- HEADLINES: Forecasts add rain to France, Germany in 7–10-day period; Ukraine stays dry: Soybean rally pauses on profit-taking: Corn corrects slightly; Midwest, Black Sea forecasts stay dry: Wheat ends weak on hope for rainfall in Europe; Russian cash prices unmoved.
- MOSCOW. June 14 (Interfax) – Russia may leave the grain deal after its current term ends, rather than leave it early, Russian presidential press secretary Dmitry Peskov said. During a meeting with journalists, Peskov was asked to comment on Russian President Vladimir Putin’s remarks that Russia is considering the possibility of leaving the deal. He was asked whether this may happen after it ends, or whether it may occur early
- The major weather forecasting models are in decent agreement with respect to needed rain falling across key areas of France and Germany late next week, but have failed to boost rain chance in Ukraine. The graphic attached shows Jun 1-23 percent of normal precipitation, with Ukraine’s primary Corn Belt highlighted. Adverse weather has added to infrastructure and input challenges.
- A dry June in Ukraine will follow rainfall in May of just 2-40% of normal. USDA does project Ukrainian corn yield in 2023 at 103 bushels/acre, vs. 106 last year and the lowest since 2020. However, drought in Ukraine in recent years has pulled yield down to 86-89 bushels/acre, which in 2023 would cap exports at 16 million mt, vs. USDA’s projected 19 and vs. 27 million in 2022/23. Each bushel of yield lost in the US and Ukraine stresses Brazil’s supply availability.
- Very close attention will be paid to Midwest and Ukrainian weather into July 10.
- July soybeans fell 11 cents on late-day profit-taking, while the rest of the market was nearly unchanged for the day. Market news has been limited at midweek, with the trade focused on each weather model run and positioning ahead of the long holiday weekend.
- While palm oil prices have corrected in recent weeks, a recovery in world soybean oil prices has developed. The recovery started in S America, where Argentine and Brazilian soybean oil briefly traded below world palm oil prices. But the US soybean oil market was quick to respond and has led the recovery to ensure that US exports remain minimal. US soybean oil offers in the Gulf are up more than 9 cents in 4 weeks, while S American prices have gained 3-4 cents. At the same time, SE Asian palmoil values have lost 3-4 cents.
- Ultimately, US biofuel use will regain attention in the coming months as US soybean oil stocks fall on rising use and declining US soybean oil production, which should underpin Chicago soybean oil values on corrections.
- Soybean price trends remain a function of crop conditions and weather forecasts. But crop stress is building with heat, and the market will continue to add risk premium.
- Chicago corn futures ended slightly weaker in corrective fashion. Northern Hemisphere weather has been adverse to date, but the next 2-3 weeks are critical for some 45-50% of the US Corn Belt and the entirety of producing areas in Ukraine. Dec Chicago has paused at its 100-day moving average, but this provides little resistance if drought deepens in IA, IL and the Great Lakes region in late June.
- Ethanol production has struggled to match year-ago levels in recent weeks due to large existing stocks, but margins remain profitable. Note that the processing industry since early spring has withstood cash prices of $6.30-6.70/bu, and so corn at current spot prices is not viewed as overpriced. Implied ethanol margins beyond Sep are highly profitable. And the US’s large premium to Brazilian origin is viewed as necessary to keep domestic stocks adequate.
- Volatility remains the only certainty nearby, but the need for Midwest rain has become immediate. Two-week forecasts this evening remain concerning. A settlement above $5.55 places upside at $5.80-5.85, Dec.
- US wheat futures ended lower as spot Paris milling wheat fell on better rain chances offered to France and Germany next week. It is critical that rain there falls as projected, and overall EU crop potential remains highly variable. A hike in yield/production from USDA is unlikely.
- The market remains complex and segmented. Russian fob wheat is still quoted at $240/mt for July-Sep arrival, and Russia is by far the world’s lowest cost seller. German wheat is quoted at $265. Gulf HRW is quoted at $328. Argentine origin is quoted at $330, and so there is a $90/mt spread amongst exporting markets. The lack of transparency in the Black Sea market complicates things further, but most of world demand will be satisfied with Russian supplies during the summer months. We do note that the Russian market tends to score its annual low by mid-summer. Key is whether import demand returns in bulk in the next 30 days.
- Rallies will struggle until the Russian market adds premium, but downside has become severely limited amid the absence of ideal N Hemisphere weather.