- The morning has been a deep color of green with corn, soybeans and wheat all trading to the upside in active volume. The market seems to be getting back to trading fundamentals (rather than politics) with the Brazilian/US FOB basis out to nearly 25% (BZ premium). This means that the US soybean market is cheap enough for now amid record large US crush/export demand. We have been astounded as to the record pace of US soybean exports since the US/China trade skirmish started in May. Brazil has also exported tonnages of soybeans, and, now Argentine soymeal supplies are starting to seasonally decline and US soymeal export demand should start to pick up. Of course, the Argentine drought is causing the seasonal shift to the US to occur a few months early. At 10-year lows, one does not want to be short a commodity that has record demand. That commodity is soybeans. Corn and wheat futures are firmer as soybeans have stabilised. The corn market has not shown much independence amid the sharp fall of soy futures, and wheat has followed amid the expanding N Hemisphere harvest. The early spring wheat harvest in the Volga Valley of Russia is showing a yield of 8-9% below last year. The Russian’s demand better spring wheat yields to prevent their all wheat crop estimate from sliding below 64 million mt.
- We are looking for a firmer Chicago close as funds start to reduce their net position amid a dearth of hedge related selling on rallies. A close above $5.15 in Sept Kansas wheat is needed to confirm a double bottom on the charts. Chicago brokers estimate that funds have bought 2,100 contracts of soybeans, 5,200 contracts of corn, and 2,800 contracts of wheat. In soy products, funds have sold 1,100 contracts of soyoil and bought 2,100 contracts of soymeal. The US House Ways and Means Committee will be holding a Trump Tariff Meeting on Wednesday to gauge the adverse impact on the US Farm Economy. US politicians on both sides of the aisles are lining up against the use of US tariffs. So far, no actual trade deals following the tariffs have been netted, but the midterm elections are looming. The political pressure against US tariffs is ramping up and the pressure to start dialogue with impacted countries is increasing.
- Protein levels for Russian wheat were already poor with offers of 12.5% wheat becoming scarce (we note from information received that US 12% wheat is like 12.5% Russia wheat). The weekend rains and forecast of increasing totals this week are not going to help the low-pro situation. Some fear that the harvest will slow and cause short bought sellers to pay up for exportable supply. A drop of 0.5-1.0% of protein will be a big deal to the world marketplace with German high pro supplies reduced. Moreover, concern is starting to develop for the heading HRS Russian wheat crop as soil moisture is short and the forecast is dry.
- The midday forecast is drier across the W Midwest including much of MN/IA and MO. The GFS weather forecast is looking more like the EU model in its rainfall solution. A broad trough/ridge pattern prevails with a NW upper air flow through the Midwest. The Gulf is being slowly closed off with any upper air moisture for the Central US to become more limited. The best chance of rain is with a system on Friday and the weekend that produces 0.25-1.00” of rain. Thereafter, the rain chances are limited to the SE US with tropical moisture providing heavy totals. Rain is desperately needed across MO, AR and the E Midwest. There will be some moisture, but amounts will be below crop needs during the reproductive period. The extended range holds onto this ridge/trough upper air flow into the early August. The cooler temperatures will help with the filling of corn.
- If the market is getting back to focusing on the fundamentals (not the politics of tariffs) a correction is underway. If corn does not score a new low during the last half of July, it usually means that a new demand bull phase is emerging. US wheat export potential is also looking up amid smaller Black Sea and Russian crops. Our view is that seasonal grain lows have formed.