- It has been a mixed morning with funds coming out of short soy/long grain positions. The volume of trade has been below average as traders prepare for the USDA August crop report. Traders are trimming their long positions in wheat/corn and their short positions in soybeans/soyoil. Our bet is a lower close with new buying returning to wheat near the close. French and world wheat prices are still rising and the fall in US wheat futures looks to be corrective. The rationing of world wheat demand is not occurring at sub $6.00 prices and we doubt that a top will be formed until the 1st quarter of 2019. Wheat is a bullish supply market today that is likely to morph into a bullish US wheat export demand story once the EU, Russia and Australia have exported their exportable supplies. It’s tough to drop US wheat too much unless world wheat prices declines.
- Chicago floor brokers report that funds have sold 4,900 contracts of corn and 2,600 contracts of wheat, while buying 5,300 contracts of soybeans. In the products, funds have bought 3,000 contracts of soyoil and 2,100 contracts of meal. There has been limited farm selling of cash soybeans on the rally as November reaches back near resistance at $9.25.
- The Russian Government is considering the sale of 500,000 mt of wheat from the state intervention fund, which is in addition to the 500,000 mt that is already provided. Of the 500,000 mt that was offered, 360,000 has already been sold. The Government draft decree would provide additional grain to the domestic and international markets with nearly all sides expecting that total sales from intervention to reach 1.5 million mt by the end of the 2018/19 crop year.
- We expect that Russia will keep selling/exporting wheat until their stores run dry. The pace of Russian wheat exports from August to November will determine when exportable Russian supplies are exhausted. Our bet is that it will be in December or January. The average trade estimate for Friday’s report is a US corn yield of 176.2 bushels/acre and soybean yield of 49.6 bushels/acre. The US HRS wheat crop is not expected to decline very much with an average guess of 658 million bu. We would see the US HRS wheat total closer 324 million bu based on the variable early yield data. A year ago, NASS estimated the US corn yield at 169.5 bushels/acre with the record high yield occurring in 2016 at 175.0 bushels/acre. A 2018 yield of 176.2 bushels/acre would set an all-time record for US corn, which may be a tad aggressive for NASS. World 2018/19 world wheat stocks are estimated to decline only 4.5 million mt from the July forecast of 260.9 million. The wheat production decline in the EU wheat should be as much as 10 million mt with further reductions in Australian and Canadian crops. We see world wheat stocks falling below 250 million mt.
- Some needed rain has fallen across portions of Central and Eastern IA with totals of 0.5-2.50”. Rain is also falling across the southern half of IL with totals of 0.25-1.25”. The rains were badly needed. The central US GFS weather forecast is wetter across TX/OK and drier across IA, Northern IL, and the N Plains. The forecast is slightly warmer next week. Our confidence in the GFS model is low due to big run-to-run changes. Our bet is that limited rains will fall through the N Plains and the NW Midwest over the next 5-7 days amid seasonal temperatures. The rains are aiding the yield outlook for US soybeans.
- Spread unwinding of grain/soy and needed rains across portions of the Midwest has produced something of a turnaround Tuesday. Moreover, corn and wheat were unable to score new rally highs which has produced technical selling ahead of Friday’s USDA report. Research argues that world wheat values are a long way from scoring their annual highs, while the upside is limited to 15-25 cents in soybeans without a trade agreement with China.