Monthly Archives: July 2023

17 July 2023

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  • HEADLINES: Chicago wheat/corn fall on profit taking and selling the fact; GFS 10-15 day forecast blazing hot/dry; NASS condition ratings to rise 1-3% in good/excellent.
  • Chicago grain futures are mixed at midday. Trade this morning has been a; “Tale of two markets”. Chicago grain futures were sharply higher overnight on the Russian’s ending of the Black Sea Grain Initiative. The news sent futures higher on algo buying related to the headline. The rally persisted into the morning reopening pushing double digit gains.
  • However, the Chicago rally quickly uncovered profit taking since the market had already feared the corridor closing, and that Ukraine’s smaller 2023 corn/wheat harvest will be able to flow through Eastern Europe and down that Danube River to facilitate monthly exports of 2.5-3.0 million mt. Such a monthly export average would be enough to ship Ukraine’s sharply diminished 2023 harvest. The weaker corn/wheat markets then applied modest selling pressure to soy which dropped November soybean futures back to unchanged.
  • The ending of the Ukraine Grain export corridor had been widely discussed since early May. Russian President Putin made it clear that Russia felt that NATO sanctions needed to be curtailed to allow unfettered export of grain and fertiliser. Russia will continue to export record tonnages of wheat estimated at 45-46 million mt in 2023/24. The Ukraine wheat exports of 10-10.5 million mt are important, but the grain will find its way out of Ukraine at a cheaper price. The impact is the cost of logistics and a lower price back to the Ukraine farmer.
  • Chicago brokers estimate that managed money has sold 4,500 contracts of wheat, 6,200 contracts of corn, and 1,200 contracts of soybeans since the reopening. In soy products, funds sold 2,500 contracts of soyoil and bought 2,000 contracts of soymeal. Funds were buyers overnight and large sellers this morning.
  • US export inspections for the week ending July 13 were 14.3 million bu of corn, 5.7 million bu of soybeans, and 9.3 million bu of wheat. All were below the weekly averages needed to reach annual WASDE targets and deemed disappointing. The US has sold 1,333 million bu of corn (down 648 million or 33%), 1,833 million bu of soybeans (down 102 million or 5%), and 65 million bu of wheat (down 12 million or 15%). US exports continue to disappoint.
  • NOPA reported a June Crush of 165.0 million bu of soybeans, down 7% from May, the lowest monthly crush since September 2022. The industry expected a June crush of 170.6 million bu with soyoil stocks falling to 1,690 million pounds, down 130 million pounds from trade expectations. The 5 million bu decline in crush would have produced 56 million pounds of less supply, which argues that June domestic soyoil demand was record large and that the US is on the cusp of where monthly crush cannot keep up with biofuel demand for soyoil. US monthly crush rates are modest in July/August, and a further tightening in US soyoil stocks is forecast which will maintain or rally cash soyoil prices. The demand led market in US soyoil is underway with Canadian canola production under pressure due to a worsening drought across the Prairies.
  • The midday GFS weather forecast is drier and warmer than the overnight run. The midday GFS forecast brings back extreme heat in the 11–15-day period as the high pressure ridge in the Intermountain West amplifies and progresses eastward. The Plains and the SW Midwest would be exceptionally hot with high temperatures ranging from the 90’s to the lower 100’s. Such heat would be devasting for crops that have not seen more than 1.00” of rain in the past 10 days. This is a below normal rainfall and above normal temperature pattern with close attention to be paid to the heat that is projected after July 23. Until then, showers will be widely scattered this week with rain totals ranging from 0.2-0.8” and coverage being no better than 40% of the crop area. Close attention is again warranted as the last half of corn pollination and soybean pod filling is ahead.
  • Soil moisture across the Central US is short to very short, even amid recent the recent rain, and only half of the US corn crop has pollinated with soybean pod fill to occur in August. US corn/soy crop conditions are expected to be up 1-3% in the good/excellent category later today with spring wheat ratings being steady. Canada is securing US corn for import due to drought. This is no place to be short corn!

14 July 2023

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  • HEADLINES: Black Sea grain corridor uncertainty; GFS weather forecast offers dryness and heat in midday run beyond July 21: Key weekend ahead.
  • Chicago grain futures are mixed at midday as headlines and weather forecasts clash. Selling emerged after the morning opening on news that Turkey’s President Erdogan and Russian President Putin agreed that the Black Sea Grain Corridor should stay open. This news produced a sharp Chicago selloff as the bulls banked short term profits heading into an uncertain Central US weather weekend.
  • However, the Russian Government has not confirmed a deal and Putin did not commit to keeping the corridor open. Russian demands for its continuance have not been met by the UN or the EU offers. And Russia has been cagey in prior months saying that Ukraine grain has not flowed to those that need it most, sub–Saharan Africa or SE Asia where food security is acute. We have doubts that the corridor deal can be struck, but traders are less certain today as to whether the corridor will close. This has produced early Chicago selling which has dropped values into midday and curtailed volume.
  • Chicago brokers estimate that managed money has bought the grains and sold the soy complex. Fund managers have bought 3,200 contracts of wheat and 2,900 contracts of corn while selling 5,300 contracts of soybeans, 5,900 contracts of soyoil and 600 contracts of soymeal. It is a reduction of Chicago risk.
  • The US dollar is little changed at midday, which is slowing the flow of new capital into commodities. However, there continues to be an appetite for raw materials in a further drop in the greenback. Historically, as the US Central Bank ends its rate rising cycle, there are flows back into raw material markets and traditionally such moves occur over several months. The US labour market is strong enough that a 2023 recession will be avoided. However, a Q1 economic dip is likely if the US dollar stays in a nosedive on rising and record large US Government debt.
  • We look for US corn/soybean ratings to rise 1-2% on Monday due to this week’s rain. Even with the gains, ratings will stay historically low as producers report that soy crop growth was stunted by the acute dryness of May/June. Midwest corn is reported to be short with the nodes stacked on each other. We believe that US corn/soybean yields will be below trend, it is the next 6 weeks of Central US weather that determines how far below. The coming hot/dry forecast of the N Plains and the NW Midwest suggests that US corn/soybean ratings will fall again into early August. NASS will produce US corn/soy yield estimates in August based on their producer surveys. Actual NASS field surveys will wait until September/October.
  • Canadian producers fear a rerun of 2021 in that their crops are pounded by dryness with heat ramping up in late July and August. Talk of a 17.0 million mt canola crop is growing which would have a negative impact on crush/exports. The US and Canadian biofuel industry is counting on canola oil as a feedstock. If prices keep rising, it is soyoil that must replace lost canola production.
  • The midday GFS weather forecast is like the overnight run with limited rainfall to fall across the N Plains and the NW Midwest into July 25. Near normal rainfall of 0.5-1.50” is forecast for the Southwest, Central and Eastern Midwest, with the Delta sharing in the rain this weekend.
  • Temperatures hold at near to below normal with no extreme heat into July 21. Highs will range from the upper 70’s to the upper 80’s. Thereafter, a much warmer temperature pattern returns with extreme heat noted for the Canadian Prairies, the Northern Plains and the NW Midwest highs running from the mid 80’s to the lower 100’s. A ridge of high-pressure forms across SC Canada and extends southward into the Northern Plains. This ridge pattern is like the North American weather pattern of May. How long it persists is unknown.
  • What will the weekend headlines be on the Black Sea Grain Corridor, will the agreement be extended, or will it cease? The UN’s last-ditch effort to extend the pact is being listened to by Moscow. We put low odds on a Black Sea extension which is marginally up from earlier this week. W Midwest cash corn bids are red hot and amid a new threatening weather pattern.
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13 July 2023

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  • HEADLINES: US corn in drought at 64%; US soybeans in drought at 57%; An Indian rice export ban is a big deal; GFS weather forecast drier at midday in the 6–10-day period.
  • Chicago grain futures are sharply higher at midday with soyoil/soybeans pacing the advance. Corn and wheat futures have followed in the wake of July USDA crop report as the market’s focus shifts to weather/yield and the sharp fall of the US dollar. The volume of Chicago trade is average with brokers suggesting that new money is entering the market from macroeconomic managers due to the acute weakness of the US dollar. The sharp fall of the US dollar boosts foreign purchasing power and curtails the profitability of farmers outside the US. This is having a noted impact on S American farmers.
  • A key 6 weeks is ahead of US crops and as indicated this morning by the Drought Mitigation Centre in Nebraska. A large 64% of the US corn and 57% of the US soybean crop are in drought. The area of drought has been falling far slower than the bears would have hoped for which accentuates that crops will be surviving off surface water. This means that regular rainfall is required each week if there is any chance for US corn, soybean, and sorghum crops to reach the yields depicted by WASDE yesterday. Central US crops cannot withstand any fresh periods of dryness or extreme heat without an immediate and adverse impact on yield.
  • Chicago brokers estimate that funds have bought 4,600 contracts of wheat, 11,500 contracts of corn, and 8,000 contracts of soybeans. In the products funds have bought 4,400 contracts of soymeal and 4,800 contracts of soyoil. One can see the fingerprints of new money coming into the Chicago markets from the intraday volume spikes on the buy side of the market.
  • US weekly export sales for the week ending July 6 were 14.5 million bu of wheat, 18.4 million bu of old and 18.5 million bu of new crop corn, 3.0 million bu of old and 7.7 million bu of new crop soybeans. Respective crop year to date US wheat sales stand at 184.4 million bu (down 75 million or 30%), 1,556 million bu of corn sales (down 823 million or 38%), and 1,933 million bu of soybeans (down 249 million or 23%). WASDE has correctly reflected the existing old crop US corn/soybean export paces within their balance sheets. It is too early in the crop year to make any comment on US wheat exports.
  • Although not much fanfare was associated with a media report that India was going to halt rice exports due to domestic shortages and rising prices, it is important. India is the world’s largest rice exporter according to USDA at 23.0 million mt in 2023/24 out a world total of 56 million mt. This would be an incredible 41% of world rice trade. No other exporter can fully make up for the Indian shortfall. World rice fob prices would start rising sharply with China taking 5.0 million mt of Indian rice. If rice is not available, it is wheat that would produce the next grain of food sustainability. World wheat trade/demand would likely set new records. Watch developments on Indian rice trade closely.
  • The midday GFS weather forecast is drier in the 6–10-day period that was offered overnight. The model extracted rain from the N Plains and the NW Midwest which will stay dry over the next 10 days. Near normal rainfall of 0.5-1.50” is forecast for the Central and Eastern Midwest. Temperatures will stay near to below normal with no extreme heat into July 23. The midday GFS forecast has been running cooler vs either the overnight GFS or the European model run. The 11–15-day forecast was like the overnight run with limited rainfall for the Midwest as high pressure ridge retrogrades west and then builds north. The coming dry weather in the week 2 forecast needs to be closely monitored with soybean podding to accelerate during August.
  • Soyoil futures are on the doorstep of scoring new rally highs while November soybeans are nearing initial resistance at $13.75-14.00. The grain markets are forming longer term lows with dry Central US weather a worry for late July and early August. CONAB estimated the 2023 Brazilian corn crop at 128 million mt, 5 million below WASDE with soybeans at 154 million mt, down 2 million. Brazilian basis bids are in a rally as is W Midwest corn basis on a lack of farmer movement. We stay bullish on Chicago breaks. Cash is leading the advance in corn.

12 July 2023

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  • HEADLINES: USDA July report bearish on extra 2023/24 soybean/wheat stocks; US 2023/24 corn stocks large as expected at 2.25 billion bu.
  • Chicago grain futures are sharply lower at midday following a bearish USDA July Crop Report. WASDE decided to cut the US corn yield to 177.5 bushels/acre (down 4.0 bushels/acre) due to record dry May/June but held their soy yield at trend at 52.0 bushels/acre. Although not a surprise, the trade was estimating 2023/24 US soybean end stocks at 200 million bu, so a total of 300 million bu was bearish. US corn stocks at 2,260 million bu was at trade expectations while the US wheat yield was better than forecast at 46.1 bushels/acre. On a bullish note, China’s 2022/23 soy imports were raised to a record 100 million mt and WASDE is still low by 2-3 million.
  • Chicago wheat, corn, and soy futures are sharply lower, but we doubt that values drop into a lasting bearish trend. We expect that December corn will test key support below $4.80 while November soybean futures hold $13.00.
  • WASDE estimated 2022/23 US corn end stocks at 1,402 million bu, a drop of 50 million bu due to an expansion of US corn feed residual to 5,425 million bum(+150 million) and a cut in exports to 1,650 million bu (down 75 million bu) and a 25 million cut in ethanol usage to 5,225 million bu. US corn exports account for slow sales.
  • World 2023/24 corn end stocks rose to 314 million mt, unchanged from June. The 2023 Brazilian corn crop was raised to 133 million mt (up 1 million) while the Argentine crop was cut to 34 million mt (down 1 million). Yield data argues that WASDE is too high by 2-3 million on the Argentine crop with future cuts ahead. 2023/24 world corn stocks were up a modest 17 million mt and assume large S American corn harvests.
  • US 2022/23 US soybean end stocks were raised to 255 million bu (+25 million) due to a 20 million bu reduction in exports, a 5 million reduction in seed use, and 5 million bu increase in imports and a 5 million bu increase in residual use. The stocks increase was seen as bearish with the June Stocks report calling for a 30-35 million bu in the residual, not just 5 million bu. The cash market seems to reflect tighter cash soybean stocks than is indicated by WASDE.
  • US new crop soy stocks were forecast at 300 million bu due to an export cut of 125 million bu to 1,850 million bu and a 10 million bu cut in the crush to 2,300 million bu. The 2023 estimated US soybean crop was slashed 210 million bu due to the 4 million acres of lost seedings. US 2023/24 soybean end stocks fell to 300 million bu, down 50 million bu from June, but well above the average trade estimate of 200 million bu. The average farmgate soybean cash price is estimated by WASDE at $12.50/bu.
  • World soybean end stocks were forecast at 121 million mt, a decline of 2.3 million from June. We see strong support for Nov soybean futures below $13.00 while soyoil holds on a bull market on renewable diesel demand with support below $0.60/lb.
  • USDA wheat data leans mixed, with US new crop US stocks larger than expected but with the global and exporter balance sheets tightening on lower production and near unchanged demand.
  • US all wheat production was lifted 74 million bu as harvested area was boosted 600,000 acres following NASS data in late June. Winter wheat yield was slightly higher amid late season rainfall across the Plains and favourable SRW conditions into harvest. Feed use was increased 20 million bu to account for larger than expected feed/residual disappearance in 2022/23, and end stocks are pegged at 592 million, vs. 562 million in 2022/23, and up 12 million bu year on year. We do note that NASS’s initial spring wheat yield estimates are below last year across the Dakotas and MN. Additional downgrades are likely if current weather forecasts there are proven correct. By class, 2023/24 HRW stocks are estimated at 227 million bu, vs. 232 million last year. SRW stocks are estimated at 129 million, vs. 90 million last year. HRS stocks are estimated at 155 million bu, vs. 158 million last year.
  • However, total exporter production in 2023/24 was lowered 4 million mt from June, with larger US output unable to offset a combined reduction of 6.5 million mt in Europe, Canada and Argentina. We fear that additional cuts will be made to yield in Canada. Exporter stocks/use this month is pegged at 13.5%, vs. 14.6% in June. The global wheat balance sheet is tight.
  • Corn remains the bearish anchor of the ag space until harvest combine data is available, but overall, we caution against chasing large daily moves as warmer/drier Central US weather is probable in the second half of July. Wheat and soy balance sheets lean bullish in the long run.

11 July 2023

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  • HEADLINES: Soyoil weaker on oil share spread profit taking; GFS weather forecast cooler in the 11–15-day period (vs. overnight) with like amount of Midwest rain; Ukraine grain export corridor impact.
  • Chicago grain futures are mostly higher at midday with soybeans/soymeal pacing the advance while soyoil futures correct Monday’s rally to new rally highs. Wheat and corn prices have sagged from a strong opening as Midwest rains and forecast uncertainty regarding Central US heat in late July is being debated by traders. Russian/EU wheat prices are rising on less than expected harvested yield and crop holding by producers. The Russian/European farmer is not willing to sell newly harvested grain with yield being less than hoped for and price at a 2-year low. Moreover, the odds are growing that the Ukraine Grain Export Corridor will be closed on the weekend with Moscow sending 22 drones to attack the Odessa ports overnight. Thankfully, only the port administration building was damaged as the Ukraine military was able to shoot all but 2 of the drones. Russia appears intent on shutting down Ukraine grain exports.
  • We look for a mixed Chicago close as traders’ position for the USDA July Crop Report tomorrow. Thereafter, it is all about US corn, soybean, and spring wheat weather/yield. We are using 173 bushels/acre corn and 51 bushels/acre soybean yield. Midwest drought worry persists, and the crop cannot endure any crop filling heat with soil moisture short to very short.
  • Chicago brokers estimate that managed money has purchased 2,700 contacts of wheat, 900 contracts of corn, and 1,600 contracts of soybeans. In soy products, funds have bought 3,600 contracts of soymeal and sold 3,200 contracts of soyoil. The volume of trade is staying well below normal.
  • The UN has been vocal in the need to keep the Ukraine Grain Export Corridor open, but 2023/24 Ukraine grain exports will be well down on recent years. USDA estimates that Ukraine will export 19 million mt of corn (we see Ukraine corn exports at 17.5 million mt), 10.5 million mt of wheat (down from 16 million last year), and 2.3 million mt of sunoil. The corn and wheat exports are half of what Ukraine would have exported without a war. Combined Ukraine wheat/corn exports will equal just 27.5-29.5 million mt in 2023/24, down 13-15 million from last year. If Ukraine can push out 2.5 million mt of grain exports/month through Eastern Europe or down the Danube River, it will be able to achieve the USDA annual trade forecast. The cost to the Ukraine farmer will be larger on the additional logistics, but thankfully, Ukraine was able to shed its large carry-in supplies in 2022/23.
  • The issue for world importers is that Argentine grain exports will also be down on their dire drought. Argentine 2022/23 corn exports are forecast to fall 12-13 million mt (34.6 million) and 2022/23 wheat exports by 11 million mt (5.00 million). The combined Argentine export drop of 23-24 million mt leaves the world totally reliant on new crop Brazilian corn and the new Russian/EU wheat crops. It does not require much of a supply loss of Northern Hemisphere corn/wheat or oilseed crops to produce a rather spicy outlook for world grain values.
  • The midday GFS weather forecast is like the overnight run with below normal rain for the N Plains, the Canadian Prairies, and the Northern Midwest. Most rainfall totals here will be less than 0.75” with the coverage of rain no better than 50%. Better rains are slated for the southern half of the Midwest, the Delta, and Gulf States with totals of 0.5-1.50” and the coverage of rain being 70-75%. The 11–15-day period is also cooler compared to the mid 90’s to lower 100’s that were advertised overnight. The midday GFS forecast has had a cooler bias in recent days, and this carried forward today. Midwest high temperatures will range from the mid 80’s to the mid 90’s with any extreme heat locked into the Southern Plains/W Delta with lower 100’s.
  • Yesterday’s final US corn volume ended up being the lowest of the year, shocking considering it is pollination time. Also, soyoil traded more volume than soybeans, also a rarity. The point is that market participation is extremely low, which will add to (post USDA report) market volatility. We see the upside price risk in soy futures with support below $13.20 November while December corn has support below $4.80. World wheat market have forged their seasonal lows with all eyes on Russian interior prices which are in strong rally mode as the harvest reaches 8-10%.

10 July 2023

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  • HEADLINES: Chicago soyoil/soybeans sharply higher with crush margins expansion: China books US soybeans off the PNW for October; GFS cooler/wetter at midday.
  • Chicago grain futures are higher at midday with soybeans/soyoil being sharply higher ahead of the USDA July crop report on Wednesday. The trade is preparing for a bullish USDA report due to US 2023 soybean seeding being down 4.0 million acres, and the resulting drop in supplies/product stocks. Corn and wheat futures are rising in sympathy with beans, but amid an extra 2.0 million acres of US corn and hope that US all wheat yields rise, traders are much less bullish of grain. We look for a higher Chicago close with US crop condition ratings expected to be up 1-3% in corn/soybeans, and to be steady to up 2% in spring wheat. Even with a modest condition recovery, US corn/soy ratings will be the third lowest since 1986 and with drought conditions being maintained, questions abound on what final US corn/soybean yields will be. We look for WASDE to trim its corn yield to 176-177 bushels/acre on Wednesday with no change or a 0.5 bushels/acre reduction in its soy yield. WASDE will want to be directionally correct in July, and then allow NASS to make the real crop assessment in August. NASS does not conduct field surveys until the September report. We are doubtful that the US 2023 corn yield can surpass the record at 177 bushels/acre, or the soybean yield can rise above trendline at 52.0 bushels/acre due to drought. Amid the lack of subsoil moisture, the coming next 6 weeks of Central US rain will be key to where US summer row crop yields finish.
  • US export inspections for the week ending July 6 were 13.4 million bu of corn, 8.7 million bu of soybeans, and 15.4 million bu of wheat. The corn and soybean sales pace remains disappointingly slow. For their respective crop years to date, the US has shipped just 1,318 million bu of corn (down 620 million from last year or 32%) and 1,824 million bu of soybeans (down 95 million or 5%).
  • China booked 10-14 cargoes of US soybeans for October off the PNW late this weekend and early today. Their pricing led to the Chicago rally as China engages in a US new crop purchase program.
  • Wildfires are gaining considerable ground across British Columbia and through portions of Alberta. Smoke into the NC US looks to be a growing problem for humans, livestock, and crops in the weeks ahead.
  • Early EU wheat yields are coming in below producer expectations due to hot/dry weather during the reproductive period. EU wheat yields are down 5-12% from expectations, but additional harvest data is needed to determine a trend. The same lower than expected yield trend is offered for SE Russian wheat yields. The point is that the excessive stocks that are carried forward from old crop (Russia/EU) may not be so bearish if early harvest yields disappoint and producers hold their new supplies. Interior Russian prices are rising on tightening cash supplies. And French barley bids at port have jumped due to Chinese demand. We note that China has been struggling with poor quality wheat from Australia and is adding French barley/Brazilian corn to raise the quality of its livestock feed. Quickly, Chinese nominations are showing in the Brazilian corn line-up for spot Brazilian corn, which is the likely reason for the recent S American corn basis jump.
  • The midday GFS weather forecast is wetter for the SW and C Midwest and cooler than was offered in prior runs. The NW Midwest and N Plains will be short-changed on rainfall, but there is no heat looking forward into July 19. The overnight model was warm to hot in the 11–15-day period with the midday GFS forecast being cooler. The GFS forecast was too hot due to the northeast expansion of the Intermountain West high-pressure ridge. We see the midday GFS forecast as being too cool with no ridge amplification.
  • Short term, widely scattered showers are expected across IA and portions of N IL late Tuesday/Wednesday with MO/S IL drenched from late Friday through Saturday. Drier weather follows with the jet stream maintaining ridge riding storm systems into July 18.
  • The USDA will release their July Crop Report on Wednesday with the trade too bullish on soybean and too bearish on US corn stock expectations. We maintain a bullish soyoil/soybean stance while corn struggles to sustain a rally. Yet, it is world wheat values that are seasonally bottoming if Russian/European wheat yields prove to be disappointing. The US dollar is likely to keep declining which could pull new investment money into commodities. there were inflows into US commodity futures in the opening overnight and today’s morning reopening in Chicago.

7 July 2023

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  • HEADLINES: Chicago lower on better rain forecast for the W and N Midwest; Crop ratings expected to gain on Monday; Bull spreading in soyoil
  • Chicago grain futures are mostly lower at midday with traders expecting additional Midwest rain over the weekend with NASS crop condition ratings expected to increase on Monday (2-4% in the good/excellent category). The July 4 holiday on Tuesday has caused traders to slowly return to taking on risk, and traders like being on the sell side of the grain ledger. However, firming cash markets in the US and S America is causing caution. December corn is heading back to test support at $4.80-4.90 while November soybean futures sag to chart support at $13-13.25. Traders want to be bearish of grain and bullish of soyoil/soybeans, but the bulls would rather engage in new length early next week. We look for weak prices to persist into the Chicago close with traders staying focused on cool temperatures and showers across the Midwest this weekend. Central US weather threats are lacking for the next 10 days.
  • Chicago brokers estimate that managed money has sold 6,200 contacts of corn and 2,600 contracts of wheat, and 8,800 contracts of soybeans. In soy products, funds have sold 4,900 contracts of soymeal and 2,400 contracts of soyoil. The firmness of the US cash soyoil market has bulled Chicago spreads but has not halted the decline in flat prices.
  • The US Labor Dept showed that the jobs market may be losing steam after strong growth over the past year. The US added 209,000 jobs in June, the smallest monthly gain since the end of 2020 and revised job growth downwards in April and May. The US unemployment rate fell to 3.6% with job growth coming from health care and the government. The slowing of job growth will likely cause the US Central Bank to only raise its lending rate by 0.25% in late July. The US dollar fell sharply on the news with the Brazilian Real at 4.86:1. Why we should be so focused on the Brazilian Real is that it impacts Brazilian farm profitability tremendously in the upcoming crop year.
  • Featured in Chicago is that there has been some big bull spreading in August/December soyoil futures (4,300 contracts) due to strengthening cash basis bids while there was a buyer of 3,000 contracts of September $10.00 wheat calls at 2 cents. The $10.00 wheat call buying must be related to Ukraine and the worry surrounding the Zaporizhzhia nuclear plant that continues to surface in the media. Some are speculating that Russia could attack the plant to halt advancing Ukrainian troops.
  • US export sales for the week ending June 29 were 14.9 million bu of wheat, 9.9 million bu of old and 16.5 million bu of new crop wheat, and 6.9 million bu of old and 21.8 million bu of new crop soybeans. We understand that China has been a sizeable buyer of at least 18-22 cargoes of Brazilian soybeans for August/September and 3-5 cargoes of US soybeans for October/November. China is using the price break to step up its soybean purchase pace.
  • The midday GFS weather forecast is wetter for the W Midwest and the Northern Plains than was offered in prior runs. The EU model started to shift rainfall northward into IA/WI and MN overnight and the GFS model extended the rain with totals of 0.5-1.50”. Such rain late next week would be timely for US row crops but be advised that the rain does not occur until the 6–10-day period from 2 ridge riding storm systems. A system for Thursday/Friday of next week produces 1-2.00” rains across Iowa. No extreme heat is noted with coolness centred across the Intermountain West/W Midwest for another 5-6 days with warmth returning after July 18. A ridge of high pressure is expected to amplify north in the last half of July with heat noted across the Delta/S Midwest with highs in the 90’s to lower 100’s.
  • The USDA will release their July Crop Report on Wednesday which should include an increase in US corn feed/residual use in 2022/23 and 2023/24 crop years along with 2 million extra new crop acres. The US 2023/24 soybean balance sheet will be bullish with a drop of 4.0 million harvested acres. One must not be too bearish ahead of this report. We remain bullish of US soyoil, and we doubt that Nov soybeans can drop too far below $13.00. The grains are held in a range.

6 July 2023

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  • HEADLINES: Chicago futures mixed with soy/corn spread unwinding; South American soyoil unlikely to be imported into the US on a 19% duty; Canadian crops suffer under drought.
  • Chicago grain futures are mixed at midday with corn futures higher while the soy complex and wheat futures sag in a correction. Soyoil has rallied nonstop since bottoming following the EPA RVO announcement on June 22 and a setback was due. The volume on the morning soy complex break is modest, but with US crop condition ratings for corn/soybeans expected to gain on Monday on recent Midwest rains, the next rally effort could await trader’s focus on Wednesday’s July 12 USDA WASDE and crop report.
  • We remain bullish on soybeans/soyoil with corn to uncover support below $4.90 basis December futures. Key support lies below $13.25 in November soybeans and below $0.60 in September soyoil. The US winter wheat harvest is advancing and should surpass 50% by Sunday.
  • The bears are crowing about future US Central Bank interest rate hikes due to a stronger than expected US economy and ongoing US job adds. ADP reported its biggest monthly labour gains (June) since July of 2022, which rallied the US dollar. We would anticipate the US Central Bank to raise its lending rate by 0.25% when its FMOC meeting ends on July 26.  The next US Central Bank rate increase could come on September 20. The rate hammer of the US Central Bank is to cool demand, but it does nothing to boost supply, which is the real need to slow US/world inflationary pressures.
  • US/World Central Banks will continue to battle inflation, the question is, will US rates reach levels that break something. For now, hedge funds are not willing to place deflationary bets with the US/world economic outlook brightening, even with rising rates. If the US Central Bank keeps raising rates beyond September, a more bearish commodity landscape could unfold.
  • US ethanol production gained last week with production pegged at 312 million gallons vs 309 million the previous week. The US needs to average 307 million gallons/ week to reach the USDA annual target of 5,250 million bu. Amid historically strong margins on the US corn price break, we look for WASDE to hold its US ethanol demand estimate steady. US ethanol stocks declined 30 million gallons to 935 million gallons amid the record large weekly ethanol production (for late June).
  • The amount of US cropland that remained in drought fell slightly from the previous week with 67% (down 3%) of corn and 60% of soybeans in a drought designation. The drought acres are double that of a year ago and reflects the need/importance for 1-1.50” of rain each week.
  • Chicago oat futures have rallied strongly today (Dec oats up $0.16 at $4.45) due to the Canadian Prairie dryness that is forecast to worsen over the next 2 weeks. The lack of rain during crop reproduction is having an adverse impact on oats, canola, and spring wheat. Canola is particularly vulnerable with the crop 60% flowering. This would be important for US renewable diesel feedstocks.
  • The midday GFS weather forecast is like the overnight solution with the N Plains, the Upper Midwest and the Canadian Prairies struggling to receive meaningful rain. Ridge riding storm systems will be positioned further south with rain from Kansas eastward across the Southern Midwest with totals of 0.5-1.50” for the next 5-6 days. No extreme heat is noted with coolness cantered across the Intermountain West/W Midwest this week. A ridge of high pressure is expected to amplify north late next week across the Intermountain West and push the jet stream further north. This could increase rain into the NW Midwest. Temperatures return to seasonal levels after July 10 with 80’s/low 90’s.
  • A 19% duty prevents S American soyoil from being imported into the US. Moreover, S American soyoil is not eligible for US biofuel credits and few are willing to segregate supplies. Look for Nov soybeans to bottom at $13.10-13.25 and September soyoil to find support below $0.60. Don’t sell the Chicago break with NC Midwest dryness to worsen into mid-July. The return of any heat would be negative for pollinating US corn.

5 July 2023

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  • HEADLINES: Spring wheat futures soar on potential smaller 2023 Russian wheat crop; July WASDE report in a week; GFS weather forecast midday like overnight forecast solution.
  • Chicago grain futures are mixed at midday with profit taking noted in soybeans/soyoil following the recent sharp early rally. Corn futures sagged into key support at $4.80-4.90 December with wheat holding strong on short covering tied to reduced US/Canadian HRS production and lower than expected early yield data from SE Russia (Krasnodar/Stavropol). The early Russian wheat yield is 12% below last year and slightly below the 5-year average. The lower Russian yield could cause farmers there to be stronger holders of the new crop supply as export volume stay record large. And the drop in US HRS wheat ratings was a surprise as the heading process will reach 65-70% this week. The disappointing ratings and limited rain for the N Plains and S Canadian Prairies is increasing the concern for hi pro wheat with the US HRW crop curtailed by months of autumn and winter drought. We look for a mostly higher close as the NASS soybean seeding drop of 4.0 million acres continues to reverberate through Chicago as it provides a bullish tailwind for the grains and support below $13.25 Nov soybean futures. The new crop November soybean/December corn spread reached out to a 2.70:1 ratio with the upside target being 3:1. This implies that November soybean futures could score new contract highs with any Central US weather adversity that threatens soy yield.
  • We were looking for a higher Chicago opening, but we were surprised by the sheer strength of the start with new money said to be flowing into Chicago. Brokers report that funds have bought 7,200 contracts of Chicago wheat, 2,800 contracts of corn, 3,100 contracts of soybeans, 2,800 contracts of soymeal and 3,900 contracts of soyoil. Oil share trade continues to be the trade of the hour with soyoil having a story on expanding renewable diesel feedstock covering. The volume in Chicago is not that large with traders suggesting that they are unwilling to expand their risk until Monday.
  • Tunisia has purchased 100,000 mt each of SRW and durum wheat in a weekend tender. The SRW wheat was sold for late July into late August delivery optional origin with Russia or Romania to be the suppliers at a price of $259-261/mt basis CIF. The price works back to around $236-238/mt basis fob which suggests that world wheat prices have started rising. If the Russian wheat crop is indeed under 80 million mt, the odds are strong that world wheat prices have scored an early seasonal low.
  • WASDE will release their July report a week from today on 12 July.  The big question that traders are ponding is how much WASDE will reduce its corn yield estimate due to May/June dryness and the sharp fall in US corn crop condition ratings. We estimate that WASDE will cut their corn yield estimate by 3-7 bushels/acre to account for the US weather adjusted yield trend. However, remember that WASDE will boost planted/harvested corn acres by 2 million and cut US soybean planted/harvested acres by 4.0 million acres.
  • The July WASDE report will likely cause December corn futures to struggle to sustain any break below $4.90 while soybean values find support below $13.25 November heading into the report. Central US weather will cause price gyrations, but traders are already talking big gains in US corn/soybean condition ratings next week Monday due to recent rains. We agree that good/excellent condition ratings will improve, but we see the gains at a more modest 1-2%.
  • The midday GFS weather forecast is like the overnight solution with the N Plains, the Upper Midwest and the Canadian Prairies struggling to receive meaningful rain. The rain will occur from ridge riding storm systems that produce thunderstorms every 2-3 days.  And no extreme heat will be lasting with coolness centred across the Intermountain West/W Midwest. A ridge of high pressure is expected to shift into the South-Central US in the 10-14 day period which will raise temperatures for those crop areas that miss the rain.
  • Today it is a wheat market on lower than expected Russian yield data which paints a more bullish global wheat outlook. And Chicago soybeans/soyoil also have their own bullish supply stories. As such, we caution on being bearish December corn below $5.00 if world wheat valuations have bottomed.

3 July 2023

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  • HEADLINES: Chicago values higher at midday as soybean futures lead; NASS report completely alters soy outlook: GFS weather forecast at midday little changed.
  • Chicago ag markets are mostly higher with soybeans/soyoil pacing the rally. Corn and wheat have followed soy complex gains as Chicago continues to react to Friday’s NASS crop data.
  • The NASS June Seeding data completely changed the oilseed outlook amid the decline of 4 million acres of US soybeans. This was enough lost acres to prevent the normalisation of US weather to produce a bearish trend. And if the soybean market cannot decline, it means that grains will have difficulty in falling amid their need to hold acres in future cropping cycles, first in S America and again in the US in 2024. This is not to say that December corn cannot fall to $4.75, but the long-term bearishness of corn is diminished as it is pegged to soy values. We would maintain that the soybean/corn ratio needs to push out to 3:1 in forward futures. Soybeans/soyoil is a bull market that will underpin December corn on breaks to $4.75-5.00.
  • World wheat values are struggling in a $20/mt price range with the EU/Russia and Canadian harvests ahead. The wheat bears have their views based on steady to falling Russian fob wheat offers, and that Russia at some point, allows its exporters to sell wheat below $230/mt. Meanwhile, the US, Canadian and EU wheat markets are more bullish on faltering new crop supplies. By mid-August, world wheat markets should be in position to sustain a seasonal rally.
  • The final Chicago open interest data showed that soybean option positions exploded by 65,500 contracts on Friday with just over 45,000 contracts being new call purchases while new put positions expanded by 20,000 contracts. The massive call buying highlights the bullishness of the NASS seeding data and its importance to the 2023/24 US soybean balance sheets. Demand rationing must occur in soybeans, that can’t happen in crush due to strong margins, but only in export trade. This is why the 2024 Brazilian soybean harvest now carries paramount importance in that no additional demand can be shifted to the US.
  • Chicago brokers estimate that managed money has sold 3,000 contracts of wheat and 2,000 contracts of corn, while being buyers of 6,200 contracts of soybeans. In soy products, funds have bought 3,400 contracts of soyoil while being flat in soymeal. The buying has not been large, but it has not taken much in terms of order size to move the market.
  • US weekly export inspections for the week ending June 29 were 25.3 million bu of corn, 9.2 million bu of soybeans, and 12.4 million bu of wheat. For their respective crop years to date, the US has exported 1,304 million bu of corn (down 597 million or 31% from last year), 1,815 million bu of soybeans (down 91 million or 4.7% from last year), and 40.2 million bu of US wheat (down 19 million or 32% from last year). We look for WASDE to cut US 2022/23 corn exports by 50-75 million bu in the July report while trimming soybean exports by 10-20 million bu. It is premature for WASDE to adjust its 2023/24 wheat export estimate until there is more clarity on European/Russian and Canadian supplies.
  • The GFS weather forecast is like the overnight solution with 70% of Midwest crop areas receiving additional rain while 30% struggles with drought/dryness. The driest areas will be across ND, MO, IL, and MI. South Dakota looks to be targeted with heavier rainfall of 1.50-3.00”. The rain will occur from ridge riding storm systems that produce thunderstorms every 2-3 days. Three storm systems are forecast to pass across the Central US in the next 10 days. And no extreme heat will be lasting with coolness centred across the Intermountain West/W Midwest. A ridge of high pressure holds across the SW US into July 19. The chill favours pollinating corn and blooming soybeans.
  • Bull markets always let you in on profit taking. However, there is no indication that any break in the soy complex will last for more than a few days. This will underpin the grain markets and provide back and forth price action until more is known about US corn/soybean and spring wheat yield potential. Trade the range. Chicago will be closed on Tuesday due to the US July 4 Holiday.