- Other than understanding that $12 billion will be offered to US farmers to support their income (via the adverse impact of US tariffs and retaliation), the details of the USDA program are lacking or in the works. Yesterday’s $12 billion USDA announcement appeared to be rushed, before the USDA had program details fully worked out. This makes it nearly impossible to gauge the impact of the Trump Farm Support announcement on Chicago markets, other than to state that farmers will not be selling cash grain/soybeans or other products until more is known. There are three main categories of the CCC Trump Farm Income Support Program: 1) Direct assistance payments to US farmers, 2) CCC Food and Commodity purchase/ distribution program, and 3) A program geared to promoting US exports abroad. No allocation of the $12 billion was offered by USDA to the three categories, nor where details about CCC purchases or US trade promoting program are outlined. Some wonder if an export enhancement program is returning. The USDA stated that farmers will need to harvest crops to receive payments, and that monies will start to be allocated in September. Farmers complain that their biggest losses were in old crop, not new crop. And now non-US ag industries impacted by tariffs are asking “what about me?” Fairness is a key to success of Trump Farm Aid, but most producers would rather have the Administration negotiate/end tariffs. The $12 billion is helpful, but the real concern in farm country is the loss of the US being a reliable ag exporter!
- Roaring US wheat futures have set the tone for the morning in Chicago with corn and soybeans in tow. Spot Chicago wheat futures are pushing back to their late May highs with Sept futures reaching near $5.50. This was also the 2017 top for spot Chicago wheat. The €200 /MT price for French September wheat futures and $5.50 for Sept KC and Chicago wheat should act as temporary resistance. However, as US and world wheat stocks fall, even higher prices are in the offing. KC wheat futures have already rallied $0.70, but a test of $6- 6.50 appears likely at some point for a seasonal high. We look for a sharply higher Chicago wheat close, with corn and soy futures following. The big question that some are asking is whether corn prices can keep up with the world wheat rally? There is little doubt that US wheat export demand is coming, and that further downward revisions are expected from the primary world wheat exporter production. We estimate that the Russian wheat crop size could drop another 1-3 million mt, another 5-7 million in the EU, and 1-2 million in Canada and Australia. Combined, world wheat exporter wheat production could decline 8-12 million mt with major wheat exporter stock/use ratios falling to their lowest levels in decades. The market needs to encourage 2019 wheat seeding.
- It appears that the wheat/corn spread is heading to up around $2.00-2.25 wheat premium. Corn will be dragged higher until more is known about US yield prospects. US corn has an export demand story with record US corn sales/ shipments to occur into mid-2019. Thus, we expect that corn uncovers market independence from wheat once the USDA August crop report has passed. A yield under 178 bushels/acre argues that corn prices are too cheap and that values need to reach close to $3.90-4.10 basis spot futures. Corn is a developing demand led bull market, but rallies today are capped by 2018 yield uncertainty.
- Chicago brokers report that funds have bought 9,000 contracts of wheat, 7,000 contracts of corn and 900 contracts of soybeans. In soy products, funds have bought 1,600 contracts of soyoil and 1,200 contracts of soymeal.
- Rumours regarding the Trump Farm Aid package are likely to be widespread in coming days. Today’s rumour is that US soybean farmers could be receiving as much as $1/bu for 2018 production. This would amount to more than $4 billion of the $12 billion package to US soybean farmers.
- The central US GFS weather forecast is wetter in the Plains into the weekend, but otherwise maintains a pattern of dryness and seasonal temperatures across the Central Midwest. A deep low pressure trough drops into the Great Lakes on Friday. This will act to restrict heat across the Corn- Belt, but the flow of moisture will be shifted west and south of key producing regions. Heavy cumulative rainfall (2-3”) impacts E CO, KS and NE, and W MO. Below normal rainfall is suggested across; IL, IN and OH into early August. High temperatures will continue in the 70s and 80s. Temperatures will aid grain/pod fill. The extended range 10-15 day forecast is outright wet for the Midwest, but our confidence this far out is low, with the GFS being too wet for weeks.
- Wheat is the story of the day with US futures up over $0.30 with corn/soybeans following. The USDA August crop report is looming, and a sustained US corn/soybean rally will require the report to reflect average yields. Huge US corn export demand looms, but Argentine offers for now are below the US. This means that December corn will struggle on rallies above $3.80. Soybeans are trapped in a range.