- HEADLINES: Sharp rally on momentum and short covering; Resting orders above the market lacking; Key USDA report due Monday.
- Short covering a new fund buying has lifted Chicago futures into the noon hour to sharp daily gains. Wheat/corn have been the upside leaders as doubt builds about the flow of Ukraine Grain Out of the 3-port export corridor with a key USDA Crop Report looming on Monday. And the US harvest maybe ahead, but there is a history that when August to September corn and soybean yields decline, that they drop further in the October Report about 70% of the time. The mantra of a small crop getting smaller will be heard if US corn/soybean yields decline as the average trade estimate indicates. And farmers are showing limited desire to sell new crop supply, less certain about their own yields. The point is that the market’s focus is all on supply and future potential for tightening US corn/soybean stocks.
- US cash markets stay strong with corn in demand in the Plains and W Midwest. Basis levels are refusing to break with end users on the hunt for new crop supply. The harvest will start late next week, but full throttle Midwest cutting will have to wait until late September or early October. As such, refilling the pipeline has been arduous with soybean crushers, livestock producers and ethanol grinders all fighting for early new crop supply. Cash basis bids should continue to gain and push US farmers to cut crops early.
- Chicago brokers estimate that funds have bought 6,500 contracts of wheat, 6,000 contracts of corn and 5,100 contracts of soybeans. In the products, funds have bought 2,100 contracts of soymeal and 2,300 contracts of soyoil.
- Argentina has been a massive seller of cash soybeans this week as the Government encouraged producers to sell hoarded beans at a Peso rate of 200:1. Cash sales through today are estimated at 3.6 million mt or nearly 20% of estimated stored stocks. The Argentine soybeans have flowed into crush plants and export facilities with China said to have bought 19-23 cargoes for October/November in recent days. China appears willing to secure any/all soybeans away from the US when offered. China has also booked as many as 10-12 cargoes of US soybeans and upwards of 20-24 cargoes from Brazil for February-March. The Argentine soybean Peso rate has proved remarkable in prying old crop supplies from farmers. The impact will be one of reduced US soybean export opportunities longer term.
- Indian wheat/rice prices continue to rise amid tightening supplies. The Indian Government has placed a 20% duty on rice exports which has trapped as much as 1 million mt of wheat at port with exporters unwilling to pay the new duty. We believe that Indian 2022 wheat production is in a range of 92-95 million mt which must facilitate 4-6 million mt of wheat imports (mostly Russian wheat) in Q4. Russia has a massive wheat crop of at least 92 million mt, but the economic sanctions of the west are hobbling exports. Wheat stays a highly charged political market with headlines directing day to day price action. But as non-Black Sea export supplies tighten, US wheat will muster a seasonal recovery into November.
- The midday GFS weather forecast is wetter than the morning run across Iowa/Minnesota but is otherwise unchanged. Light/moderate rain will move across the far E Plains/W Midwest this weekend as low pressure sinks southward into Wisconsin. Rain totals of 0.25-1.50” are offered to WI, N IL, and IA/MN. Temperatures cool this weekend and then warm back to more seasonal levels late next week. We look for steady US corn/soybean crop ratings on Monday.
- The USDA September Crop Report looms on Monday, and a sizeable market reaction is expected. We would see rallies near or above $7.00 December corn and $14.40 or above in November soybeans as offering new cash selling opportunities. Our future concern is US export demand if Brazil harvests record large corn/soy crops in 2023. Wheat price direction hinges on the Ukraine export corridor and the amount of wheat that India purchases later this year. Unless S American endures a worsening drought (Argentine dryness is already acute), the risk is smaller US corn/soybean and wheat exports allows US 2022/23 stocks to rebuild.