- HEADLINES: Row crops sag amid Chinese demand issues; Wheat adds geopolitical risk premium.
- Chicago ag futures are mixed at midday, with corn and soy unable to shake negative economic concerns and plunging energy markets. Wheat’s been the clear leader as an extension of the Black Sea export corridor is in jeopardy, with recent Ukrainian military advances giving the Kremlin pause with regards to aiding the Ukrainian economy longer term. There is no concrete news on corridor extension/elimination, but wheat markets worldwide will remain incredibly sensitive to even potential adjustments in global grain flows. Spot WTI crude is down another $4.20/barrel at $82.70. RBOB gasoline has fallen to $2.27-2.32/gallon for autumn delivery, which is now near parity with cash ethanol quotes.
- Today’s action in wheat is a reminder that non-Black Sea wheat exporter stocks/use will be (by far) record low in crop year 2022/23, even assuming Russian shipments of 40+ million mt and Ukrainian exports of 10. The market has been unwilling to embrace this particular balance sheet (non-Black Sea exporter) as vessel movement in Ukraine increased as Russia’s cash market was beginning to attract importer interest. But the need to ration supplies will be triggered in Russia, while combined Canadian, Australian, and Argentine wheat stocks fall to dangerously low levels.
- We estimate that managed funds this morning were short a net 18,000 contracts. This position is being trimmed this morning. Paris milling wheat futures look to settle €9.50-10.50/mt ($0.27/bu) higher, with spot EU corn up €7-8/mt.
- US exporters sold 227,000 mt of corn to Mexico for 2022/23 delivery and 30,500 mt for 2023/24.
- Yet, energy markets continue to reel from lagging demand growth, particularly in China, which shows no signs of ending amid their unwavering zero tolerance Covid policy. Chinese crude oil imports in August totalled 9.5 million barrels per day, down 9.4% year on year. China’s August soybean imports totalled 7.2 morning, down 2.3 million (25%) from the previous year. This is generally in line with USDA’s annual Chinese soybean import forecast of 90 million mt, down 9.8 million from 2020/21. We note that the USDA projects Chinese soybean imports to grow by 8 million mt in 2022/23, and the likelihood of this occurring will be a principal driver of soy values in the long run.
- The US and Brazil will split whatever China’s total soy import demand is over the next 11-12 months and closer attention will be paid to the arrival of the wet season in Central and Northern Brazil. 7-day forecasts keep S American precipitation confined to RGDS and Parana in far Southern Brazil, but extended range forecasts allow light/moderate rain to impact Mato Grosso do Sul and Mato Grosso beginning Sep 15. All that is required is enough moisture for germination.
- The midday GFS weather forecast is wetter than the morning run across the Great Lakes region but is otherwise little changed. Light/moderate rain will move across the far Plains and Midwest Sun-Mon as low pressure sinks into the E Midwest/mid-South. Totals of 0.25-2.00” are offered to WI, IL and portion of IA and MN. Temperatures stay abnormally warm into the final part of the month. The Southeast will be wet amid an active flow of Gulf moisture, but there is still no indication of Gulf/Atlantic hurricane activity.
- Wheat’s chart has turned more positive, and it is difficult to overestimate the importance of Black Sea exports, particularly in mid/late autumn. Corn and soy price discovery in the near term will hinge upon US supply. Corn has a story if US yield drops below 171-172 bushels/acre, while beans will struggle above $14.40-14.50 without a threat to S American production.