- Chicago wheat values have surged on a combination of fund short covering amid rumours that the 2020 Russian wheat crop may only be as large as last year. This may raise pressure on the Government to maintain an export quota system for the new crop. A 2020/21 export quota would make the EU dryness much more important for nearby world wheat availability.
- KC July wheat futures have forged a bullish key reversal off a weekly trendline which has the attention of technical traders. A weekly close above $4.525 July KC would produce a weekly reversal, which would signal that wheat has scored an early seasonal low with all eyes on whether the EU wheat crop receives a needed rain during June, the key heading and filling timeframe.
- We look for a mixed Chicago close as corn stays the laggard. China interest for US soybeans persists and weekly export sales of US soybeans are expected to reach nearly 1 million mt in combined old/new crop positions. Funds have not been paid for being short of corn for several weeks which could produce fresh short covering. Chicago brokers estimate that funds are net buyers of 7,000 contracts of wheat, 3,000 soybeans while selling 2,200 contracts of corn.
- Weekly US ethanol production showed further recovery with 195 million gallons produced last week vs 181 million gallons last week. It is estimated that 40-41% of the US ethanol industry is still shut down, but we expect that additional plants will be coming on-line in June. US ethanol stocks have plunged in the past month as blenders pull from their stores and ethanol producers shed stock before coming back online.
- We estimate that WASDE will cut its 2019/20 US ethanol production further in June by another 50-75 million bu to account for the ongoing production cut. US gasoline consumption fell last week to 6.79 million barrels per day, which was down 8% from the prior week and down 28% from a comparable week last year.
- China announced that it will start its weekly corn auction on May 23 with an offer of 4.0 million mt. The price will be the same as last year at 1,650 RMB/mt. The pending auction has pressured cash corn/Dalian futures in recent days.
- The midday GFS weather forecast is farther north with rain next week into the NW Midwest and Northern Plains. The moisture is not excessive and would be ideal for newly planted corn/soybeans. Heavy rains will stay confined to the OK/TX and the Delta where the rain can help established crops. Warming temperatures and near to above normal rainfall is favourable to 2020 US summer row crop potential. The rains come too late to aid TX/OK HRW wheat yields.
- The ongoing dryness across Europe and portions of the Black Sea will become more important to wheat export availability during June. World wheat crops are made or lost from the opening days of June into mid-July. China’s buying of 3-5 cargoes of US soybeans is offering support to Chicago futures. Corn holds in a fundamentally bearish trend. Corn’s more bullish statistic is that funds are already short 215,000 contracts.