- HEADLINES: Chicago eases from morning high as GFS midday offers less heat in the extended range; Awaiting Fed’s rate decision.
- Chicago futures are mostly higher with KC/Minneapolis wheat being weaker on the spread unwind. New crop soybeans are gaining on old crop on rumours of China rolling 4-5 cargoes of US July/August soybean purchases to Brazil.
- The volume of Chicago trade remains modest as traders await the market’s reaction to the US Central Bank raising interest rates by 0.75% this afternoon.
- US financial markets have digested today’s 0.75% US Central Bank rate hike and are forecasting that the Fed will raise rates by 1.9% through its September meeting. That implies two 0.75% and one 0.5% rate hike before the Fed hits the pause button. The US 10-year Treasury Note pushed out to 3.4% with traders expecting a rise to 4% later this year.
- There is no evidence of a US recession, but the Fed’s rate hikes will act to slow sectors of the economy including the US housing market. However, it is important to understand that US/World inflation is produced by a shortage of goods/supplies. To fix inflation means that you must fix the supply chain and raise raw material production, especially energy. A capital fix for US refinery operations and a boost in crude oil production will take years. The US Central Bank does not have the right tools to boost US supplies.
- Chicago brokers estimate that funds have sold 3,400 contracts of soybeans and 2,600 contracts of wheat, while buying 1,900 contracts of corn. Funds are sellers of 2,600 contracts of soyoil while buying 1,700 contracts of meal.
- The USDA reported that 100,000 mt of US old crop soybeans sold to an unknown destination were cancelled. We hear that 4-6 cargoes of US old crop soybeans have been switched to Brazil. However, the Brazilian export pace is seasonally declining with strong interest from crushers to limit the supply of soybeans that are not committed. The Brazilian soy sales season is coming to an end.
- Informa estimated US 2022 corn seeded acres at 90.9 million acres (up 900,000 acres from USDA), with soybean seeding at 88.7 million acres (down 2.3 million acres) with spring wheat seeding at 10.5 million acres (down 700,000 acres). We maintain that Informa is too high on corn seeding and sees the total at 89.5 million aces with soy seeding at 90.3 million acres. The cost of planting corn was prohibitively high and Informa was too high on corn acres for much of last year. Dakota and Minnesota farmers cut back on corn/spring wheat seeding.
- US ethanol production remains near a record high and above the weekly average to reach the WASDE annual forecast. The US must average 306 million gallons of ethanol production per week to reach USDA’s forecast.
- NOPA members reported a record May soybean crush of 171.1 million bu surpassing the prior record of 169.6 million bu set in 2020. NOPA soyoil stocks fell to 1.774 billion pounds, down 2.2% to its lowest level since September on strong domestic demand by renewal diesel producers. The bull product story stays in soyoil.
- The midday GFS weather forecast is consistent in projecting an intense/expansive high pressure ridging across the Central US. A few showers are possible across WI/N IL in the next 24 hours, but otherwise the forecast is dry through Wednesday. The ridge then amplifies to produce another round of heat. The Central Plains and the SW Midwest hold in an arid flow. Extreme heat (90’s to lower 100’s prevails) with any cooling relegated to Ohio, Minnesota, Wisconsin, and Michigan. The GFS model is of low confidence beyond the next 10 days with the EU Ensemble offering a far more correct forecast on temperatures/rainfall.
- A massive and amplified high pressure ridge will hold across the Central US into late June. The odds are high that this ridge will stay or return during July. Risk off has been the theme in a host of asset classes as the US Central Bank raises rates. Look for a Chicago recovery into the long US holiday weekend.