- HEADLINES: Chicago corn bounces from key $5.20 Dec support; Midday forecast drier for E Midwest with high pressure ridge in extended range; CONAB Thursday.
- Chicago grain futures are lower while the soybean market hangs in the green on end user pricing and active soy/corn spreading. December corn has fallen back to last week’s low which completely erased last week’s NASS Stocks/Seeding rally. Soy futures are holding firm on US soymeal export demand while wheat futures sag following corn. The USDA July Crop Report will be released on Monday, but traders are focused on Central US weather and the rain that is projected to fall from Iowa eastward. Traders have been very focused on Central US weather.
- We note that crude oil and a host of other commodities turned lower this morning, which is sparking a “risk-off” trading mentality. Funds appear to be exiting risk in a host of commodity markets which is a bearish Chicago undertow. August crude oil futures has fallen back to $71.07 this morning, which was down over $2/barrel. Lumber prices have reversed early day gains while the US$ rallies and tests the April high. It is the strengthening US$ that has acted to pressure a host of commodities. The upside price target for the greenback is a test of $93.50, the March high. Strong resistance is offered between $94-95.00 for the US$ Index, the late 2020 high.
- CONAB will be out with their updated Brazilian corn and soybean estimates on Thursday. Of focus will be the winter Brazilian corn crop estimate following the hard freeze of last week. Most of the cold weather damage will NOT be calibrated in tomorrow’s corn yield estimate, but key states like Parana, Mato Grosso Do Sul and even Mato Grosso have been cutting their respective state production estimates that add up to a final Brazilian corn crop as low as 84-86 million mt. Brazil’s corn estimate is in decline based on harvested yield data. The Parana cuts are so large that Southern Brazil will face an acute corn shortage with prices rising sharply. In fact, speculation is growing if the Brazilian Northern Arc may have to export corn to Southern Brazil to ease their acute feed shortage. For now, the function of the Brazilian corn market is to rally interior cash corn prices to levels that are well above export and shift Brazilian corn demand to the US/Ukraine. A Brazilian corn crop of 85 million mt would sharply curtail their annual corn export program by 8-13 million mt. The problem is that the world does not have the corn to make up that difference. The USDA US 2021/22 corn export estimate needs to rise from 2,450 million bu to at least 2,850 million bu. This would drop US 2021/22 corn end stocks closer to 1,100 million bu without a change in old crop US corn end stocks and adding in the additional 1 million harvested acres found in last week’s NASS report. This would use a US corn trend yield of 179.5 bushels/acre.
- The GFS weather forecast is like the overnight run, except that meaningful heavy moisture across Iowa will be south along the Iowa/Missouri border. This heavy rain will then push into Illinois/Indiana early next week where some localised flooding could occur. Soils here are saturated and need more time to dry down following the 5-12″ of rainfalls of 10 days again. However, the forecast is broadly drier for the S and E Midwest with rain totals being some 1-2″ less than the overnight run. N Illinois and Southern Michigan are the new “bullseye” for soaking rain. Mild summer temperatures persist for the next 7-8 days before warming returns as a high-pressure ridge elongates across the Central US. This is the first strong high-pressure ridge across the Central US in the crop season to date. It will be closely monitored by traders heading into the weekend.
- Leftover speculative selling pounded Chicago corn early in the day, but the market is recovering and holding its 100-day moving average. The weather models keep reducing rain for the N Plains/Minnesota which adds concern for 2021 US corn/soy yields. Near perfect weather is needed for trend E Midwest corn/soy yields based on the acute dryness of the N US Plains/W Midwest. We are bullish looking for new contract highs in corn and soybeans.