- Fear and fund liquidation has pushed Chicago sharply lower this morning with funds exiting stale long positions ahead of the Singapore Summit and the USDA June Crop Report on Tuesday. We would note that CONAB will also be out with their Brazilian crop updates tomorrow morning. A cut in the Brazilian corn crop of 2-4 million mt is expected from their prior forecast of 87 million. This coming summit/USDA report and Central Bank meetings make this a very important week for data heading into the end of the month and quarter.
- Chicago brokers estimate that funds have sold 17,000 contracts of corn, 8- 9,000 contracts of soybeans, and 4,700 contracts of wheat. In soy product futures, funds have sold 6,200 contracts of soymeal and bought 1,700 contracts of soyoil. Funds are shedding long stale Chicago grain and soymeal positions.
- Traders fear that the US/North Korean Summit will not conclude in agreement with both President Trump and Kim expected to only meet for several hours and then depart. We do not expect that an agreement will be reached. Rather, we expect that both leaders will decide that it is in their best interest to keep talking and more fully engage their staffs on nuclear disarmament.
- A future of ongoing US/North Korean talks would keep the Chinese engaged and likely slow or even prevent the US from imposing $50 billion of trade tariffs on Chinese goods as US seeks their involvement/support. Kicking the North Korean can down the road would be the best-case outlook for US ag goods, and allow the US/Canada/Mexico to work on NAFTA and allow more time for US/Chinese negotiators to work on intellectual property rights (beyond the standing Chinese offer to secure an extra $70 billion of US ag and energy goods). We would see a Singapore Summit deal of “dialog” as positive for US ag commodities.
- NASS is likely to find a bigger US winter wheat crop in Tuesday’s report, but declines in Black Sea, European and Aussie crop estimates should more than offset the US gain. Russian wheat traders are off today for their Independence Day holiday, but we expect that the ongoing dryness across Ukraine/W Russia/N Europe will likely cause the world wheat stock/use for major exporters to decline near the 2007 low. We doubt that Black Sea wheat prices can fall very far this harvest amid exceptionally tight old crop stocks in the area surrounding the Black Sea, and the reduction in new crop supply. Black Sea wheat futures argue that their fob cash market is too cheap at $205/mt.
- The midday GFS North American weather pattern forecast in the US has the GFS drier in parts of WI and IL this weekend, but is otherwise unchanged. The model maintains the return of expansive high pressure in the 6-10 day period. This will trigger another round of widespread Central US dryness Jun 13-20. Temperatures in the Plains again reach into the mid/upper 90s. Our confidence beyond even a few days remains low, but the difficulty in establishing a weather trend will keep volatility high. The EU model will be watched closely. Key is whether high pressure ridging returns in the second half of the month. Five-day precipitation suggests much of Corn Belt will be well watered in the near term.
- The fear of a poor outcome of the US/N Korea Summit and Chinese trade tariffs later this week has engulfed Chicago this morning. Adding to the bearishness is the rains that are expected to fall across the Central US in the next ten days. However, Black Sea and European wheat crops are in decline, and a Russian 2018/19 wheat export estimate of 30-33 million mt are now being embraced, which is down from 40-41 million mt this year. The world wheat market has a bull story.
- Trade issues, weak currencies, and a likely El Niño this autumn has weighed on prices. Longer term, drought in S America next winter is not expected, but falling Black Sea grain potential and uncertain US weather in mid to late summer leaves questions that are tough to answer at this time.