- Chicago values have posted a modest midday recovery and “shaken off” the rising political tensions between the US/China. Short covering in corn/wheat has fuelled the upside recovery from recent day lashings, but a trend reversal does not appear to be in the offing amid improved Central US weather. We look at today’s Chicago recovery as nothing more than a bounce, with prices to fall into a price pattern of declines early and late week with a recovery in the middle. We anticipate a mixed Chicago close today.
- Chicago brokers estimate the funds have bought 3,300 contracts of wheat and 4,100 contracts of corn, while being early sellers and midday buyers of soybeans (net flat on the day). Funds have been sellers of 2,900 contracts of soyoil and buyers of 1,900 contracts of soymeal. July soybean still has an open chart gap at $300/ton which should act as strong resistance.
- The Chinese Government is said to be ready to announce that it will be releasing old/stale wheat/rice stocks to become livestock feed. China has more than one wheat crop in storage (150 million mt total) with some of the Government stored supply more than five years old. The stale wheat/rice stocks will be fed to livestock. The Chinese Government did not announce tonnages of reserve wheat/rice that would be released, but this could be an outlet for large foodgrain supplies that are not long fit for human consumption. Feeding this wheat/rice to livestock makes perfect sense to quell rising domestic corn prices.
- We hear that Ukraine new crop corn is being offered by a seller with Chinese documents back into their market today. So far, bids have been scarce. China in early July secured 40-60 cargoes of Ukraine corn for new crop delivery by COFCO. It is possible that COFCO could be trading out of the position and willing to accept a profit.
- FAS announced this morning that China booked 453,000 mt of US soybeans for 2020/21 shipment. We hear that China is still seeking US soybeans with a few cargoes sold this morning . We cannot confirm any Chinese interest in US grain.
- US ethanol production and gasoline consumption declined last week for the first time since April. The decline is related to rising US Covid-19 cases with regional economic slowdown. Note that the US ethanol production is falling below the level needed to reach the annual WASDE estimate while this week’s pace would forecast an annual 4,850 million bu demand pace for 2020/21.
- The weather forecast is highly favourable for US summer row crops with cooling temperatures with regular rainfall. Below normal temperatures will be a big help for ear filling corn while soybeans see organised rain across the SW Midwest/Delta. The forecast even holds the prospect for moisture across W IA on the weekend (a crop area where light showers have fallen), but more rain is needed. Any warmth will be confined to the next 5-6 days before the mean position of the high pressure ridge shifts west and holds across the Inter-mountain West. This allows a favourable NW upper air flow through the Central US, with near to below normal temperatures and frequent rain episodes. Weather during the first half of August favours US corn/soy yields.
- Amid improving Central US weather and cheaper price offers for corn/wheat from other non US exporters, it is going to be difficult for Chicago grains to sustain rallies. Consumers won’t chase the rally amid the the high costs of elevation for export. Gulf soybean and corn fob basis is at or above $1/bu which makes US corn/soy/wheat expensive. US farmers don’t want to sell the break, but US ethanol demand looks to retreat on slowing US gasoline demand. We doubt that December corn can rise much above $3.38 and November soybeans above $9.05 without adverse Central US weather. The forecast looks to be a favourable cool/wet.