- HEADLINES: Central US weather goes drier/warmer. China purchasing US corn, sorghum, wheat. Russian wheat export taxes.
- US grain demand rumours, Russian export doubt and crude oil recovery.
- Chicago grain futures are sharply higher at midday in a recovery of the lashing of prior trading days. Improved US export demand, strong domestic biofuel margins and concerning Central US weather forecasts have combined to lift Chicago values. Wheat has paced the recovery with soybeans/corn in tow. Managed money appears to be willing to embrace the buy side of the grain ledger with the July US Employment report to report that the US added 200-225,000 new jobs. The adding of new hires to the US workforce will tap down on the discussion of a looming US recession. “Risk on” is the theme of the morning with hedge funds unwilling to hold cash for long periods of time. Energy and ag markets appear cheap compared with existing fundamentals.
- However, traders are not willing to chase the morning rally with the Weekly FAS Export Sales Report due out tomorrow. Traders fear that China cancelled or rolled forward 8-12 cargoes of US soybeans late last week, which would be seen as bearish. Rumours abounded in the cash markets of China cancelling US August soybeans which could be reflected in the weekly sales data.
- Chicago brokers estimate that funds have bought 4,200 contracts of corn, 2,200 contracts of wheat, and 3,100 contracts of soybeans. In the soy products, funds have bought 3,400 contracts of soyoil and 3,800 contracts of meal.
- There are cash rumours that China may have purchased US sorghum out of the Gulf and wheat/corn off the PNW. The tonnages involved are 400-600,000 mt of US corn for January/February shipment and 200-300,000 mt of wheat, and 120-180,000 mt of sorghum. The buying is likely for a private Chinese group. We note that China’s pork price has been soaring to their best levels in years which has turned feeding margins profitable.
- In the past few years China has purchased sizeable tonnages of French wheat for feeding/milling purposes (and to comply with their WTO obligations). US SRW wheat is far cheaper then French offers into China, and one must be aware that China could engage in a US SRW wheat purchase program under existing price relationships.
- Question abounds on whether wheat exported from Russian occupied Donbas region (Mariupol port) will be subject to Russian export taxes. If the taxes do not apply, then the grain is Ukrainian, and should be considered stolen. The Russian occupation of E Ukraine is likely to persist for a long time. How the world sees the grain exports from this region will be important. Few world wheat millers want to be seen as using stolen wheat to produce flour. Ukraine is already making a media frenzy on the use of stolen Ukrainian grain.
- Brazil’s CONAB trimmed their estimate of the 2022 Brazilian soybean crop to 124 million mt, down 300,000 mt from last month. The Brazilian total corn crop was forecast at 115.7 million mt, up 500,000 mt from June. We maintain that the CONAB’s 2022 corn estimate is too high by 4-6 million mt.
- The GFS weather forecast is drier than the overnight run, which has been a trend of recent model runs. A high-pressure ridge retrogrades west to a position over the Intermountain West and then progresses back into the W Midwest. The best chance for Midwest rain is over the next 24-36 hours with a frontal pass-through Illinois/Indiana. Rain totals are estimated in a range of 0.2-1.00”. A decidedly drier trend follows with the ridge to amplify over the Plains and slowly progress east to the W Midwest during the 11-15 day period. Our concern for Central US weather stays elevated.
- Recessionary worry produced the 2-week Chicago break. Lower US soybean seeding and a seasonal low in wheat looks to maintain a bullish trend. Amid China’s feeding margins to hogs as profitable, we hold to a bullish price trend.