- November soybeans marked a new low overnight and then rallied through Monday’s trading. The market is very oversold by any technical or fundamental measure, and trade and crush data released on Monday confirmed that demand at current prices is exceptionally strong. The world cash market has nearly priced in a 25% spread between US and Brazilian soybeans, which suggests that downside risks in the US market are quickly being diminished. Soybean export inspections have ticked down slightly in July, but the average pace has so far been more than 50% better than a year ago, and if maintained over the next 2 weeks will result in a record July export rate. NASS reported national good/excellent crop ratings fell 3% last week to 69%. The MI crop fell 10% this week to 58%, followed by an 8% decline in the MO crop which was back to the lowest rated at 40%. The KS crop fell 6% to 45% good/excellent, while the TN crop is the best rated at 84%. The national yield potential is steadily rolling backwards, but the 2018 crop rating is still well above average, supporting a national yield estimate of 49-51 bushels/acre. US cash markets are now widely under $8, and our view is that a low is forming.
- Chicago futures ended marginally higher as the market tried to follow Monday’s soybean surge. US corn good/excellent ratings fell 3% to 72%, vs. 75% last week and vs. 79% in late May. Another modest decline lies ahead amid a lack of rainfall across the Central Midwest forecast over the next ten days. US crop condition models are dropping their estimates of US corn yield below 180 bushels/acre. US corn progress is being pushed via the heat with 63% of the US corn crop now pollinated. US export inspections through the week ending July 12 totalled 48 million bu. This matches the pace needed to meet the USDA’s new 2017/18 forecast. Argentine corn basis is even with the US Gulf, and there is a strong seasonal tendency for Argentine cash offers to bottom in the first half of July. Work suggests this is no place to turn bearish with funds net short an estimated 115,000 contracts, the largest ever for mid-July. World barley prices are rallying on tightening new crop global stocks/use. Black Sea barley has rallied $18/mt in just two weeks. US corn export potential remains strong. US corn stock/use ratios argue that corn is undervalued by 20-40 cents.
- Wheat futures fell 4-9 cents at all exchanges. Short soy/long wheat spread unwinding is apparent, and recall funds last week maintained a net long position in Kansas worth 20,000 contracts, most of which are not profitable. The world cash market is again higher this evening. Gulf HRW is offered at $220/mt, which is a $7/mt discount to comparable German origin. Russian cash prices are also firm. Black Sea futures suggests higher prices lie ahead post-harvest. Work suggests lows have been established in the Black Sea, with Russia’s crop size overstated. Contacts suggest Russian exports will be large in late summer/early autumn in an effort to maintain market share. However, without improved rainfall in Australia, US export demand rises significantly during the second half of the crop year. Complete dryness continues in E Australia. The loss of major exporter is most important to longer term valuations. The US’s high quality crop will be valuable come Oct/November. We see value below $4.80 spot Chicago futures.