• Headlines:

• Soybeans follow as July soybean meal pushes to a new rally high.
• Spot corn rallies to eleven month high, holds premium to wheat in Plains.
• Wheat follows corn and soybeans higher, but only slightly.

• Fund flows continue with July soybean meal pushing ever higher and soybeans recover with double digit gains. Funds appear to have been piling in from the opening bell and only easing the pace around midday, it was suggested that some may have been trading up to their limits on soybeans and are turning to spread trades as a means of holding even larger positions. Corn and wheat were dragged along despite record large world wheat crop hanging over the market.

• Commercials, and ourselves, are questioning quite what is going on in Chicago! The rally in soybean meal can only be described as “HUGE” and the July premium over December (close to $40/ton) is difficult to digest with US 2015/16 stocks at or around 400 million bu. Bulls may well suggest it is down to Argentine meal quality not meeting consumer specifications. However, whilst some are reported to not be meeting 46.5% protein specs, end users are negotiating contracts at lower levels (44-45.5%) and discount prices are trading.

• China has announced it will be auctioning some 2.2 million mt of state reserve corn and rice on Friday, corn accounts for 2 million mt. Prices are expected to be cheap on an historic basis, attracting feed buyers and it is noted that the sale will be of 2012 crop year output. It is expected that weekly auctions will continue into October.

• The Russian Ag Minister has increased the 2016 grain crop estimate to 106 million mt, some 4 million above the latest USDA number. The increase was put down to favourable growing conditions. Whilst there was no specific crop breakdown, private estimates suggest the 2016 wheat crop to be record large at 63-64 million mt, with harvest starting in two to three weeks. Currently Russia has only one or two million mt of export sales on the books as buyers shy away from commitment ahead of what is looking like a very big crop, not only in Russia but globally.

• Ukraine followed suit with 2016 wheat output forecast at 23 million mt (by the weather office), well above last year’s 17 million mt. Harvest will start in early July. Corn crop estimates are also rising in the face of favourable weather, and estimates are in the 28-29 million mt region.

• As we have seen before, this current market is all about the funds. There is a rumour that some Chicago option trading firms are in financial trouble being short soybean crush and spreads. Weather is good across US and northern hemisphere, but no one cares! It is all about “Risk On” and when this turns to “Risk Off” (we know not when) watch out for fireworks and potentially massive volatility. As “seasoned market veterans” we prefer to watch weather, supply and demand, but have to admit we are wrong at this time as the world awaits the harvest of record wheat and corn crops and another year of massive stocks.

• It is interesting that Brazilian interior prices (in Reals) are reportedly higher than they were in the 2012 drought, new crop planting is some months away yet producers are incentivised to expand acres (some suggest as much as 4-7%). In a time where US and world stocks are large by any measure it feels strange (wrong?) that the market is telling producers to produce even more. It is expected almost universally that US and S American growers will respond accordingly.