- Chicago futures are firm at midday with wheat rising sharply. EU and Black Sea wheat crop estimates this week have been inching lower, and winter yields across key areas of Southern Russia continue to disappoint. EU cash markets have been well supported despite the recent break in Russian fob quotes. Funds this morning were estimated to have been short a net 35,000 contracts in both Chicago and KC. Sep Chicago this morning traded easily through its 20-day moving day average, and short covering is the theme of the morning.
- However, we would mention that already US wheat is overpriced in the world marketplace. EU milling wheat futures are at midday are up just $0.07/bu, and so US wheat premiums to comparable EU/Black Sea origin will be widening.
- FAS failed to include any new US export sales to China or elsewhere this morning. Stepped-up Chinese buying of US soybeans is needed to sustain Nov above $9.00-9.10, while US corn demand increasingly is becoming limited to already captive markets.
- Brazil’s CONAB raised its 2019/20 Brazilian soybean crop estimate to 120.9 million mt, vs. 120.4 million in June. We suspect additional boosts to production will be made amid surprisingly large soybean export demand.
- Recall that the USDA pegs Brazil’s 2019/20 soybean crop at 124 million mt, and in recent months has not opted to follow CONAB’s guidance.
- CONAB lowered its total Brazilian corn crop estimate slightly to 100.6 million mt, vs. 101 million in June. Our view is that final Brazilian corn production will sit between 101-102 million mt, but we do mention yields in Mato Grosso do Sul and Parana have been better than expected. Safrinha yields in Mato Grosso are record large. The pace of Brazilian corn sales is beginning to accelerate.
- This week’s EIA data is viewed as slightly bearish corn in that ethanol production gains have been limited in recent weeks while ethanol stocks were higher for the first time since mid-April. Ethanol production through the week ending July 3 totaled 269 million gallons, up 4 million on the previous but well short of the 296 million gallons average needed to hit the USDA’s target. US gasoline use through the week totalled 8.77 million barrels/day, up 2% on the previous week but still down 10% from the same week a year ago. US crude stocks last Friday were a massive 539 million barrels, up 17% on the year.
- The midday GFS weather forecast is consistent with this morning’s solution. Showers will be widespread across the Northern Plains and Central Midwest into Mon/Tues. Cumulative totals of 0.50-1.00″ are offered to the Dakotas, MN, WI, northern IL, IN, OH and Ml. Temperatures into the weekend will moderate somewhat, with highs to be capped in the upper 80s and low 90s across the primary Corn Belt.
- Strong high-pressure ridging expands and reaches into the Midwest July 16-19. This will allow temperatures during this period to rise into the low/mid-90s. But the ridge will stay transitory in nature, with cooler temperatures and better rain chances projected in the 12-15 day period.
- US and world wheat markets are adding premium on lower than expected early EU/Black Sea winter yield results. Price action is validating that seasonal lows in wheat were scored earlier than normal. Corn/soy rallies will be laboured without lasting heat/dryness in the second half of July. Demand growth remains a concern.