- HEADLINES: Chicago corrects morning gains as midday GFS weather forecast is slightly cooler with rain for Iowa in days 9-11; Central US ridge shows no change into August 4.
- Chicago futures are higher at midday with corn /soybeans pacing the rally. The wheat market also jumped with Minneapolis September testing its prior contract high set yesterday at $9.445. Threatening Central US weather is the catalyst for the Chicago rally as traders can look past Monday’s macro financial market meltdown. A strongly higher Chicago close is expected with December corn nearly filling its gap while November soybeans pushed back above $14.05.
- The DOW has a recovered over 600 points of Monday’s decline while US Treasury yields continue to decline on economic slowing worry due to the Delta Covid variant. Stock/commodity investors are putting risk on as Monday’s decline was overdone. The options market in stocks/commodities was laden with short put holders that were forced to sell futures/stocks to raise cash. That option related selling pressure has subsided, at least for now. The US 10-year note is trading at 1.2% which has some wondering about a US and world economic growth scare. It is way too early in this growth cycle to worry about an economic slide, the Delta Covid cases need to be monitored. With 68% of Americans vaccinated, the prospect of a US Covid closure is extremely low. Vaccinated Americans will strongly avoid any closure to gain any economic traction.
- Managed money has bought 3,500-4,000 contracts of wheat, 7-8,200 contracts of corn, and 5,500-6,000 contracts of soybeans. In soy products managed money has purchased 2,300 contracts of soymeal and 4,000-4,400 contracts of soyoil.
- Russian wheat yield data continues to be disappointing, but it is too early to make any final conclusion on the crop. We suspect that the final Russian wheat crop will be under 80 million mt, as spring wheat yields struggle on heat/dryness.
- There is talk that China is again looking for US wheat, this time US HRW wheat for September/October. We cannot confirm that any wheat has traded, but we wanted signal China’s ongoing interest for US wheat. The China wheat demand shows that China is real about complying with its Phase One Pledge and would like to get into negotiations over Phase Two ag trade details.
- Changeable US weather and its importance to yield and price has caused the implementation of weather trading algos that buy or sell Chicago depending on whether the latest Central US weather forecast is warmer/cooler drier/wetter. The overnight run was warmer/drier while the midday was slightly less warm with rain for Iowa beyond the next 9.5 days. Confidence for Iowa rainfall 10 days from now is low. The forecasts are always in flux, but the overall pattern of a Central US ridge and generally hot/dry weather conditions for the next 2 weeks has not changed. Do not get caught up price action produced by the weather algos, on the other side of this weather market is tight world grain stocks and a demand led bull for US corn, soybeans, and wheat.
- The midday GFS weather forecast is drier through Wisconsin/Minnesota/North Dakota and wetter through W Iowa, Missouri, and the Delta. Otherwise, the entire Plains, the Canadian Prairies and the remainder of the W Midwest are devoid of meaningful rain.
- Ridge riding rains are difficult to forecast. The midday model is less amplified with the ridge (compared to the overnight run) allowing the rains that were forecast for Wisconsin to retrograde west. We would caution that these ridge riding rains are not widespread and impossible to forecast with any accuracy more than 48 hours in advance. We doubt the IA rains in 9-11 days and would strongly suggest that the rain location/amount will shift.
- High temperatures will be rising to the 90′s to lower 100′s across a vast majority of the Central US starting on Friday. There is no indication yet that a tropical system is forming in the Gulf that can dislodge the ridge with the hot/dry weather persisting into August 4.
- The midday forecast is a few degrees cooler (than the overnight) with rain forecast to drop across Iowa next week. Our confidence in the Iowa rain is low as ridge riding rains are difficult to forecast so far in advance. Do not sell breaks in this weather market.