- Post “Brexit” update:
- The UK has voted to exit the EU which has produced acute selling pressure across the financial landscape, including Chicago grains. In a vote of 51.9% to 48.1%, the UK will negotiate their independence and exit from the remaining 27 member EU Block. Excessive bureaucracy, immigration and the reestablishment of their borders appear to the main points why Britains voted to leave the EU. Prime Minister David Cameron has offered his resignation this morning. £Stg has fallen to 30 year lows against the US$, while the US stock market had fallen by 700 points overnight. EU equity markets were down 4-7% with some recovery noted in afternoon trade. World Central Banks have promised to offer plenty of liquidity and with the upcoming Brexit process to take years, some bottom pickers are emerging amid the carnage. The US/world grain markets should not, ultimately, be affected by the UK exit, except that the US$ is sharply higher and fund managers are holding a near record long position in summer row crop futures. Chicago corn prices have fallen 60 cents on the week with most of the break via weather. Chicago July soybeans are off 47 cents while July Chicago wheat is off 33 cents, and at new contract lows.
- The grain question of the day is will the funds unwind an even larger share of their net long corn and soybean position? December corn has fallen below its 100 day moving average while the 50 and 100 day moving averages in soybeans are well below current prices. However, an unpredictable key USDA report looms for next Thursday which promises to have a big impact on the marketplace. Amid the lashing in other financial markets, funds may be quicker to cut their losses. Although some will point to the Brexit vote, the big reason for this week’s Chicago decline lies in improved Central US weather. Some nice rains have fallen across 65% of the Midwest with any searing heat to be located over the SW US into July 7th. This means that the early corn pollination period will be favourable with rains slated for the C Plains and the dry areas of the Midwest next week. We would look for steady/2% decline in US corn/soybean good/excellent conditions on Monday which argues for a 2016 US corn yield of trendline or above. It’s clear that the current Midwest weather pattern does not mimic any of the prior Midwest drought years of 1983, 1988 or 2012. The US climate still holds some of the lingering signatures of El Niño such as a strong jet stream and abundance of upper air humidity. In other world grain markets, China’s Dalian corn fell 6 cent/bu with January futures at $6.01. Dalian Sept soymeal prices fell $5.00/mt. Paris wheat futures are up €0.50 to €159.50/mt on the acute €uro weakness. However, amid favourable US and world weather, we do look to be a seller of Chicago rallies as funds are still laden with considerable market length. We expect a rather normal summer Midwest weather pattern into July 10th.