- HEADLINES: Chicago retreats after early fund buying; Corn/soy futures fall from chart resistance; Black Sea/ Brazilian corn not following.
- Chicago futures opened sharply higher following the announcement that China had booked over 500,000 mt of US new crop soybeans amid the left-over bullishness from technical/chart-based considerations. December corn and November soybeans tested key resistance at $6.75 and $14.85 before retreating. Futures are well off their highs at midday.
- Traders are awaiting the Jackson Hole Summit with Fed Chairman Powell to speak on Friday. Hawkish comments on future US interest rate hikes in the FED’s battle against inflation are feared. Chicago and a host of financial markets have cast aside worry about a future EU/US recession for now, but the fear is expected to return this autumn. It will be nearly impossible for the EU to avoid a recession given energy shortages. And US home prices fell by their largest amount since 2011 in July. Rising rates and slowing demand are worsening themes for US homebuilders. The outlook for US economic growth is slowing into 2023.
- We have held a generally bullish grain outlook for the past two years on tightening world exporter supplies/stocks. 2022/23 world exporter stock/use ratios rest at record lows, but with Chicago prices elevated, a wide swinging Chicago is expected during the coming harvest. Key longer term will be whether Brazil will be able to harvest a 150 million mt plus soybean crop next January-March.
- Brazilian farmers will start seeding their new soy crop in three weeks with recent rains helping to start rebuilding soil moisture. Brazilian farmers are optimistic for 2023 soybean production since back-to-back droughts are a rarity. Brazil endured its worst drought on record last December/January across Parana, RGDS, MGDS and Paraguay.
- The USDA reported that the US sold 517,000 mt of US soybeans to China for 2022/23. The sale was the largest reported in months (to China) for soybeans to be shipped from October into December. The market took a buy the rumour and sell the fact response with prices falling into midday.
- US weekly ethanol production rose to 290 million gallons, up 1 million gallons from last week and right at the average needed to reach the annual 2021/22 USDA forecast. US gasoline consumption fell 12% to 8.45 million barrels/day. US gasoline consumption continues to sway up and down on a weekly basis. The size of the weekly gasoline increases, and declines are different from prior months and difficult to explain. We do not look for WASDE to alter their prevailing 2021/22 US ethanol grind estimate of 5,350 million bu. We forecast that the US will grind 5,325 million bu in the 2022/23 crop year.
- Chicago brokers estimate that funds have bought 1,200 contracts of wheat, 3,900 contracts of corn, and 900 contracts of soybeans. In soy products, funds have bought 1,400 contracts of soymeal and sold a net 2,900 contracts of oil.
- The midday GFS weather forecast is wetter than the overnight run with 0.5-2.50” of rainfall for Iowa/Illinois and the E Midwest into September 3. The target for heavy rain is Iowa. Starting this weekend, some portion of the Central US will have a chance of daily rain. And the heavy rain across the Gulf States will end in the next 36 hours. The Gulf corn harvest will restart early next week. There is no evidence of any frost/freeze with high temperature s holding in the 70’s to mid-80’s. Late summer growing conditions are adding to US soybean yield potential.
- Chicago values have rallied sharply in recent days. The market likely formed a trading peak with the coming harvest to pressure values into September. Note that Black Sea corn/wheat fob offers are steady to lower for the week while Brazilian corn offers have declined 20-30 cents. The world market has not followed Chicago upwards. We look for a Chicago correction as the US harvest is ahead. The 2022 US soy crop looks to be record large.