- HEADLINES: Chicago falls in macro-Monday as Pelosi plans to visit Taiwan; Midday Central US forecast is hot/dry; 3 Ukraine ports open to corridor.
- Soybeans fall sharply as House Speaker Pelosi to visit Taiwan on Tuesday. The US’s worsening political ties with China, what will China’s response be? China has promised that the visit won’t go by without consequences. Market sees Ukraine’s boat sailing as signal of export resumption; what does Putin think?
- Chicago futures are lower this morning with geopolitics playing an oversized role in price discovery. Corn, soybeans, and wheat futures have fallen to sharp losses as Ukraine exports restart and the trade worries about the worsening political relationship between the US and China. A lower close is expected, with any recovery rally depending on what China does as House Speaker Pelosi heads to Taiwan to speak to their parliament.
- Taiwan/Pelosi media confirms that the House Speaker will not be intimidated by China and will land in Taipei as early as Tuesday. On Friday and the weekend, China had promised that there could be military consequences, but that threat seems harsh. Since China is one of the US’s largest importers of ag goods, fears of reduced trade and worsening political tensions abound. China has been largely absent from US soybean purchases for weeks and is securing as much as possible from Brazil for August and September.
- The US must show its political might to the world following the exit disaster of Afghanistan. Pelosi seems dead set on starting that process with a visit to Taiwan. China will carefully watch what she says and if she pledges a policy other than the Administration’s One China policy that has prevailed for decades. The hope is that China will not invoke a military response that could cause another geopolitical conflict to flare.
- We expect that China will have harsh words for the US and potentially even some economic sanctions. Yet China needs the US’s soybeans/LNG and crude oil for now. Thus, we doubt that the Pelosi visit will ripple into an outright conflict. However, the market is right to worry that longer term, China will pivot to S American soybeans/grains/meats away from the US due to rising political strife. Chinese President Xi is up for an extended rule via their Congress and the US mid-term elections are in November. China needs to bridge the gap in its soybean supplies and S American new crop offers in late January/February.
- For the week ending July 28, the US exported 33.7 million bu of corn, 9.4 million bu of wheat, and 20.4 million bu of soybeans. All were below the average weekly trade estimates. China did ship out 4.8 million bu of old crop soybeans. For their respective crop years to date, the US has exported 2,044 million bu of corn (down 439 million or 17% from last year), 1,968 million bu of soybeans (down 176 million or 8.2%) and 104.7 million bu of wheat (down 34.2 million or 24% from last year). The US export pace has slowed in midsummer due to cheap Brazilian corn offers.
- Funds have sold 4,300 contracts of wheat, and 7,200 contacts of corn, and 12,300 contracts of soybeans. In the products, funds have sold 6,600 contracts of soymeal and 5,400 contracts of soyoil. Funds have been big sellers in the complex and there are few resting orders in Chicago futures.
- The midday GFS weather forecast is warmer/drier than the overnight run and much drier than the EU model solution with a strong high-pressure ridge holding across the NC US into mid-August. The ridge looks to fan heat with highs in the 90’s to lower 100’s that will push crop maturity. The only Iowa rain is forecast to be traces to 0.5” with soil moisture in the W Midwest in fast retreat. High temperatures look to range from the 90’s to lower 100’s into mid-August. The midday GFS forecast calls for highs in the 95-110 range but is too hot.
- It is a macro-Monday with a host of commodity markets down sharply on recession/Pelosi fears. However, the midday GFS weather forecast is threatening across the Plains/W Midwest. Market volatility stays high during August. Don’t sell sharp breaks. A more sustained demand bull market develops following the NASS September Crop Report. We see US crop conditions declining into Monday August 15.
- The EU cut its corn crop by 8% overnight to 65.8 million mt, down 5.9 million from June and down 6.9 million mt from last year. We forecast additional cuts of 6.5 to 9 million mt once real yield data is available following severe drought. In addition, the EU has cut its soft wheat crop estimate to 123.9 million mt compared to 130.1 million last year. Such a smaller harvest has led to a reduction in export volumes to 36.0 million mt down 2 million year on year, at a time when global demand is very much directed at EU supplies.