23 June 2023

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  • HEADLINES: GFS weather forecast drier at midday with rain being pushed further north into N IA/MN/WI, Midwest heat builds in the extended range.
  • Chicago grain futures are sharply lower on wetter Central US weather forecasts with the exception being soyoil futures that are rising on the cancellation of deliverable receipts and rising cash basis bids. The oil share spread has been historically volatile this week. Soyoil is the one commodity in Chicago that has a demand story due to on the onboarding of new renewable biodiesel plants and the shunning of used cooking oil as a feedstock due to the mixing of tropical oils that are not sustainable or eligible for California low carbon credits. We maintain that soyoil will gain on soymeal in the months ahead.
  • We note that option volatility has been crushed this morning due to the prospect of Midwest rain on Sunday and again late next week. Corn/soy futures have whipsawed wildly this week amid Wednesday’s sharp fall in US crop condition ratings and then the overnight addition of Midwest rain. The volatile markets caused traders to cut position size ahead of next Monday’s US corn/soybean crop condition report and the USDA Stocks/Seeding Report on Friday. If you think that this week’s price action has been extreme, wait until next week. Producers/traders need seat belts to navigate the sizeable daily price changes.
  • Chicago brokers estimate that funds have sold 4,200 contracts of wheat, 17,500 contracts of corn and 12,300 contracts of soybeans. In the products, funds have sold 9,400 contracts of soymeal and bought 6,700 contracts of soyoil. Funds were massive sellers of corn on the opening pushing out some 9,000 contracts in the first 10 minutes of the day.
  • US export sales for the week ending June 15 were 4.0 million bu of wheat, 1.4 million bu of old crop and 1.9 million bu of new crop US corn, and 16.8 million bu of old crop soybeans and 6.2 million bu of new crop. The US sales pace of corn, soybeans and wheat are restricted by the lack of Gulf/PNW competitive prices with Russian wheat and Brazilian corn/soybeans being offered far cheaper. The world is feasting on Russian wheat and Brazilian summer row crops well into October. This will maintain a slow US sales pace until their supplies are drawn down.
  • For their respective crop years to date, the US has sold 1,915 million bu of soybeans (down 297 million or 13% from last year), 1,521 million bu of corn (down 854 million or 36% from last year), and 149 million bu of wheat (down 44 million or 23%). The US sales pace argues that WASDE needs to cut their 2022/23 corn export estimate by another 50 million bu and soybeans by 10-15 million bu in the July WASDE report.
  • The Argentine Grain Exchange reduced its corn crop estimate to 34 million mt from 36 million with many expecting a further cut to 31-32 million mt by the final count. Argentine rainfall has been in short supply as their drought hangs on.
  • The midday GFS weather forecast is drier than the overnight run for the Midwest with shower chances being pushed further north and south than was indicated overnight. The GFS forecast has been highly erratic in its placement of rain, and its reliability should be questioned. That said, the Hi Res NAM model has also moved the rains northward into the northern half of IA, MN and WI and largely out of IL. The next ridge riding system is due late next week with rain of 0.2-0.7”, which was also curtailed at midday. A weak northern branch of the jet stream is shifting into Canada which will maintain a slow eastward pattern progression. Heat will be building across the Central US in July that will acutely stress crops without a soaking rainfall. To sum it up; there will be several chances of Midwest showers, but outside of the Dakotas, rain totals from both ridge riding systems will range from 0.1-0.8” (each), far less than is required to recharge soil moisture. Midwest weather stays a concern.
  • We look for a 2-3% fall in US corn/soybean crop conditions on Monday. Thereafter it is all about how much rain falls next week. The market onus has shifted to the bears with abundant rain now needed to keep Chicago in decline. We see no reason to sell today’s Chicago break with the drought worsening across the Midwest. Heat will build northward into the Midwest during July.
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