- HEADLINES: Lacklustre trade in Chicago; GFS allows heat/dryness to return early August.
- Low volume, lacklustre trade in Chicago; wheat fully digested Black Sea uncertainty; position of Central US ridging of incredible interest.
- Chicago markets are mixed in meagre volume, with modest selling/liquidation ongoing in corn and soy and wheat finding support despite Tuesday’s news that Europe will begin the relaxation of sanctions on select Russian banks. Perhaps coincidentally, wheat has found support almost exactly at pre-Russian invasion levels, and our works suggests that spot Chicago is fairly valued at $8.00, even assuming Russian exports of 40 million mt. And there is much unknown as to how much grain Russian can ship on a weekly basis given the exporters’ inability to hedge forward tax risks. Russian flour prices remain perched near record highs, and so the wheat export tax is highly unlikely to be eliminated in 2022.
- Outside markets are similarly lacking conviction. Spot WTI crude is flat at $104/barrel. The Dow is up 80 points as the market’s fears that Nord Stream 1 remains closed eases slightly.
- Vessel insurance companies have responded to ongoing talk of establishing a grain corridor by demanding assurance that Ukrainian vessels will be accompanied by third-party Naval ships and that mines are cleared. Concrete details surrounding the timing and execution of any corridor establishment remain absent. The ongoing blockading of Ukrainian ports will have a more significant impact on wheat trade flows as Ukraine’s wheat surplus sits in the heart of the conflict currently.
- Weekly EIA data leans slightly positive corn and ethanol and neutral to bearish gasoline. US ethanol production through the week ending July 15 totalled 304 million gallons vs. 295 million the previous week and up 1% on the same week in 2021. Ethanol stocks fell a modest 2 million gallons amid larger residual/export disappearance. Cumulative US ethanol residual disappearance in 2022 sits at 1,110 million gallons, up 14% year on year, and strong exports are anticipated to be revealed in June and July once Census data is available. Cash ethanol production margins remains positive, with ethanol prices this week up $0.04-0.11/gallon.
- US gasoline disappearance last week totalled 8.5 million barrels/day, up sharply from the prior week but down 13% from last year. Elevated gasoline prices have, generally speaking, slowed consumption but the recent break in retail prices is expected to encourage/sustain late summer holiday plans. Overall, the US energy markets remains imbalanced, with crude stocks still the lowest for July since 2014 despite the release of some 84 million barrels of strategic reserves.
- The midday GFS weather forecast is similar to the overnight run in projected a brief hiatus from extreme heat and complete dryness across the Central Plains/W Midwest. Yet, it is highly probable that the position of high-pressure ridging returns to the Southern and Central Plains beginning July 31 due to deep negative soil moisture anomalies, which are typically the source of extreme heat. Plains temperatures drop into the 70s and 80s in the 6–10-day period, but a pattern of warmth and dryness resumes thereafter. The best chance of Central US rainfall occurs July 26-28, with cumulative totals of 1-2” offered to E NE, S IA, KY and the E Midwest. Unfortunately, this appears to be just an interlude in an otherwise dry climate setup.
- Markets will continue to struggle for conviction amid macro/geopolitical uncertainty. However, the failure of soaking rain to appear in August mandates the addition of weather premium. Corn yield loss of 10-15% relative to trend is increasingly likely across the Plains/SW Midwest.