- HEADLINES: Funds cut losses on last week’s Chicago purchases: US weekly exports start to seasonally improve; China active cash buyer on the break.
- Volatility, it is occurring in abundance with Chicago futures sharply lower this morning. Remembering back to just a week ago, Chicago and KC wheat futures were limit bid with corn/soybeans in tow on threatening Midwest weather and Black Sea grain export concern. Today, the bearish feature is an improved Central US weather forecast with the Russian war ongoing and no escalation in the attacks against Ukraine grain infrastructure (for now). Chicago futures are sharply lower at midday and those that chase rallies or sell hard breaks are the “wounded” in the marketplace as price trends last only a week or less.
- Some questioned at the start of May why we were calling for extreme volatility and not a lasting bull or bear move. Our response then (and now) is that Northern Hemisphere weather patterns, trade data and financial markets were not indicating a straight-line move, but extreme whipsaw price action that is difficult to navigate, even for the most seasoned and fast-moving trader.
- That volatility is persisting and is likely to continue until there is US crop yield clarity and world demand steps forward to produce a demand led market in Q4 2023 and Q1 2024. In fact, the lower Chicago drops into a late summer low, the better the longer-term opportunity in our opinion. However, be prepared for additional acute choppiness in the weeks ahead.
- Chicago brokers report that funds have sold 6,700 contracts of Chicago wheat, 11,800 contracts of corn, and 9,900 contracts of soybeans. In the products, funds have sold 4,900 contracts of soyoil and 5,400 contracts of soymeal. The funds were huge buyers in Chicago last week and are unwinding a sizeable amount of that market length today.
- The USDA reported that China purchased 132,000 mt of US soybeans for 2023/24 with the Philippines securing 183,500 mt of soymeal. We believe that China is active securing US soybeans for October/November on the morning break with an additional 6-8 cargoes selling. And the world is looking to US soymeal as Argentine imports of soybeans from Brazil are far below what is required to keep its crush industry supplied. The US will have an important opportunity to supply soymeal to key importers from late September through February. And Argentina looks to export 2.0 million mt less of soyoil which will help ignite a rally in tropical oil demand with Canadian canola supplies so tight.
- US export inspections for the week ending July 27 were up from prior weeks. The US shipped 20.6 million bu of corn, 12.1 million bu of soybeans, and 21.4 million bu of wheat. For their respective crop years to date, the US has exported 1,370 million bu of corn (down 676 million or 33%), 1,856 million bu of soybeans (down 116 million or 6%), and 100.5 million bu of wheat (down 5 million or 5%). We look for the US export pace to slowly improve amid record large world wheat/soy demand.
- Argentine grain inspectors have announced a strike in a bid for higher pay. Argentine inflation rates are soaring to an estimated 116% in July and workers are using every opportunity to improve wages. Argentina is increasingly becoming a banana republic which will curtail crop production gains following 2 years of drought amid financially stressed farmers.
- The midday GFS weather forecast is drier in the first 5 days of the forecast and wetter in the 6–10-day period with a soaking rain projected for Iowa. Confidence in the forecast beyond the next week stays low as the models struggle with ridge riding storm systems. Note that ridge riding systems during July proved to produce a hodgepodge of rain leaving some areas with improved crops while others suffer from acute drought. The only consistent trend has been a worsening Canadian drought and deepening dryness across the Dakotas, MN, and W IA.
- Soybeans have fallen below their 200-day moving average which has sparked additional liquidation. China is active securing US soybeans while US soyoil demand stays strong from renewable diesel. Corn and wheat futures are following the complex lower. Consumers should scale into additional purchases on weakness, this is no place to make new sales. Look for a turnaround on Tuesday in a market where volatility reigns supreme.