- HEADLINES: Wheat rallies, soy falls, corn caught between; GFS warmer in July.
- Chicago ag futures are mixed at midday, with wheat extending its overnight recovery, soybeans down on weakness in global vegoil markets and corn caught in between, though the GFS forecast is a bit warmer through the balance of the week and maintains a noticeable lack of Midwest precipitation into July 7. Spot WTI crude is down $3.20/barrel at $106, a new 1-month low.
- Most important in today’s session is the Russian attack overnight of two additional key grain facilities in Ukraine. Bunge and Viterra report extensive damage to terminals in Mykolayiv along the Black Sea Coast, which provides further evidence that Ukrainian grain will likely not be shipped via the Black Sea indefinitely. War in Ukraine rages on, particularly in the east, and odds remain near zero that any humanitarian export corridor will be created this summer. Turkey plans to host additional meetings, but like previously Russia’s demand to end sanctions will be a non-starter.
- Ukraine in June is forecast to export roughly 1 million mt of corn, which our work suggests is near maximum capacity. This is decent tonnage for summer, but Ukraine’s absence from the world grain market will be felt more intensely, particularly in Europe, come October. Note that Oct-Dec Ukrainian corn exports in 2021 averaged 3.2 million mt.
- Russia’s grain/vegoil exports are also being challenged further by a new 7-year high in the Ruble. Strength in Russia’s currency has boosted US$-based interior wheat values to all-time records, with replacement wheat costs in Southern Russia now perched above $280/mt. Downside risk in Russian export offers is severely limited, and over time a majority of early-season wheat import demand will be funnelled to Europe. Even spot cash sunseed oil in Russia is valued this week at $0.78/lb amid Ruble strength. We maintain that USDA’s initial Russian grain export forecasts are much too high.
- Wheat import demand is beginning to surface. Algeria on Tuesday bought an estimated 600,000 mt of optional origin. Pakistan has released a tender for upward of 500,000 mt and Bangladesh is aiming to secure Russian origin. The formation of wheat’s seasonal bottom will be a process rather than a one-time event, but downside risk in wheat prices beyond the next 1-2 weeks is low. A wheat bottom will provide a pillar of support to global corn markets.
- Extreme US heat in the next 5-7 days will be confined to the S Plains and Delta/Southeast, where maximum highs will stay in the upper 90s/low 100s. Corn is nearing peak pollination in AR and TN. Corn growth across the Central Midwest has slowed considerably amid recent heat and eroding soil moisture/low humidity. June weather, overall, correlates poorly with final corn/soy yield potential, but there is no doubt soaking rain will be required no later than July 10.
- Interior US basis levels remain firm, with Central IL boosting late summer corn bids to $0.95 over Sep Chicago. Old crop corn’s fair value appears to exist in range of $8.00-8.30/bu. Spot Midwest soy bids remain perched above $16.80.
- The midday GFS weather forecast is warmer in the 11–15-day period but is otherwise consistent with prior output. A cooler temperature profile will blanket the Central US this weekend/early next week, but expansive high pressure ridging returns June 30-July 7, with max temperatures in the 90s/low 100s resuming across the S Plains, Delta and S Midwest. This remains a worriesome climate setup.
- Volatility in energy, equity and grain markets has been incredible since the Fed’s raising of interest rates. We must expect similar volatility until there is clarity over Northern Hemisphere grain/oilseed production in late summer. Cash sales remain on hold..