6 July 2022

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  • HEADLINES: Midday GFS more threatening amid warm/dry central US weather; Paris wheat fills open chart gap; crude oil tries to recover.
  •  Chicago grain futures are under pressure at midday with an early rally effort failing amid new selling in the energy markets. WTI spot crude oil futures have fallen another $3.00/barrel to $96.00 which pulled a host of raw material markets lower. Chicago grains, cotton and energy futures are lower at midday on fresh selling. Recession fears and the strong US$ capped the early commodity rally. The US$ has nearly reached its best level in 2 decades based on rising US interest rates. The minutes of the June FMOC meeting will be released early this afternoon with the US July Jobs Report will be out this Friday. Traders are gauging the health of the US economy and whether the US Central Bank has been able to talk inflationary trends lower. The UN will release their July Food Index measure on Friday with today’s ISM data showing ongoing new growth in demand for US consumers. And the US jobs growth on Friday would help confirm that the US economy is not in recession.
  • Chicago brokers estimate that funds have sold 9,200 contracts of corn, 4,200 contracts of wheat, and 5,500 contracts of soybeans. In the soy products, funds have sold 4,500 contracts of soyoil and bought 1,200 contracts of meal.
  • Pakistan has yet to buy 500,000 mt of wheat with world futures markets in a freefall. Pakistan is still in negotiations with multinational exporters, but it is becoming likely that Pakistan could cancel this tender and issue another for next week. Pakistan is expected to import 3-4 million mt of wheat in 2022/23 to boost domestic supplies.
  • Ukraine doubts a political deal to unblock its grain exports will happen soon. Ukraine foreign minister Dmytro Kuleba cast doubt on a breakthrough in talks with Russia that unblock ag exports outside of the 1.2-1.8 million mt that are leaving through Eastern Europe.  Russia continues to seek that NATO members drop their economic sanctions for a grain export corridor. Such a sanction drop is a nonstarter.
  • The lack of Ukraine marine grain exports amid soaring costs due to the war has pressured Ukraine domestic grain bids to farmers. Reports have Ukraine farmers receiving record low bids (near $100/mt for wheat) which is causing them to push their newly harvested grain into on farm storage. The low cash bids will ultimately cause Ukraine farmers to abstain from planting a new wheat crop and hope that the war ends before next spring, when row crops can be seeded. Capital availability for most Ukraine farmers is becoming strained.
  • Paris wheat futures have fallen to a key open chart gap that was filled with the break today. This pushed Paris wheat back to the pre-invasion price. However, with the €uro likely to trade at a parity with the US$, demand for its wheat is likely to keep quickly rising with the export line up growing.
  • Paris Wheat Fills Open Chart Gap:

 Graphical user interface, chart</p> <p>Description automatically generated” width=”389″ height=”324″ /></p> <ul> <li>The GFS weather forecast is drier than the overnight run with a high-pressure ridge to retrograde westward to a position over the Intermountain West which maintains hot/dry weather over the W Midwest and the S Plains. The best Midwest chance for rain is over the next few days with totals of 0.5-2.00”. A decidedly drier trend follows with the ridge to amplify over the Plains and slowly progress east to the W Midwest in the 11–15-day period. The recent rains will aid crops for a few days, but regular rain is needed to raise soil moisture back near normal. A regular rainfall pattern is needed with corn/soybeans entering their most moisture sensitive stage of development. Our concern for Central US weather stays elevated.</li> </ul> <ul> <li>Macro market selling was endured with end users and commercials buyers of the break in corn, soyoil and wheat. Chicago grain and soy futures appear to be forming seasonal lows. Wheat, corn, and soy futures have fallen far more than forecast due to recessionary worry. We look for the US Central Bank to affirm that the US economy is strong enough to weather a July/September interest rate hike. We doubt that the US Central Bank wants to spark a recession, it just wants to put the inflation genie back in the bottle. Watch for a top in the US$.</li> </ul> </div> </div> </div> </div><!-- .entry-content --> <footer class= This entry was posted in Daily Commentary by simon. Bookmark the permalink.