- HEADLINES: Weather forecast debate ahead of USDA report on Thursday; Cash market strength shows no sign of relenting.
- Chicago grain markets are mixed at midday with soybeans/soyoil firmer with corn and wheat futures weaker. Corn is showing the most weakness due to weekend rainfall across Illinois that produced some needed soil moisture with the midday forecast offering additional showers early next week for the Western and Southern third of the E Midwest. The risk-off mentality is related to the prospect of improving Central US weather and that a ridge of high pressure shows no sign of setting up residence (at least for now) in the Central US.
- We look for a mixed Chicago close, but it is difficult to become bearish grain amid strong ethanol and soy crush margins, improving export interest and firm cash markets. Robust US export demand and the draw for US harvest supplies will hold Chicago futures above prior year harvest lows. And with only a modest weather problem, Chicago futures can test or score new highs. End users should extend forward coverage in wheat/corn and soyoil on additional weakness.
- Chicago brokers estimate that funds have sold 12,000 contracts of corn and 3,500 contracts of wheat. Funds have bought 5,400 contracts of soybeans, 4,600 contracts of soymeal and 2,700 contracts of soyoil.
- FGIS/USDA reported that for the week ending June 23 the US shipped out 49.0 million bu of US corn, 17.2 million bu of US soybeans, and 12.9 million bu of wheat. For their respective crop years to date, the US has shipped out 49.1 million bu of wheat (down 7 million), 1,866 million bu of corn (down 379 million or 17%, and 1,887 million bu of soybeans (down 220 million or 11%). Demand deferral has been ongoing due to high prices, but US exporters report that fresh interest is developing at lower prices.
- Energy markets have been at the heart of rising inflation and the Chicago grain bull markets. Almost everything in agriculture involves energy and its rising cost. And the Biden Administration stated in the G7 meeting that it saw no reason to back away from its commitment to biofuels due to climate change. This means that Europe will also hold onto its biofuel commitments. There was a concern that the developing food crisis would cause biofuel producers to back down from prior mandates to preserve food supplies for the world’s impoverished. That concern is quickly fading which has rallied soyoil futures. Corn should also be well supported by ethanol margins with cash demand staying firm. US farmers are not willing to part with old crop corn/soybean stocks until the pollination period is past.
- We remain generally bullish of energy values on tightening supplies heading into the winter heating months. Further restricting Russian oil exports only adds to the upside potential of crude and gas values into late summer. New investment is not occurring which argues that crude oil values will rise to $140-150.00 for an annual high. Fighting inflation will be difficult.
- The midday GFS weather forecast is much warmer in the 10–15-day period, which aligns with recently released long-range climate outlooks. Maximum temperatures in the 90s/low 100s will again be spread across the Eastern Midwest. Another few model releases are needed to boost confidence in the arrival of this hot pattern, but we note that there is broad consistency among the models that heat/dryness will be featured in early and mid-July.
- Otherwise, regional/scattered showers will impact the Delta/S Midwest. Showers are possible across IA/MO and portions of W IL this weekend and the weekend. Thereafter, warm, and drier weather is forecast.
- There are many moving parts ahead of the USDA report on Thursday. Seeded acres and stocks will help the market better understand the importance of weather. A high-pressure ridge is flashed in the 10–15-day period on each model run, it is the position of the ridge that will be important We would also argue that seasonal lows will come early with farmers not being aggressive sellers off the combine in 2022/23. They won’t make that mistake 3 years in a row. We stay broadly bullish.