23 July 2018

  • A mixed start has produced a slightly higher midday trade with wheat pacing the rally. Corn and soybeans have followed, with the soybean market seeing some initial selling based on three cargoes of US soybean cancelations from China. The USDA reported that 165,000 mt of US soybeans sold in a new crop position have been cancelled by China, which would take their known sales down to 1,167 million mt for 2018/19. The USDA in their annual 2018/19 balance sheet implied that China would take few/if any US soybeans in the new crop year. The absence of Chinese demand is one reason why the grains continue to gain on the complex. There is a fundamental bull story for corn/wheat until the US/China can mend their trade differences and we look for a firmer Chicago grain close going home.
  • Chicago floor brokers report that funds have bought; 4,300 contracts of Chicago wheat, 3,800 contracts of corn, and 500 contracts of beans. In soy products, funds have bought 3,100 contracts of soymeal while being flat in soyoil.
  • US wheat exports stand at 96 million bu or down 41% from last year, with soybean exports at 1,900 million bu or down 83 million or down 4% from last year. The US has exported record amounts of soybeans during April, May, June and the first half of July. The big question is the what will be the US export pace during the remaining six weeks of the crop year.
  • EU grain prices continue to rise amid the fear of feed and milling quality wheat shortages. French wheat futures have pushed to their highest price level in three years with the move to 193 €/mt. A close above 192 €/mt sets a technical upside price target of 222 €/mt, an open chart gap on the weekly chart that was let back in 2013. Trade sources in Europe have lowered their wheat estimate to 130-131 million mt of all wheat and 7 million of durum, which drops their total wheat crop estimate to 137-138 million mt, vs the USDA forecast of 145 million mt. What is interesting in the European grain market is that German livestock feeders are willing to pay more for 12.5% wheat than the exporters. The 2-5.00 €/mt premium shows how robust EU feed demand is amid the concern for future feed supplies. French corn prices are rising more than French wheat futures amid the concern for feed supplies. Note that WASDE raised their EU corn production forecast to 61.50 million mt in July. Most see this forecast as 3-5 million as too high, which would raise EU corn imports to 18-19 million mt. This would be a record EU corn import pace with Ukraine supplying much of the corn. Ukraine is forecast to export 24 million mt of corn assuming a 30 million mt crop. We see the Ukraine crop closer to 26 million mt with 2018/19 corn exports of 21 million mt.
  • The central US GFS weather forecast is similar to the overnight run with a ridge/trough pattern to hold across the US for another 5-6 days before shifting to a broad ridge/trough/ridge pattern. Then this pattern progresses eastward such that in the 11-15 day period a ridge of high pressure returns to the Delta and the S Plains. This ridge will produce new rounds of heat across the south that has to be closely watched. The 10 day rainfall forecast indicates that a trend of below normal rain will persist for the Central US. Soil moisture shortages will deepen across S IA and MO with below normal rains falling across IL/IN. Better rains are slated to drop in the 11-15 forecast with a strong frontal pass.
  • The tightening supply of world wheat and corn is shifting the grain market into a bull demand trend. The US could see record large corn exports with US wheat demand kicking in by October as Black Sea prices rise. We remain bullish on corn/wheat with great ongoing trade uncertainty persisting in soybeans. US corn yields are in retreat with 180 bushels/acre off the table, as far as we are concerned, due to the record heat from May 1 into July 15. Nearby upside targets rest at $5.50 for Sept KC wheat and $3.80-3.85 Dec corn.