- HEADLINES: Corn sags on weather and spread pressure; US ethanol production down 2% from 2019 with margins best since 2018; More US beans to China?
- Chicago futures are mixed at midday with corn and soybean futures lower while wheat hangs in the green on curtailed N American supplies. Spread trade has been active with the July/December corn spread pushing out to a new rally high at $1.31 July premium while soyoil/soymeal have rocketed to their best levels in 2021. Corn has also come under pressure as traders liquidate long corn/short wheat futures which were a darling position during the spring. The combination of spread liquidation and chart-based selling pulled December corn futures below last week’s low for a moment.
- Cash soyoil, corn and soybean basis are well above Chicago July futures which is likely to maintain nearby spread firmness. US farmers are not interested in sweeping out their bins until corn is post pollination. Spot Chicago soymeal futures fell to their lowest level since early October at $354.20/basis July. The downside in July soymeal is limited below $350/ton and in $5.25 basis December corn.
- The USDA reported that China booked another 330,000 mt of US soybeans on Tuesday’s dip and is still bidding for additional supply at midday. Another 2-4 cargoes of US soybeans were likely sold.
- Chicago brokers estimate that managed money has sold 7,900 contracts of corn and 3,400 contracts of soybeans, while buying 4,500 contracts of wheat. In the soy products, funds have bought 3,200 contracts of soyoil and sold 4,100 contracts of soymeal.
- US gasoline consumption jumped to 9.44 million barrels/day last week which is unchanged from 2019, but up 10% from last year. The US produced 308 million gallons of ethanol, up 17% from last year, but down 2% from 2019. The US only needs to produce 297 million gallons of ethanol per week to reach the USDA annual forecast for 2020/21 at 5,075 million gallons. We would argue that the USDA is too low by 75-100 million in 2020/21 and 100-125 too low for 2021 /22. Assuming that the USDA is too low in its US 2020/21 corn export estimate by 125 million bu and too low in ethanol at 75 million bu and correct in feed/residual, US 20/21 corn stocks would be 907 million bu. The old crop stocks fall would cut 2021/22 US corn end stocks to 1,157 million bu assuming no change in 2021/22 demand. The point is that it does not take much of a demand increase (corn exports or ethanol grind) or fall in yield to produce an ultra-bullish new crop US corn balance sheet. End users need to be buying corn on this break.
- The midday GFS weather forecast is drier the overnight run and keeps any heavy rainfall across Missouri/S Illinois. The S Illinois rain may pose a quality issue for SRW wheat, but corn/soy crops will benefit from the moisture. The W Midwest/N Plains will see widely scattered showers with totals ranging from 0.4-1.25″, some help, but not the soil moisture cushion that crops would like heading into corn reproduction and the warmest days of summer. The Canadian Prairies will gather increasing concern as limited rain is forecast for the next 2 weeks. And extreme heat will return to Kansas and the Western US with highs ranging from the mid 90′s to the lower 100′s. There continues to be a clear sign of the Western US high pressure ridge progressing eastward in July.
- The rains start across the W Midwest on Thursday with the 1–4-day period being the wettest of the next 10 days. Thereafter, price direction hinges upon the June 30 NASS Stocks/Seeding Report and first notice day against July futures. It only requires a modest yield fall to produce a sizeable Chicago rally. Wheat has become a bull market amid US and Canadian spring wheat yield reductions, and the need to expand seeding in 2022. Wheat now must limit its feed use, not encourage it in the Plains.