- Chicago grain markets are mixed at midday. The grains (wheat/corn) are lower while the soybean market tries to hang in the green and measure Chinese interest. IKAR, a respected Russian ag consultancy, raised seeded/harvested wheat area while there is no indication that China is showing interest for US/world corn. USDA did announce the purchase of 2 cargoes of US soybeans, but US commercials expect that Chinese demand/interest will wane in coming weeks. The Chicago market focus is shifting back to looming record large US corn/soybean yields and an abundance of world wheat in a time of rising Covid-19 infections with US farmers sitting on a large supply of old crop corn stocks. We look for a mixed to slightly lower Chicago close today.
- Chicago brokers estimate that funds have bought 2,900 contracts of soybeans while selling a net 1,20 contracts of corn and 3,500 contracts of wheat. In soy products, funds have sold 3,300 contracts of soyoil and 1,900 contracts of meal. The tone of the market is heavy with midday volume in decline.
- The USDA announced that China secured 132,000 mt while Mexico took 250,371 mt of 2020/21 soybeans. No new corn, wheat/soy product sales were confirmed.
- Chicago brokers/traders have spent considerable emotional energy on trying to understand the relationship between record high Dalian corn futures and China’s feedgrain imports. History shows that China corn prices and purchases are based on policy, not margin or price. After the last recession in 2008/09, Chinese corn prices rallied sharply on speculative fervour only to collapse amid the coming harvest. USDA data on estimated 2020/21 Chinese wheat, rice and corn stocks does not suggest a grain shortage. In fact, there is abundance. China holds enough wheat/rice stores for a year of use while corn stocks are at 2/3′s of a year use. The point is that China is not facing a dire shortage of grain. If they were, they would drop their countervailing duties against DDG’s, the cheapest source of feed grains today. China is likely keeping corn prices high to aid their farmers who have been suffering amid reduced profit margins for several years. With a new corn harvest just weeks away, China is unlikely to make large/new US corn purchase orders.
- US weekly export inspections for the week ending July 23, the US exported 31.4 million bu of corn, 17.4 million bu of soybeans, and 20 million bu of wheat. All were on the low side of expectations. China did ship out 3.7 million bu of US soybeans and 2.5 million bu (one cargo) of US corn.
- With just over 5 weeks left in the US corn/soybean old crop years, the US needs to average around 45 million bu/week on soybeans and little over 60 million bu on corn to reach the annual WASDE forecast. We maintain that WASDE is 25-40 million bu too high in soybeans and 50 million bu too high on 2019/20 corn export estimates.
- Better yields and an expansion in harvest area has private Russian crop watchers talking a wheat crop of 77-78 million mt according to Russia’s IKAR. Such crop would allow Russia to export 36-37 million mt of wheat. World wheat demand is tepid on Covid-19 and amid the spring stockpiling. World wheat importers will be patient to wait for lower prices into early September.
- The midday GFS weather forecast is wetter across the W Midwest with rain chances returning to the dry areas of W IA/SD early next week. Otherwise, the S and E Midwest has chance of 1-4.00” of rain which will be ideal for filling corn and reproducing soybeans. Midwest high temperatures range from the mid 70′s to mid 80s. No extreme heat is foreseen. The rain and seasonally mild temperatures bodes favourably for US corn/soybean yield potential.
- Record large US corn/soy yields are in the making and China’s Government is unlikely to see the rise in Dalian corn futures as a reason to secure US corn beyond the latest demand under TRQ’s. Russian wheat production estimates are rising and a story for US wheat export demand is being shelved. China may secure additional US soybeans, but we doubt in the quantities of recent weeks. We remain generally bearish and would caution against chase rallies at this time.