- HEADLINES: Macro markets weather negative GDP data; US forecast stays worrisome into mid-August.
- Chicago adds weather premium; Energy/equity markets shrug off US economic contraction; GFS weather forecast extends heat/dryness into August 12.
- Global ag markets are higher at midday as there is no sign that needed rain and cooler temperatures lie in the offing prior to mid-August and as energy and financial markets have weathered this week’s interest rate hike and confirmation that US GDP contracted (by 0.9%) for a second consecutive quarter. The textbook definition of recession is two consecutive quarters of GDP contraction, and there is little doubt that growth challenges lie ahead amid sticky inflationary trends. But the US labour market is strong and consumer spending data suggests that real economic harm is not being felt – right now. The Dow at midday is up 235 points. Spot WTI crude is up $0.50/barrel at $97.70. With the Federal Reserve not meeting again until September, ag markets will be free to trade existing fundamentals, which increasingly includes a rapid decline in Northern Hemisphere corn production, and the potential for sizeable US soybean yield loss.
- We also note that global canola/rapeseed markets have soared this week, with Paris rapeseed up 8% week on week. Recent strength in wheat and rapeseed markets is noteworthy as both normally find seasonal lows in mid/late summer. To that end, time is also running short to be bearish of US row crop markets.
- US export sales data is viewed as mixed. Old crop corn sales through the week ending July 2t totalled 6 million bu, vs. 1 million the prior week. Global corn demand has shifted to Brazil. Net soybean cancellations, mostly from China/unknown, of 2 million bu were recorded, which follows positive sales of 7 million bu the previous week. Yet, new crop soy sales were a sizeable 28 million bu, the largest since mid-April. Total new crop US soy commitments, excluding outstanding old crop sales, sit at 585 million bu, the largest since 2014. When including old crop outstanding sales, 2022/23 US soy export commitments are a record large 772 million, or 36% of the USDA’s forecast, with the beginning of the new crop marketing year still 5 weeks away.
- US wheat sales totalled 15 million bu, vs. 19 million the previous but week but still 4 million above the pace needed to meet the USDA’s forecast. Soyoil sales were 10 million lbs, vs. 1 million the prior week.
- Confusion surrounding the timing/execution of Ukrainian grain exports continues. Vessels stuck at ports have not yet left, but there is hope movement will be seen in the next 1-2 days. Newswire reports indicate insurance companies, via steep premiums, can handle manoeuvring around mines but concern over Russian noncompliance lingers.
- Logistics in the south and east of Ukraine will remain challenging indefinitely, and logistics will be compounded as Ukrainian producers work both to harvest a new corn crop as well as transport supplies to ports. A full 30-60 days of vessel line-up data is needed to confirm the success of the export corridor deal.
- The midday GFS weather forecast is similar to the morning run is keeping meaningful precipitation into mid-August confined to the S Plains, Delta and mid-South. Regional flood risk is elevated in portions of AR, TN and KY. Intense/expansive ridging triggers near complete dryness and dangerous heat across the Central Plains and Western/Upper Midwest August 1-10. GFS max temperature forecasts of 110-115 in KS NE, IA, SD and MN are very likely overdone, but there is less doubt that temperatures will be at/above 100 for some 8-10 consecutive days. Flash drought lies ahead for the western US ag belt, including much of IA.
- Market fears are now cantered on weather and the potential for sizable yield loss, which follows guaranteed corn yield loss in Europe. Premium will be added, particularly in the soy complex, until signs of a pattern shift emerge. Such a sign is not available today.