- HEADLINES: GFS model shows ongoing hot/dry central US weather; Turkey awaits first grain ship to leave Ukraine; Soybeans lead on tight US stocks.
- Chicago battles the hope for a Ukraine grain export corridor against threatening central US weather and a US bank rate hike.
- Chicago values are mixed at midday. Traders note that a fundamental battle is taking place in Chicago this morning. The bears are selling wheat on the hope for a reopening of Ukraine grain trade as stranded vessels are led out of the war zone later this week. Turkey confirmed that vessel monitoring has been set up in Istanbul, which means that Ukraine could allow stranded vessels out of the 3 nominated ports as early as Friday. This pressured Chicago/Paris wheat futures after firmer overnight trade on the hope for “additionality” in terms of nearby world wheat supplies.
- The bulls are buying corn/soybean futures on the hot/dry Central US weather threat and the prospect of declining production. Extreme heat/dryness has caused farmers to abandon corn/sorghum/soybean fields in KS/NE and MO. The damage is done and a US second year for a record corn yield is a longshot.
- Soybeans will have time to recover if needed rain returns, but the next 2-3 weeks are the most important of the 2022 growing season. Unfortunately, the forecast models are consistent in calling for hot/dry weather across the Plains/W Midwest. US crop conditions/yield prospects are in decline.
- There has also been cash talk that China has purchased several US August/September soybean cargoes or that they were short futures on basis sales against August soybeans. We cannot find any confirmation of such buying, but the large volume of trade in Nov soybean and December soymeal futures on the opening smacks of new fund inflows. Funds have been exiting Chicago positions for weeks, but amid the ongoing Central US and European weather woes and charts that are breaking trendlines and turning up, they are again looking to the long side of the market. If the US Central Bank were to suggest that they are ever taking their foot off the interest rate breaks, you would find many more fund managers wanting to return to long commodity positions.
- Chicago brokers report indicate that funds have sold 3,900 contracts of wheat, while buying 6,900 contracts of corn and 7,400 contracts of soybeans. In soy products, funds have bought 5,700 contracts of soymeal and 3,900 contracts of soyoil. Funds are on the long side of soy.
- The US produced 300 million gallons of ethanol last week, down 4 million gallons from the week prior, but up 1% from last year. The US needs to average 308 million gallons of ethanol production per week to reach the WASDE annual forecast for corn use of 5,375 million bu. We do not look for an ethanol change on August 12, but there could be a modest 10-15 million bu reduction in the Sept WASDE.
- The midday GFS weather forecast offers limited rain for the N Plains and the NW Midwest over the next 12 days. IA, MN, NE, and the Dakotas hold in an arid trend with warming temperatures. Highs will return to the 90’s to lower 100’s. A high pressure ridge builds northward beyond the weekend and set up residence in the S Midwest/Delta. The ridge is more expansive than prior runs. The cool waters off the SW Canadian coastline should maintain this ridge position. Our concern for Central US corn/soy/sorghum crops is high.
- There is a hesitancy to be buying commodities too aggressively ahead of the US Central Bank’s rate hike this afternoon. However, the US$ is struggling, and its price performance must be closely followed. US President Biden will be talking to Chinese President Xi overnight. Hopes are building that the US could drop tariffs on Chinese goods, which may unleash additional Chinese demand for US soy/grain. EU/US crop losses are building amid historically tight world stocks. Buy breaks remains our considered advice.