- Much has been made of the decline in the US$ index in recent weeks. The €uro currency has outperformed the US$ as it appears that the EU economy will grow at a faster GDP rate than the US. The EU has combated Covid-19 more effectively and the EU’s $2 trillion stimulus package will kick start growth. However, not all currencies are created equal and the ag commodity currencies have languished. The Brazilian Real has bounced as have the Russian Ruble and Argentine Peso. For a lasting ag rally to unfold requires a 20-30% rally in the ag currencies. US ag commodity trade with the EU is restricted, so a further recovery will not have much Chicago impact.
- A sharp rise in US good/excellent soybean ratings sent Chicago futures lower. November soybeans finished down 12 cents. The USDA did not announce any new soybean sales to China, though there were rumours that China was in the market for 2-5 cargos of US soybeans. Chinese crush demand remains strong, with estimated processing rates totalling a record large 20 million mt in the last 10 weeks. A year ago, the crush rate was 16.6 million mt during the same time. Meal demand remains elevated with year to date disappearance from inner coastal crush facilities estimated at 57.5 million mt versus 55 million last year. The cumulative disappearance is now above the previous record that was set in 2017. Meals stocks peaked 4 weeks ago at just over 1 million mt and are in decline. China’s crush/import demand have been surprisingly strong in recent months. The July WASDE put total soybean imports at 96 million mt versus the August 2019 WASDE estimate that pegged imports at 87 million. Ultimately, it will be the record-large US soybean yield and expanding S American acres that drive Chicago prices. We remain bearish on rallies. It is possible that a seasonal high was formed on Monday based on favourable Midwest weather.
- Chicago corn futures fell 4-5 cents on Tuesday. Fund selling resumed following Monday’s larger than expected boost in US crop ratings. With Central US weather predicted to be favourable into mid August, the market’s goal is now to find all potential demand to prevent US end stocks from reaching well above 3.0 billion bu. Wednesday’s EIA report is expected to feature flat week-over-week ethanol production and gasoline consumption. RBOB gas futures have been unmoved for 4 weeks. Mobility data suggests there has not been a major trend change in US miles driven since June. The futures-based ethanol production has improved amid declining corn values, but work continues to suggest that sub-$3.35 spot corn is needed to provide ethanol plants incentive to produce. Rallies in crude/gasoline markets will be hard-fought with OPEC production rising by 2 million barrels/day on Aug 1. Improving Chinese weather and sizeable boost in Brazilian supplies in the next 30 days will weigh on global feed markets. Rallies will likely be limited to 4-6 cents with late summer lows forecast at $2.90-3.00 basis September futures.
- US wheat futures ended weaker amid negative seasonal trends as Black Sea exporters remain aggressive. Weakness in the Ruble along with rising Russian winter wheat yields has caused exporters to search for demand. Work suggests that world wheat trade in July will be the weakest since 2012. Covid-based demand destruction is a growing concern. Egypt’s GASC purchased a sizable 470,000 mt of Russian and Ukrainian origin. Egypt paid an average fob price reported at $217/mt. This compares to $211/mt last week. World fob offers have declined slightly. Spot Russian and German wheat sit at $208-211/mt vs. $210-216 last week and vs. Gulf HRW at $215. Chicago futures have digested tight SRW stocks. A new demand spark is needed to sustain fund buying. Rising N American spring wheat yield potential and weak importer demand suggests rallies could well be selling opportunities. We look for a weakening wheat price trend into a September seasonal low.