- HEADLINES: Chicago correction extended at midday as GFS weather forecast features drought-busting precipitation accumulation; US ethanol production stays elevated.
- Chicago ag markets have extended overnight weakness as radar maps show light rain working across northern MO and into IL, and as the midday GFS forecast continues to add to 10-day cumulative precipitation. US ethanol production remains seasonally strong, and margins have soared following the break in corn. Soybean crush margins, both futures-based and in the physical cash market, are rising. But it is all Midwest weather into late July, particularly following widespread crop stress, and decades-low corn crop ratings.
- Only one year was there material improvement in corn and soy crop ratings from late June to late July, 1992, when July rainfall in IA and IL reached 7-9”. Such is the burden this year, but NOAA’s’ QPF and the midday GFS forecast both offer at least the chance that rainfall this weekend/next week in IL, IN and OH reaches 2.00-4.00”, and so a stabilisation/recovery in soil moisture lies ahead. We would maintain that national US corn yield potential of 165-175 bushels/acre remains intact, but exactly where final yield falls within this range has major implication on US and global balance sheets. This will be a challenging markets and risk management remains difficult.
- The US drought monitor Thursday morning is expected to show an intensification in drought conditions across E KS, MO, southern IA, IL and IN, but improvement the following week if 7-day forecasts verify. Extremely close attention will be paid to radar maps beginning Friday. Additionally, we note that max temperatures in the 90s/100s are probable in KS, MO and W IL prior to this pattern shift. The growing season into early July will have been highly variable.
- US ethanol production in the week ending June 23 totalled 309 million gallons, unchanged from both the previous week and the same period in 2023. This is right on track to meet the USDA’s forecast, and USDA may opt to leave industrial use unchanged in its July WASDE. Ethanol stocks last Friday were up 1% year on year at 965 million gallons, but the market remains balanced as gasoline use has now exceeded year-ago levels in each of the last six weeks. Spot WTI crude oil at midday is up $1.70/barrel as stocks last week were drawn down nearly 10 million barrels. Seasonally, US crude stocks decline to early/mid-autumn.
- The midday GFS weather forecast is wetter in the Eastern Midwest, with rainfall of 2-3” expanded into IN and OH in the 6-10 day period. A pattern of dryness and extreme warmth will be in place across the southern Ag Belt into Sun/Mon, but thereafter a series of light but continuous rainfall develops across the Plains and Midwest into July 8. The GFS and Canadian forecast models are at odds over coverage/amounts, and the GFS is unwavering in projecting a tropical storm making Gulf landfall July 6-7, but the best rain in months lies ahead for a wide swath of the primary Corn Belt. The GFS’s solution implies an easing or near elimination of drought in parts of IA and western/southern IL.
- The break has been as swift as mid-June’s rally. The evolution of the coming forecast should be digested by Thursday, with focus thereafter shifting to old crop US corn/soy stocks and the actual performance of rainfall in the first week of July. Wide swinging markets will persist into late summer.