- HEADLINES: Russia threatens nuclear potential (again) following sham referendum; Brazilian soy seeding accelerating; Choppiness into Chicago close.
- Chicago futures are in the green with corn, soybean, and wheat futures higher at midday. Short covering amid the strength of the macro financial markets has been theme of the day. The DOW continues to be volatile with an early day rally of 350 points and a midday swoon of 250 points for a range of 600 points. The worry of a deepening US/World recession will not leave the minds of traders which appears to be capping rallies. We look for a higher Chicago close with additional short covering likely heading into the NASS September Stocks/Final 2022 Small Grains Report. Neither rallies nor breaks are likely to carry through until after Friday’s key report.
- Chicago brokers estimate that funds have bought 6,600 contracts of wheat, 5,900 contracts of corn, and4,400 contracts of soybeans. In the products, funds have bought 2,100 contracts of soyoil and sold 2,000 contracts of soymeal.
- Russia issued another nuclear threat following the end of their sham referendum. Diplomats doubt that Russia will use their nuclear option, but Russia continues to rattle the nuclear sabre to make sure that the world retards its involvement with Ukraine and does not see Russia as militarily lame. The calling up of 300,000 reservists within Russia continues to produce protests and challenges for President Putin. The Russian nuclear threat helped produce the setback in the financial markets.
- Brazilian farmers are starting to seed their new soybean crop more rapidly. Rains are falling in greater abundance than recent years with farmers optimistic about producing at least trendline soybean/corn yields in 2023. We note that it would be historically unprecedented for Brazil to have back-to-back droughts of their first crops. Such a drought is unlikely in 2022. And due to faster than normal seeding, a 5% yield bump in their soybean yield would produce a record soybean crop of 158 million mt. The sheer size of Brazil’s soybean planting campaign should not be dismissed. Brazil is expected to seed 104.5-105 million acres of soybeans, or 17 million more than the US. Future expansion makes weather/yield changes far more important in Brazil than either the US or Argentina.
- The Mississippi River is in decline which is raising barge freight rates which will harm interior basis bids beyond the initial pull to restock the pipeline. Already, barge companies are cutting their loads/drafts and moving extra supply to the rail due to soaring barge rates. Rain is needed for the river.
- The midday GFS weather forecast is consistent with the morning release, with even the path of Hurricane Ian unchanged. Ian works across FL and into the Southeastern Coast over the next 4-5 days. Soaking rainfall of 5-10+” impacts this region, while the arrival of Ian will work to sustain near complete dryness elsewhere. Temperatures reach normal/above normal levels by the weekend. Drought expansion continues across the Plains. Corn/soy harvests will go uninterrupted into mid-October. We also note that 16-30 day guidance features high odds of warmth and dryness throughout October.
- Whether it is corn, wheat, soy or even ethanol, export demand is lagging. Our concern is that demand contraction is structural in nature due to China’s soy buying habits and Brazil’s record surplus of corn. Markets stay complex amid pipeline minimum grain stocks in Europe and uncertainty over Russia’s next move in Ukraine. Our mentality of selling strong rallies is intact. US soybean crush margins are the only bright demand spot.