Author Archives: simon

26 June 2023

Posted on June 26, 2023 by simon

• HEADLINES: GFS weather forecast is wetter in the midday run for C and E Midwest with 0.4-1.25″ of rain; NASS crop condition ratings in focus; Old/new crop spreads rally on order flow.

• Chicago grain futures are firmer at midday, but well off their early morning rally high as uncertainty regarding US weather and key USDA crop reports later this week dominate trading activity. Few want to chase a Chicago rally or a break, leaving price to chop sideways until more information is available.

• Soyoil appears to be the only Chicago market with strong domestic demand with deliverable receipts being cancelled into first notice day due to a strengthening cash market. US corn, soybean and wheat export demand is tepid with Russian and Brazilian fob grain offers well below the US Gulf. The US corn/soybean market lacks a demand story that makes the bulls nervous. The bears are nervous as too much Midwest real estate is dry and crop conditions are in decline. Until Midwest crop conditions stop declining, it is difficult to be overly bearish with several weeks of key growing weather ahead.

• And the cries of worry are widespread from Midwest farmers that did not receive at least 0.50” of rain this weekend. Crop stress is rising and becoming acute with a 2-3-day period of intense heat just ahead. Key will be NASS crop condition ratings later today (yield determinations) which have been more important than Sunday night’s forecast in recent weeks. This is based on there being no “dome of doom”, a high-pressure ridge that produces heat/dryness.

• Chicago brokers estimate that funds have bought a net 600 contracts of wheat, 2,600 contracts of corn and 4,100 contracts of soybeans. In the products, funds have sold a net 1,800 contracts of soymeal and bought 1,900 contracts of soyoil. The volume this morning has been rather slow from the funds.

• US weekly export inspections for the week ending June 22 were 21.4 million bu of corn, 5.2 million bu of soybeans, and 7.5 million bu of wheat. The totals were disappointing and reflect the limited world demand for US crops due to non-competitive pricing. Russian wheat and Brazilian corn/soybeans are offered well below the US Gulf.

• For their respective crop years to date, the US has shipped 1,278 million bu of corn (down 589 million or 31%), 1,806 million bu of soybeans (down 83 million or 4% and 27.8 million bu of wheat (down 21 million or 43% in the first month of the crop year. US corn, soybean and wheat export demand continues to struggle with US corn and wheat export estimates to be potentially lowered by USDA in July.

• Old/new crop spreads have rallied strongly today on liquidation prior to first notice day on Thursday. There does not appear to any fresh news that would “hike” the spreads, and the rally is more an indication of order flow. Cash corn/soybean markets are trading marginally above Chicago July futures with Central IL spot soybean bids at $1.00 over August while spot corn is at $0.60 over September futures. It appears that the weakness in new crop futures is centred on the prospect of improving Central US weather.

• The midday GFS weather forecast is wetter than its overnight solution for the E Midwest with a ridge of high pressure forming over the SE US on July 4 to shunt Gulf moisture northward into passing cold fronts. Other models do not offer a SE US ridge and we are in doubt about its correctness. However, the SE ridge placement is behind the better rain for the Central and Southern Midwest in the midday run, an area that missed the moisture on the weekend. The midday GFS forecast offers E Midwest crops 0.4-1.25” of rain during the July 4 holiday week. Limited rain is offered into the weekend with heat developing from Texas and pushing NE into Illinois with highs ranging from the mid 80’s to the upper 90’s. The coming heat/dryness will adversely impact Midwest corn/soybean crops that did not receive at least 0.50” of rain last weekend. A zonal flow pattern follows with near normal rain.

• We look for a 2-4% fall in US corn/soy crop conditions today. Thereafter it is all about late week NASS stocks/seeding reports and Central US rainfall. The Canadian model forecast is much drier and like the EU model overnight solution. The GFS model has been highly erratic and confidence in the midday solution is low. We see no reason to sell today’s Chicago break.

23 June 2023

Posted on June 23, 2023 by simon

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LIFFE Closes wc 16 June 23

23 June 2023

Posted on June 23, 2023 by simon

• HEADLINES: GFS weather forecast drier at midday with rain being pushed further north into N IA/MN/WI, Midwest heat builds in the extended range.

• Chicago grain futures are sharply lower on wetter Central US weather forecasts with the exception being soyoil futures that are rising on the cancellation of deliverable receipts and rising cash basis bids. The oil share spread has been historically volatile this week. Soyoil is the one commodity in Chicago that has a demand story due to on the onboarding of new renewable biodiesel plants and the shunning of used cooking oil as a feedstock due to the mixing of tropical oils that are not sustainable or eligible for California low carbon credits. We maintain that soyoil will gain on soymeal in the months ahead.

• We note that option volatility has been crushed this morning due to the prospect of Midwest rain on Sunday and again late next week. Corn/soy futures have whipsawed wildly this week amid Wednesday’s sharp fall in US crop condition ratings and then the overnight addition of Midwest rain. The volatile markets caused traders to cut position size ahead of next Monday’s US corn/soybean crop condition report and the USDA Stocks/Seeding Report on Friday. If you think that this week’s price action has been extreme, wait until next week. Producers/traders need seat belts to navigate the sizeable daily price changes.

• Chicago brokers estimate that funds have sold 4,200 contracts of wheat, 17,500 contracts of corn and 12,300 contracts of soybeans. In the products, funds have sold 9,400 contracts of soymeal and bought 6,700 contracts of soyoil. Funds were massive sellers of corn on the opening pushing out some 9,000 contracts in the first 10 minutes of the day.

• US export sales for the week ending June 15 were 4.0 million bu of wheat, 1.4 million bu of old crop and 1.9 million bu of new crop US corn, and 16.8 million bu of old crop soybeans and 6.2 million bu of new crop. The US sales pace of corn, soybeans and wheat are restricted by the lack of Gulf/PNW competitive prices with Russian wheat and Brazilian corn/soybeans being offered far cheaper. The world is feasting on Russian wheat and Brazilian summer row crops well into October. This will maintain a slow US sales pace until their supplies are drawn down.

• For their respective crop years to date, the US has sold 1,915 million bu of soybeans (down 297 million or 13% from last year), 1,521 million bu of corn (down 854 million or 36% from last year), and 149 million bu of wheat (down 44 million or 23%). The US sales pace argues that WASDE needs to cut their 2022/23 corn export estimate by another 50 million bu and soybeans by 10-15 million bu in the July WASDE report.

• The Argentine Grain Exchange reduced its corn crop estimate to 34 million mt from 36 million with many expecting a further cut to 31-32 million mt by the final count. Argentine rainfall has been in short supply as their drought hangs on.

• The midday GFS weather forecast is drier than the overnight run for the Midwest with shower chances being pushed further north and south than was indicated overnight. The GFS forecast has been highly erratic in its placement of rain, and its reliability should be questioned. That said, the Hi Res NAM model has also moved the rains northward into the northern half of IA, MN and WI and largely out of IL. The next ridge riding system is due late next week with rain of 0.2-0.7”, which was also curtailed at midday. A weak northern branch of the jet stream is shifting into Canada which will maintain a slow eastward pattern progression. Heat will be building across the Central US in July that will acutely stress crops without a soaking rainfall. To sum it up; there will be several chances of Midwest showers, but outside of the Dakotas, rain totals from both ridge riding systems will range from 0.1-0.8” (each), far less than is required to recharge soil moisture. Midwest weather stays a concern.

• We look for a 2-3% fall in US corn/soybean crop conditions on Monday. Thereafter it is all about how much rain falls next week. The market onus has shifted to the bears with abundant rain now needed to keep Chicago in decline. We see no reason to sell today’s Chicago break with the drought worsening across the Midwest. Heat will build northward into the Midwest during July.

To download our weekly update as a PDF file please click on the link below:

Weekend summary 23 June 2023

22 June 2023

Posted on June 22, 2023 by simon

• HEADLINES: Midday GFS weather forecast drier with extreme heat across South Central US; 64% of the US corn and 57% of the US soy crop in drought.

• Chicago futures are sharply mixed at midday with wheat futures higher while corn/ soybeans sag on profit taking ahead of the weekend. The volatility of Chicago is acute with traders now expecting dramatically higher or lower prices daily. The 2023 US weather market has reached a new stage of volatility.  Chicago margins have expanded 50% due to yesterday’s limit up close in soymeal and limit down close in soyoil. Heading into next week’s NASS Crop Progress/Condition and Stocks/Seeding reports, traders will need seat belts to manage their positions. Positioning in Chicago options is the preferred method of managing the US weather market. Days of 10-25 cent gains or losses in corn and 30-50 cent losses in soybeans will be commonplace into early August.

• Wednesday’s final Chicago open interest showed a 16,361 contract gain in corn, while wheat and soybean oil fell 6,632 contracts and 2,555 contracts, respectively. We note that Chicago soymeal futures were up 7,774 contracts on the limit gains with soyoil open interest down 4,926 contracts with its limit losses. Today’s Chinese holiday is limiting their Chicago pricing which is contributing to the Chicago weakness. China grain traders will be back in full force on Monday. The volume on the morning break has been slow.

• Chicago brokers estimate that funds have bought 3,200 contracts of wheat while selling 9,500 contracts of corn and 15,900 contracts of soybeans. Funds sold 13,000 contracts of soybeans in the first 10 minutes of the Chicago reopening. In the products, funds have sold 5,300 contracts of soymeal and 5,100 contracts of soyoil. Much of the soyoil selling was due to liquidation following Wednesday’s limit down close.

• FAS/USDA will release their weekly export sales report on Friday due to Monday’s holiday. The sales are expected to be seasonally slow with limited demand for US corn/soybeans due to the Brazilian fob cheapness.

• Thailand purchased feed wheat in recent days with as many as 3 cargoes trading according to cash sources. The feed wheat was sold cheaply at $277 CIF which makes Aussie or Russian wheat unlikely to fill the demand. The sale of cheap optional feed wheat has cash connected traders discussing that the seller may have been China. It has been a long time since China has sold feedgrains, but it is something that is being rumoured in the Asian cash grain circles.

• Russia remains aggressive in offering fob wheat at $230/mt spot with a $2/mt carry per month into December. Why Russia is selling wheat so cheaply is unknown. Basis the rally in Chicago/Matif futures, Russian sellers can raise their fob offers by $12-16/mt and still be the cheapest hard wheat in the world. Our message to Russian wheat end users, is that the cheapness of Russian wheat offers a long-term purchase opportunity into yearend.

• The Drought Mitigation Centre forecast that 64% of the US corn and 57% of the US soybean crop is in drought regions. In 2012, 37% of the US corn and 43% of the US soybean crop was in drought on the same date. We note that in the July 2012 WASDE report, USDA forecast a July corn yield of 146 bushels/acre, down 20 bushels/acre from their June forecast. It appears likely that WASDE will cut their June corn yield in July, it is just a question of degree.

• US weekly ethanol production produced 309 million gallons, 2 million gallons more than was required to match the USDA annual forecast. US ethanol stocks rose 25 million gallons to 958 million gallons, which is equal to last year.

• The midday GFS weather forecast is drier than the overnight run with 2 ridge riding storm systems passing across the N Plains and the NW Midwest over the next 10 days. These ridge riding storms do not produce much rain over IA, IL, MO, MI, or IN as the systems are too far north. A strong ridge of high pressure holds from Texas into Mississippi with high temperatures in the mid 90’s to the lower 100’s. A few days of record-breaking heat is possible across Texas/Louisiana. However, each of the ridge riding systems could produce 0.1-0.6” of rain across 30% of the Midwest. Such rain won’t be enough to dramatically change soil moisture levels. A trough builds across the upper Lake States which will produce seasonal temperatures, but limited rain.

• As has been the case since April, we see the GFS weather forecast as too wet and maintains an arid Midwest forecast via the EU model. Canadian dryness is also worrisome!

• The weather forecasts do not have enough rain to prevent US corn/soy crop conditions from declining another 2-3% on Monday. Showers will drop across the Midwest, but the amounts are way below crop needs heading into pollination on corn. US cash soyoil basis stays strong and is rising which is testament to EPA’s RVO decision not impacting coming renewable biodiesel demand. Our message at midday; “Do not sell Chicago hard breaks!”

21 June 2023

Posted on June 21, 2023 by simon

• HEADLINES: Soyoil limit down/soymeal limit up on oil share spreading; GFS weather forecast slightly wetter next Wednesday; Dec corn reaches $6.26.

• Chicago futures are sharply mixed with corn, soybean, soymeal, and wheat futures sharply higher with soyoil futures down their 4 cent limit. Massive oil share spread unwinding is occurring which sent soyoil futures to limit losses and soymeal to limit gains. The EPA finalised the blending mandates for 2023 at 20.94 billion gallons, 21.54 billion gallons in 2024, and 22.33 billion gallons in 2025. EPA cut their ethanol inclusion from December, but biodiesel use rose 7% annually. The RVO amounts were less than the industry had hoped for and soyoil futures have declined sharply. We see the soyoil break as overdone, as renewable diesel credits in California and other states will sharply increase production. We caution against turning bearish soyoil following the EPA decision, for the next few days it is about the oil share spread. Longer term, it is the lower production of US soybeans (soyoil) which will rally futures.

• Chicago corn, soybeans and wheat are sharply higher on threatening weather and reduced US corn/soy yield potential. We have adjusted our US corn yield estimate down to 174.5 bushels/acre and soybeans down to 50.4 bushels/acre and trimmed harvested acres due to additional abandonment and extra corn acres needed for silage. The result is US 2023/24 corn end stocks circa 1,600 million bu and soybean end stocks at 225 million bu. And US wheat end stocks are also in fast retreat.

• Chicago brokers estimate that funds have bought 21,000 contracts of corn, 11,000 contracts of soybeans and 10,600 contracts of Chicago wheat. In the products, funds have sold 4,700 of soyoil while buying 7,100 contracts of soymeal.

• Soymeal futures have traded limit up while soyoil futures are limit down in a US drought bull market! RIN prices dropped 10-12 cents following the EPA biofuel announcement this morning. With imported used cooking oil now being tested for compliance for not containing tropical oils, the usage outlook for US soyoil is strong. Support should be found under $0.53/pound basis July.

• India is asking Russia daily for fob wheat export offers. The Indian Government estimates that 2023 Indian will harvest a crop of 112.7 million mt, while private trade groups place the crop at 101-103 million according to a newswire. The private harvest crop estimates would mandate that India become a sizeable net wheat importer or endure domestic price rises that would curtail use. USDA estimates that India will consume 109 million mt of wheat in 2023/24 following demand of 110 million last year. India has been a world wheat exporter for years, but with domestic prices rising sharply in recent weeks, the worry is that India will need to import wheat in 2023/24, it is just a question of when.

• US double cropped acres from the March Intentions report are being questioned as farmers cutting SRW wheat in the Southern Midwest will avoid taking the financial risks of planting beans into dry seedbeds.  We have trimmed our US 2023 US soybean seeding estimate by 500,000 acres due to the Midwest producers cutting back on double cropped soy acres. The loss of double cropped acres only adds to the woes of reduced yield via drought.

• The midday GFS weather forecast is slightly wetter than the overnight run in breaking out a ridge riding storm a week from today on June 28 which produces 0.25-1.00” of rain across IA and far Western IL before croaking. Otherwise, the forecast offers limited rain for the drought areas of IL, IN, MI, WI and MO. The Gulf is closed via a dislocated Bermuda high pressure cell. The big fear is whether the South Central US high pressure ridge builds northward into the Midwest in early July. Seasonally, there will be some northward shift in the ridge during mid-summer. Midwest crops are in no position to endure any lasting heat with soil moisture in sharp decline.

• July soyoil is trading 50-60 points below limit in synthetic options while July soymeal is trading just off its upside $30/ton limit. The bull demand story for soyoil is alive and we doubt that the break is anything but a correction. Otherwise, it is all about US supply/weather into July. A below normal rainfall trend sets up corn/soy for reduced yield potential, it is a question of amount. Don’t sell breaks.

20 June 2023

Posted on June 20, 2023 by simon

• HEADLINES: Chicago trades both sides of unchanged in corrective session; GFS weather forecast at midday drier in the 6–10-day period; Rain needed immediately.

• Chicago futures are mixed at midday with the bears out in abundance with this being the anniversary of the start of the 2022 summer grain break. A year ago today, Chicago futures fell to sharp losses as the Central US weather pattern improved and world Central Banks became aggressive in raising interest rates to slow inflation. 2022 Chicago grain futures dropped to sharp losses into mid-July as December 2022 corn futures lost more than $2.00/bu while November 2022 soybeans fell nearly $3.00/bu. Seasonally, price tops are set in May/June and traders are on edge due to cheap Brazilian corn/soybean fob offers that the same could occur this year. Amid the big volume of Chicago last Friday and near record volume in grain options trade, the daily/hourly price volatility is rising.

• Today, the war against inflation is being won by Central Banks, but Mother Nature is holding the upper hand on US corn/soybean yields following months of dryness. June appears that it will end as dry as May with El Niño not having much influence on US or world weather. So far, 2023 weather has been about pattern stagnation produced by the warming of the Arctic (and Antarctic) that has slowed the jet stream and produced amplified weather patterns.

• Like Argentina from January through March, the prospect of rain was held in the extended range forecast, but it was never pulled forward into the 1-5 day period. This was due to pattern stagnation that is not being handled very well by the forecast models. Remember in the extended range that the models shift back to normality if the pattern is amplified/slow in its progression. With the Bermuda high pressure cell absent, we worry about a like type of forecast development for the Central rain with ghost rain in the extended range that never happen.

• The USDA/FGIS weekly grain export inspection report has been delayed due to technical difficulties.

• Midwest farmers are becoming increasingly concerned about their crops and the ongoing lack of soil moisture. Thankfully, temperatures have not been hot like 2012, but questions abound as to US corn/soybean yield potential amid one of the driest mid-May to late June’s on record for the Eastern half of IA, IL, MN, WI, MI, and IN. Corn in these states should be much taller while soybean stands are poor due to poor germination/emergence. The need for rain is immediate and for another 2 weeks, it appears that US yield/production estimates will continue to decline. This raises the importance of July weather to preserve a 177 bushels/acre corn or a 51 bushels/acre soybean yield.

• Russian fob wheat prices have started to recover as worry over the 2023 crop emerges while some cite Indian interest for Russian wheat as being bullish. Russian wheat traders lament that India has been checking Russian fob wheat prices for nearly a week. Whether India is trying to better understand world wheat values, or they are preparing for a purchase is unknown. It is something to watch close in the days/weeks ahead.

• The midday GFS weather forecast is like the overnight solution with limited rainfall for IA, IL, MO, S MN, WI, MI, and the northern half of IN. Extreme heat develops at the end of the month with highs returning to the mid 80’s to the lower 100’s. The heat/dryness will combine to add additional stress on US corn/soybean crops. The Northern Plains will benefit from the coming 0.5-2.50” of rain but note that the heaviest rain has been shifted north into N Dakota. This remains a concerning Central US weather pattern with limited rain for the high yielding Midwest.

• Periodic profit-taking corrections keep volatility in place, but until there are at least hints of a US pattern change with better rain for the Midwest, we doubt bearish trends can be sustained. US corn/soybean crop ratings should drop today and next week based on the forecast. Old crop corn/soybeans are in strong hands with the farmer sold out. Bull spreads and flat price action makes today look much like a needed correction.  Prices ran fast and hard late last week,  Chicago needed a correction, but until there is a strong hint of a North American weather pattern change, we remain bullish on diminished supplies.

16 June 2023

Posted on June 16, 2023 by simon

• HEADLINES: Midday GFS weather forecast lacks pattern change; crude recovers.

• The addition of risk premium continues, and while new crop corn and soy contract are off morning highs, soy futures are heavily overbought and corn is nearing overbought technical levels, there is still no indication of a needed Central US weather pattern change into July 1. The market has been somewhat tepid in digesting worst-case scenarios as it is still only mid-June, but we reiterate that US corn and soy yield loss of just 3-4% relative to trend triggers major adjustments to US, exporter and global balance sheets. And no longer can the market place its focus on 16–30-day outlooks given the immediate need for soaking rainfall in all but the Central Plains, and so large up and down moves are anticipated into mid-summer based on latest model guidance. Our concern is one of pattern stagnation, with a measurable portion of the US crop to enter pollination in just 3 weeks. Yield loss of 5%+ mandates supply rationing. Keep in mind this year’s drought-stricken crops in Argentina, while Ukrainian vessel movement in the Black Sea has been effectively halted.

• French winter wheat crop ratings this morning were lowered 3 points to 85% good/excellent, well above last year’s 65% but down from early season ratings of 92-93% good/excellent.

• Our  contacts suggests EU wheat yields will be highly variable, but another hike in coming WASDE reports is unlikely. Very poor crop health is noted in far N Europe, including the key Baltic exporting region. Better rain lies ahead for France, but the Baltics and Scandinavia will be left arid.

• EU corn and wheat markets continue to participate in the global ag markets’ rally, though only modestly given large existing stocks there and as Brazilian corn becomes available to European importers in late summer. But the EU oilseed market has soared, and this underscores the importance of US and European yield performance if Northern Hemisphere stocks tightening is to be prevented. Spot EU rapeseed has pierced through an 8-month downtrend line this week. EU rapeseed oil has also rallied with summer/autumn demand being found.

• There is an otherwise dearth of fresh news, and the trade is well aware that three full days of potential US forecast changes lies ahead. Like this week, a big move is anticipated Sunday night.

• This afternoon’s CFTC report is expected to show large managed fund short position in corn and wheat. Managed funds’ length in soybeans as of Tuesday is estimated at 18-20,000 contracts.

• The midday GFS weather forecast is similar to this morning’s solution. Little/no rain is offered to IA and areas eastward into June 26, and equally important is the arrival of summer heat to the N Plains and Midwest beginning next Tues/Wed. Forecasts have been consistent in calling for a rapid northward shift in the jet stream late this weekend, with blocking high pressure aloft the Plains and Midwest likely to fuel warmth/dryness into the very end of the month. Confidence in details beyond 5-7 days stays low, but a pattern shift prior to July 1 remains unlikely.

• Periodic profit-taking corrections keep volatility in place, but until there are at least hints of a US weather pattern change we doubt that bearish trends can be sustained. US dryness in the first half of July would be a big deal globally.

To download our weekly update as a PDF file please click on the link below:

Weekend summary 16 June 2023

15 June 2023

Posted on June 15, 2023 by simon

• HEADLINES: Chicago soars on Midwest drought expansion; US soyoil stocks tighten despite enlarged production.

• Chicago ag markets are sharply higher as the trade more intently adds weather premium to values amid recent and upcoming Midwest drought expansion as key areas of Northern Europe and Ukraine are likely to see net soil moisture loss into the first half of summer. Each day that passes without hints of a pattern change becomes more worries as some measure of corn across the Southern Midwest will begin pollinating in the first week of July. Dryness was on the market’s radar in early June, but the reality of eroding crop potential is now present. One must stay open to improved rainfall in June, but as mentioned previously, there is just no sign of a pattern change in two-week forecasts, and the need for rain is immediate.

• US weekly export sales were unexciting, with corn sales through the week ending June 8 totalling 11 million bu, soybeans 18 million bu (most of which was known), and wheat 6 million bu. But surprising demand for US origin soybeans so late in the season, and despite very cheap Brazilian offers, is noteworthy.

• Other fresh input leans supportive. The Brazilian Real this morning has fallen to a newer 12-month low and Brazil’s currency works to keep new crop production margins rather tight.

• Spot Brazilian corn in US dollars has stabilised at $4.80/bu, vs. early June’s low of $4.60. We also note that Dec Chicago oats has rallied nearly 70 cents in the last week and at midday sits above $4.00/bu for the first time since September 2022. The EU grain market has been more tepid in adding risk premium amid wetter forecasts offered to France and parts of Germany in the next 10 days, though we question if coming rainfall there will boost yield potential, with May 15-June 15 rainfall in N Europe recorded at just 5-30% of normal.

• NOPA-member soybean crush in May totalled 177.9 million bu, a record for the month (by far) and up 7 million bu from last year. Year-to-date NOPA crush sits 1,581 million bu, up 6 million on last year and which validates USDA’s annual forecast. US soy stocks are unlikely to exceed 230 million bu given recent improved export demand, and every bushel of yield is critical. And most importantly, NOPA soyoil production in May fell 85 million lbs short of consumption, with total soyoil disappearance in May at 2.20 billion lbs, a record for the month. Chicago Soyoil has resumed a demand-led bull trend.

• 57% of the US corn crop and 51% of the US soy crop are experiencing drought currently. Should 10-day forecasts verify, we expect these numbers to rise slightly next week amid the lack of precipitation offered to southern IL. We maintain that the principal market risk near-term is the loss of 500-700 million bu of corn production relative to USDA’s forecast, and this requires just 10% yield loss from trend in IA, IL and Great Lakes.

• Recall USDA forecasts a 16 million mt gain in global corn stocks in 2023/24, but a US yield below 174 bushels/acre wipes this out completely. We reiterate that it is the location of expanding drought that is so concerning. Soybean yields face the same trimming on a percentage basis if dryness is extended into mid-July.

• The midday GFS weather forecast is drier in IL and IN but otherwise similar to the overnight run. The primary Corn Belt will be left arid into June 25, while soaking rain aids crop potential, but slows wheat harvesting, across the Central Plains. The GFS forecast is less expansive with high pressure ridging in the 12–14-day period, which allows scattered showers to the dot the E Midwest Jun 28-30, but confidence beyond event 5-7 days remains extremely low.

• Weather drives price discovery on an hourly and daily basis. We continue to expect extreme volatility into August, but without a shift in the US climate by early July, Brazil’s record corn and soy crops may not be big enough. An outright weather trend change is needed to sustain corrections near-term.

14 June 2023

Posted on June 15, 2023 by simon

• HEADLINES: Forecasts add rain to France, Germany in 7–10-day period; Ukraine stays dry: Soybean rally pauses on profit-taking: Corn corrects slightly; Midwest, Black Sea forecasts stay dry: Wheat ends weak on hope for rainfall in Europe; Russian cash prices unmoved.

• MOSCOW. June 14 (Interfax) – Russia may leave the grain deal after its current term ends, rather than leave it early, Russian presidential press secretary Dmitry Peskov said. During a meeting with journalists, Peskov was asked to comment on Russian President Vladimir Putin’s remarks that Russia is considering the possibility of leaving the deal. He was asked whether this may happen after it ends, or whether it may occur early

• The major weather forecasting models are in decent agreement with respect to needed rain falling across key areas of France and Germany late next week, but have failed to boost rain chance in Ukraine. The graphic attached shows Jun 1-23 percent of normal precipitation, with Ukraine’s primary Corn Belt highlighted. Adverse weather has added to infrastructure and input challenges.

• A dry June in Ukraine will follow rainfall in May of just 2-40% of normal. USDA does project Ukrainian corn yield in 2023 at 103 bushels/acre, vs. 106 last year and the lowest since 2020. However, drought in Ukraine in recent years has pulled yield down to 86-89 bushels/acre, which in 2023 would cap exports at 16 million mt, vs. USDA’s projected 19 and vs. 27 million in 2022/23. Each bushel of yield lost in the US and Ukraine stresses Brazil’s supply availability.

• Very close attention will be paid to Midwest and Ukrainian weather into July 10.

• July soybeans fell 11 cents on late-day profit-taking, while the rest of the market was nearly unchanged for the day. Market news has been limited at midweek, with the trade focused on each weather model run and positioning ahead of the long holiday weekend.

• While palm oil prices have corrected in recent weeks, a recovery in world soybean oil prices has developed. The recovery started in S America, where Argentine and Brazilian soybean oil briefly traded below world palm oil prices. But the US soybean oil market was quick to respond and has led the recovery to ensure that US exports remain minimal. US soybean oil offers in the Gulf are up more than 9 cents in 4 weeks, while S American prices have gained 3-4 cents. At the same time, SE Asian palmoil values have lost 3-4 cents.

• Ultimately, US biofuel use will regain attention in the coming months as US soybean oil stocks fall on rising use and declining US soybean oil production, which should underpin Chicago soybean oil values on corrections.

• Soybean price trends remain a function of crop conditions and weather forecasts. But crop stress is building with heat, and the market will continue to add risk premium.

• Chicago corn futures ended slightly weaker in corrective fashion. Northern Hemisphere weather has been adverse to date, but the next 2-3 weeks are critical for some 45-50% of the US Corn Belt and the entirety of producing areas in Ukraine. Dec Chicago has paused at its 100-day moving average, but this provides little resistance if drought deepens in IA, IL and the Great Lakes region in late June.

• Ethanol production has struggled to match year-ago levels in recent weeks due to large existing stocks, but margins remain profitable. Note that the processing industry since early spring has withstood cash prices of $6.30-6.70/bu, and so corn at current spot prices is not viewed as overpriced. Implied ethanol margins beyond Sep are highly profitable. And the US’s large premium to Brazilian origin is viewed as necessary to keep domestic stocks adequate.

• Volatility remains the only certainty nearby, but the need for Midwest rain has become immediate. Two-week forecasts this evening remain concerning. A settlement above $5.55 places upside at $5.80-5.85, Dec.

• US wheat futures ended lower as spot Paris milling wheat fell on better rain chances offered to France and Germany next week. It is critical that rain there falls as projected, and overall EU crop potential remains highly variable. A hike in yield/production from USDA is unlikely.

• The market remains complex and segmented. Russian fob wheat is still quoted at $240/mt for July-Sep arrival, and Russia is by far the world’s lowest cost seller. German wheat is quoted at $265. Gulf HRW is quoted at $328. Argentine origin is quoted at $330, and so there is a $90/mt spread amongst exporting markets. The lack of transparency in the Black Sea market complicates things further, but most of world demand will be satisfied with Russian supplies during the summer months. We do note that the Russian market tends to score its annual low by mid-summer. Key is whether import demand returns in bulk in the next 30 days.

• Rallies will struggle until the Russian market adds premium, but downside has become severely limited amid the absence of ideal N Hemisphere weather.

13 June 2023

Posted on June 13, 2023 by simon

• HEADLINES: Chicago rallies as weather patterns stagnate; Crude extends recovery.

• MOSCOW, June 13 (Reuters) – President Vladimir Putin said on Tuesday that Russia was considering withdrawing from the Black Sea grain deal, saying that Moscow had been “cheated” over implementation of the parts of the accord that concerned its own exports. In a televised meeting with pro-Kremlin war correspondents, Putin said the deal, brokered by the United Nations and Turkey, was intended to help “friendly” countries in Africa and Latin America, but that Europe was the largest importer of Ukrainian grain, providing a key source of foreign currency to Kyiv.

• Chicago values are higher at midday as ag markets worldwide more aggressively add weather premium to values. Spot Paris milling wheat has recovered from early weakness and continues to slowly pierce initial chart-based resistance. Climate patterns look to be stagnant in the US, Europe and key parts of the Black Sea as even extended range forecasts fail to include any hint of needed rain. Northern Hemisphere temperatures will be rising seasonally, and in the US summer-like temperatures will add to a lack of moisture beginning this weekend. The weather market has begun in earnest, and it is the risk that USDA’s projected gains in global corn stocks will be eliminated without climate pattern changes by late June/early July. The burden placed upon soy acreage expansion/yield performance in S America this winter rises considerably if US yield fails to exceed 50 bushels/acre.

• The macro environment leans supportive, with spot crude extending its overnight rally to $2.20/barrel and the Dow up 160 points. We estimate that managed funds this million were short a net 35,000 contracts of corn and 115,000 contracts of Chicago wheat. Fund length in soybeans is estimated at 18,000 contracts, vs. April’s recent peak of 135,000. Major moving averages are being tested and chart health will in part determine with short covering accelerates as the growing season progresses.

• NASA’s updated root-zone soil moisture anomaly shows the extent of dryness in E Plains/Midwest, Europe, Ukraine and Central Russia. A pause in Argentine wheat seeding due to the return of dryness and a sputtering Indian Monsoon are also noted. The message is that Mother Nature has so far failed to cooperate in crop year 2023/24.

• Other news is lacking. The market’s addition of premium to corn and wheat has been relatively more tepid as demand concerns remain intact and Russian fob wheat is still buyable at $240/mt (vs. EU origin at $260 and Gulf HRW at $330). But top priority for markets over the next 30-45 days is pinpointing yield potential, and probably in the US specifically.

• There is still no word from EPA on proposed updated volume mandates, and the deadline for release has been extended to June 21.

• The midday GFS weather forecast is similar to the overnight run in projecting heavy rainfall in KS and across the Southeast but very little in the heart of the US corn/soy belt. Areas weighted most heavily to row crop production will experience net soil moisture loss for another 10 days, at which point soaking rain and sustained mild temperatures will be absolutely required to prevent a sizeable trimming of yield potential. A pattern of continuous precipitation triggers accumulation of 1-4” in AR, MS, AL and GA into the weekend. Isolated showers will dot the Central Plains and Northern Plains Fri-Sat. Abnormal heat moving forward favours the Dakotas and Upper Midwest.

• A fast-moving weather-based markets lies ahead into late summer. We caution against chasing daily moves, but consumer coverage is recommended on corrections.