- HEADLINES: Risk off ahead of month end with Midwest rain forecast helping the Chicago rout; GFS weather forecast stays wet at midday, Canadian model drier.
- Sharply lower Chicago grain futures exists at mid-session amid the prospect of improved Midwest rain starting this weekend and continuing next week. Rain makes grain and the market was able to look past the near record low crop ratings released late Monday.
- Corn, soybeans, and wheat crops have suffered from record dryness since mid-May which stunted corn/soybean and spring wheat crops. How much yield damage has occurred is impossible to determine, but soil moisture levels below 2012 argue that the coming Midwest rains must be widespread soakers. Hit and miss thunderstorms will not produce enough rain to salvage US corn/soy yield with the reproduction phases underway. And importantly, soybeans will need weekly regular rainfall due to the lack of surface water through late August. There will be additional twists and turns to Central US weather, and it is too early to declare that Mother Nature will be kind from here forward.
- We have warned of extreme market volatility and recent week price action has not disappointed. The problem is a lack of resting orders above and below Chicago and that open interest has dropped to the lowest levels since 2014 (corn/soybeans) as the back-and-forth fray producer, trader, and fund manager’s nerves. And key NASS reports are out Friday that will delineate US 2023 US major row crop seeding and June 1 stocks. The gains in the July/December corn spread and July/November soybean spreads argues to be careful about being too bearish on June 1 US grain stocks..
- Producers report that crops continue to suffer with upper 90’s to lower 100’s to cover most of OK, KS, MO, and S IL from today through Friday before there is any relief. To date, Midwest crops have sidestepped any extreme heat, but that will change as South-Central US high pressure ridge builds northward. The heat/dryness will cause a fresh decline in US corn/soy/wheat crop ratings next Monday. Thereafter it is all about the coverage of meaningful rain as Central US temperatures stay warm to hot into July 10. Midwest rainfall must average 1-1.50” per week just to counter soil moisture loss due to evaporation as crop moisture needs reach their peak prior to pollination or the soybean pod set stage. This raises the need for regular meaningful Midwest rain each week.
- Chicago brokers report that fund have managed money has sold 5,600 contracts of Chicago wheat, 19,200 contracts of corn, and 9,400 contracts of soybeans. In the soy products, funds have sold 4,600 contracts of soymeal and 1,200 contracts of soyoil. Oil share spreading continues to hold on breaks with an additional 22 soyoil deliverable receipts cancelled on strong cash bids.
- Russian fob wheat offers have been rising on the worry that the initial Russian harvest will not produce the same high protein wheat that has become commonplace and accepted during the 2022/23 export season. We believe the Russian 2023 wheat crop at 83-84 million mt due to a smaller spring wheat yield and a near average winter wheat yield. Russian farmers are not expected to be active sellers of their new winter harvest as price is estimated below their cost of production. However, an advancing harvest will boost total supplies.
- The midday GFS weather forecast is more like the EU model with drier weather for the NW Midwest and wetter weather for the SE Midwest (S IN/OH) than was shown overnight. The rain starts Friday and persists into the weekend with accumulations of 0.15-1.25”. We see the coverage of rain greater than 1.00” at no more than 20% of the E Midwest. The NW Midwest is largely missed with the SE US starting a drying trend.
- The next system is evident Wednesday/Thursday which catches more of the NW Midwest and includes N Illinois. This ridge riding system produces another 0.25-1.25” of rain across the NW and E Midwest. The system weakens and slowly pushes east and south during Friday (July 7). A trough over Central Canada keeps the South-Central US high pressure ridge from building north.
- Some of the Midwest is drier and some wetter vs the overnight model run. The message is that meaningful rain will fall across 35-40% of the Midwest. We doubt that the coverage will be as widespread as depicted by the GFS model.
- It is a risk off day as green blobs on the Midwest weather forecast spurs liquidation. Yet, this looks to be the best rain event since April, but regular weekly rain is needed through the remainder of the 2023 growing season. Ahead of key NASS reports, market volatility will remain acute and some of the selling today is funds selling out positions heading into the end of the month. Again, resting orders are lacking and producers are sceptical of crop saving rains with the calendar on the doorstep of pollination. Key support rests just below current levels at $5.50-5.60 Dec corn and $12.50-12.75 Nov soybeans.