- HEADLINES: Spring wheat futures soar on potential smaller 2023 Russian wheat crop; July WASDE report in a week; GFS weather forecast midday like overnight forecast solution.
- Chicago grain futures are mixed at midday with profit taking noted in soybeans/soyoil following the recent sharp early rally. Corn futures sagged into key support at $4.80-4.90 December with wheat holding strong on short covering tied to reduced US/Canadian HRS production and lower than expected early yield data from SE Russia (Krasnodar/Stavropol). The early Russian wheat yield is 12% below last year and slightly below the 5-year average. The lower Russian yield could cause farmers there to be stronger holders of the new crop supply as export volume stay record large. And the drop in US HRS wheat ratings was a surprise as the heading process will reach 65-70% this week. The disappointing ratings and limited rain for the N Plains and S Canadian Prairies is increasing the concern for hi pro wheat with the US HRW crop curtailed by months of autumn and winter drought. We look for a mostly higher close as the NASS soybean seeding drop of 4.0 million acres continues to reverberate through Chicago as it provides a bullish tailwind for the grains and support below $13.25 Nov soybean futures. The new crop November soybean/December corn spread reached out to a 2.70:1 ratio with the upside target being 3:1. This implies that November soybean futures could score new contract highs with any Central US weather adversity that threatens soy yield.
- We were looking for a higher Chicago opening, but we were surprised by the sheer strength of the start with new money said to be flowing into Chicago. Brokers report that funds have bought 7,200 contracts of Chicago wheat, 2,800 contracts of corn, 3,100 contracts of soybeans, 2,800 contracts of soymeal and 3,900 contracts of soyoil. Oil share trade continues to be the trade of the hour with soyoil having a story on expanding renewable diesel feedstock covering. The volume in Chicago is not that large with traders suggesting that they are unwilling to expand their risk until Monday.
- Tunisia has purchased 100,000 mt each of SRW and durum wheat in a weekend tender. The SRW wheat was sold for late July into late August delivery optional origin with Russia or Romania to be the suppliers at a price of $259-261/mt basis CIF. The price works back to around $236-238/mt basis fob which suggests that world wheat prices have started rising. If the Russian wheat crop is indeed under 80 million mt, the odds are strong that world wheat prices have scored an early seasonal low.
- WASDE will release their July report a week from today on 12 July. The big question that traders are ponding is how much WASDE will reduce its corn yield estimate due to May/June dryness and the sharp fall in US corn crop condition ratings. We estimate that WASDE will cut their corn yield estimate by 3-7 bushels/acre to account for the US weather adjusted yield trend. However, remember that WASDE will boost planted/harvested corn acres by 2 million and cut US soybean planted/harvested acres by 4.0 million acres.
- The July WASDE report will likely cause December corn futures to struggle to sustain any break below $4.90 while soybean values find support below $13.25 November heading into the report. Central US weather will cause price gyrations, but traders are already talking big gains in US corn/soybean condition ratings next week Monday due to recent rains. We agree that good/excellent condition ratings will improve, but we see the gains at a more modest 1-2%.
- The midday GFS weather forecast is like the overnight solution with the N Plains, the Upper Midwest and the Canadian Prairies struggling to receive meaningful rain. The rain will occur from ridge riding storm systems that produce thunderstorms every 2-3 days. And no extreme heat will be lasting with coolness centred across the Intermountain West/W Midwest. A ridge of high pressure is expected to shift into the South-Central US in the 10-14 day period which will raise temperatures for those crop areas that miss the rain.
- Today it is a wheat market on lower than expected Russian yield data which paints a more bullish global wheat outlook. And Chicago soybeans/soyoil also have their own bullish supply stories. As such, we caution on being bearish December corn below $5.00 if world wheat valuations have bottomed.