- Chicago values are climbing in midday trade with grains pacing the advance. Chicago and Kansas wheat futures are sharply higher on threatening weather for three wheat key producing regions, Canada, Australia and the Black Sea. Also, the EU moved their monthly wheat yield lower this morning following less than favourable weather during the past 30 days. The tightening outlook for world corn and wheat exporter balance sheets is supporting the Chicago rally. In the case of wheat, traders are starting to fear the below normal rainfall trend of May could continue during June. The world cannot accept any decline in major world wheat exporter production or the 2018/19 stock/use ratio will fall to a level that rivals 2007/08. We would note that a year ago, Chicago wheat prices rose to $6.00/bu with threatening weather for just the N Plains. Combined Australian, Canadian and Black Sea production losses could be much more important in 2018. US wheat futures fell Monday on wheat/soybean and wheat/corn spread unwinding following the rains across the S Plains on the weekend. The focus is now coming back to the world wheat market, and that China may not immediately seek large amounts of US soybeans until more is known about the details of the US/Chinese trade agreement that is being hammered out. It’s a firm Chicago close on the cards today.
- Chicago brokers report that funds have bought 6,700 contracts of wheat, 5,300 contracts of corn, and 2,500 contracts of soybeans. In soy products, funds bought 2,000 contracts of soyoil and sold 900 contracts of soymeal.
- The cash meal market in the US and Latin America remains weak with the Argentine line up to export meal nearly back to last year’s record level. There are rumors that Argentine President Macri is considering taking back some of the export tax credits on soybeans to help pay for a widening budget deficit that was accelerated based on this year’s drought. We have no word on any exact amounts that could be collected, but with the Peso knocking on the door of a record low of 25:1 vs the US$, the farmer seeing record prices (in Peso terms) is an easy target.
- The Russian ag minister reduced their 2018 total grain crop estimate to 105-110 million mt from 115 million. The lower forecast made the WASDE Russian wheat crop estimate of 72.0 million mt look very realistic. Such a wheat crop will trim 2018/19 Russian wheat exports by 2-4 million mt and shift demand to other exporters. Building dryness across the Black Sea is being closely monitored and the rainfall pattern during June will be key to final Black Sea yield determination.
- China’s CIQ is allowing US soybean vessels to unload (again) with exports starting up again from the Gulf/PNW from prior old crop purchases. New crop purchase orders are slow to arrive as Chinese traders are watching Brazilian fob basis implode on the US/China news. China is heavily long Brazilian beans
- The midday GFS N American weather pattern forecast remains too wet with better rain potential for the Central and Southern Plains (than what was advertised by the EU model) overnight. The GFS has added back some heavier rains across the Canadian Prairies. The Midwest will see normal rainfall with near to above normal temperatures to allow summer crops to flourish. This is a complex N American weather pattern. We continue to lean on the EU model based on its favourable track record of late. That forecast was drier for the Plains and the Canadian Prairies. The models agree that soaking rain is slated to drop across the Gulf States and into the Delta with totals to 6.00”. Our forecast bet is that a strong jet stream and a Ridge of high pressure across the Canadian Prairies will keep the western half of the US in an arid upper air flow with above normal temperatures.
- The risk is adverse weather for Chicago prices as the CRB index pushes higher and funds are looking for chart reasons to be long. A close above $5.47 basis spot Kansas wheat sets a target of $6.00. Wheat appears to be the upside leader on parched Black Sea weather. Soy/corn continues to gain on the hope that US/China have come to an agreement. July soybeans sold off from the 50-day moving average of $10.37. Right now it feels that any price dips present buying opportunities, do not miss them.