- HEADLINES: Chicago sags on a lack of buying with hope for better Midwest rain next week; Ukraine grain though the EU will be challenging.
- Chicago grain trade has been mixed in slow volume with corn/soy values under pressure on the belief that next week’s Midwest weather will improve as the recent extreme heat abates while traders debate Black Sea supply risks. Extreme volatility in August soybeans and soy products ahead of first notice day on Monday has been a key driver this morning. August soybean futures scored a fresh contract high at $15.8075, while profit taking, and forward position rolling has hammered soyoil futures. And oil share spread unwinding has been featured which has underpinned soymeal values. Soy futures are all about spread adjustments with traders unwilling to add to risk with most wanting to get flat ahead of the weekend.
- We look for choppiness to persist with the bulls and bears trained by the summer volatility, do not chase rallies or declines is the new manta of a successful 2023 grain trader. A late day Chicago rally is forecast due to the ongoing Russian war aggression. Neither the US nor world markets have fully adjusted to Ukraine grain export shortfalls.
- Chicago brokers estimate that funds have sold 2,200 contracts of wheat, 4,400 contracts of corn, and 4,200 contracts of soybeans.
- US weekly export sales for the week ending July 20 were 8.6 million bu of wheat, 12.4 million bu of old and 13.2 million bu of new crop corn, and 7.3 million bu of old and 20.0 million bu of new crop soybeans. Corn/wheat sales were below the average needed for WASDE to achieve WASDE annual totals.
- The percentage of the US corn crop that is enduring drought rose 4% to 59% with soybeans rising 3% to 53%. Seasonally, the amount of crop enduring drought rises from early August into November as rainfall fails to offset evaporative losses. We look for US corn/soybean good/excellent crop ratings to decline 2-3% on Monday due to this week’s heat and lack of rain. So far, ridge riding storm systems have produced a few thunderstorms that produce heavy rain in locales but have not produced a general Midwest rain. The deepening dryness is important in terms of corn ear tipping while soy pod abortion will occur without soaking rains. August needs to be a wetter across the Midwest/Delta.
- There has been much discussion regarding Ukraine grain flow through the EU and who will pay for the additional transportation cost this week. The EU ag minister (who is Polish) made comments that as much as 4.0 million mt/month could be exported from the EU. Of course, back in November 2022 when such grain was flowing into the EU, it was not encumbered by Polish blockades and long transit times to the ports for offload. And EU sources report that the EU is unlikely to pay for the transit cost as all EU members must agree to the above budgetary cost. And Romania and nearby countries have road restrictions on truck weights on roadways which would add to the logistical delays. The EU will not be able to export 4.0 million mt of Ukraine monthly. We could argue the total will be no more than 0.5-1.5 million mt which means that Ukraine grain exports will be just 30-40% of last year. This leaves the world with a big supply hole that Brazil/US must fill in terms of corn and Russia must fill with wheat.
- The midday GFS weather forecast is like the overnight solution with limited Midwest/Delta rain as ridge riding storm systems are not good producers due to the eastward shift of the Bermuda high pressure cell which limits the flow of Gulf moisture northward. A dry/warm Friday and weekend is forecast for the Midwest with extreme heat battering the Delta/W Midwest. Highs will range from the 90’s to the lower 100’s. A few instability afternoon showers develop across Intermountain West on Tuesday, but the next chance of rain is not evident until a week from today. Extreme heat holds across the South-Central US.
- China continues to be an active soybean buyer in Brazil for September and the US for October/November. China will import a record amount of world soybeans in the 2022/23 crop year that ends on Oct 1, 104-105 million mt. China’s vessel loading of Brazilian corn is also growing. Amid declining US corn/soy yield potential and strong Brazilian buying from China, we see no reason for sustained Chicago price break with quality/quantity of the Russian wheat crop being questioned by importers/exporters.