- First things first, early trade in Chicago IS, as we suggested last night, showing some attempts at turning around some of yesterday’s losses. Whether or not this continues throughout the day remains to be seen and we will update tonight.
- The surprise for Chinese soybean crush margins is that their domestic soybean oil values have failed to ignite any sort of rally with cash values perched at 8 year lows. The chart below reflects that China’s soybean crush margin contraction is not only a function of meal, but also oil. China is reported to hold 5 million mt of rape/canola oil in reserve. At some point, look for the Chinese Government to sell those ageing stocks – and replace them with fresh supplies. New 8-year lows in Chinese cash soybean oil prices would not bode favourably for late year 2015 soybean imports from the US.
- NASS reported a modest increase in US soybean condition ratings with 13% of the US soybean crop rated as excellent, with good ratings falling 1% to 49%. The combined good/excellent rating held steady at 62% – steady with last week. The condition index, however, is up 1 point amid the boost excellent ratings. 72% of the US soybean crop is blooming and 34% of the crop is setting pods. The next 3-4 weeks of weather will be very important to US 2015 soybean yields. The next level of support rests at $9.00-9.20 basis November futures. China’s purchase of US soybeans for the new crop year through mid-July is at a 9 year low. It’s US export demand that bodes poorly for a sustained rally.
- US corn conditions rallied 1%, with 70% of the crop rated good/excellent. Improvement is noted across; IL, MI, KY, MO, MN and NE, while modest 1-2% declines are noted in NC, PA, SD and WI. MN ratings at 87% good/excellent are the 3rd highest on record. Yield models points toward an August estimate of 165-167 bushels/acre, and conditions have increased counter-seasonally since early July. World fob spreads are little changed, and US corn for October delivery is prohibitively expensive. The market is ripe for a Turnaround Tuesday, but rallies in the coming weeks will be fleeting amid improving yield potential and a lack of export demand. We maintain that a test of $3.70 basis December, lies in the offing with harvest lows depending very much upon US corn export demand.
- US spring wheat crop conditions improved 1%. The crop is rated as 71% good/excellent, vs. 70% a year ago. PNW crops continue to deteriorate, but this has been more than offset by improvement in ND. Note also that spring wheat harvesting is 5% complete, vs. 1% a year ago, and looks to accelerate into early August. Progress has begun in all states but Montana. A rather heavy bout of rain is projected across the whole of Western Australia’s wheat belt in the next 72 hours, with totals of .50-1.00” to be widespread – the GFS weather model indicates localised totals upwards of 2”. Should the forecast verify, July precipitation across Australia’s wheat belt will exist at 70-150% of normal. Top and subsoil moisture levels are above last year. Russian prices remain the world’s benchmark, and this benchmark is unchanged at $4.70-4.80/bu, basis spot Chicago. Additional fund liquidation is expected in the days ahead, but the decline will slow dramatically. Our initial downside target has been met and a more neutral outlook is advised below $5.00. However, we maintain that 20-30 cent rallies should be sold amid record global stocks and lack of threatening Aussie weather.