- HEADLINES: Chicago mixed at midday as traders wait to buy the market after Thursday’s poor weekly export sales report; Midday GFS weather forecast drier for Plains/Lakes.
- Chicago futures are mixed at midday with an early rally failing in soy/corn {same as yesterday). Traders are not willing to chase a rally with showers falling across East Central and South Central Minnesota (and potentially far NE Iowa) this afternoon. The green radar blobs limited traders in chasing the early Chicago rally, but old/new crop cash markets are starting to show some independent basis strength. The bears argue that E Midwest yield gains will surpass the losses in the west, but amid a deepening drought across Iowa and the N Plains, this argument is weakening.
- We continue to doubt that Chicago breaks can be sustained amid a midday GFS forecast that offers dry weather for most of the N Plains and the W Midwest (excluding Missouri) for the next 10 days. A Thursday recovery is possible as traders look to position long following another disappointing weekly export sales report. Monday’s NASS Crop Condition report is expected to show that US corn and soybean good/excellent ratings drop another 1-3% which will nudge the industry’s US corn/soybean yield discussion down heading into the August 12 USDA/NASS crop report. How deep of a fall in US corn/soybean yields will all depend on August weather conditions across the Central US.
- Chicago brokers estimate that funds have bought 2,200 contracts of corn, 1,100 contracts of soybeans, and 3,200 contracts of wheat. In the products, managed money has bought 2,900 soyoil while selling 2,700 contracts of soymeal.
- Bunge’s CEO Heckman indicated that they expect China’s big corn import program in 2020/21 will be repeatable/sustainable. We have noted that vessel counts and China’s own import data show that China will take 29-31 million mt in 2020/21 and a record 48-51 million mt of total feedgrains. We believe that China’s COFCO booked US new crop corn yesterday, but because COFCO is also a US grain merchant, the buying does not have to be announced until it hits the books of the exporter division.
- By our count, China has already booked 12.5-13.0 million mt of US with 4-6 million mt of Ukraine corn for 2021/22. Thus, China’s total world corn purchase pace is 16.5-19.0 million mt for the 2021/22 crop year. We expect that China is well on their way to taking 29-33 million mt of corn from all sources and 18-24 million of corn from the US in 2021/22.
- The US weekly ethanol grind produced 298 million gallons of ethanol or 4 million less than the week prior. The US needs to average 289 million gallons in the remaining 5 weeks to reach the 2020/21 USDA forecast. US gasoline consumption was down just 2% from 2019 with US ethanol stocks rising to 955 million gallons. The USDA is understating the US corn grind for US ethanol production by 25-40 million bu which will result in reduced 2020/21 US corn end stocks.
- The forecast is consistent with the overnight run with another 10 days of arid weather for Iowa, the Dakotas, Minnesota, Nebraska, Kansas, and most of Illinois. Showers will be focused on Wisconsin/Michigan and far S lowa/N Missouri (0.25-2.00″ of rain from late Friday into Saturday). 60-65% of the Midwest will be missing the rain with heat returning in the 11-15 day period. Iowa, Minnesota, the Dakotas, and Nebraska are the concerns where high temperatures will be in the 90′s to low 100′s into Friday. The 10-15 day period stays dry for the Plains, Canadian Prairies, and Iowa. Our worry for US corn/soy yields is rising as some areas have not enjoyed any meaningful rain in 3 weeks. The heat/dryness is rapidly pushing crop maturing.
- The forecast is concerning for the first week of August as declining soil moisture elevates crop stress across a broad area of the Plains and W Midwest (Missouri excluded). Canada’s drought is worsening with livestock feeders searching for feed. Our view is bullish on the sharp fall in world grain production since June.