- HEADLINES: US wheat futures limit bid; Corn follows on Black Sea supply worry due to war; GFS midday weather forecast is wetter for IL/IN, heat lingers across the W Midwest/Plains.
- Chicago grain futures are sharply higher at midday with Chicago wheat limit up as funds try to exit their net short position as Russia takes aim on Ukraine ag transit channels, and especially key infrastructure that allows the export of Ukraine ag products. Russia has bombarded Ukraine ports and now Reins (Danube River) which if there are repeated attacks, limits the only avenue for Ukraine grain into the EU. And with key EU border countries (like Poland) already blocking the flow of Ukraine grain into its country to protect local farm income, the pathways for Ukraine grain trade becomes difficult. As Ukraine farmers watch their crops grow, the fear is growing that war torn financial difficulties could become much worse.
- And there is growing concern that Ukraine will take revenge on the ended grain corridor pact and target the Kerch Bridge (Azov Sea) that could potentially block 35% of Russia’s wheat trade. Added together, the impact on the world wheat market would be sizeable quantities, amounting to nearly 20 million mt of wheat traded annually. The weekend again proved that geopolitics are difficult to predict/trade, but the impact on world grain/food markets is sizeable. Geopolitics and weather will produce considerable market volatility in August.
- And ocean freight insurance brokers have ceased offering insurance for any ship that would berth at a Ukraine port and are considering dropping insurance for ships that are contracted to haul grain from the Danube. This is further confirmation that Ukraine grain flows into the world market are halted. The biggest impact on an end user would be China that last year imported 11 million mt of Ukraine corn. China will be forced to secure their corn this year from Brazil or the US.
- Chicago brokers report that the managed money has bought 7,900 contracts of Chicago wheat, 11,200 contracts of corn, and 5,400 contracts of soybeans. In the products, funds have bought 1,600 contracts of soymeal and 5,500 contracts of soyoil. We hear that new investor money is being pushed into commodities with the US Central Bank to raise rates by 0.25% Wednesday and then pause.
- Argentina announced its Corn/Dollar program with a Peso rate of 340/1 US$ or a 25% premium to the existing Peso rate of 270/1 US$. At 340 Pesos, the Argentine Government is trying to get the cash strapped farmer to sell hoarded supply with inflation running well above 100%. The Argentine Government has IMF payments to make and is dire need of hard currency. Argentine farmers will be able to sell corn at the 25% Peso premium through August. We doubt that Argentine farmers will be big sellers of their stored corn unless they need to raise cash for the new crop planting campaign. The fear is that Argentine farmers will financially struggle due to 2 years of drought and have depleted financial resources to seed new the 2024 harvest.
- US export inspections for the week ending July 20 were 122 million bu of corn, 10.4 million bu of soybeans, and 13.2 million bu of wheat. Corn export sales were disappointing, but in line with trade expectations.
- The midday GFS weather forecast is slightly wetter for IL/IN than was offered overnight. The models are struggling with ridge riding storm systems beyond Saturday. Heat will build from west to east as a high-pressure ridge amplifies with Midwest highs rising to the 90’s/lower 100’s starting Tuesday and lasting through Saturday. The mean position of the ridge retrogrades to the Intermountain West with Canadian air pushing southward across the E Midwest in 7-8 days. This means that the west will continue to swelter and hold in a below normal rain pattern. The GFS forecast also brings a tropical system into SE FL and marches it northward which impacts most of state. Confidence in this FL hurricane is low.
- Wheat futures are pushing to sharp gains on the worry that the war will curtail/disrupt Black Sea grain trade. The corn impact will also be sizeable with soy futures following. Funds need to cover their short wheat futures via chart-based rules. We remain bullish until there is clarity on Black Sea grain supplies and Central US weather.