- HEADLINES: Chicago soars on threatening N American weather forecast; Funds add risk across commodity spectrum; US 2020/21 corn exports understated.
- Chicago futures are sharply higher at midday with Minneapolis spring wheat futures testing their prior highs while corn, soybeans and soyoil surge and follow. It is difficult to find a commodity market that is not higher today with “risk on” the feature on the first day of June (and summer).
- The CFTC report showed that managed money had cut its net long grain position to its lowest level since late 2020. These fund managers do not want to miss a N American drought market if it were to develop. Yet, history shows that bull markets always let you in as evidenced by last week’s Chicago early week break.
- What is slightly different today is that weather is the driver of corn and soybean yield potential and each day’s price range will be determined by the latest model forecast. If the weather forecast maintains a threatening trend for crops, the market will keep adding premium to price. We must remember that anything other than normal weather is unacceptable with US/world old crop supplies exhausted. The massive corn demand from China and renewable biodiesel demand for US vegoil mandates trend or record large US crops. The new month and summer season has started with this weather focus in mind.
- Chicago brokers estimate that funds have been sizeable buyers on the Chicago rally. Managed money has secured 9-11,000 contracts of corn, 6-7,000 contracts of soybeans, and 4,500-5,000 contracts of wheat. In soy products, funds have bought 3,400-3,800 contracts of soyoil and 2,900-3,400 contracts of meal. The market lacks resting sell offers as US/Brazilian farmers are sold out.
- Black Sea export sources have raised their estimates of Chinese old crop corn demand to 9.0 million mt with new crop sales already at 6.5-7.0 million. China has been quietly active in securing large new crop purchases. Combined with an estimated 11.5-12.0M million mt of US new crop corn purchases, we estimate that China has booked 18-19 million mt of world corn already. And there are strong rumours that Brazil has sold China 1.0 million mt of corn for August-September. What is interesting about the Brazilian purchase is that China/Brazil do not have a phytosanitary agreement on corn. Potentially, the Brazilian corn purchase could tell the world that China is willing to reach a phyto corn deal with Brazil. The USDA has China taking 26.0 million mt of world corn in 2021/22 of which by our calculations, China has already booked 71% of this total.
- US export inspections for the week ending May 28 were 80.7 million bu of corn, 9.4 million bu of wheat, and 7.0 million bu of soybeans. For their respective crop years to date, the US has exported 2,005 million bu of corn (up 877 million or 78%), 2,073 million bu of soybeans (up 768 million or 59%), and 927 million bu of wheat (up 11 million or 1%). China exported 1 million mt of US corn last week or 40 million bu. If US corn exports average 65 million bu/week in the final 13.5 weeks of the crop year, the final 2020/21 US corn export total will be 2,950 million bu.
- The midday GFS weather forecast is coming around to the thinking of the overnight EU/Canadian models and they are drier across the N Plains and the N Midwest. Any heavy rainfall will be confined to the Delta and the Southern Ohio Valley. Other US crop areas will be shortchanged including the drought stricken Northern Plains, Canadian Prairies, and the NW Midwest. Nebraska will be moved into the dry corridor along with Iowa,Minnesota, and Wisconsin by June 10. The extended range forecast offers soaking rain for Minnesota/Wisconsin on June 12-13, but confidence this far out is extremely low. The GFS forecast has been struggling with rainfall forecasts beyond the next week.
- Welcome to June and summer!.The volatility of Chicago markets is going to be extreme through mid-August. US corn crop condition ratings are expected to be 69-72% good/excellent as of Sunday. We forecast a condition decline into mid-June based on the dry and warm Central US forecast. And we are concerned that the existing N Plains and NW dry weather pattern could persist into late June. This is a big deal for US spring wheat, canola, and corn. Hold to bullish Chicago positions, the grains should outperform the oilseeds for now.