• As of Tuesday, the managed money net long position was a combined 432,000 contracts, up 20,000 on the previous week. The spec community has been reluctant to add to net length established just after the USDA’s January crop and stocks report. However, the N American growing season has begun in earnest, and increasingly there is a new bullish story to grab onto in the face of unwanted heat/dryness. Depending on yield perceptions, December corn and November soybeans are modestly to extremely undervalued.

• Our bet is that the managed fund community more actively participates in the ag space this summer. Extended range forecasts will key day to day trade. If a pattern change is not indicated in late June, expect a large influx of capital in corn, soy, and wheat futures markets.

• North Central drought concern rallies soy futures; Yield less than trend unacceptable: Soybeans/soyoil finished the week with heady gains. The weather forecast for the Northern Midwest and Northern Plains offers limited rains for the next two weeks with the extended range calling for the arrival of Midwest heat.

• The nearby Chicago soybean crush spread turned higher after falling to an 8-month low last week. Estimated cash crush margins are still $0.50-0.55 over Chicago at $7.20-1.25/bu, $0.50 higher than a year ago. Historically high soyoil prices and record high cash basis bids are the contributors to margin calculations.

• And the Chicago soyoil share of crush reached a 12 year high today at 47.8%. US soybean processors will crush soybeans until old crop supply is exhausted.

• Last week, the EIA reported 791 million gallons of renewable fuel production capacity in operation in the US. Private estimates of existing and planned expansion suggest that the industry could nearly triple in size within several years. US domestic demand for fats/oils is rising sharply.

• Initial soybean ratings will be out Monday with ratings of 68-71% good/excellent expected. Chicago soy is all about weather with a 2 bushels/acre acre yield loss creating an argument for $16-17/bu basis November futures.

• Chicago corn soars on weather; Massive disappearance continues through summer: Chicago corn futures ended sharply higher with December futures taking over the bull leadership. There is no reliable indication that North Central US heat/dryness will end prior to the second half of June. Corn’s bullish outlook is cantered on sizeable cash demand that will persist deep into autumn.

• US old crop export sales through the week ending May 27 totalled 21 million bu. Sales of only 5 million per week are needed to meet the USDA’s annual forecast. Pace analysis continues to suggest a final export figure much closer to 3.0 billion bu. Outstanding old crop sales are a record 702 million bu, which highlights the pace of shipments expected between now and August. China has NOT cancelled cargoes since early May and is not expected to throughout the duration of summer. US corn export inspections on Monday are pegged in a range of 75-85 million bu based on loadings with shipments to China estimated at 45-50 million bu.

• Old crop US corn consumption rates will be record large through the summer on record large US export shipments and the return of normal American driving habits (ethanol).

• The addition of weather premium will accelerate if next week’s North Central US weather forecast fails to include rainfall. The coming heat/dryness will cause a 1-3% drop in good/excellent crop ratings on Monday.

• Spring wheat futures score 8-year high; Black Sea spring wheat production concern rising: US wheat futures ended sharply higher with spot Minneapolis rising another 35 cents. Without a dramatic shift in weather across the N Plains/PNW in the next two weeks, spring wheat yield loss of 15-20% relative to trend is assured. Unfortunately, hot/arid conditions are most probable into the second half of June. Additionally, April 1-June is predicted to show just 15% of normal rainfall across spring wheat areas of Central Russia/Kazakhstan. Concern there stays elevated. Spring wheat production in Russia accounts for 25% of its total production.

• The USDA already assumes total US wheat demand growth in 2021/22 of just 7 million mt. US export prospects are poor, but net production losses moving forward must be taken from end stocks. Longer term, wheat stocks continue to contract unless acreage expands. Tight exporter stocks/use and the need for wheat to compete with row crops for seedings is bullish longer term.

• How high is high is unknown given eroding spring wheat yield potential and rapidly rising concern over corn yield performance.

• Expanding Iran/Turkish and SE Asian demand underpins any world wheat fob correction of $5-10/mt. A post USDA report break offers a new wheat purchase opportunity.

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