- HEADLINES: Chicago retreats from opening rally amid Central US weather pattern uncertainty; Midday GFS weather forecast dry for N Plains/W Midwest next 10 days.
- Chicago futures are higher at midday, but well off their opening rally top. Corn and soybean futures pushed sharply higher after the morning opening with corn gaining 12 cents and soybeans up just over 30 cents on active fund buying. The weather forecast turned drier for the Central US, but the bulls desire to see confirmation in the midday run before chasing a rally. For most of June/July it has not paid to chase a rally or push sales in a decline. And traders want to be careful not get too bullish until they can itemise US yield declines. Remember that crops will hit a “moisture wall” in early August with Iowa/Minnesota being where crops have to the most to lose on condition/yield potential. Amid this week’s hot/dry weather forecast, our bet is that US corn conditions and yields are in decline, which begs a trading stance of buying sharp Chicago breaks. Funds are looking at the long side of commodities heading into August but will wait until the new month. And China needs to get started being a more aggressive buyer of US ag commodities. We look for a mixed Chicago close today.
- Chicago brokers estimate that funds have bought 1,200 contracts of corn and 1,900 contracts of soybeans while selling 900 contracts of wheat. In soy products funds have sold 3,400 soyoil and bought 1,900 contracts of soymeal.
- Talk is ongoing that China booked US corn, it is just that the tonnages are not adding up more than 2.0 million mt. China is said to be below the market with additional buying. And remember that Brazil has sold its soybeans to China for September, which pushes China’s soy buying from the US into August, about 2-3 weeks later than last year. 1.5 million mt of China corn demand would lift their US corn purchases to around 13.0 million mt, a record before the crop year has even started.
- With 32% of the Russian wheat crop harvested, yields are disappointing and argues against Russia harvesting a wheat crop that is more than 80 million mt. Unlike last year, there will be a drag on spring wheat yields due to regional dryness and excessive heat. The 2021 Russian wheat crop is estimated to be in a range of 76-80 million mt. Remember that the USDA has the Russian wheat crop at 85.0 million mt. We look for a cut in the August 12 report. The combination of massive wheat imports by Iran/Pakistan, along with a bigger import need from Turkey and the smaller Russian crop is turning world wheat prices bullish.
- The two weeks before and two weeks after pollination are when corn yields are determined. Corn can lose 15% of yield in the fill stage but yield losses will be mitigated once the crop reaches dent. If you split the US 2021 corn crop in half via the Mississippi River, some 7.6 billion bu is grown in the west. A 5% yield loss here would equate to 380 million bu, which could partially be made up by solid E Midwest yields. How much rain falls across Iowa, Minnesota, and Nebraska in the first half of August will be key to determining the final 2021 US corn yield. Dakota corn yields will be off 15-30% amid their dire drought.
- Egypt’s GASC booked 180,000 mt of Ukraine/Romanian wheat at $245.39/mt basis fob for late September, $14/mt above their last tender. This was the fourth tender in a row that Russia did not participate. And the freight rate rose to $34.02mt, the highest cost in over 6 years. Freight rates will stay high for some years in our opinion.
- The weather forecast is consistent with 10 days of dry weather for Iowa, the Dakotas, Minnesota, Nebraska, Kansas, and most of Illinois. Showers will be focused on Wisconsin/Michigan and far S lowa/N Missouri (0.25-1.50″ of rain from late Friday into Saturday) on ridge riding systems. 60-65% of the Midwest will be missing the rain with heat returning in the 11–15-day period. Iowa, Minnesota, the Dakotas, and Nebraska are the concerns where high temperatures will be in the 90′s to low 100′s into Friday. A front produces rain for Iowa in 11-12 days, but it is too far out for confidence. The EU weather model will be watched for confirmation of this front on August 7-9.
- China corn demand is below the market, but bears want confirmation of the US August weather pattern before being chased out of their positions. ADM’s CEO has claimed that the world has lost 15 million mt of grain production in July which enhances US export demand from August onward. Our trading view is to buy Chicago breaks as US corn and soybean conditions and yield potential are in decline. How big of a decline will be determined by August weather conditions.