- Pre-report positioning has been the order of the day with corn, wheat and soybeans trading either side of unchanged in reducing volumes. Risk off is the attitude as the August USDA report and its uncertainty looms. History shows us that it is the August release that can, and frequently does, spring surprises, and we suspect that tomorrow will be no exception. The US corn yield will likely be the focal point, but an increase in US 2016/17 soybean export estimates of 35-50 million bu should not be overlooked. For today, we doubt that either breaks or rallies can gather much traction.
- Traders are also discussing the “sabre rattling” between the US and N Korea, and the potential for military action. Historically, commodities are “safe havens” amid such skirmishes. However, complicating the US and N Korean “war of words” is that both countries hold nuclear weapons. This raises the stakes with strategic drone strikes complicated by the close proximity of S Korea. China appears to be supporting the US’s political stance against N Korea, which has halted any real forward movement on US trade issues. US exporters are reporting that China has become more aggressive in asking for US fob soybean offers and making purchases in the past 24 hours. The USDA has reported the cancellation of 130,000 mt of 2016/17 soybeans this morning.
- We are somewhat surprised the US$ has not rallied sharply on the N Korea situation. The inability of the dollar to advance argues for future weakness. The midday GFS weather model has raised our concern for podding in Midwest soybeans and late filling corn due to rapidly drying soils. The EU model forecast was already dry. Any US soybean yield below 46.5 bushels/acre will offer sizeable upside market price risk.