- Soybeans and meal futures were up sharply in the overnight as Chinese soymeal surged higher on huge volume. Gains in US markets were pared back through the day on profit taking and wetter midday weather forecasts. Ahead of Thursday’s USDA report, the average trade estimate calls for a soybean acreage total of 83.8 million acres versus March intentions of 82.2 million. The average estimate for June 1st soybean stocks is 829 million bushels. Residual is the most difficult line item in the balance sheet to estimate, and the average estimate implies a quarterly residual of -40 million bu (negative). The average estimate appears inline with the historical trend. Strong Chinese meal demand and late season US export demand have been the key drivers of US soybean prices. US Aug/Sep exports will likely be record large, and a sharp jump in acreage is needed to confirm a top in US soy prices.
- Chicago corn futures settled unchanged for a second consecutive session. Early support was noted from a turnaround in a host of markets (the US$ fell, crude and equities rallied), but Central US drought development is still unlikely through the first half of July. Global milling wheat prices also continue to fall, and new corn US corn demand is being slowed, not accelerated. Midday highlighted how the major weather models are having difficulty with 10-day forecast amid a rather fast moving jet stream. Nearby, there’s agreement on soaking rain across the S and W Corn Belt, which will be a net benefit to national yield. There is currently limited confidence on next week’s pattern, but we should be mindful that there is potential for widespread heat. Near term direction will still largely be a function of daily weather updates, and unlike recent years, the market is not likely to pivot one way or the other on the critical July 4th holiday. Gulf corn’s premium to Black Sea feed wheat remains $20+/mt, and there’s substantial downside risk if weather in the next 3 to 4 weeks is non-threatening. Ample wheat supplies offsetting yield concerns looks likely to limit upside potential.
- US and world wheat markets continue to drift lower, and fundamental input is more of the same. There’s talk that Canadian crop conditions are on par with 2013 (when yield was a record) and EU and Black Sea cash prices fell another $1/mt, keeping US Gulf premiums to other origins at $5-15/mt into September. As a result, US wheat export sales will slow over the next several weeks. The US forecast is wet across E CO, KS and parts of NE through the next 3 to 4 days. Cumulative rainfall of 1-3” (heavier totals should be only regional in nature) will disrupt harvest progress. A drier pattern resumes next week and KS’s harvest is noticeably ahead of schedule. Elsewhere, conditions remain favourable. Only light or scattered precipitation is projected across W and C Europe through the next 10 days. Russia will be mostly dry. Harvest has started there and should accelerate throughout July. The Canadian vegetation maps continue to suggest well above trend yield potential, the USDA’s current yield forecast in Canada is 3.02 mt/ha, some 15% shy of the record scored in 2013. Ultimately, price needs to find a level that clears the market of excess supply, and we doubt a lasting bottom has been scored. The difficulty moving forward is that, amid currency weakness, there’s still incentive to maintain or boost acreage across the Black Sea, Canada, Australia and Argentina. Even in the US, deferred premiums keep potential new crop revenue above spot prices. Funds are short an estimated 105,000 contracts, and a short term bounce may lie in the offing but lasting rallies are not expected into late 2016.