- HEADLINES: Funds pound corn/soy as 50/100 day moving averages breached; China buys additional US soybeans on the break; Sept Paris wheat inverse.
- Chicago futures are lower at midday as “risk of” is the theme as Wednesday’s minutes of the US Central Bank indicated that it is moving away from its highly accommodative monetary policy. The first step in slowing its accommodation is the end of its purchasing of US bonds, which is called tapering.
- The risk off mentality based on the US unemployment rate falling below 5% with the US inflation target of 2% being reached for consecutive months. The risk off selling pushed corn/soybean futures below their key 50-100 day moving averages which triggered a host of technical sell stops. It is this technical selling which is pushing Chicago futures sharply lower. Soybean have endured the most selling with November futures pushing below $13.20 while December corn is in position to test $5.40 chart support.
- Chicago brokers estimate that funds have sold 6,000 contracts of wheat, 14,000 contracts of corn, and 12,000 contracts of soybeans. In soy products, funds have sold 4,300 contracts of soymeal and 4,000 contracts of soyoil. The initial commercial pricing in corn/wheat was overrun by technical selling. We note that Paris September wheat has rallied above €260 euros/mt. The EU and Black Sea cash markets are not following Chicago lower.
- China booked another 263,000 mt of US soybeans and Mexico 148,500 mt in the new crop year as reported in the daily sales report. We understand that China has booked another 6-8 cargoes of US soybeans this morning. China is consistent in booking US soybeans daily as they are well behind in their purchase pace. The decline in Chicago aids Chinese demand.
- US export sales for the week ending August 12 were 11.3 million bu of wheat, 28.6 million bu of corn (8.5 million old and 20.1 million new crop), and 82.2 million bu of soybeans (2.5 million of old and 78.7 million of new crop). New crop US corn sales are a record large at 732 million bu with new crop soybean sales growing rapidly to 509.4 million bu. The big purchases by China in soybeans has persisted for 11 consecutive days. US soybean export sales in the middle of August are now in line with the USDA Annual export forecast.
- EU wheat traders bemoan tightening supplies of milling wheat for export. Note that Paris September wheat futures is now above €260/mt with September wheat trading at a €16/mt premium to December. Exporters having difficulty finding milling wheat are buying Paris September futures to assure supply. And as Russian export taxes will keep rising each week (calculated based on a moving average), the outlook for their exports is in sharp decline. US wheat will be needed by the world to fill the supply gaps left by the Russian/Canadian/European milling wheat shortfall. We calculate that with normal Argentine weather, some 20-22 million mt will go to non-traditional suppliers. US and world wheat prices are in a bullish trend amid a dire supply shortfall.
- The midday GFS weather forecast is consistent with the overnight run. Another 48 hours of warm/dry weather prevails before rain starts to fall across the N Plains. Most of the remainder of the Midwest/Plains stays dry into Monday. The weekend rain targets include the Dakotas, W Minnesota, and NW Iowa. Totals are estimated in a range of 0.25-1.50″ across the Dakota while totals further south range from 0.2-1.25″. Coverage of the Central US rain through next Friday is 65-70%. Targeted is Iowa and Minnesota.
- The forecast is changeable due to the development of Hurricane Grace in the Gulf of Mexico. The hurricane targets the Yucatan Peninsula with inundating rainfall this weekend. Warm/dry weather returns to the Plains/W Midwest during the 10–15-day period.
- Fund and technical selling is pounding Chicago values as key moving average support is breached. China is expected to boost its soybean import program on the decline. By far, wheat is the most bullish Chicago grain followed by corn/soybeans. The downside price targets for December corn futures are $5.4 and $13.00 for November soybeans. End users should be building their forward coverage. We remain bullish with lows due in late August.