- HEADLINES: Chicago futures mixed with soy/corn spread unwinding; South American soyoil unlikely to be imported into the US on a 19% duty; Canadian crops suffer under drought.
- Chicago grain futures are mixed at midday with corn futures higher while the soy complex and wheat futures sag in a correction. Soyoil has rallied nonstop since bottoming following the EPA RVO announcement on June 22 and a setback was due. The volume on the morning soy complex break is modest, but with US crop condition ratings for corn/soybeans expected to gain on Monday on recent Midwest rains, the next rally effort could await trader’s focus on Wednesday’s July 12 USDA WASDE and crop report.
- We remain bullish on soybeans/soyoil with corn to uncover support below $4.90 basis December futures. Key support lies below $13.25 in November soybeans and below $0.60 in September soyoil. The US winter wheat harvest is advancing and should surpass 50% by Sunday.
- The bears are crowing about future US Central Bank interest rate hikes due to a stronger than expected US economy and ongoing US job adds. ADP reported its biggest monthly labour gains (June) since July of 2022, which rallied the US dollar. We would anticipate the US Central Bank to raise its lending rate by 0.25% when its FMOC meeting ends on July 26. The next US Central Bank rate increase could come on September 20. The rate hammer of the US Central Bank is to cool demand, but it does nothing to boost supply, which is the real need to slow US/world inflationary pressures.
- US/World Central Banks will continue to battle inflation, the question is, will US rates reach levels that break something. For now, hedge funds are not willing to place deflationary bets with the US/world economic outlook brightening, even with rising rates. If the US Central Bank keeps raising rates beyond September, a more bearish commodity landscape could unfold.
- US ethanol production gained last week with production pegged at 312 million gallons vs 309 million the previous week. The US needs to average 307 million gallons/ week to reach the USDA annual target of 5,250 million bu. Amid historically strong margins on the US corn price break, we look for WASDE to hold its US ethanol demand estimate steady. US ethanol stocks declined 30 million gallons to 935 million gallons amid the record large weekly ethanol production (for late June).
- The amount of US cropland that remained in drought fell slightly from the previous week with 67% (down 3%) of corn and 60% of soybeans in a drought designation. The drought acres are double that of a year ago and reflects the need/importance for 1-1.50” of rain each week.
- Chicago oat futures have rallied strongly today (Dec oats up $0.16 at $4.45) due to the Canadian Prairie dryness that is forecast to worsen over the next 2 weeks. The lack of rain during crop reproduction is having an adverse impact on oats, canola, and spring wheat. Canola is particularly vulnerable with the crop 60% flowering. This would be important for US renewable diesel feedstocks.
- 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. Ridge riding storm systems will be positioned further south with rain from Kansas eastward across the Southern Midwest with totals of 0.5-1.50” for the next 5-6 days. No extreme heat is noted with coolness cantered across the Intermountain West/W Midwest this week. A ridge of high pressure is expected to amplify north late next week across the Intermountain West and push the jet stream further north. This could increase rain into the NW Midwest. Temperatures return to seasonal levels after July 10 with 80’s/low 90’s.
- A 19% duty prevents S American soyoil from being imported into the US. Moreover, S American soyoil is not eligible for US biofuel credits and few are willing to segregate supplies. Look for Nov soybeans to bottom at $13.10-13.25 and September soyoil to find support below $0.60. Don’t sell the Chicago break with NC Midwest dryness to worsen into mid-July. The return of any heat would be negative for pollinating US corn.