- Chicago higher as break in equity markets extended; Exporters sell soy to China; GFS weather forecast stays mostly dry in Central US next 10 days.
- Stock values fall to 800+ losses in the DOW producing a long equity/short stuff (commodity) unwind; the August US Jobs Report showed an employment gain of just 114,000 raising concern of recession and 3 FMOC rate reductions in 2024; China active in seeking US soybeans with speculation growing of additional sales next week; Financial market turmoil added by this week’s Japanese interest rate hike and the long held carry trade being unwound. A massive managed money short expected to announced by CFTC after the close.
- Chicago grain volume has expanded this morning with risk trades being liquidated.
- The slowing US labour market will push the US Central Bank to lower rates as one of its mandates, full employment, is now in doubt and recession worries grow. And rumours abound from SE Asia on the liquidation of the Japanese carry trade amid faltering liquidity. The Bank of Japan rate increase caught large hedge funds off guard. Combined, this and the slowing US economic growth outlook is pulling the US equity market sharply lower and causing an unwind of long equities/short commodity trades. Algo/AI selling was active in Chicago in the morning but has since slowed at midday. A higher Chicago close is forecast into the weekend as fund managers adjust risk across their portfolios.
- USDA also announced US exporters sold another 202,000 mt of soybeans to China for new crop delivery, which confirms mid-week rumours of additional demand. China’s soy buying program is historically slow/late, but a feature of the marketplace this week, along with shifting money flows, is one of value in the ag space.
- Even amid today’s $3.00/barrel break in spot WTI crude, the Chicago corn/crude ratio is historically weak. Nearby corn fob premiums in Brazil, Argentina, and Ukraine are firmer again, with Brazilian supply offered $1.00-1.05/bu over Chicago and which Ukrainian premiums scoring newer seasonal highs at $1.25/bu over. US beans are priced competitively for Sep-Dec arrival and following this year’s year on year decline in Brazilian output, importers have few options but sourcing some measure of US soybean in autumn/early winter.
- The CFTC this afternoon is expected to peg managed funds net short in corn at 330,000 contracts, vs. 319,000 the prior week, funds short in soybeans at a record 189,000 contracts, vs. 164,000 the prior week, and funds combined net short in Chicago/KC wheat at 123,000, vs. 116,000 the previous week and the largest since mid-April. It is the structure of the market that has managers weary of large new short positions ahead of key USDA reports and as the beginning of tropical storm season complicates medium-range weather forecasts.
- The midday GFS weather forecast has introduced a second storm/hurricane into the US Gulf that makes landfall in TX Aug 15-16.
- The Central US GFS midday weather forecast is drier in SW Midwest and keeps meaningful rainfall in the 7-10-day period confined to CO and southern Kansas. The 7-day outlook is consistent with prior runs. Scattered showers favour the Upper Great Lakes. Dryness continues elsewhere. A moderation in Central US temperatures remains likely after Aug 7, but heat bakes the Plains, MO, and western IA into Monday.
- Confidence beyond 10 days is low. Second half of August outlooks will be highly changeable due to the tropic’s influence.
- US yield expectations are high. USDA’s Aug report and Pro Farmer’s Tour thereafter will provide validation or not. A more nuanced market is expected beyond late summer as corn contends with sizable non-US exporter production losses and N American wheat exports find support in quality/quantity downgrades in W Europe and the Black Sea. Soy’s story centres on US yield. The US forecast is less favourable. Note that Chicago corn tends to bottom early in years defined by large yield/production.