- Caution ahead of the June Stocks and Seedings report, which will be released Thursday, was always likely to be the case, key is US seeding estimates. The average trade estimate is for 2016 US soybean acres is 83.8 million acres which would be a gain of 1.6 million acres from March, while US corn acres slide 700,000 acres to 92.9 million acres. US spring wheat acres are expected to rise 366,000 to 11.7 million acres. Combining corn, soybean, and all wheat, US June 1st crop seeding is expected to rise just 1.17 million acres from March, which we believe is too little when one considers that farm profitability rose by its 2nd largest total on record during the period. We would expect that total US major crop acres will rise at least 3 million acres with the potential for as much as a 4.5 million acre increase. In 2009, the last time that on farm profitability this much, farmers responded and seeded additional acres which produced a bearish June report. In our view, the trade is underestimating the amount of US crops that were planted, potentially by a significant amount.
- Unlike the EU model, the midday GFS weather is much cooler for corn pollination following a brief warmup on July 6/7. A strong push of Canadian air would limit any stress on corn with near to above normal rains. The forecast leans bearish on prices with the chant of record US corn yield potential becoming louder. There appears no evidence of any US pattern stagnation into mid July with a replication of the 1983, 1988 and 2012 droughts off the table as 2016 US weather patterns unfold. As such there is no evidence of a dire Midwest drought pattern into mid July, and although there will be a few warm to hot days next week, the big rains that will fall before the heat will limit any crop stress. We lean bearish grain!
- It was a quieter day of trade in the Chicago soybean complex with markets ending mixed. Soybeans ended moderately weaker, while the meal market pushed to new weekly highs. Bean oil slipped to a 2-3 month lows, while crush spreads jumped up as much as 13 cents in July and 6-9 cents/bu in other months. Quiet overnight trade is likely, with a strong market reaction expected at the midday USDA report release. The soybean acreage number looks to be the most important statistic on the need to replace short S American bushels. We would not be surprised if the spring soybean price rally encouraged as much as an additional 2 million soybean acres.
- The global wheat balance sheet continues to loosen, cash wheat prices continue to fall, and the weather models are lacking yield threats through the next two weeks. In fact, the details of the 7 day forecast have trended wetter, and a general Ridge/Trough pattern through mid-July will promote additional rain chances over the next two weeks. Corn pollination will be widespread by July 10th. With US cash wheat prices at multi-year lows, and with Black Sea feed wheat falling another $2/mt today, a demand story remains lacking. Consequently, rallies hinge upon supply loss, and the recent change in the forecast will push any real threats into the second half of July. Assuming weather conditions are unchanged in the next 4 to 5 weeks, one can reasonably expect an August yield estimate from NASS just above 170 bushels/acre. The point is that the USDA’s end stocks estimate of 2.0 billion bu appears accurate without damaging weather in July, and research continues to suggest prices of $3.20-3.50, basis December futures at harvest time. June 1 stocks will doubtless trigger market excitement on Thursday and, unlike beans, price won’t be as sensitive to yield changes amid current crop conditions and deteriorating export demand potential.
- US and world wheat prices fell again, with July Kansas futures settling below $4.00 for the first time since 2006, and yet Gulf HRW maintains a premium to comparable Russian origin into August. Feed lots are reportedly increasing the inclusion of wheat into feed rations, but there’s still no sign of a lasting bottom. Tunisia secured optional origin wheat for Aug/Sep at a fob price of roughly $160/mt, which is a new multi-year low in the global market. This shook quoted offers from Europe and the Black Sea, with Russian origin falling to $174/mt and French dropping to $176-179. These compare to Gulf offers this evening of $185-187, and non-traditional US export demand is unlikely to be found near term. One noted commentator described the tender price as “shockingly cheap”. The market is working to clear what’s become a massive surplus, which will take time. Stats Can cut Canadian acres modestly, but this will be more than offset by higher yield. A lasting price bottom is on the horizon, but isn’t expected until late Jul/Aug, when more is known about N Hemisphere quality. A sell-the-rally mentality will remain intact through the foreseeable future.
- Other notable items include the latest estimate for Romanian wheat output to reach a record 8.28 million mt on the back of favourable weather; whilst in isolation not a market changer, it is the “knock-on” effect upon neighbouring regions and their output that is relevant.