- HEADLINES: Chicago wheat tests July lows; Crude weakens; GFS weather forecast unwavering with hot/dry Plains forecast.
- Markets chop amid China war games close to Taiwan while Central US weather debate is ongoing. Chicago traders look ahead to the USDA August crop report. Showers develop across S and E Iowa this morning.
- Chicago futures are lower at midday in thinning volume. The market lacks fresh interest with end users stepping up coverage on breaks while uncertainty prevails on US weather and crop yields. Fund managers are flat summer row crops to short wheat but appear keen to look at the long side of corn, soybeans and wheat following either the August or September crop reports. Money managers have profited handsomely in the past 2 years and with world grain fundamentals even more bullish this year. As such, they are trying to decide on the correct entry date. Corn/soybeans have bottomed in late August and September in the past 2 years, let’s see what happens in 2022.
- Chicago brokers estimate that funds have sold 3,200 contracts of wheat, 4,300 contacts of corn, and 2,500 contracts of soybeans. In the products, funds have sold 3,200 contracts of soymeal while buying 1,900 contracts of soyoil. Sellers dominate Chicago trade amid the inability of the market to sustain last week’s recovery on worsening US/China political relations.
- Nov bean’s open chart gap last week at $13.49 will be targeted, but we strongly doubt fresh lows can be scored amid threatening Plains/W Midwest weather.
- Corn basis across portions of the W Plains remains perched at $2.00/bu, and unlike a year ago in late Jul/Aug there has been no evidence of supply/demand returning to balance there. The Southern Plains region is likely to lose upward of 450-475 million bu of combined HRW, corn and sorghum production in 2022/23, and the W Plains feed market may be one of the stronger markets in the world of ag between now and the completion of harvest.
- And lingering in the background is ongoing strength in S America’s cash corn market. Upriver fob basis in Argentina has rallied to $0.75/bu, vs. negative basis just 30 days ago. Brazilian corn futures are slightly lower today via weakness in the Real, but Nov corn in Brazil looks to settle at $7.00-7.05/bu.
- US ethanol production in the week ending July 29 totalled 307 million gallons, vs. 300 million the prior week, and which reflected a surprising jump. Spot Midwest ethanol margins are positive and new crop margins are exceptionally profitable as forward ethanol prices have been unwilling to trade below $2.00/gallon.
- Spot WTI crude is down $3.00 at midday as another release of strategic reserves triggered a 4.5 barrel boost in stocks.
- The midday GFS weather forecast remains steadfast in keeping an amplified high pressure ridge aloft the Central Plains, which will work to keep meaningful precipitation isolated to the Great Lakes and eastern Midwest. The GFS forecast is trending wetter east of the MS River, with 10-day cumulative totals of 1-3” offered to IL, IN, KY, OH and MI. Near complete dryness and elevated temperatures will be ongoing across the Plains, MO and IA into Aug 13. Max temperatures next week will stay perched in the 90s/low 100s across the western Corn Belt.
- The EU and GFS forecasts begin to diverge on Sun/Mon, particularly with respect to projected rainfall in IA and MN. Whichever model proves current is important. Our bet is that the market assumes the cooler/wetter EU solution is correct, but GFS output cannot be fully dismissed.
- The market now waits for Friday’s August WASDE, with choppy range bound trade most probable. We strongly caution against chasing breaks amid a growing risk that US yields fall below market expectations.