- HEADLINES: Turnaround Tuesday in the making as end user pricing surfaces on morning break; GASC secures 325,000 mt of Russian wheat; GFS weather forecast slightly wetter across W Midwest.
- Chicago futures are mixed at midday in declining volume. Long liquidation by fund managers in soybeans/soymeal/soyoil and corn pressed values early, but end user pricing and profit taking by the bears trimmed losses at midday. Chicago grains are now trading in the green with a turnaround Tuesday in the making.
- We doubt that with the USDA August crop report due out on Friday that either the bulls or the bears can sustain a price trend for the rest of the week. Chicago markets are in waiting mode with traders paring risk awaiting last half of August weather, private crop tours and NASS August USDA yield data.
- Expect a mixed to slightly higher close as positioning is the dominate theme for price, and traders will lean into the potential for a supportive US 2023/24 soybean balance sheet with corn staying heavy with end stocks near or above 2.0 billion bu. We note that traders are not looking for much of a change in US all wheat production with an average guess right at the July NASS forecast at 1,739 million bu. Our bet is that if there is a surprise, it could be a smaller US wheat harvest due to sinking HRS yield.
- Chicago brokers estimate that funds have sold 3,400 contracts of wheat, 4,800 contracts of soybeans, and 2,900 contracts of corn. In soy products, funds have sold 4,300 contracts of soyoil and 3,200 contracts of soymeal.
- GASC purchased 235,000 mt of Russian wheat from the same supplier, Grain Flower, at reported prices of $262-265/mt basis FOB. This is up $12-15/mt from last week’s tender with freight costing $14.50-17.69/mt. World wheat prices as values have formed their seasonal low. Russian exporters are struggling to replace sold wheat from the farmer and insurance/freight rates are rising on the back of the expanding Black Sea marine war. As we have previously reflected in recent weeks, it is just getting tougher to supply Russian/Ukraine grain as the Black Sea Grain Corridor Pact ended in mid-July. If new Southern Hemisphere wheat harvests are not as large as USDA forecast (due to the rapidly expanding El Niño), the wheat bull story will become somewhat spicy into 2024. It is important to understand the growing difference in world wheat markets last year and this year and the bullish tailwind that it would provide for corn/soy futures.
- Ukraine President Zelenskiy indicated that Ukraine will attack Russian vessels and ports just as Russia has attacked Ukraine ports and grain silos in a tit-for-tat kind of war in the Black Sea. The Ukraine pronouncement on its exports was a surprise as it has been the defender not the aggressor in the war to date. However, grain/steel exports are at the heart of the Ukraine economy. We fear that Russia will continue to target Ukraine grain assets with retaliation from Ukraine in a broadening war with September-December grain exports being the largest of the crop year. The expanding Black Sea war makes it difficult to be overly bearish of Chicago and world values once the US corn yield is digested. Sub $4.80 December corn futures offers ownership opportunities for end users with Ukraine corn exports expected to be curtailed by 4-6 million mt.
- The midday GFS weather forecast is slightly wetter across the W Midwest and similar in the E Midwest vs the overnight solution. Any heavier rain will be confined to OH/IN with 10-day totals of 0.5-2.00” with reduced 0.25-1.25” for the W Midwest. The best rain chance is with a ridge riding system in the next 48 hours across the C and E Midwest. Severe weather is probable across the OH Valley. Thereafter a drier weather trend evolves with seasonal temperatures. The high-pressure ridge amplifies northward late next week with 80’s to mid-90’s becoming commonplace. The GFS forecast has been the warmest of the forecasts in the 10-15 day period and is likely too warm. The northern branch of the jet stream stays strong which will prevent any pattern stagnation into late August.
- Speculative liquidation ended early in the session with end user pricing noted in soyoil, corn and soybeans. China secured additional US and Brazilian soybeans this morning. Cash soyoil holds at a $0.04-0.08 premium to August futures with only 71 deliverable receipts registered. Seasonal bottoms are forecast either right before or after the August or September USDA reports. World wheat, rice and soy product prices have already forged seasonal lows. Don’t sell sharp breaks!