Monthly Archives: June 2023

1 June 2023

Posted on June 2, 2023 by simon

• HEADLINES: Soybeans rally on oversold conditions and Midwest weather worry: Corn futures recover on Midwest weather concern; Argentine crop overstated: Wheat extends recovery on Black Sea tension; Saudi Arabia seeks new crop supply.

• Soybeans gained 30 cents in old crop and 23 cents in new crop on Thursday. Soybean oil paced Thursday’s rally, but meal also marked strong gains as a hot and dry Midwest forecast brought fund demand back into the Chicago soy markets.

• The June Fats and Oils report confirmed a US April soybean crush rate of 187 million bu, which was largely anticipated following the NOPA report. End of April soybean oil stocks of 2.5 billion lbs were up 6% from March, which was also expected following the last NOPA report. Compared to a year ago, stocks were up 5%, and the largest April stocks figure in 3 years. Note that while stocks were above average in April, they are forecast to fall 24% by September. Production will seasonally decline through the summer, while biofuel demand seasonally strengthens in the last half of the year. The market has not been able to look ahead to see the falling stocks outlook but has been focused on the near-term supply figures. A change in trend is underway, and Midwest soyoil basis should reflect this change in the coming weeks.

• Chicago corn futures ended steady to higher on Thursday, with Dec testing last week’s high on rapidly expanding dryness across the principal Corn Belt. Debate this weekend will be cantered on the likelihood, and degree, of pattern change beyond mid-month, but exceptional heat this weekend mandates the return of regular rain through the balance of the growing season. Our concern is that neither the EU nor Canadian models include a major pattern shift prior to June 16.

• US export demand stays weak. US ethanol production in the week ending May 26 totalled 295 million gallons. A weekly average of 305 million gallons in needed in Jun-Aug to meet the USDA’s forecast. This year’s seasonal recovery in grind has been slow to develop. But supply still matters. Focus nearby will be placed on the Central US nearly exclusively, but we note that yield data in Argentina has plateaued and final production there is still pegged at 31-32 million mt, vs. USDA’s projected 37.

• Expect volatility based on latest weather model forecasts. Weather premium will be added quickly & intensely if outlooks fail to boost Midwest rain chances in the coming weeks. Yield loss of even 5-7% relative to trend in the heart of the Midwest is a big deal this year for end stocks and price.

• Wheat futures worldwide ended higher amid ongoing regional weather concerns, including coming Midwest heat, and as Saudi Arabia this morning released the first new crop tenders of the major exporting countries. This tender will be filled with Romanian or Russian origin. Price details will be important, but clearly one of the world’s larger importers finds value at current prices. Additionally, Ukrainian vessel movement has been effectively halted by Russia despite May’s extension of the export corridor.

• Additional supply dislocation leans bullish. Heat will be unrelenting across the Canadian Prairies, while rapid drying will continue across the northern half of Europe into mid-June. Aussie yield performance when El Niño is present in September, suggests odds are high Australian output & exports in 2023/24 will be down 11-13 million mt year on year. Short covering will be accelerated by drought expansion in Europe and Central Russia in June. US wheat cannot work into feed rations due to own supply tightness, which adds Midwest corn weather concern.

31 May 2023

Posted on June 1, 2023 by simon

• HEADLINES: Weather models agree on Midwest dryness next two weeks; temperature outlook diverges: Soybeans end firm following early selloff: Corn futures end weak but above session lows; weather models lack us precipitation pattern change into June 16: Chicago wheat recovers on rising Black Sea tensions; Canada, Russia as climate hot spots.

• Another day has passed without hints of a precipitation pattern change, with Midwest dryness extended into June 15-16. Additional rain will fall across the spine of the Central US into mid-June, which boosts soil moisture but threatens HRW harvest progress and quality in TX, OK and parts of KS. Near zero rain is offered to IA, the eastern Midwest and mid-South in the next two weeks, and the need for rain becomes immediate thereafter.

• The EU and GFS models agree that arid conditions persist in the principal Midwest nearby. The two are rather different with respect to temperatures next week. The GFS projects the arrival of much cooler temperatures beginning next Tues/Wed. The EU (and Canadian) extends abnormal warmth into June 10, with max temperatures in the upper 80s and 90s to blanket the MO, IA, IL and IN this weekend and again June 8-10. The EU model implies rapid and significant soil moisture loss into June 10.

• NOAA’s own June temperature outlook has trended warmer. Odds are high that abnormal warmth is extended into the second half of the month in Canada across the Upper Midwest, Great Lakes region and IA. Below normal precipitation in June will favour the Upper Midwest and Great Lakes. Drought development is forecast in IA and east of the Mississippi. River. Extended range forecasts are of course changeable, but so far calls for a pattern shift on June 8-10 have not been validated by operational model guidance.

• It is still early to be overly concerned, but there is no doubt a heavier burden is being placed upon Midwest rainfall in late June/July. Note that pollination dates this year will be a bit earlier than normal in the Central Midwest. Heat/dryness become a problem if this pattern fails to change in the next three weeks.

• Soybean futures plunged to new lows in early trade on Wednesday and were near daily highs at the close. July uncovered good demand below $12.75 and was 3.25 higher at the close, while the rest of the market was nearer to the day’s highs.

• Soymeal marked similar closes, falling early in the day and then closing modestly higher in July. World soybean meal export premiums have trended higher in the last month as Chicago futures have collapsed. Argentine meal this week is quoted $20/ton over Chicago versus the US Gulf at $22 over. The $2 fob spread is the narrowest for late May since at least 2004. The spread reflects the sharp decline in exportable Argentine meal supplies and is also lifting Brazilian offers. Brazilian meal this week has been quoted at $12 over Chicago, up from $9 under in early April. Cash markets are reflecting a rapid tightening in the world meal market, which should continue to drive export business to Brazil and the US.

• The last 3 months have been punishing for the bulls amid large Brazilian crops. But Brazilian soybean and Argentine meal basis is firming, with a worrisome June Midwest weather forecast. A seasonal low looks close.

• Chicago corn futures ended slightly weaker as the demand-focus bears point toward ongoing weak Chinese factory output, and cheap Brazilian corn and Black Sea feed wheat, which are offered $20+/mt below US origin corn. The story this summer will not be one based on demand, but supply issues remain present. A portion of crops in IA & IL will begin pollinating in the first 10 days of July. A boost in moisture is desired.

• Spanish co-ops have pegged corn production there at 2.0 million mt, vs. 3.8 last year and vs. USDA’s initial forecast of 2.9 and the lowest on record. Spain will import record tonnages in 2023/24, and rapid drying will be ongoing across N Europe and Europe into mid-month. We remain uncomfortable with N Hemisphere climate patterns, and while stagnating demand does make it easier to build stocks in 2023/24, trend/above trend yields are required. Extended range Midwest weather forecasts are critical in the next 7-10 days. Dryness is starting to hurt US corn yield potential.

• Wheat futures on Wednesday ended mixed, with Chicago & KC higher and Minneapolis slightly lower. The market at midday simply ran out of sellers following the recent collapse. Nearby contracts in Chicago and Paris are again oversold. Russian stocks are large. Russian wheat is cheap, but farmer selling there is on pause as the government’s export tax drops $15-20/mt beginning June 1. A more nuanced market is expected as weather plays a more critical role in price discovery.

• There is a massive divide between US/Argentine offers and EU/Black Sea. This is a function of short-term oversupply in Russia & parts of Europe, and extremely tight supplies elsewhere. Current EU/Russian fob prices are testing the lows of 2021, when exporter stocks were more abundant.

• Importer interest will surface by mid-summer. Soil moisture remains a concern in Saskatchewan and Central Russia. Millers in Pakistan are seeking to allow imports of 1 million mt to ease rising domestic prices. Chinese wheat quality is uncertain following flooding rainfall in major producing province Henan. Its late to be ultra bearish wheat.

• Russia continues to restrict grain flows from Ukraine as the extension that was signed 2 weeks ago is not fully operational. Russia has not allowed any vessels to sail into or out of Ukraine’s Pivdennyi port since April 29. Russia is demanding that its ammonia flow through a Ukraine pipeline and that the world allows SWIFT banking to be used by the Russian Agricultural Bank. The Russians are not allowing the extension of the corridor to run freely with time of the essence with another pact extension needed in mid-July.