- Fear is what causes peaks in supply driven grain bull markets. There is no doubt that Friday’s NASS Seeding & Stocks report could rekindle fear of running out of corn if US corn seeding falls well below trade expectations. However, if Friday’s NASS report does not produce a bullish surprise, the market will quickly turn its attention to weather, as it does in every crop year. Summer weather is always the big variable for yield. July Midwest weather looks to be favourable with warmth and less rain to help water damaged corn/soy crops.
- Overnight strength from Monday’s crop progress report was washed out through the day, with soybean futures trading back below unchanged shortly after the open and continuing to weaken into late in the day. At the close, old and new crop soybean prices were down 5-6 cents on a warmer/drier weather forecast. While new crop acreage and yield are likely to be a hot topic through the summer, record large stocks will not. June 1 stocks estimates from 25 analysts shows an average of a 53% year on year increase in June 1 supplies. The most optimistic numbers call for a 40% increase and the most bearish for a 60% plus increase in stocks. Either way, the US market will be very well supplied heading into the start of the 2019/20 season, amid slow exports to China. The potential for US new crop is unknown, while record large old crop stocks are certain. Once the market has a better grasp of the production potential, we expect that a major price correction gets underway.
- Chicago corn ended steady amid ongoing competing inputs. Funds were buyers initially following Monday’s decline in crop rating and ahead of excessive heat in W Europe this week. However, EU heat won’t be lasting and a more favourable pattern of light rain and cooler temperatures evolves in Ukraine moving forward. The debate over US acreage loss rages on. We look for final US corn seedings of 86 million acres, down another 3.8 million from the USDA’s June forecast. We also highlight that June 1 US corn stocks are projected at the third highest on record at 5,330 million bu. If realised, Jun-Aug disappearance needs to match last year despite the substantial loss of export demand. The point is that the market into late summer will be a combination of falling demand and yield risk. We believe that rallies above $4.70, Dec, will struggle amid improved US weather between now and July 15. An acreage number below 86 million is needed on Friday for the next bullish spark. Corn appears trapped in a trading range of $4.20-4.70 Dec prior to pollination.
- September Chicago wheat ended 2 cents lower. European contracts fell €1.00/mt as exceptional heat in W Europe fades after 4-5 days. A pattern of dryness will be evolving across most N Hemisphere wheat areas over the next two weeks. The world wheat supply pipeline will be increasingly be filled. Early reports from the Southern Plains reflect massive yields and better than expected quality in TX/OK. Protein content will improve as harvest expands northward. There is a decent trend for big HRW crops to get bigger in subsequent months. Also note that Chicago’s premium to KC above $.60/bu, basis Sept is rich. Recall that HRW can be delivered against CME contracts. EU and Black Sea cash fob markets will likely find equilibrium at $200-210/mt. This is comparable to $4.30-4.40 Sept KC and $4.70-4.90 Sep Chicago. Wheat follows corn nearby, but our concern is longer term bearish wheat fundamentals and a noticeable decline in US wheat export demand. US wheat feed use is not bullish.