- HEADLINES: Chicago tentatively higher on concerning Central US weather; Census 2020/21 corn exports 153 million bu over FGIS, tightening US corn stocks.
- Chicago futures are sharply higher at midday as the market adds weather premium to price amid the fall in US spring wheat and corn crop conditions. We now believe that US corn/soybean crop conditions have set their highs for the 2021 year on their initial release. Adverse weather and seasonality will produce a slide in weekly ratings going forward. Traders and analysts will look to each week’s crop conditions as a measure of yield. Today, using trend yield in corn at 179.5 bushels/acre and soybeans at 50.8 bushels/acre is the starting point, a level that traders/analysts will subtract yield from in the future.
- The parched W Midwest and N Plains 2-week forecast is likely to have the industry discussing a US corn yield of 174-176 bushels/acre and soybean yield of 48.8-50.1 bushels/acre by June 21. This opens the market up to additional upside risk on the expansion of weather premium at historically high prices.
- North American weather markets tend to rally on each end of the week and sag in the middle. This is due to traders willing to take on more risk on Monday (than Friday) with a Friday rally sparked by the bears as they cover shorts (amid the concern that US crop conditions will deteriorate over the weekend and that weather trends will persist). Like markets, weather is trend following and the acute dryness across the Western half of the US is extremely worrisome.
- Chicago brokers estimate that managed money have bought 7-9,000 contracts of corn, 2-3,000 contracts of wheat, and 5-6,000 contracts of soybeans. In soy products, funds have bought 1,900 contracts of soymeal and 2,200 contracts of soyoil. It does not take much order size to move the market with their being nothing above the market in terms of resting sell orders. US and S American farmers have pulled offers with some W Midwest farmers feeling uncomfortably with new crop corn and soybean sales of 50-70% of estimated 2021 production.
- The USDA will be out with their June Crop Report on Thursday. The highlight of the report will how far they cut the 2021 Brazilian total corn crop. Most of the private industry is estimating Brazil’s total corn crop around 90 million mt. Early Mato Grosso yields are coming in below producer expectations, but the harvest will have to push south into MGDS/Parana for a deeper corn crop cut. Deral, The Dept of the Rural Economy, in Parana kept this week’s corn good/excellent ratings at 22% with 32% of their winter crop rated poor/very poor. Just 1% of the Parana corn crop has been harvested, so it will be a few more weeks before Parana corn yield data is available.
- Traders are now positioning amid the weather model’s biases. We note that traders are selling Chicago ahead of the midday GFS forecast based on its being wetter than the EU/Canadian model forecasts. However, traders cover their shorts after the GFS forecast release to position for a late session rally when the European model forecast is available. The drier EU forecasts have been starting the overnight markets higher for the past 10-12 days. It is all about weather (forecasts).!
- The US exported a record 334.6 million bu of corn, 96.1 million bu of wheat, and 51 million bu of soybeans in April. The strong export pace of US corn and soybeans is ongoing and the USDA is expected to boost US 2020/21 corn exports by 500-100 million bu on Thursday. Just 827,541 bu of US soybeans were imported in April, well below expectations. The USDA’s soybean import estimate of 35 million bu is too high. Census corn exports for the crop year through April is 153 million bu above FGIS weekly export inspections.
- The midday GFS weather forecast added rain for the N Dakota on Friday. The often more accurate Canadian model is drier. The GFS forecast pulls a secondary system through N Dakota on Friday which produces 0.25-1.50″ of rain. Like recent weeks, the GFS forecast may be right in seeing the rain, but its coverage is too broad and extensive. More likely, the rains will be widely scattered and not offer much assistance in ending the drought. Thereafter, the high-pressure ridge forms in the SW US and progresses eastward creating a broad ridge/trough pattern across the Central US. This a generally dry weather pattern.
- The market will keep adding weather premium in a concerning overall SW US ridge pattern. Any modest Chicago correction will find end user and importer pricing. We see no reason to alter our bullish outlook into late June. Our concern for N Plains and W and N Midwest weather and crop yields stays at the highest levels since 2012, which was a drought year described as one of biblical proportion.