message is that US corn and soy export demand is being undercounted by the trade, and wheat shipment data this year suggests that even weekly sales/commitments data in wheat is unreliable.

• We maintain a 2021/22 US corn export forecast of 2,700 million bu, vs. USDA’s 2,500. 2021/22 US soy exports are projected at 2,200 million bu, vs. USDA’s 2,140. USDA’s 805 million bu old crop wheat number looks correct.

• Cash markets worldwide continue to reflect the rising burden being placed upon exporters in the US, Europe, and S America to meet global food consumption needs. It remains that Argentine corn is not reliably offered into the world marketplace beyond September. EU cash barley is now quoted $60/mt above US corn, and EU cash wheat has been unwavering at $430-440/mt. Ukrainian headlines along with the looming Northern Hemisphere wheat harvest have provided weight to the market, but that seasonal lows will in wheat be scored at $10.40+, Sep Chicago, is noteworthy.

• The midday GFS weather forecast is consistent with the morning run in projecting a rather binary pattern into the latter part of June. Mild/wet conditions will persist across the Plains and Midwest into the coming weekend. An abrupt shift to warm/hot temperatures and near-complete dryness unfolds thereafter as strong high pressure ridging expands aloft the S Plains, Delta and Midwest. The mean position of the jet stream shifts northward into the far N Plains/S Canada, and Midwest precipitation Jun 12-22 will be confined to scattered showers in pockets if IA, N IL and N IN.

• We do note that the GFS forecast features the season’s first major Gulf storm Jun 23-24. Confidence so far out is low, but it will be difficult to predict mid-June’s upper air pattern until the existence/path of this storm is known. The return of regular Midwest rain will be needed by early July.

• A close above $7.70, July, allows bullish momentum to return to Chicago corn. And overall, the market’s bullish reaction to highly rated crops is important. The tolerance for weather adversity this is season is zero, while extended range forecasts trend more threatening. The outlook stays bullish.

6 June 2022

Posted on June 6, 2022 by simon

• HEADLINES: Grains build on overnight rally; US forecast favourable near-term; Heat/dryness probable mid/late June.

• Chicago futures are steady to higher at midday, with corn and wheat expanding overnight gains. Paris milling wheat has soared €18-20/mt ($0.50-0.60/bu) as the market is again forced to exclude Ukrainian surpluses from trade matrixes. And we maintain that Russian wheat exports are overstated by 7-9 million mt amid the difficulty of sourcing freight there. We would again remind that Egypt’s tender last week did not paint a bearish picture of the world wheat market into the latter part of 2022. Wheat markets worldwide are forging harvest lows. July KC wheat is perched just above its 50-day moving average and a settlement above $11.63 would turn its chart pattern more supportive.

• Private estimates of Brazil’s safrinha crop have been higher than expected in the last week, but some work maintains that final Brazilian corn production will be no larger than 108 million mt. IMEA in Mato Grosso will release its updated production estimate after the close. CONAB in May pegged safrinha corn production in Mato Grosso at a record 40 million mt. An estimate from IMEA this afternoon below 38 million mt will confirm additional cuts must be made to CONAB and USDA Brazilian production forecasts. Sep corn in Brazil at midday sits at $7.90/bu.

• US export inspections in the week ending June 2 featured 56.5 million bu of corn, vs. 55.6 million the previous week, 13 million bu of soybeans, vs. 15 million the previous week, and 13 million bu of wheat, unchanged from the prior week.

• For their respective marketing years to date, the US has inspected for export 1,722 million bu of corn, down 17% from last year, 1,832 million bu of soybeans, down 12% and 8 million bu of wheat, up 16%. The pace of corn/soy inspections is in line with current USDA forecasts, but April Census (official) export data on Tuesday is expected to show an ongoing rather wide gap between actual corn exports and FGIS inspections. Recall Census corn exports through March were down only 4% year on year. And near record large outstanding soybean sales (365 million bu) suggest the pace of physical soy exports will above year ago levels throughout the Jun-Aug period. Additional Chinese soy demand is anticipated on breaks.

• The Central US forecast is void of threats into mid-June, but a significant and possibly lengthy pattern shift lies ahead. Longer term climate guidance has been consistent in shifting the mean position of the jet stream into the N Plains/Canada during the second half of June, with abnormal warmth and dryness most probable. Extended range forecasts throughout this week will be monitored with interest.

• The GFS forecast for Europe at midday has added rain to France but not until June 20, and confidence so far out is low. Soil moisture loss will also spread into Ukraine/Southern Russia over the next two weeks. Weather outside the US is far from ideal.

• The midday GFS weather forecast is slightly wetter in IA but is otherwise unchanged from the overnight run. A pattern of light but lingering precipitation will be in place throughout this week, with cumulative rainfall of 0.25-2.00” to blanket all but the Northern Plains and MN. Totals in excess of 2” will favour portions of the Delta and far eastern Midwest.

• Expansive high-pressure ridging will be anchored aloft the S Plains in the 6-15 day period. This change in the North American upper air pattern will fuel the return of heat and dryness, with highs in the 100s projected across TX, OK, KS and CO at mid-month. A transition to summer is imminent.

• Technical healing is needed in US/world corn and wheat markets. But following the Russian shelling of major export/rail terminals over the weekend, establishing any food corridor is even more unlikely. European wheat and corn markets will take over bullish leadership in the near-term.

3 June 2022

Posted on June 3, 2022 by simon

• HEADLINES: EPA expected later today with biofuel mandates; Midwest cash corn catches fire.

• Chicago futures are mixed at midday with the soybean/corn spread giving back some of Thursday’s gain as funds are nearly finished with their intra market spread unwind. Funds were large sellers of corn/buyers of soybeans in recent days as they exited long corn/soybean spreads to manage losses. Soybean’s fall tugged wheat values lower as traders awaited Wednesday’s Istanbul meeting on the operational details of a Ukraine food corridor. China is on holiday today.

• The Turks were fingered as a destination for Ukraine wheat that was pilfered by the Russians. The trust of Ukraine in Turkey to monitor/provide security for a marine grain export corridor is low. Therefore, the US/UK or France would have to provide naval warship assistance in the Black Sea which will likely not be allowed by Russia or Turkey.

• Russia knows its importance in raw material markets in beating back inflation and will pressure the world economically its own unwritten sanctions in the weaponization of fertilisers, grain, and energy. Note that WTI crude oil futures have risen to $119/barrel with gasoline and diesel prices scoring new record highs. Forward coverage pressures are growing, though end users and importers do not want to engage in new purchases if a Ukraine food corridor would be allowed. The talk of a corridor has caused world millers/importers and end users to hope for a deal that produces a larger price decline. Remember, hope is NOT a strategy!

• If the corridor is not allowed, or takes months to operationally engage, world end importers and end users will step forward as Egypt/Algeria did this week. World wheat importers in North Africa have relied on their own wheat harvest and old crop stocks in the months following the invasion. But the time is drawing near that such a waiting cannot continue. Seasonal lows in Paris/Chicago wheat futures are being scored with cash markets staying stubbornly high.

• Chicago brokers estimates that funds have sold 6,400 contracts of soybeans, 2,600 contracts of corn, and 3,900 contracts of wheat. In the products, funds have sold 2,100 contracts of soyoil and 900 contracts of soymeal. Cash basis levels for US corn shot up yesterday as exporters/ethanol producers fight for supply. July corn should again gain on new crop December amid the historically high US cash corn basis bids.

• The Labor Department offered that the US economy added 390,000 jobs in May with the US Employment rate holding steady at 3.6%. This was stronger than expected which rallied US interest rate to their best levels in 2 week and caused a sharp decline in the DOW of 340 points. Key US inflation data will be released on June 10. We look for the US inflation rate to stay elevated at 7.7-8.1% in May and for the pressure on the US Central Bank to hike interest rates by 0.5% in the next 2 meetings. The only real inflation hedge for fund managers has been to be long of grain, energy, and metals. Bitcoin or precious metal values have not correlated very well to heated inflationary trends. Hedge funds favour being long of “stuff” and short of “stocks”.

• Rumours have the EPA issuing the 2022 biofuel blending mandate at 20.63 million gallons and deny all small refinery blending applications. The prior proposed 2022 Biofuel blending mandate was 20.77 million gallons offered in December. However, the 2022 Biofuel mandate is still well above the 2021 level of 18.52 billion gallons and the 2020 rate of 17.13 billion. The Biomass Based Diesel mandate is expected to rise to 2.76 billion gallons, up 330 million gallons from 2021.

• The midday GFS weather forecast is like the overnight run with limited rainfall for the N Plains and the SC Canadian Prairies. The best rain will drop across the Central Plains, Missouri, and Wisconsin. No extreme heat is noted with a tropical system further south across Florida. The forecast leans favourable to Central US crops, but the medium and long-range models continue to argue in favour of heat/dryness developing across the Plains/W Midwest in late June and July. Time will tell, but it is risky to be overly bearish until above trendline corn/soy yields are confirmed.

• US cash corn/soy markets are firm and underpinning July futures. It only takes a modest weather scare to produce new Chicago highs. And for now, US weather cannot get much better. The risks are to the upside, we stay bullish.

• P.S. French wheat crop condition fell for the fifth week in a row to 67% good/excellent, down 2% from last week, and compared with 80% last year. A few sporadic rain showers are expected this weekend, but drought busting rains are not forecast.

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Weekend summary 3 Junel 2022

2 June 2022

Posted on June 2, 2022 by simon

• HEADLINES: Soyoil rises sharply on EPA rumours to expand mandates; China booking US corn/soybeans. Crude oil rallies on OPEC+ increase.

• Chicago futures are mostly higher at midday with July corn sagging on the intra crop fund spread unwind. Funds were huge spreaders of long July corn and short July soybeans following the March 31 Seeding Intentions report on the idea that record large US soybean seeding was going to cause the spread to narrow. The ratio has widened and rests at 2.37 basis beans, which was deemed as high relative to fundamentals. Funds are exiting to limit their losses.

• Corn is where the bullish long term fundamental story rests, but the fund liquidation has provided recent day pressure. However, as Chicago corn futures have fallen, cash corn bids have held steady or risen. Once funds are done with their intra crop spread liquidation, corn should catch a bid and rally.

• And end users are using the Chicago break to extend forward coverage due to increasing margin. Corn oil above $1.60/pound is helping push cash ethanol margins above $0.80/bu which shows no sign of demand rationing. That is the point that needs to be made that US cash soybean crushers are making $2.40/bu and ethanol producers $0.80/nu and that they will keep pushing for cash movement. There is no hint of demand rationing.

• Wheat futures have fallen on the prospect of a grain export corridor out of Ukraine. We would argue that US/UK warships will not be allowed into the Black Sea to open such a corridor and that the odds of its establishment is slight.

• Chicago brokers estimates that funds have bought 4,700 contracts of wheat, 2,100 contracts of corn, and 7,600 contracts of soybeans. In soy products, managed money sold 1,200 soymeal while buying 3,600 contracts of soymeal.

• China will be on its Dragon Boat Holiday on Friday with a 3-day weekend. There are rumours that China has booked another 3-5 cargoes of US soybeans and are also seeking US corn for September-November shipment. China remains active seeking corn from the US and Brazil ahead of their new crop harvest.

• FAS reported that Pakistan purchased an unusually large 352,000 mt of US soybeans split into 55,000 mt of old and 297,000 mt of new crop. Pakistan had 640,000 mt of US soybeans purchased in an old crop position and 6,300 MmtTs of new crop before today’s announcement.

• US weekly ethanol production rose to 315 million gallons of production, well above the 307 million that is needed to reach USDA’s annual target. And as production gained, US ethanol stocks fell by 32 million gallons to 964 million. US gasoline stocks fell as consumption rose by 2%. It was interesting that OPEC increased their production by 648,000/day in July and August, but futures rallied sharply to over $117.50/ barrel. US diesel stocks are record low and US summer shortages appear likely.

• Rumours abound that the EPA will raise their 2022 mandates for ethanol and advanced biofuels in announcements that are due by June 4.  We have no way of knowing if such rumours are true, but RIN values have rallied sharply, which may be a precursor. Soyoil futures are rising on the hope for expanded mandates, which would further aid renewable diesel producers.

• The midday GFS weather forecast is slightly drier from the overnight run for the C Plains and the W Midwest. An active pattern of precipitation will be in place across the SE Plains and the Delta, including S Missouri. Limited precipitation is forecast for the Canadian Prairies which will aid planting.  No extreme heat is noted any high-pressure ridging relegated to the SW US. The big question is whether this ridge will position further east this summer.

• We doubt that recent weakness is the establishment of a lasting bearish price trend. A Ukraine export corridor is unlikely in our opinion, and this will place acute financial strain on its farmers. The absence of wheat/corn coming from Ukraine becomes more important with time. Thankfully, Central US weather is generally favourable. We stay bullish.