- HEADLINES: Debate over the Ukraine grain export corridor; Russian interior wheat price; GFS hot/dry beyond day 9.
- Chicago higher on debate over Ukraine grain export profile; US crop yields and the central US bank lending hike of 0.75 basis points on Wednesday.
- Chicago values are higher at midday and are following prior week price trends in which there is a rally to start the week with selling pressure mid to late week. Key to deciphering whether seasonal lows are being formed will be Chicago price action this week. Can Chicago values hold, or will they again decline into Friday. A rally on the start of the week that allows for steady or firming grain prices into the close would be an indication that wheat/corn are close to seasonal lows. Soybean values are a function of August weather and Chinese demand. There are rumours that China has booked 2-3 cargoes of Brazilian soybeans for August and are back asking for US offers for October/November. We look for a higher Chicago close and that weekly crop condition ratings will decline 1-2% for US corn/soybeans, while holding steady in spring wheat.
- Chicago brokers report that funds have bought 3,400 contracts of wheat, 5,900 contracts of corn, and 6,700 contracts of soybeans. In soy products, funds have bought 5,300 contracts of soymeal while being flat in soyoil.
- The world grain industry is debating how much grain can Ukraine export if the Russian’s allow the export corridor to be open. There are 50-54 grain vessels that have been caught behind the mines/blockades of Ukrainian ports. Of the 3 ports that are trying to open via Friday’s agreement, some 21-24 vessels could be allowed to sail. This could occur as early as next week. No measure of grain quality is being offered on these ships, but since the ships have been standing at port since March and now enduring the heat of summer, it is doubtful that wheat/corn will make the grade specified in the original sales contracts.
- The UN/FAO and Ukraine Government has estimated that it will be able to export as much as 5.0 million mt of grain per month due if the export corridor deal. Industry sources are far less optimistic based on the war, the reluctance of vessel owners to let their ships enter a war zone with insurance companies will not be willing to offer coverage or charging exorbitant rates. Private sources estimate that 2.6-3.0 million mt of grain in total could flow out of Ukraine in the best of circumstances, which compares to 1.5-1.9 million mt of grain/month heading through the EU. The real help could be the cost of domestic transit which will raise the local price bid to Ukraine farmers. At best, the 3 Ukraine ports will be able to ship 2.0 million mt of grain/month which along with 1.0 million into Europe is where the maximum monthly export paces are derived from. Such Ukraine export volumes indicate that world grain prices are too cheap.
- For the week ending July 21, the US shipped 28.5 million bu of corn, 14.2 million bu of soybeans and 17.5 million bu of wheat. Corn/soybean exports were disappointing.
- Russian interior cash wheat prices are rising with the estimated cost of replacement put at $365/mt, up $25/mt in the past 2 weeks. And Russian wheat quality is struggling amid the forecast for soaking rains of 2-3.50” over the harvest areas. Russian wheat protein quality is in fast retreat.
- The midday GFS weather forecast is further south with rains over the next 10 days which assures that IA, MN, NE, and the Dakotas hold in an arid trend. The good news is that temperatures will be seasonal with highs in the 80’s to the lower 90’s. Rains were also be reduced across KS, AR and MO with totals of 0.5-1.50” with soaking rain of 2-4.00” slated for TN/KY. A period of hot/dry weather follows with a high-pressure ridge residing across the Midwest. The 10–15-day GFS model has made these hot/dry weather forecasts before to no avail this summer which leaves forecasters/traders sceptical. If correct, the forecast would return mid 90’s to lower 100’s to the Midwest.
- The E Midwest cash soybean meal market is hot and Argentine crushers are not able to pry soybeans away from producers amid Argentine inflation of 80-90%. August meal shorts will cover into first notice day. Chicago corn/wheat markets will focus on Ukraine export potential and can the corridor agreement be properly executed. This may require a few weeks for certainty. Our stance is bullish into late 2022.