- HEADLINES: Midday GFS weather forecast drier with extreme heat across South Central US; 64% of the US corn and 57% of the US soy crop in drought.
- Chicago futures are sharply mixed at midday with wheat futures higher while corn/ soybeans sag on profit taking ahead of the weekend. The volatility of Chicago is acute with traders now expecting dramatically higher or lower prices daily. The 2023 US weather market has reached a new stage of volatility. Chicago margins have expanded 50% due to yesterday’s limit up close in soymeal and limit down close in soyoil. Heading into next week’s NASS Crop Progress/Condition and Stocks/Seeding reports, traders will need seat belts to manage their positions. Positioning in Chicago options is the preferred method of managing the US weather market. Days of 10-25 cent gains or losses in corn and 30-50 cent losses in soybeans will be commonplace into early August.
- Wednesday’s final Chicago open interest showed a 16,361 contract gain in corn, while wheat and soybean oil fell 6,632 contracts and 2,555 contracts, respectively. We note that Chicago soymeal futures were up 7,774 contracts on the limit gains with soyoil open interest down 4,926 contracts with its limit losses. Today’s Chinese holiday is limiting their Chicago pricing which is contributing to the Chicago weakness. China grain traders will be back in full force on Monday. The volume on the morning break has been slow.
- Chicago brokers estimate that funds have bought 3,200 contracts of wheat while selling 9,500 contracts of corn and 15,900 contracts of soybeans. Funds sold 13,000 contracts of soybeans in the first 10 minutes of the Chicago reopening. In the products, funds have sold 5,300 contracts of soymeal and 5,100 contracts of soyoil. Much of the soyoil selling was due to liquidation following Wednesday’s limit down close.
- FAS/USDA will release their weekly export sales report on Friday due to Monday’s holiday. The sales are expected to be seasonally slow with limited demand for US corn/soybeans due to the Brazilian fob cheapness.
- Thailand purchased feed wheat in recent days with as many as 3 cargoes trading according to cash sources. The feed wheat was sold cheaply at $277 CIF which makes Aussie or Russian wheat unlikely to fill the demand. The sale of cheap optional feed wheat has cash connected traders discussing that the seller may have been China. It has been a long time since China has sold feedgrains, but it is something that is being rumoured in the Asian cash grain circles.
- Russia remains aggressive in offering fob wheat at $230/mt spot with a $2/mt carry per month into December. Why Russia is selling wheat so cheaply is unknown. Basis the rally in Chicago/Matif futures, Russian sellers can raise their fob offers by $12-16/mt and still be the cheapest hard wheat in the world. Our message to Russian wheat end users, is that the cheapness of Russian wheat offers a long-term purchase opportunity into yearend.
- The Drought Mitigation Centre forecast that 64% of the US corn and 57% of the US soybean crop is in drought regions. In 2012, 37% of the US corn and 43% of the US soybean crop was in drought on the same date. We note that in the July 2012 WASDE report, USDA forecast a July corn yield of 146 bushels/acre, down 20 bushels/acre from their June forecast. It appears likely that WASDE will cut their June corn yield in July, it is just a question of degree.
- US weekly ethanol production produced 309 million gallons, 2 million gallons more than was required to match the USDA annual forecast. US ethanol stocks rose 25 million gallons to 958 million gallons, which is equal to last year.
- The midday GFS weather forecast is drier than the overnight run with 2 ridge riding storm systems passing across the N Plains and the NW Midwest over the next 10 days. These ridge riding storms do not produce much rain over IA, IL, MO, MI, or IN as the systems are too far north. A strong ridge of high pressure holds from Texas into Mississippi with high temperatures in the mid 90’s to the lower 100’s. A few days of record-breaking heat is possible across Texas/Louisiana. However, each of the ridge riding systems could produce 0.1-0.6” of rain across 30% of the Midwest. Such rain won’t be enough to dramatically change soil moisture levels. A trough builds across the upper Lake States which will produce seasonal temperatures, but limited rain.
- As has been the case since April, we see the GFS weather forecast as too wet and maintains an arid Midwest forecast via the EU model. Canadian dryness is also worrisome!
- The weather forecasts do not have enough rain to prevent US corn/soy crop conditions from declining another 2-3% on Monday. Showers will drop across the Midwest, but the amounts are way below crop needs heading into pollination on corn. US cash soyoil basis stays strong and is rising which is testament to EPA’s RVO decision not impacting coming renewable biodiesel demand. Our message at midday; “Do not sell Chicago hard breaks!”