- HEADLINES: Midday GFS wetter at midday for SE Midwest/Delta; Chicago option volatility rate under pressure; Goldman roll starts Wednesday.
- Following an active opening, low volume amid uncertain Central US weather has left Chicago grain futures to chop. Chicago values are mixed at midday with traders debating weather/yield, old crop basis strength and a Saudi wheat purchase of optional origin wheat. NASS will be out with their weekly crop progress and condition report which will help traders measure the impact of 3 weeks of dry weather and soil moisture declines. Reports are widespread of Midwest wheat unable to fully tap nitrogen, rolling corn and soybean seed that did not germinate or prematurely died. And whether S Midwest farmers will be willing to seed double crop soybeans following corn unless a soaking rain arrives. Look for additional choppiness in Chicago values until there is weather clarity. Option volatility is in sharp decline today, we argue that such a fall in option vol is too early with the heart of the growing season ahead and 2023 Midwest soils drier than on the same date back in 2012.
- Chicago brokers report that fund managers have been on both sides of the markets with early corn/wheat buying fading, with outright sales of July corn and soybeans. Managed money purchased 2,100 contracts of Chicago wheat, while selling 7,400 contracts of corn, while being flat in soybeans. In the products, funds have bought 2,000 soymeal while selling 1,300 contracts of soyoil. We look for a mixed Chicago close due to the uncertainty of when a soaking Midwest/Delta rain will fall, The need for Midwest rain is immediate.
- The US exported 46.492 million bu of corn, 7.872 million bu of soybeans, and 10.714 million bu of wheat last week. For their respective crop years to date, the US has exported 1,177 million bu of corn (down 545 million or 32%), 1,788 million bu of soybeans (down 46 million or 2.5%), and 13.056 million bu of wheat in the first week of the crop year. We expect that WASDE will trim 2022/23 US corn/soybean export estimates by 15-35 million bu on Friday. This should result in a like rise in 2023/24 US corn and soybean end stocks.
- Saudi Arabia booked 624,000 mt of optional origin wheat for Sept-October. The sale was concluded at an average price of $262/mt basis CIF. Assuming a $24-26/mt freight cost to Jetta, the only origin that works would be Russian wheat at a FOB price of $234-236/mt. The largest seller, Holbud, has Iranian financial ties but has been absent as a world wheat merchandiser for over a year. The point is transparency and whether Russia has a fob floor price that is effective in the new crop year. Remember that Russian wheat export taxes end below $210/mt, but that Russian farmers will be slow sellers on marginal profitability below $160/mt. Russia and Europe hold large caches of old crop wheat which is likely to keep pressure on world fob prices until a real supply new crop supply loss can be confirmed.
- US farmers are increasingly pulling back from side dressing nitrogen on corn and the planting of double cropped soybeans that follows SRW wheat due to dryness. Acute dryness alters fertilisation and seeding decisions. This is why receiving Midwest soaking rain in the next 2-3 weeks is so important.
- The Goldman Roll starts on Wednesday with traders already positioning by selling the July/December corn spread and July/November soybeans. We note that the July/November soybean spread is holding better than corn due to strong domestic processor demand and expanding cash crush margins.
- The midday GFS forecast is wetter for the SE Midwest and Missouri than what was offered overnight. Popcorn showers will dot the W Midwest early this week with the E Midwest staying bone dry. Heat is maintained with highs ranging from the 80’s to the 90’s. A back door cold front is forecast to drop southward through the Midwest this weekend producing 0.2-1.25” of rainfall favouring the Delta/W Midwest. The GFS forecast is back and forth on the rain details and change in location/amounts are expected.
- The midday GFS weather forecast is wetter with the rain working into the E Midwest in 9-10 days. Remember that droughts are not defined by no rain, but a persistence of below normal rainfall. Our concern for the 2023 Midwest weather stays elevated. Look for crop ratings to fall this afternoon and for back and forth trade this week.