- Futures fell to sharp losses on the opening with funds shedding additional length in wheat/corn with soy futures trading both sides of unchanged. A potentially bearish USDA crop report on Thursday along with sagging world wheat prices left Chicago vulnerable to long liquidation.
- The bulls are tiring waiting for the return of adverse Central US weather and/or the release of the new NASS survey of US corn and soybean seeded acres in mid-August. Moreover, fund managers are aware that seasonal price trends normally turn lower in late June or July and they feel the need for a new fundamental stimulus to buck what is normally a bearish time of year. The N Hemisphere crop production is starting to become “known” by the end of July. However, amid strong US cash corn basis levels amid limited farm selling, Chicago is unlikely to decline much below last week’s low until the US farmer decides to part with more of their stored old crop supply. Strong cash basis will underpin breaks, but rallies fail amid lacklustre demand unless a new supply threat is in the offing. Wait until the 2019 US corn and soybean crops can be better quantified before making fresh, big decisions would be our advice right now.
- Chicago brokers estimate that funds have sold 3,900 contracts of wheat, 6,500 contracts of corn, and 1,100 contracts in soybeans. In soymeal, the funds have bought 2,300 contracts and sold 800 contracts of soyoil.
- This is seasonally the time of year that world importers start securing new crop US corn and soybeans with daily sales announcements becoming commonplace. Yet, US corn, wheat and soybean fob offers are well above other origins. Argentina is offering corn into the end of the year with values some $0.46-0.51/bu cheaper than the US Gulf! And new crop Ukraine corn is offered at $0.30 over vs the US Gulf at $0.69 over for November or a difference of $0.30. And Brazil also has a record line up to load out winter corn through August.
- Our point is that US Gulf corn is offered at $200-202/mt through year end which appears expensive with every other world corn exporter $10-20/mt cheaper. And US corn is also expensive against wheat with the Black Sea offering 12% wheat at $192-196/mt, $4-8/mt cheaper. The US will only be able to sell corn and wheat to traditional and captive grain importers.
- It is one year into the US/China trade war and Chinese crushers have learned to adjust. The spread for Brazilian/US Gulf soybeans stands at just $12/mt or $0.33/bu for August. This fob vs fob spread is much more acceptable than last year’s $2.80/bu Brazilian premium. And based on the slow pace of Brazilian soybean exports, they are willingly offering China soybeans through November, leaving a modest window for any US soybeans to China in December/January. The price of the trade war for Chinese crushers has been modest during 2019.
- The Central US midday GFS weather forecast is wetter across the Delta as it allows a developing tropical storm to make landfall in LA with its motion then to the north/northeast. This will soak the LA, the Delta and provide needed showers to the E Midwest. Otherwise, the forecast is little different from the overnight run with a broad and flat ridge across the southern two thirds of the US on day 10 with showers forming along its northern edge in a “ring of fire” pattern. This produces rain for the N Midwest. Temperatures will range from the 80’s to the lower 90’s. The forecast is favourable into July 20 with more regular rains needed thereafter. There are hints that the last week of July could produce near to slightly below normal temperatures and near to slightly above normal rainfall.
- There is not enough of a threat in the midday forecast to engender bulls to chase a rally ahead of USDA Crop Report that likely will be slightly bearish. We doubt that a lasting Chicago trend can evolve until more is known about 2019 US planted summer row crop acres and yield. We see Chicago caught in a broad trading range. Ukraine and Romanian wheat will dominate future GASC tenders leaving pressure on Russia to lower prices on hi pro wheat.