- Chicago sinks with wheat forging new contract low on Canadian rail lockout; Pro Farmer soybean pod counts larger than expected; GFS weather forecast wetter at midday.
- Canadian panic. News that Canadian Railways locked out their workers this morning caused a panic of sorts on the Chicago markets. The lock out caused Canadian grain elevators to either stop taking grain or they dropped their cash basis bids sharply to reflect the rail strike. Some basis declines were as much as 10-40% of the value of the commodity. The uncertainty of when the Canadian rail lock out would be resolved just as the harvest is starting produced storage fears. And that the Canadian grain industry would truck supplies to their nearest customer, the US. This produced a sharp decline in US wheat futures to new contract lows while a rally in soyoil also ran into resistance on a Canadian canola import onslaught. Chicago values fell sharply on the worry that the US would see two harvests, one from the US and the other from Canadian farmers that would truck their grain southward.
- The problem in moving Canadian grain southward is truck availability and cost. Not only is Canadian agriculture looking for ways to move grain south, so are a host of other industries looking at the same option. The cost of short hauls to the US is rocketing higher as Canadian’s look for transport to get their goods to customers. Amid dramatic non-rail transit demand, there are not enough trucks to move more than a trickle of Canadian grain south to the US. But in futures trading, the theme is “shoot and ask questions later”. Such was the selling in Chicago wheat futures this morning.
- Amid the economic importance of two Canadian railways to the Canadian/US economy, it is unlikely that the strike will last more than a week. Canadian farmers have enough storage for at least 10 days of harvest, but the railway lockout has all Canadian farmers on edge. Chicago will follow labour negotiations closely as will the financial markets in terms of inflationary wage pressure signals.
- Chicago brokers estimate that the managed money has sold 5,400 contracts of wheat, 6,800 contracts of soybeans, and 4,600 contracts of corn. In the soy products, managed money has sold 2,500 contracts of soymeal and a net 2,200 contracts of soyoil.
- FAS/USDA announced that for the week ending August 15, the US sold 18.1 million bu of wheat, 55.5 million bu of corn (both crop years), and 60 million bu of soybeans in (both crop years). There was 1.6 million bu of old crop soybeans that were cancelled with new crop sales of 61.6 million bu. There was a net 116,400 mt of US soymeal sold (both crop years) and 10,500 mt of old crop soyoil. The sales of US soybeans/wheat were better than expected.
- The USDA also announced the daily sale of 198,000 mt of US soybeans to China, 105,000 mt of US soymeal to Vietnam, 110,490 mt of corn to Mexico, and 132,000 mt of US corn to an unknown destination. China has now secured an estimated 4-4.5 million mt of US soybeans in a known and unknown category. There is talk that China will be seeking world corn when their corn harvest starts.
- Ukraine has hit a train ferry of fuel tanks in the KavKaz port in Krasnodar, Russia. KavKaz is the main port for taking supplies and people to Crimea. Rumours have the missile attack causing several ships to sink which may be blocking the port. The port also exports grain, but increasingly it appears that Ukraine is targeting Russian infrastructure which may include the Kerch Bridge. Ukraine’s intrusion and capture of Russian land has been a success, but the war stakes have been increased for Black Sea cash grain trading.
- Pro Farmer soybean pod counts and the Canadian Railway lockout has sparked renewed selling across Chicago. The push to new wheat lows comes as a surprise as the Russian/Ukraine war targets infrastructure, which includes key bridges and ports. Yet, the war has not produced a lasting rally since June of 2022 and traders are fully aware of the prospect of slowing sales/trade from the region. The easy money in being a bear has been made, and although November soybeans could retest $9.50 or December corn $3.90, the downside risk is not sizeable. That said, a rally does not commence until it is known how big is big in terms of US corn/soybean yields. The Pro Farmer tour hinted that 183 bushels/acre may be enough in corn, but soybean pod counts argue for a larger US yield in September.