- Ag markets lower at midday on favourable GFS forecast; Paris milling wheat fills open chart gap.
- Ag markets are lower at midday as debate continues over Central US weather in the 6-15 day period, the GFS forecast maintains the return of needed rainfall in the eastern Corn Belt next week, and as Russia’s cash wheat market probes for demand. Soybeans and wheat are deeply oversold, but pushback is lacking so far today. We would note that spot Paris milling this morning filled a chart gap left open after May/early June’s dramatic rally. Several chart gaps now exist above the EU wheat market. Mixed reports have spilled out of Russia with respect to winter wheat yields, and clarity is unlikely to be found until July. We maintain a Russian crop estimate of 79-81 million mt, vs. USDA’s 83.
- US ethanol production in the week ending June 14th totalled 311 million gallons, vs. 301 million the previous week and unchanged from the same week a year ago.
- Ethanol production stays elevated for another 4-5 weeks, and margins in the cash market remain profitable. Yet, ethanol stocks last Friday totalled 992 million gallons, up 4% year on year. We view the USDA’s annual ethanol grind forecast of 5,450 million gallons as correct.
- US commercial crude stocks last week fell 2.6 million barrels to 457 million, down 1% from mid-June 2023. A normal seasonal drawdown in crude stocks lies ahead, and seasonally it is difficult to be bearish of energy markets until September. US gasoline disappearance in the week ending June 14 totalled 9.4 million barrels per day, a new high for 2024 and unchanged year on year. Spot WTI at midday is up $0.30/barrel at $81.85.
- NOAA’s newly released July and July-Sep climate forecasts feature high odds of drought development across the E Midwest and Southwest. Heat is forecast to blanket the Central US in July and the already-dry OH River Vally is projected to contend with additional moisture loss over the next 30 days. It is still a bit too early to be concerned about recent heat/dryness east of the Mississippi River, but a pattern change will be needed no later than July 1. Despite the shedding of risk premium in recent days, we view US/Northern Hemisphere risks as high. And unfortunately model disagreement between the GFS and EU/Canadian weather models is unlikely to be resolved nearby. The GFS features a lack of heat beyond the next few days and near normal rainfall. EU/Canadian output is much warmer/drier in the east.
- The midday GFS weather forecast is slightly drier in IN/OH but is otherwise consistent with morning output. Amplified high pressure ridging keeps a pattern of heat/dryness in place across the Delta/Southeast and E Midwest for another 3-4 days. High pressure then relaxes/retrogrades south and west thereafter into June 30. Regional showers are offered to MO, IL, IN, OH and KY next Wed-Sun. The GFS forecast is void of additional prolonged heat, but here is where the GFS is at odds with other models.
- Grain markets are anticipating no major threats to US corn and soy crops nearby, but most important is whether the wetter GFS weather forecast verifies IL eastward next week. We estimate managed funds’ combined short in corn, wheat and soy markets at 373,000 contracts, vs. 333,000 last week and the largest for mid-June on record.