- Chicago soyoil sees additional managed money short covering; Russian wheat yields are better than expected; Beryl takes a turn to the North into S Texas.
- Chicago futures are mixed at midday as the volume of trade tails off heading into Thursday’s US July 4th holiday. Short covering was the feature early today in a turnaround from the recent selling. Corn and soybeans bounced while wheat sagged on harvest hedge pressure against Paris wheat futures. China has been active pricing Chicago soybeans while 3-year lows in corn prices spur greater interest from S American buyers. The favourable Central US weather forecast caps rallies, but the short structure of the market makes the bears wary of selling breaks. Interior cash corn/wheat markets are well bid with cash buyers suggesting that if all the corn is available that NASS suggests that it is not making its way into local markets. We look for a mixed Chicago close with the spec trade interest in selling rallies on non-threatening Central US weather.
- Chicago brokers report that managed money has sold 3,200 contracts of wheat and 6,700 contracts of soyoil, while selling a net 1,900 contracts of corn, 3,200 contracts of soybeans and 3,400 contracts of soymeal.
- Soyoil is (again) the bullish stalwart of Chicago as prices surged through their 50, 100 and 200 day moving averages with values at their highest levels since mid-May. The $0.47-0.48 area basis August soyoil will act as resistance.
- The brewing trade war between Indonesia and China is the fundamental bullish catalyst for Chicago soyoil. Indonesia is threatening to place duties on imported Chinese consumer goods at 100-200% to help their local manufacturers. The only significant good that Indonesia exports to China in sizeable tonnages is palmoil. Most argue that China would retaliate against Indonesia palmoil with new duties. Chinese duties on Indonesian palmoil could force Chinese importers to secure supply from Malaysia. However, curtailed total palmoil imports would likely mean less UCO that China could ship to the US. Traders will closely follow Chinese UCO valuations should an Indonesian/China trade spat develop. The US has seen record imports of Chinese UCO, which has become important to future US soyoil demand. Canadian canola prices are also sharply higher while European rapeseed prices are rising on tightening new crop supplies. World vegoil supplies are rising on tightening supplies and an outlook for curtailed 2024/25 stocks.
- Early Russian wheat yields have been better than expected. However, NVDI measures have fallen to decade lows and the worry is that the strong yield trends in Kraznodar and Stavopol won’t last as the harvest carries northward. We maintain a Russian wheat crop estimate of 82.5 million mt awaiting harvest information from the frost/freeze areas that were hit in early May. Our bet is that USDA’s 83.0 million mt Russian wheat crop forecast will hold fast until harvest yield data is available across the Black Soils area during late July and August. Russian spring wheat crops are faring ok with the key reproductive period occurring during the last week of July and the first half of August.
- The midday GFS weather forecast is wetter than the overnight run with warmer temperatures offered in the 11-15 day period for the Midwest. Hurricane Beryl is forecast to make landfall across the southern tip of Texas and power northward into Dallas. This would add 3-7.00” of rainfall for Texas and potentially boost rainfall totals across the Central Plains and the W Midwest depending on the northward speed as the storm becomes extratropical. The EU model has been further south and west with Beryl, and their midday solution will be important. Beryl is the first category 5 hurricane in the Gulf of Mexico in July. The warm Gulf waters will likely produce additional hurricanes as systems exit off the Eastern African Coast.
- An historically strong high-pressure ridge is forecast to build across the Intermountain West and extend into the Plains following Beryl. Highs in the 100’s would be widespread with 90’s/lower 100’s extending into MO/IL.
- The structure of Chicago is heavily short of corn/soybeans and even wheat. Central US weather is favourable today and the algos are programmed that “rain makes grain”. Chicago values will drip lower into the holiday. However, if there are any threats, sharp short covering rallies will unfold. The Black Sea drought is expanding.