- It has been a big morning of volume in Chicago with grain futures rising to sharp gains on technical buying and spread unwinding. Long soybean/short corn and long wheat/short corn spreads are being unwound as fund managers are looking at the end of the month (and they’re not getting paid for being short corn).
- Wheat is following corn upwards with soybeans holding in the red on US/China concern. The Trump Administration promised to place sanctions on China now that Hong Kong is being nationalised. Traders long of soybeans are getting to the sidelines. We look for a mixed close, but work suggests that corn and wheat are both stretched to the upside. In fact, Wednesday’s daily Chicago volume was the lowest since Christmas while today’s volume eclipsed yesterday’s total by 9:30am.
- Chicago traders report that funds have bought 22-25,000 contracts of corn, 5,500 contracts of wheat, and 4,100 contracts of soybeans. In soy products, funds have bought 1,300 contracts of soymeal while selling 2,900 soymeal.
- In checking with US/world grain exporters, we cannot find any interest from China for US corn. China stopped checking US corn prices about a week ago.
- This is not to say that China can not return for a purchase of US corn, but with rising tensions between the US/China, we doubt that the Government is interested in making new US corn purchase until it is clear what sanction steps the Trump Administration will be applying related to Hong Kong.
- EIA indicated that US corn ethanol production expanded by 18 million gallons to 213 million gallons last week. This was down 32% from last year and well below the weekly corn grind needed to justify the existing USDA May WASDE forecast. US ethanol stocks fell to 973 million gallons, down 19 million gallons which is up 2% on last year. Research argues that WASDE will need to cut US corn ethanol grind for 2019/20 by another 50-100 million bu in its June report. Our work argues for a total US 2019/20 corn ethanol reduction of 300-350 million bu by August.
- The US midday GFS weather forecast model is struggling with an early seasonal tropical storm that is forecast to develop in the Gulf around June 7. Warm/dry weather follows with rains noted on the weekend across the NW Midwest as warm air builds northward. A tropical system is forecast to make landfall over NOLA on June 12. This is way too far out for any confidence, but we would suggest monitoring early June tropical storm development. We see no evidence of any hot/dry pattern that looks to be locking in for the summer. The upcoming warm/dry weather will aid corn/soybean crops by allowing farmers to complete their planting and getting crops to root down.
- Funds became too short of corn/wheat and are covering a portion of those shorts. We see no evidence of China corn demand or a lasting/hot dry Midwest weather pattern.
- It must stop raining first before you can have a drought. This is a corn rally to sell with the autumn supply outlook burdensome (over 4 billion). Wheat prices are also nearing their pre harvest peak. We would not chase this rally, and work doubts it continues.