- HEADLINES: Markets digest plunge in soy crop rating, falling world wheat production; Negative macro input caps rally.
- Chicago futures are higher by varying degrees at midday, with soybeans and KC wheat pacing the midweek recovery. The continued trimming of exporter wheat production and last week’s collapse in soy crop ratings are cited. Corn has followed, but early anecdotal corn/sileage yield reports remain disappointing. Recall annual bottoms are very often scored by mid-September, and as our belief is that lows have been scored given US corn and soy crop ratings are likely to drop another 1-3 points next Monday. Excluding outright crippling drought years, US corn and soy good/excellent ratings in mid-September will exist at the lower end of history.
- Soyoil has fallen slightly as crude’s rally slows and palm oil’s rally pauses, but strength in meal has kept board crush margins above $2.60/bu. The primary issue in the soy complex, and in oilseed markets as a whole, is that yield loss the in US and weak canola output in Canada are colliding with record global consumption and massively profitable processing margins. Supply-based rallies can be absorbed easily. New highs in Nov beans lie ahead if a sub-50 national yield is confirmed. A sub-49 bushels/acre yield makes the 2023/24 US soy balance sheet nearly unmanageable, and it is difficult to understate the importance of weather in Argentina and Brazil between Nov and Dec.
- US meal and oil disappearance will remain well supported amid renewable diesel production capacity expansion and as the US picks up global meal business left by drought in Argentina and meagre crush rates there. We are uncertain what price rations domestic soybean demand prior to late winter.
- Excessive rainfall/flooding in Brazil offers a new threat to exportable wheat supplies, and the midday forecast keeps in place a pattern of unwanted rainfall into Sep 20. Precipitation accumulation in Rio Grande do Sul and Parana in southern Brazil in the last 4 days has been recorded in a range of 3-8+”. Additional rainfall of 3-8” is forecast in this region over the next 10 days.
- Brazil remains a net importer of wheat, but the tonnage of Brazilian exports has been rising in each year since 2020. USDA projects Brazil to export a record 3.5 million mt of wheat in crop year 2023/24, but any rapid loss of quality lowers or eliminates this. USDA’s Brazilian net wheat import forecast of 2.1 million mt may be 1-3 million too low. Note that excessive rainfall is impacting roughly 80% of Brazil’s primary wheat producing region.
- Dec Paris milling wheat is up €3.75/mt at midday. European corn and rapeseed markets have recovered slightly. We note that Sep Matif wheat’s expiration typically marks annual lows in that market, and it is just difficult to be overly bearish of wheat as physical supply availability is peaking currently. Spot crude is up $0.50/barrel at $87.20.
- The midday GFS weather forecast is consistent with morning output. Scattered, and welcomed, showers will dot the southern and western Plains next Mon-Thurs, while arid conditions continue across the E Plains, Midwest and Delta. Heat exits the Midwest overnight but stays in place for another few days across TX, OK, KS, MO and far western IA. Soil moisture loss will be a feature of mid-Sep weather across the bulk of the Central US, and thereafter any shift to wetter conditions will disrupt harvest, which will spread northward must faster than normal. As of now, tropical storm Lee is forecast to stay just east of the mid-Atlantic/Northeast Coast.
- Bullish vigour this morning has been capped by strength in the US dollar, weakness in equity markets and the looming US/N Hemisphere harvest. However, breaks are now buying opportunities as the primary short-term risk is one of lower-than-expected US corn, soy and spring wheat yields.