- With no news related to international trade negotiations, and ahead of the US July 4 holiday, Chicago soy markets continued their bearish trend. Following a weekend of extreme Midwest temperatures, Chicago markets would normally be adding weather premium, but the threat of lower import demand from China has been viewed as a far greater risk. Weekly soybean export inspections were at a 6 week high of 31 million bu, with minimal exports to China. The monthly export total for June will likely be more than double last year, and record large of more than 100 million bu. However, the worry is that without a trade resolution, the US will become the seller of last resort. After the close, NASS reported a 2% decline in national good/excellent ratings to 71%. LA ratings fell 7%, the SD crop was down 6%, while AR and TN were each down 4%. On a national basis, ratings remain historically high, with just 2 years (1994 and 2014) that were higher. Tariff deadlines are fast approaching, and without a resolution, international trade relations completely determine the outlook for US soybean values.
- September corn ended 12 cents lower amid as US trade rhetoric remained protectionist. The first round of tariffs will be implemented Friday. Retaliation will be due immediately. The issue for corn is ongoing weakness in the soy/corn ratio. If prolonged more acres will be devoted to grain production. Along with modest expansion in S American acres this autumn, world corn stocks will stabilise. Good/excellent crop rating this week is pegged at 76%, vs. 77% a week ago and 68% last year. Record yield potential is intact. But models hinges upon ratings in late July. A continued decline in good/excellent condition lies ahead via sporadic heat and a lengthy period of dryness. Weather ensemble models are void of a shift to wetter conditions into July 17. Also of note, 17% of the crop is silking, vs. 8% on average. The rush to maturity is underway. Trade issues aside, Gulf corn remains globally competitive. Ethanol production/demand is record large. Unfortunately, fundamental analysis will have little impact until more is known about US trade policy. We are hopeful some level of negotiations return. Pressure from farm groups lies ahead as farm income dives.
- Wheat fell a sharp 10-20 cents on additional long liquidation ahead of the US tariff deadline. If tariffs are implemented, the USDA’s July WASDE will account for trade issues between Canada, Mexico and others. The risk is that the US’s share of wheat exports to Mexico will be downgraded. Funds sold 13,000 contracts in Chicago. Winter wheat as of Sunday was 51% harvested, vs. 49% on average. Spring wheat crop ratings are unchanged at 77% good/excellent. No news in either case. Importantly, other world markets ended higher today. Wheat futures in Paris rallied €2.25/mt, basis spot. Black Sea futures rallied $1-2/mt. Gulf HRW this evening is offered at $217/mt. This is now $3/mt below comparable German 12% origin. Recall HRW’s premium to German was $30/mt just two short weeks ago. On this break, funds have liquidated the last of their length. Hi-pro Gulf wheat is competitive with European origin. And non-US wheat production will be revised downwards in coming USDA monthly reports. The market is fundamentally undervalued, but the message is that US trade barriers take priority.