• The morning has been a deep color of green with corn, soybeans and wheat all trading to the upside in active volume. The market seems to be getting back to trading fundamentals (rather than politics) with the Brazilian/US FOB basis out to nearly 25% (BZ premium). This means that the US soybean market is cheap enough for now amid record large US crush/export demand. We have been astounded as to the record pace of US soybean exports since the US/China trade skirmish started in May. Brazil has also exported tonnages of soybeans, and, now Argentine soymeal supplies are starting to seasonally decline and US soymeal export demand should start to pick up. Of course, the Argentine drought is causing the seasonal shift to the US to occur a few months early. At 10-year lows, one does not want to be short a commodity that has record demand. That commodity is soybeans. Corn and wheat futures are firmer as soybeans have stabilised. The corn market has not shown much independence amid the sharp fall of soy futures, and wheat has followed amid the expanding N Hemisphere harvest. The early spring wheat harvest in the Volga Valley of Russia is showing a yield of 8-9% below last year. The Russian’s demand better spring wheat yields to prevent their all wheat crop estimate from sliding below 64 million mt.

• We are looking for a firmer Chicago close as funds start to reduce their net position amid a dearth of hedge related selling on rallies. A close above $5.15 in Sept Kansas wheat is needed to confirm a double bottom on the charts. Chicago brokers estimate that funds have bought 2,100 contracts of soybeans, 5,200 contracts of corn, and 2,800 contracts of wheat. In soy products, funds have sold 1,100 contracts of soyoil and bought 2,100 contracts of soymeal. The US House Ways and Means Committee will be holding a Trump Tariff Meeting on Wednesday to gauge the adverse impact on the US Farm Economy. US politicians on both sides of the aisles are lining up against the use of US tariffs. So far, no actual trade deals following the tariffs have been netted, but the midterm elections are looming. The political pressure against US tariffs is ramping up and the pressure to start dialogue with impacted countries is increasing.

• Protein levels for Russian wheat were already poor with offers of 12.5% wheat becoming scarce (we note from information received that US 12% wheat is like 12.5% Russia wheat). The weekend rains and forecast of increasing totals this week are not going to help the low-pro situation. Some fear that the harvest will slow and cause short bought sellers to pay up for exportable supply. A drop of 0.5-1.0% of protein will be a big deal to the world marketplace with German high pro supplies reduced. Moreover, concern is starting to develop for the heading HRS Russian wheat crop as soil moisture is short and the forecast is dry.

• The midday forecast is drier across the W Midwest including much of MN/IA and MO. The GFS weather forecast is looking more like the EU model in its rainfall solution. A broad trough/ridge pattern prevails with a NW upper air flow through the Midwest. The Gulf is being slowly closed off with any upper air moisture for the Central US to become more limited. The best chance of rain is with a system on Friday and the weekend that produces 0.25-1.00” of rain. Thereafter, the rain chances are limited to the SE US with tropical moisture providing heavy totals. Rain is desperately needed across MO, AR and the E Midwest. There will be some moisture, but amounts will be below crop needs during the reproductive period. The extended range holds onto this ridge/trough upper air flow into the early August. The cooler temperatures will help with the filling of corn.

• If the market is getting back to focusing on the fundamentals (not the politics of tariffs) a correction is underway. If corn does not score a new low during the last half of July, it usually means that a new demand bull phase is emerging. US wheat export potential is also looking up amid smaller Black Sea and Russian crops. Our view is that seasonal grain lows have formed.

• November soybeans marked a new low overnight and then rallied through Monday’s trading. The market is very oversold by any technical or fundamental measure, and trade and crush data released on Monday confirmed that demand at current prices is exceptionally strong. The world cash market has nearly priced in a 25% spread between US and Brazilian soybeans, which suggests that downside risks in the US market are quickly being diminished. Soybean export inspections have ticked down slightly in July, but the average pace has so far been more than 50% better than a year ago, and if maintained over the next 2 weeks will result in a record July export rate. NASS reported national good/excellent crop ratings fell 3% last week to 69%. The MI crop fell 10% this week to 58%, followed by an 8% decline in the MO crop which was back to the lowest rated at 40%. The KS crop fell 6% to 45% good/excellent, while the TN crop is the best rated at 84%. The national yield potential is steadily rolling backwards, but the 2018 crop rating is still well above average, supporting a national yield estimate of 49-51 bushels/acre. US cash markets are now widely under $8, and our view is that a low is forming.

• Chicago futures ended marginally higher as the market tried to follow Monday’s soybean surge. US corn good/excellent ratings fell 3% to 72%, vs. 75% last week and vs. 79% in late May. Another modest decline lies ahead amid a lack of rainfall across the Central Midwest forecast over the next ten days. US crop condition models are dropping their estimates of US corn yield below 180 bushels/acre. US corn progress is being pushed via the heat with 63% of the US corn crop now pollinated. US export inspections through the week ending July 12 totalled 48 million bu. This matches the pace needed to meet the USDA’s new 2017/18 forecast. Argentine corn basis is even with the US Gulf, and there is a strong seasonal tendency for Argentine cash offers to bottom in the first half of July. Work suggests this is no place to turn bearish with funds net short an estimated 115,000 contracts, the largest ever for mid-July. World barley prices are rallying on tightening new crop global stocks/use. Black Sea barley has rallied $18/mt in just two weeks. US corn export potential remains strong. US corn stock/use ratios argue that corn is undervalued by 20-40 cents.

• Wheat futures fell 4-9 cents at all exchanges. Short soy/long wheat spread unwinding is apparent, and recall funds last week maintained a net long position in Kansas worth 20,000 contracts, most of which are not profitable. The world cash market is again higher this evening. Gulf HRW is offered at $220/mt, which is a $7/mt discount to comparable German origin. Russian cash prices are also firm. Black Sea futures suggests higher prices lie ahead post-harvest. Work suggests lows have been established in the Black Sea, with Russia’s crop size overstated. Contacts suggest Russian exports will be large in late summer/early autumn in an effort to maintain market share. However, without improved rainfall in Australia, US export demand rises significantly during the second half of the crop year. Complete dryness continues in E Australia. The loss of major exporter is most important to longer term valuations. The US’s high quality crop will be valuable come Oct/November. We see value below $4.80 spot Chicago futures.

• Limited news on trade and prevailing technical trends pressured the soy trade into the weekend. Soybeans again paced the decline, while crush spreads from Jul-September were firmly above $2/bu. Funds were estimated sellers of 9,000 soybean contracts on Friday Thursday’s WASDE report did not offer any real surprises as the trade had anticipated a slower export rate via tariffs. Worth noting is the USDA’s season average cash price forecast which was at $8-10.50. The midpoint of that forecast is $9.25 or $0.85 higher than November soybeans ended the week. Historically, it has been rare that Chicago trades under the USDA’s cash forecast, but at Friday’s close it was at a historic 10% discount. Consequently, our view is that Chicago values are too cheap. A trade resolution or late summer weather scare is needed for a sustained rally. Chicago has already greatly discounted the China trade risks. We see further downside limited to 10-20 cents or $8.20 basis Nov futures.

• Corn futures ignored the rally in wheat futures and followed soybeans lower on Friday. Weather and Chinese soy trade have been the main market focus for weeks. There has been no movement (publicly) on US/China trade negotiations, and the favourable weather forecast weighed on corn prices. Funds sold 13,000 contracts on Friday. The Commitment of Traders report showed funds as big sellers of close to 33,600 contracts of corn, putting their net short position at the largest since early February. Since early June funds have sold nearly 307,000 contracts in the corn market, which is just short of the record that was set in July 2016. That year a weather scare (Brazil and US) had funds building a large long corn position in the spring, and then sold it on good US weather. Seasonal lows were scored in September, and price rallied into the following summer. The fundamental outlook for 2018/19 is far more bullish, and with spot prices back at harvest lows, our view is that corn is close to forging a seasonal low. The US will be a record exporter of corn in the months ahead.

• Wheat futures were able to break free of the summer row crop markets and closed sharply higher on Friday. French wheat futures rallied €2/mt overnight on European/Black Sea crop size and quality concerns. Chicago and Kansas wheat futures rose 9-12 cents, while Minneapolis wheat reluctantly followed. Chicago Black Sea futures rose $2-3/mt for Aug-November. Commitment of Traders data showed that last week funds covered close to 1,700 contracts in Chicago and were short just 246 contracts. In Kansas City, funds added 2,500 contracts of length and were long 19,700, but sold 1,000 contracts in Minneapolis and held a record large net short position. The Russian Ag Ministry cut their 2018 wheat production estimate to 64.4 million mt vs the USDA’s forecast at 67.0 million. Such a harvest would be down 20.1 million from last year or 23%. A crop of this size would drop 2018/19 Russian wheat exports to 27-28 million mt vs 41 million this year. We are turning outright bullish wheat amid falling world supplies, and likely boost in US export demand.

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Weekend summary 13 July 2018

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Fund positions disaggregated data

• The July WASDE report was viewed as slightly bearish soy and bullish on the grains. The 2018 July WASDE report has been one of the most anticipated July reports in recent years, as the USDA incorporated their “best guess” on US and World soy trade flows based on the imposition of tariffs by China and a host of other countries. The fear was that WASDE would make larger cuts to US row crop exports. In fact, WASDE increased US corn and wheat exports, while cutting soybeans. WASDE indicated that they expected the tariffs to stay in place for the crop year covered. Thus, the marketplace should have some comfort that WASDE has make their best attempt in digesting the ongoing and deepening trade wars. The best estimate of WASDE was to forecast at 150 million bu increase in US grain exports and a 250 million bu decline in US soybeans in the 2018/19 crop year. The net result was a 100 million bu net decline via the ongoing trade war. This means that following the recent decline, the marketplace can get back to trading fundamentals, such as Central US weather and world crop sizes. The focus on the marketplace will now be more on US row crop yields. WASDE forecast 2018/19 US corn end stocks at 1,552 million bu, a 25 million decrease from June. WASDE increased US corn exports by 125 million bu to 2,225 million, below this year’s 2,400 million bu.

• WASDE lowered world corn production in both crop years with smaller crops in Russia, Brazil and Ukraine. This raised the US corn export outlook. Research argues that WASDE is still too low with its 2018/19 US corn export estimate and that a further gain of 125-175 million bu lies in the offing. We see no reason why 2018/19 US corn exports cannot equal the current crop year. And further production cuts lie in the offing for the FSU-12 and Latin America. Also, WASDE lowered US corn 2017/18 corn end stocks by 75 million bu based on better exports and food/industrial use. The increase offset a slight drop in feed and residual. 2017/18 US corn end stocks were lowered to 2,027 million bu. The industry argues for a 2018 US corn yield of 180 bushels/acre which would add another 370 million bu to US production which would raise 2018/19 US corn end stocks to 1,925 million bu. Such stocks argue that December corn below $3.40 is undervalued. The WASDE report confirms a brightening price outlook for corn. US 2018 wheat production was raised to 1,881 million bu, an increase of 54 million bu with old crop stocks pegged at 1,100 million bu, an increase of 20 million. Amid a 25 million bu rise in US 2018/19 US wheat exports to 975 million bu, US 2018/19 wheat end stocks were pegged at 985 million bu, a 115 million drop from the current crop year. Research sees additional upside in US wheat exports amid a fall in world wheat production of 9.3 million mt. US wheat exports could grow another 50-75 million bu, but the current sales pace is disappointing. The 2018 Russian wheat crop was reduced to 67.0 million mt, down 1.5 million, with the EU wheat crop off 4.4 million mt to 145 million mt. The Ukraine crop was down 1.0 million with Australia off 2 million to 22 million mt. The major world wheat exporter stock/use ratio has fallen below that of 2007, a bullish development.

• In soybeans the USDA raised the forecast for US old crop 2017/18 soybean exports by 20 million bu to 2,085 million bu, and added 15 million to the crush forecast. Old crop stocks were lowered by 40 million bu. In the new crop estimates the USDA raised the crush forecast by 45 million bu to a record large 2,045 million bu, while slashing new crop exports by a massive 250 million bu. The sharply lower export total raised 2018/19 new crop stocks by 195 million bu to 480 million. The season average price range forecast was lowered by $.75/bu to $8-10.50 with a midpoint of $9.25 Old crop Chinese soybean imports were unchanged at 97 million mt, while the new crop forecast was slashed by 8 million to 95 million mt. Despite the sharp drop in Chinese soybean imports total world oilseed trade was lowered by just 5.8 million mt. The USDA did not raise the forecasts for production/imports/consumption of other non soy protein meals for China. Brazilian 2018/19 soybean exports were increased by 2.25 million to 75 million mt. Argentine exports were unchanged at 8 million mt. Argentine 2017/18 soybean crush was lowered by 1 million to 39.2 million mt and 2018/19 was down 1 million at 43 million mt. Additional cuts were made to Argentine soymeal and soyoil forecasts in both old and new crop. A bearish soy report was widely expected amid larger crops and declining world trade. However, the July WASDE also helps alleviate some of the uncertainty that has hung over the soy markets as it provides a starting baseline and framework for world trade flows that Chicago and world cash market can now measure against.

• Traders argue that the sky is falling in at Chicago this morning with corn, soybeans, and wheat all sharply lower as traders fear a protracted US/China trade dispute. China has announced that the US is bullying it on trade and that it will not relent with equal retaliation. Moreover, China feels that its chances in a WTO dispute are strong and that it will not engage in negotiations until the US stops its bully tactics. A sharply lower Chicago close is expected, with only moderate short covering ahead of the USDA July Crop Report on Thursday. The USDA report will try to model what the latest Trump Tariffs mean for US export demand, end stocks and the average US farmgate price. China will file another new WTO trade dispute if the Trump Administration activates the tariffs in late August. The earliest that the proposed $200 billion of tariffs can become active in late August. The speed of any WTO dispute will take time, and US farmers are fretting that their being at the front line and watching their incomes rapidly deflate. China is not willing to negotiate unless the US shows restraint in trade. President Trump tweeted this morning that he will support the economic welfare of US farmers , acknowledging that their income has fallen sharply since 2012.

• Neither the US President nor USDA are offering any specifics on how they will support farm income. In fact, Trump in his tweet admitted the trade fight could take time. We continue to be told that USDA is working hard on commodity support programs before the onset of the US 2018 summer row crop harvest. Traders and the industry awaits the details of any program. Brazilian trucking woes persist which is curtailing the movement of grain and soybeans to ports. Few farmers are willing to pay the minimum rate while others fear that negotiating a lower rate could spur legal action by the government. The entire minimum trucking rate has crimped Brazilian corn and soybean movement with the winter corn harvest put off by some amid a lack of storage availability.

• China only has about another $100 billion of US goods that comes into their country from the US. The US’s proposed $200 billion of tariffs is well above what China can retaliate against in terms of goods. Thus, traders are wondering what China means when it says a full retaliatory effort. Speculation is growing that China could target US treasuries or the approval of US companies doing business in China. And China can always adjust their currency lower to blunt the impact of US tariffs. The point is that following the next $100 billion of US tariffs at 10%, the financial risks to the US and world economy are growing. The only way that the US/China trade war is likely to be diffused is with President Trump and Xi negotiating. It’s now at a point where negotiations have to occur at the highest levels of government.

• The midday GFS weather forecast offers a front passing through the Upper Midwest on Friday and the weekend producing 0.25-1.00” of rain. The front crosses through the rest of the Midwest Sunday/Monday. The rain tails off to 0.25-.75” with a few locally heavier amounts across the E Midwest. Seasonal temperatures push south with seasonal upper 70’s and 80’s as extreme heat abates early next week. A low pressure trough holds across E Canada which retrogrades a ridge of high pressure westward. This creates a ridge/trough pattern that slowly pushes east with time. This strongly hints that temperatures will turn warm to hot again with limited rainfall. Our thoughts are that heat will return after a brief spate of cooler weather after July 20. A warm and mostly dry weather pattern returns.

• The market fears that the US/China trade war will become protracted. However, following the emotion of the day with USDA’s latest report due on Thursday, the market will lose its emotion with short covering to spark a rally. However, a lasting Chicago rally requires US/China dialogue and/or adverse Central US weather. We see additional downside price potential as limited to another 15-30 cents in soybeans and 5-15 cents in corn and wheat. This is now not the place to turn bearish with lows nearing in our opinion.

• It has been a mixed trading session in Chicago with the grains weaker, while the soy complex is firmer. The rally in soymeal/soybeans surprised some traders, with China tariff talk still deeply entrenched. The volume of trade has been moderate with funds on the sell side of the grains as cooler temperatures favour corn, and historically high spring wheat condition ratings could produce a bearish supply surprise on Thursday. Traders are starting to understand that world soy demand is likely to rise at current depressed prices. Moreover, if China is willing to return their 25% tariffs to those impacted by US tariffs, China soybean demand could hold at USDA’s projected 103 million mt. Subsidising Chinese soybean importers/crushers and livestock feeders is not going to result in less demand. And China using its tariffs to subsidise its impacted ag industries is likely to prod the US Government to keep its promises and do the same for its farmers. Soymeal futures are rising as S American fob offers rise as their supply of old crop soybeans is in fast retreat due to strong export demand. The world has a shortage of soy crush capacity amid this year’s Argentine crop loss. And Brazil is unlikely to import large supplies of US soybeans amid big tax rates if the crush meal and oil is used internally.

• Brazil truck freight rates remain extremely high and there are only 4 Brazilian crush plants at port that can import US soybeans and re-export the products. Thus, some 200-250,000 mt of US soybeans can be imported in October/November or December, but larger totals are unlikely. CONAB slightly raised their estimate of 2018 soybean crop to a record 118.9 million mt while they lowered their total corn crop to 82.9 million mt. CONAB is expected to keep cutting its winter corn crop to 54-55 million mt amid the early poor yield trend due to persistent dryness. We anticipate final Brazilian corn production will reach 80-81 million mt which compares to the WASDE forecast of 85 million. We look for Brazil to export 25-26 million mt of corn in 2017/18 which is down 6 million from last year.

• Egypt’s GASC purchased 175,000 mt of Russian wheat in an overnight tender. GASC bought the wheat at fob prices ranging from $203.65-204.75. Freight ranged from $15.70-16.50/mt which equated back to $220.45-221.00 basis C&F. Other offers of Russian and Eastern European wheat were considerably higher. The Black Sea wheat markets do not appear to be following Chicago lower.

• There has been lots of discussion on CCC and what is their authority is to secure US soy/grain in the open market to counter tariffs imposed by China. CCC’s authority is to stabilise ag markets in extreme events. There is no doubt that this is an extreme event. But debate continues as to whether legislators need to get involved, discussions on this issue are ongoing.

• The midday GFS weather forecast is slightly drier through the weekend as a strong cold front pulls through the Plains and Midwest on Monday. The frontal pass breaks out showers/storms with rains of .25-2.50”. A low pressure trough across Manitoba compresses the ridge of high pressure southward, with some migration to the west. The best rains would fall across NE/IA and S MN early next week with totals to exceed 2.00”. Temperatures cool after Sunday in the west and all areas by Wednesday. The rains and cooler temperatures would be favourable for crops that have suffered through weeks of dry/hot weather. The rain ends late Tuesday with a drier weather profile offered into the end of the week. The extended range holds a trough across Central Canada that keeps any high pressure ridging across the Southern and Western US.

• The Central US weather forecast is improved with traders fearing a bearish USDA report on Thursday. The wheat market is suffering from rising US spring wheat production (expectations). President Trump is off to the EU/Russia and no one is expecting any change in US trade battles. It’s the market reaction post Thursday’s USDA report that will be key. However, rallies will be limited until US trade battles are settled.

• The delayed Commitment of Traders report offered no real surprises and confirmed continued liquidation/selling in the Ag trade. Through last Tuesday, funds had added 10,500 contracts to their net short corn position and sold another 9,600 contracts in soybeans. In wheat, funds covered 10,500 contracts in Chicago, liquidated 13,600 contracts in Kansas, and sold another 2,800 in Minneappolis. Funds also liquidated 7,000 soymeal and covered nearly 875 short contracts in soyoil. Net activity across the ten principle ag markets was selling of 25,600 contracts, driving the net short position to 121,524 contracts, the largest net short since January.

• Soybeans were lower overnight and selling continued into Monday’s close, leaving futures down 21- 23 cents. The ongoing Chinese trade dispute along with the upcoming July WASDE report has made navigating the soy markets difficult. And the US/China trade war could still ramp up with President Trump likely to add new tariffs. After the close, NASS reported that 71% of the soybean crop was rated as either good or excellent, on a national basis. A 10 point drop in the NC crop lowered ratings there to 45% good/excellent for the lowest state rating, while there were three states tied for the highest rating. Crops in KY, NE, and TN were all rated at 83% good/excellent. Other notable changes were a 9% increase in the SD crop to 68% good/excellent, while the LA crop gained 6% to 54% good/excellent. The IL crop had been as high as 83% in early June, was down 6% last week to 72% good/excellent. The July WASDE report is likely to leave yield unchanged, but will adjust to the NASS acreage figure. The market is anxious to see how the USDA handles US trade and price estimates.

• Lower overnight trade in corn gave way to selling right from the morning open. Friday’s low held, and while 4 cents over the morning low, Dec corn finished down 6 cents. NASS reported a 1% decline in national good/excellent ratings for last week, with 1% of the crop slipping from the good category, while 1% was added to the poor. However, just 7% of the crop is rated as poor/very poor versus 10% last year. The US weather forecast holds limited rains across the Cornbelt in the coming week, but models have pared back the extreme heat projected late last week. This will limit a significant drop in crop ratings to mid-July. The CoT report showed that through Tuesday, funds were net short 70,810 contracts (-10,491) or the largest net short position since February. The US export program remains strong, with healthy livestock and ethanol demand. The drop in soy values is holding corn prices at historically cheap levels. It is the feedgrains that hold the best Ag story.

• Wheat futures ended lower, but the market remains supported relative to neighboring summer row crops. EU milling wheat futures ended a bit weaker. Black Sea cash prices have rallied $4/mt from the early July low. World wheat markets are digesting falling major exporter supplies, which will likely be lowered again in Thursday’s WASDE release. EU markets are leading other values higher. Spot Matif is quoted at a $31/mt premium to Chicago, an historical extreme. The EU market has been trending higher in recent weeks. The boost in futures and relative stability in the €uro have allowed Gulf wheat to become much more competitive in the world marketplace. Breaks are opportunities for end users to extend coverage. Dryness has returned to Australia, and appears set to persist into late July. The rapid warming of the equatorial Pacific elevates the risk of sustained dryness in Australia through autumn. US spring wheat was rated 80% good/excellent which has traders expecting a bearish US supply surprise on Thursday. It’s the post report reaction that is key.

• Markets are higher at midday, with soybeans leading the way. It’s partially a sell the rumor buy the fact mentality. But also of note is the widening of US soybeans and product discounts to all other origins. This morning Gulf beans were offered at an incredible $58/mt discount to Brazilian origin for August delivery. Spot soybean rest at a $75/mt discount to canola (rapeseed), and Black Sea sunflower prices hold a rare premium to US beans. The market has accomplished the first part of its goals, and this should give the bears pause moving forward. Crude has recovered from overnight losses, with spot WTI up $.90/barrel at $73.90. The Dow is up 145 points. Official US grain/soy exports in May were better than expected, and the break has no doubt offset China’s lack of interest in US beans. Census soybean shipments in May totaled 110 million bu, more than double May of last year. May- June soy shipments combined will be a record 224 million bu, vs. 119 million a year ago. The USDA’s target will be easily hit, if not exceeded. Official US corn exports in May were 310 million bu, a record for any month.

• Crush margins have surged (to $2.00/bu, basis futures). USDA is expected to raise crush further in its July or August WASDEs. The CFTC’s report will be delayed until Monday. Fund as of Tuesday cut their net wheat position slightly, but added to shorts in corn and beans.

• The midday GFS weather forecast is favourably wetter in Central Europe in the 11-15 day period, but maintains dryness and above normal temperatures across a bulk of the Black Sea corn and oilseed belt. A rather hot 6-8 days lies ahead for the Black Sea as well, with high temperatures this weekend and early next week to reach into the low 100s. New crop Black Sea corn is offered at $.85/bu over futures, vs. $.70/bu at the Gulf.

• The central US Midday GFS weather forecast is again drier in the extended period as the mean position of the jet stream stays north of major growing areas. The GFS forecast does allow temperatures to moderate across the Midwest beyond July 15, but very little rain is expected into the latter part of July. Also, the EU solution this morning was much warmer than the GFS. An expansive high pressure ridge will dominate the N American weather pattern for 10-12 days. Its influence will at times wane, but no model eliminates high pressure altogether into July 22. Temperatures in the upper 90s/low 100s will be common across the Plains through the period.

• Markets today are reacting to weather, and initial tariff consequences have been digested. It remains that negotiations are required for any lasting rally. Much closer attention will be paid to US weather through corn pollination. In normal years, substantial premium would be added given the lack of rain and periodic heat.

• Markets opened as expected, and have done little since, save for a modest extension in wheat’s recovery. At midday, corn is up 1, Nov beans are down 4, and wheat futures are up 13-20. EU milling wheat futures have held on to their overnight rally, and concern persists regarding the size of EU/Black Sea wheat crops. Just this morning there has been talk that Germany’s crop will be downgraded 2-4 million mt, which follows France’s 4 million mt -downgrade last week. Otherwise, the market awaits news or implementation of the first round of US tariffs placed on Chinese goods. There has been ongoing radio silence from the US Trade Team so far this morning. Tariffs are set to take effect shortly after midnight tonight. China has stated it won’t implement tariffs until/unless the US does. Exporters reported two cargoes of optional origin corn sold to S Korea for new crop delivery. US and Argentina share the title as the world’s low cost exporter. Crude oil has fallen slightly from overnight highs amid a very modest build in weekly stocks.

• As of last Friday, US crude stocks (less reserves) totaled 418 million barrels, up 1 million on the week but still 17% below late June of 2017. Exports have offset record production in 2018. US crude stocks will remain tight into late year, and downside risk below $67-68 is limited. RBOB and ethanol are firm. US ethanol production last week totaled 314 million gallons, vs. 315 million the previous week and up 16 million gallons on last year. This is more evidence to support a 25 million bu hike in industrial corn use in the USDA’s July WASDE. Production and blend margins remain sizeable.

• The EU/Black Sea forecast at midday maintains warmth and dryness over the next 7-8 days. Better rain chances are offered to Ukraine and Poland thereafter. Of note, maximum high temperature across Russia’s Corn Belt into next week will reach into the upper 90s and low 100s. Much better rain is needed across the European continent to stave off corn yield loss.

• Estimates show that managed funds as of Tuesday were net short 74,000 contracts of corn (up 14,000 on the week), were net short 1,000 contracts of Chicago wheat (down 11,000), and were net short 60,000 contracts of beans (up 16,000). The combined corn/wheat/bean position is a net short 135,000 contracts, up 36,000 on this week a year ago.

• The central US midday GFS weather forecast is slightly wetter in the 12-15 day period, but is warmer/drier in the meantime. The models in recent runs have struggled with the details of high pressure aloft. The midday GFS allows ridging to persist in some fashion aloft the Midwest into July 18 before shifting it westwards. Temperatures won’t be excessively hot outside of the Southern Plains, but highs in the mid/upper 80s will be commonplace across IA/IL over the next 10-12 days. Rainfall will be scattered/modest in nature. Meaningful totals over the next 10 days will favor WI, as well as the Delta/Southeast. Sharp declines in Midwest soil moisture lie in the offing. Just how well corn can buffer coming dryness will be watched closely.

• There are only hours to go before the US-Chinese trade battle becomes tangible. All indications point to the first round of tariffs being implemented, which has no doubt been digested by the market. It is the retaliation, and whether progress can be made thereafter that is most important. Grain futures will maintain support amid falling crop sizes in Europe and Russia.

• European markets have traded cautiously higher today as the US markets close in observance of their Independence Day holiday. London’s LIFFE wheat futures continued higher by a modest £0.10/mt continuing the seemingly relentless push and marking a £Stg adjusted premium over Paris’s milling contract in excess of £7.00/mt basis March and May 2019 contracts (the first directly comparable months). This premium, for a feed grade contract, marks the potential tight UK balance sheet position, not only in the current position but also as an outlook into the new crop marketing year.

• November ’18 London wheat closed at contract highs (£169.15/mt), which is almost £18/mt above values a mere 12 months ago. Recent cuts in EU output forecasts have contributed to further sharp price hikes in recent days; continued stresses from hot and dry conditions have the potential to further cut output from current forecast levels. 2018 EU soft wheat output estimates were cut 2.6 million mt from May estimates with a similar 2.6 million mt cut in barley production. Overall EU wheat output is put at the lowest level since 2013 when output was 136.2 million mt; UK output was maintained at 14.3 million. Cuts in output are (unsurprisingly) expected to translate directly into reduced end stocks.

• Stratégie Grains cut their estimate of French output following a crop tour and the IGC’s latest global grains output figure was also reduced by a sharp 12 million mt from their May estimate. Adverse weather in Russia and UK were particularly highlighted. Global grain output was pegged at a three year low.