- HEADLINES: Chicago posts limit losses on massive fund liquidation in corn/soyoil; Midday GFS weather forecast knifes rainfall for Iowa/Minnesota/Dakotas next 10 days.
- Chicago futures are sharply lower to limit down at midday with corn futures trading at the limit 40 cents down in new crop futures. Wheat and soybeans have followed corn with sharp daily losses with KC wheat futures falling back to under $5.80 basis September. Emotions are high with liquidation with December corn futures said to be trading 7-9 cents below the limit. The daily limit in soybeans is $1.00/bu and November has witnessed losses of $0.97/bu. KC wheat futures are at their lowest levels since March, even amid the massive loss of US/Canadian spring wheat crops.
- Chicago rallied to sharp limit up gains last Wednesday following the USDA June Stocks/Seeding Report. Today’s break has nearly taken back most of those gains amid the emotional weather selling of the morning. We well understand the need and timing of rain for the W Midwest and the Northern US Plains, but the top end of the US corn/soy yield has been lost due to extreme heat/weeks of dryness in the Dakotas, Minnesota, and much of Northern Iowa. Rain will produce stabilisation, but again remember that the record large US corn yield is 176.6 bushels/acre, and even with rain, it is difficult to forecast a US yield larger than 177.0 bushels/acre. Chicago is too cheap relative to fundamentals and coming demand.
- Chicago brokers estimate that funds have sold 24,000 contracts of corn, 19,000 contracts of soybeans, and 12,500 contracts of wheat. In soy products, funds have sold 8,500 contracts of soyoil and 7,700 contracts of soymeal.
- US weekly grain export inspections for the week ending July 1 were; 48.7 million bu of corn, 7.6 million bu of soybeans, and 9.5 million bu of wheat. For their respective crop years, the US has exported 2,289 million bu of corn (up 936 million or 69%), 2,110 million bu of soybeans (up 737 million or 54%), and 65 million bu of US wheat early in the crop year. We would remind that Census corn exports are 173 million bu ahead of FGIS at the end of May, so adding this on top of FGIS produces a crop year total of 2,462 million bu. With just under 9 weeks remaining in the 2020/21 crop year, the US must average 43.1 million bu/week to reach the WASDE target. We forecast a total close to 51 million bu/week or a total of 2,925 million bu.
- US farm sales have shut off on the Chicago decline. N Plains farmers want to see the rain in their gauges before making any new sales. And domestic end users in Brazil are frantically using the Chicago break to make forward cash corn purchases. There is a growing concern in Brazil that winter corn crop will not make the quality with supplies to dramatically tighten on last week’s freeze. Brazilian cash corn prices have rallied sharply in recent days and are not following Chicago sharply lower this morning. It is demand for US corn/soybeans that will be the bull driver once the supply selling is completed. Resting orders in the market are becoming increasingly difficult to uncover.
- The midday GFS weather forecast is much warmer/drier for the Western Midwest and the Northern Plains compared to what has been offered in recent runs. The GFS midday forecast slashed Iowa rainfall by 1.5-2.0″ with 10-day totals now around 0.6-1.25″. That amount of rain is not going to alter or help declining soil moisture. And the 6–10-day period is warmer with high temperatures returning to the upper 80′s to the mid 90′s. The GFS would maintain a dire drought across the N Plains and the NW Midwest into July 20. Any heavier rain is offered for Missouri, the southern half of Iowa and the Ohio Valley. Hurricane Elsa veers inland across Sarasota tomorrow after raking the Florida’s Western Peninsula with tropical storm force winds. The EU model has been trending drier, but the midday GFS forecast is a concern for a deepening drought across the N Plains and W Midwest. This is not the rain that would end a drought.
- “Student body right/Student body left” produces acute Chicago volatility with combined corn, soybean, and wheat open interest now back at levels not seen since September. The Brazilian corn crop losses are adding up in a world that is increasingly tight of grain. We see no reason to back away from our bullish outlook with new contract highs forecast. End users should use this break to extend forward coverage well into 2022.