- Chicago futures are deeply in the green on Wednesday as funds are aggressively add to their soybean long and exit their corn short. December corn rallied above a key downtrend line that crosses at $3.56-3.57 which fuelled additional chart-based buying. Chicago corn, soybean and wheat all hold a strong tone in midday trade with corn the upside leader on fund short covering. A higher close is expected if the midday weather models follow their overnight trends.
- The US farmer has been a big seller of old crop corn stocks this morning with Midwest elevators reporting their best movement of the year, US farmers were hoping that July corn would reach $3.45-3.55 and sold aggressively this morning. Cash sales of old crop soybeans has been much more limited with farmers having sold most of their stored supply already. Midwest farmers are targeting some clean up sales at $9.00 or above basis July futures.
- Chicago brokers estimate that funds have bought 28-32,000 contracts of corn, 9-10,000 contracts of soybeans, and 2,200 contracts of wheat. In the products, funds have bought 5,500 contracts of soymeal and 2,100 contracts of soyoil.
- Research estimates that funds could be nearing a net 200,000 contracts net short corn position by the close today with their soybean long close to 56,000 contracts. Funds hold a sizeable net short in Chicago wheat.
- The reason for actively updating fund positioning is that end users/importers are unwilling to chase corn/soy values higher. They know that harvest is ahead and see no reason to panic and make purchases on the speculative bulge. Thus, when the funds have cut their net short corn position down to 50-100,000 contracts, the Chicago rally will be nearly completed.
- The EIA reported that the US consumed 265 million gallons of ethanol for the week, up 2 million gallons from last week, but well below the 295 million gallons that is required to meet the USDA annual forecast. The downturn in US gasoline consumption was a surprise last week and offers confirmation that the new spikes in Covid-19 cases had an adverse impact on US miles driven. The Chicago corn rally has pushed US ethanol margins to even or slightly red levels. A continued rally in Chicago corn futures would further slow the grind.
- The midday GFS weather forecast is cooler in the next 5-6 days with Midwest high temperatures in the upper 70′s to the lower 90′s with 80′s to upper 90′s in the Plains. Any showers will be finishing today with general dryness over the fat areas of the Plains and Midwest into early next week. A high-pressure ridge will act to limit rainfall with the next chance being across the Northern Plains and the Upper Midwest.
- A 5.94 milibar ridge sets up across the Plains/Midwest from Friday July 10 and lasts into Monday July 13 producing upper 80′s to upper 90′s high temperatures. This is the warmest period of the forecast with a cool front to produce showers/storms into mid-July. A more normal Central US weather pattern is offered as the blocking over Europe ends. We doubt that the Central US is facing a lasting/devastating drought.
- Fund short covering in corn is likely to persist into the US holiday weekend. A 50% of the December corn decline is $3.63 with the next upside target being $3.70-3.74. November soybeans upside targets is at $9.03-9.12 while Sept Chicago wheat stalls against $5.00-5.05. A few warm/hot and dry days are a concern, but we do not see a lasting dire Midwest drought.