25 July 2023

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  • HEADLINES: GFS weather forecast drier at midday for the upper Midwest and N Plains; Soy/Dollar program for Argentina starting September 1; IMF forecast grain prices to rise 10-15%.
  • Chicago grain futures are lower at midday in declining volume. Traders are frustrated by the extreme volatility and the uncertainty of headlines that flow from the Black Sea in terms of the Russian war against Ukraine (that include Ukraine grain infrastructure). Did Russia attacked grain infrastructure or not will help to determine overnight Chicago trade. Due to war headlines that now involved Ukraine agriculture, Chicago price ranges since the pact ended have nearly doubled from the weeks prior. The wide daily price ranges and uncertainty surrounding headline risk has traders cutting position size. Few traders feel comfortable holding a position overnight now that the Black Sea Grain Corridor pact has ended, with the UK suggesting that Russia is preparing to inspect/board private Black Sea vessels to make sure that military hardware is not being transported. We expect that extreme Chicago market volatility will persist with weather and the Russian war playing oversized price roles. The remainder of summer looks volatile for Chicago markets.
  • If Russia starts inspecting ships that come and go from the Black Sea, few owners will be willing to charter vessels as insurance is not available. Ukraine grain must flow through EU which is probably limited to only 1.5 million mt/month. World grain prices are rising on tightening exporter supplies of grain. This is a supply driven bull market.
  • Chicago brokers report that the managed money has bought 2,500 contracts of Chicago wheat, 5,200 contracts of corn, and 1,400 contracts of soybeans. In the products, funds have bought 2,300 contracts of soyoil and sold 2,100 contracts of soymeal. Since the morning reopening, fund managers have been on the buy side of Chicago.
  • The IMF indicated that the ending of the Black Sea Grain Corridor pact could raise world grain prices by 10-15%. IMF Chief economist Gourinchas told reporters that the Black Sea Corridor was “instrumental” in ensuring ample supplies of food to the world. We could argue that if the Danube stayed open (2-2.5 million mt/month) and 1-1.5 million mt of grain flowed into the EU each month, that Ukraine could have exported its entire grain supply. However, Russia then attacked a rail spur into the EU, and Reins (Danube) that caused concern that Ukraine grain has only one way to flow, through the EU and out through its export ports. The EU route has limitations and adds to the EU’s political woes as Eastern European farmers complain of low prices/profits.
  • Argentina announced its corn/dollar program yesterday with a lukewarm response from the Argentine grain industry. The offer of 340 Pesos/1 US$ is good through August, and it is expected to spur farm sales of 2-3 million mt of corn. We understand that Argentina will be returning to offer a soy/dollar program immediately following the end of the corn/dollar program to make sure that tax revenue keeps flowing. It is uncertain how much grain the offers will produce with the black Peso rate at 570/1 US$ and monthly inflation exceeding 100%.
  • The midday GFS weather forecast is slightly drier for the N Plains and the Upper Midwest than was offered overnight. The models are struggling with ridge riding storm systems and an Atlantic Hurricane that is forecast for the 10–15-day period. This reduces our confidence beyond the next week. The forecast models are struggling with the mean position of a high-pressure ridge next week and a more active Gulf of Mexico.
  • Heat is building from west to east across the Central US as a high-pressure ridge amplifies. Midwest high temperatures will rise to the 90’s/lower 100’s starting Tuesday with the extreme heat lasting through Saturday. The mean position of the ridge retrogrades to the Intermountain West with Canadian air pushing south into the E Midwest next week. This means that the west will continue to swelter while showers dot the E Midwest. The GFS forecast also brings a hurricane into the Carolinas with very low confidence.
  • Chicago breaks are going to be difficult to sustain amid the addition of war/weather premium to price. Funds have yet to cover a net short Chicago wheat short while the hodge-podge of Central US rainfall will not be enough to counter extreme heat. Bull spreads in soyoil lean bullish and new highs are forecast in the soy complex.

24 July 2023

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  • HEADLINES: US wheat futures limit bid; Corn follows on Black Sea supply worry due to war; GFS midday weather forecast is wetter for IL/IN, heat lingers across the W Midwest/Plains.
  • Chicago grain futures are sharply higher at midday with Chicago wheat limit up as funds try to exit their net short position as Russia takes aim on Ukraine ag transit channels, and especially key infrastructure that allows the export of Ukraine ag products. Russia has bombarded Ukraine ports and now Reins (Danube River) which if there are repeated attacks, limits the only avenue for Ukraine grain into the EU. And with key EU border countries (like Poland) already blocking the flow of Ukraine grain into its country to protect local farm income, the pathways for Ukraine grain trade becomes difficult. As Ukraine farmers watch their crops grow, the fear is growing that war torn financial difficulties could become much worse.
  • And there is growing concern that Ukraine will take revenge on the ended grain corridor pact and target the Kerch Bridge (Azov Sea) that could potentially block 35% of Russia’s wheat trade. Added together, the impact on the world wheat market would be sizeable quantities, amounting to nearly 20 million mt of wheat traded annually. The weekend again proved that geopolitics are difficult to predict/trade, but the impact on world grain/food markets is sizeable. Geopolitics and weather will produce considerable market volatility in August.
  • And ocean freight insurance brokers have ceased offering insurance for any ship that would berth at a Ukraine port and are considering dropping insurance for ships that are contracted to haul grain from the Danube. This is further confirmation that Ukraine grain flows into the world market are halted. The biggest impact on an end user would be China that last year imported 11 million mt of Ukraine corn. China will be forced to secure their corn this year from Brazil or the US.
  • Chicago brokers report that the managed money has bought 7,900 contracts of Chicago wheat, 11,200 contracts of corn, and 5,400 contracts of soybeans. In the products, funds have bought 1,600 contracts of soymeal and 5,500 contracts of soyoil. We hear that new investor money is being pushed into commodities with the US Central Bank to raise rates by 0.25% Wednesday and then pause.
  • Argentina announced its Corn/Dollar program with a Peso rate of 340/1 US$ or a 25% premium to the existing Peso rate of 270/1 US$. At 340 Pesos, the Argentine Government is trying to get the cash strapped farmer to sell hoarded supply with inflation running well above 100%. The Argentine Government has IMF payments to make and is dire need of hard currency. Argentine farmers will be able to sell corn at the 25% Peso premium through August. We doubt that Argentine farmers will be big sellers of their stored corn unless they need to raise cash for the new crop planting campaign. The fear is that Argentine farmers will financially struggle due to 2 years of drought and have depleted financial resources to seed new the 2024 harvest.
  • US export inspections for the week ending July 20 were 122 million bu of corn, 10.4 million bu of soybeans, and 13.2 million bu of wheat. Corn export sales were disappointing, but in line with trade expectations.
  • The midday GFS weather forecast is slightly wetter for IL/IN than was offered overnight. The models are struggling with ridge riding storm systems beyond Saturday. Heat will build from west to east as a high-pressure ridge amplifies with Midwest highs rising to the 90’s/lower 100’s starting Tuesday and lasting through Saturday. The mean position of the ridge retrogrades to the Intermountain West with Canadian air pushing southward across the E Midwest in 7-8 days. This means that the west will continue to swelter and hold in a below normal rain pattern. The GFS forecast also brings a tropical system into SE FL and marches it northward which impacts most of state. Confidence in this FL hurricane is low.
  • Wheat futures are pushing to sharp gains on the worry that the war will curtail/disrupt Black Sea grain trade. The corn impact will also be sizeable with soy futures following. Funds need to cover their short wheat futures via chart-based rules. We remain bullish until there is clarity on Black Sea grain supplies and Central US weather.

21 July 2023

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  • HEADLINES: Soyoil soars on cash premium gains; GFS midday weather forecast cooler/drier in the 10–15-day update with heat next week.
  • Chicago futures are mixed at midday with the soy complex higher, while corn/wheat futures sag on the Black Sea grain saga and profit taking into an uncertain weather and geopolitical weekend. The volume of Chicago morning trade has been well below normal with traders adjusting risk through options. Few are willing to add to their risk profile amid so many uncertainties. The recent back-and-forth in the marketplace has exhausted both the bulls and bears. And many fear that getting US corn/soybean yields correct will be a difficult task until the Midwest harvest begins. Rainfall has been extremely spotty in July with some areas seeing an abundance of rain while farms 50 miles away are suffering from acute drought. Yields are likely to be highly variable. We guestimate the US corn yield at 173 bushels/acre and soybeans at 51.0 bushels/acre as of today, with a downward bias based on the Central US weather forecast for the next 2 weeks. We look for a mixed Chicago close with short covering before the close based on the Black Sea political tensions/uncertainties.
  • Chicago brokers report that the managed money has sold 6,800 contracts of Chicago wheat, 3,200 contracts of corn, and a net 900 contracts of soybeans. In the products, funds have sold a net 200 contracts of soymeal while buying 3,200 contracts of soyoil. Funds have been on both sides of soybeans/soymeal this morning.
  • The UN following today’s “Post Black Sea Grain Food Summit” warned that many may die with 362 million people in 69 countries in dire need of humanitarian aid. The UN claimed that some will go hungry, and some will starve based on the decision not to keep the Ukraine Grain Export Corridor open. An economist told the 15 member that world grain prices will rise, but that just 3% of last year’s Ukraine grain exports went to the poorest countries in Africa/SE Asia.
  • And Russia is proposing that it will send wheat/corn directly to Africa’s poor. Program details are awaited, but Moscow appears willing to help in feeding Africa to deflect US/world criticism over the ended corridor pact. Also, Russian sources are also suggesting that Moscow is considering ways to close Ukraine grain exports from the Danube River. The ending of Ukraine Grain trade appears to be a new military tactic of Russia, which means that attacks could continue against Ukraine grain export ports over the weekend.
  • Argentina is expected to announce a corn/dollar program today or on the weekend to prod farmers to sell stored corn in a high inflation economic environment. Argentine farmers are being trained to wait for Government programs.  Argentine farmers are estimated to be holding around 22-23 million mt of corn and with 3.5-4.0 million mt needed for domestic feed production, at least 18 million mt of corn would be available for export. However, unless Argentine farmers have a need for Pesos to pay off crop input bills for October seedings, the farmer will likely stand firm on storing corn/soybeans with the monthly inflation rate running at 114%. To borrow money from an Ag Argentine Bank carries an interest rate of 105-120% making farming a “cash only” proposition.
  • The midday GFS weather forecast is consistent with limited Midwest rainfall outside of widely scattered showers for IN/OH today. Heat builds early next week as the SW US high pressure ridge amplifies north and east with highs in the 90’s/lower 100’s. The mean position of the ridge retrogrades to the Intermountain West with Canadian air pushing southward across the Midwest in the 11–15-day period which pushes ridge riding rains to the Delta leaving the Midwest in an arid flow.
  • Soyoil futures are rising on cash premiums and slowing US crush due to seasonal maintenance. The lack of any extended period of heat is pressuring corn/soy futures while Black Sea geopolitical hope has wheat under pressure. Don’t sell breaks! Volatile Chicago trade will persist!
To download our weekly update as a PDF file please click on the link below:

20 July 2023

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  • HEADLINES: Chicago nervously mixed with India banning rice exports; World food security issues rising dramatically; GFS midday weather forecast stays hot/dry for the Central US.
  • The big news of the day is not that Russia bombarded Ukraine port facilities for the third consecutive evening, or that Ukraine threatened retaliation against Russian grain vessels in the Black Sea, but that India has decided to ban non-basmati rice exports. This is a “punch in the gut” to SE Asia/North African nations that count on the little white grain for their daily subsistence.
  • Food security has come back to the fore of world grain trading in less than a week with the escalation of the Russian war against Ukraine and ending of the Black Sea Grain Corridor pact. Geopolitics has reared its ugly head (again) much like it did in the spring of 2022 following the Russian invasion of Ukraine. World end users of grain/oilseeds are short bought, and the price and origin of the supply is under widespread discussion. Worrying over whether importers can count on the Black Sea as a reliable grain supplier is growing. The curtailment of 10 million mt of Ukraine grain exports is endurable, but this would mean that Russian 2023/24 wheat exports of 45-46 million mt are desperately needed. If a Russian cargo ship is hit via the war, it may cause the cancelation of freight insurance to Russian exporters. The loss of Russian wheat exports shifts the wheat market to a more dynamic bullish price phase. This is where the geopolitics of world grain trade has changed so significantly since Sunday.
  • In the case of Black Sea grain fob offers today, they are opaque and difficult to uncover. Azov Sea traffic is limited to just a few hours each day, which has all but closed grain trade from this key Black Sea supplier due to Monday’s strike on the Kirsch Bridge. The Azov accounted for 34% of Russian wheat exports last season. When will the Azov return to export capacity is unknown.
  • Back to India, it exported 43% of the world rice trade in the past crop year with non-basmati rice accounting for 80% of the total or just over 17 million mt. This means that world rice importers must get their non-basmati rice from someone else. However, replacing just banned Indian rice exports from Thailand, Vietnam, and others is impossible in the volume halted by India. World food security declined sharply today and if key importers like Africa or SE Asia will now turn to enlarged wheat/vegoil imports due to rice shortages.
  • The Indian decision to ban rice exports and the ending of the Black Sea Corridor Pact amid rising war hostilities has left the world in an immediate and sizeable, short food grain position. And making matters worse, Russia has trained world wheat importers/millers to secure spot supplies for the past year as forward Black Sea offers were difficult to find, and the price of global wheat fell each week. This food grain shortage is also fanned by droughts across Europe, Canada, and portions of the Central US.
  • China was a sizeable buyer of US sorghum in the weekly export sales report due to switching and new purchases on a combined crop year basis of 650,000 mt.  There are rumours that China has been active in securing Brazilian corn in recent days for September-November, and now has also asked for US corn offers. We cannot confirm a US sale, but cash connected sources suggest that some trade has been done. The Brazilian corn is an easy purchase due it its steep discount. A US sale would likely be for Q1 2024.
  • The midday GFS weather forecast is consistent with the overnight run with limited Midwest rainfall outside of widely scattered showers for W IN/OH in the next 36 hours. Heat builds early next week as the SW US high pressure ridge amplifies north and east. The mean position of the ridge holds from the Intermountain West and into the Central Plains. The ridge is strong enough to produce record heat for the date across the Western US. There will be several ridge riding systems by late July/early August, but it is impossible to know rain locations or amounts. Crop stress will be acute.
  • Seasonal lows in wheat occurred in June and were likely forged in corn last week. Soyoil is pushing to new rally highs as the cash basis bids rise. We are bullish of wheat/soybeans/soyoil and neutral to bullish of corn on breaks. India’s ending of rice exports is a big deal longer term and each headline on the Black Sea will produce sizeable price moves.  Be prepared for acute market volatility for the remainder of the summer.

19 July 2023

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  • HEADLINES: Chicago wheat near limit up as Russia threatens Black Sea vessel movement; GFS weather forecast unchanged in projecting extreme Central US heat.
  • Chicago futures remain firm at midday but have fallen from session highs. At centre stage is the market’s focus on escalating war in Ukraine, with newswires this morning reporting that the Russian military moving forward will consider any vessel traveling to Ukrainian ports a threat, and the countries whose flag sits atop those vessels as party to war. This follows attacks in Crimea and Southern Ukraine overnight. Spot Chicago briefly this morning was limit up. Corn and soy have ebbed and flowed as the market awaits details, and likely actual readings, surrounding this weekend’s/next week’s soaring temperatures. Recall the EU and GFS forecasts are at odds over exactly how extreme heat will be across the Central Plains and Midwest, but there is little doubt that a pattern of rapid/massive soil moisture loss lies ahead. Conditions are fine today, but the gut slot of reproductive stages are due in the next 2-3 weeks.
  • Paris milling wheat, corn and rapeseed markets have been less willing to ease at midday. Black Sea grain flows will be challenged, but we would reiterate that it is military action in the region that is most concerning.
  • It is also noteworthy that Brazilian corn futures have followed grain markets elsewhere higher. Sep corn in Brazil is up $0.18/bu at $5.26. Nov corn in Brazil at midday sits at $5.52/bu. The Brazilian market’s inability to fall to new lows at harvest is important and suggests global corn markets don’t have to do much to encourage the return of enlarged demand.
  • US ethanol production in the week ending July 14 was a larger than expected 315 million gallons, vs. 303 million the previous week and slightly above the pace needed to hit the USDA’s new annual target. The outlook for corn grind into late summer is positive amid ongoing year on year expansion in gasoline use and rising gasoline and ethanol prices. The ethanol swap market has recovered rather quickly from weakness in early July, with spot ethanol today quoted at $2.49/gallon. WTI crude is up $0.30/gallon at $76.10.
  • The US dollar index has stabilised, but a more supportive global ag tone remains in place amid chaos in the Black Sea and numerous weather issues. Coming US heat/dryness is priority number one, but Argentina’s new wheat growing season ends with subsoil moisture almost completely absent. Developing dryness in W Australia must be monitored.
  • There is little to new say regarding Central US weather as the GFS weather forecast is unwavering in projecting max temperatures next week at 105-115 across the Central Plains and into western Illinois throughout the second half of next week. Light/scattered showers may dot parts of the Midwest into the weekend, but nothing heavy is indicated outside of far W KS and IN/OH. The midday GFS forecast keeps in place expansive high pressure ridging into Aug 1, which limits meaningful precipitation to eastern North America. Debate is warranted over temperatures next week, but our concern is that of a near complete lack of precipitation over the next two weeks.
  • Ukraine’s maritime shipments of wheat, corn and vegoils has ended, and while land movement westward is expected the cost and uncertainty of Ukrainian supply availability has risen. This along with threatening US and global weather patterns warrants end user coverage on corrections.

18 July 2023

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  • HEADLINES: Chicago extends overnight rally as GFS weather forecast stays dry, very hot into early August; Spot crude up $1.50/barrel.
  • US spring wheat futures are lower following Monday’s somewhat unexpected boost in crop ratings, but otherwise US and global ag markets are adding risk/weather premium. Wheat futures in the US and Europe have largely shrugged off talk that Russia would waive its current tax on wheat exports to ‘friendly nations’ and focus instead remains on the rapid escalation of war in Ukraine. We have highlighted previously that, on paper, the corridor won’t materially obstruct Ukrainian shipments given reduced Ukrainian grain output, but vessel movement in the Black Sea will be challenged by missiles/drones and there is some increased measure of risk in maritime exports from both countries. Additionally, forecasts in the US and large parts of Europe keep in place a pattern of widespread dryness and increasingly warm temperatures into the opening days of August. Regular rain is still needed in all but the eastern Midwest to fully salvage yield potential.
  • Global rapeseed and canola markets have been the bullish leader of the oilseed space in recent weeks as the loss of just 2-3 million mt of Canadian canola production would be highly disruptive. November canola at midday is up another $1.50/mt and has rallied 12% since June 30.  August Chicago soybeans are down 5% in the last 30 days, and so similar to 2021/22 the world’s minor oilseed markets are providing a pillar of support to the soy complex. Spot cash rapeseed oil in N Europe today sits at an equivalent $0.51/lb, up 6% in the last 30 days.
  • Interior US corn bids have been firm this week, especially at/near ethanol plants, with Cedar Rapids basis rising to $1.03 over, and with spot cash corn in the W Midwest above $6.20/bu for the first time since the release of NASS’s stocks and seedings data. Central Midwest soy bids have rolled to November, but flat prices are still well above $15/bu for Jul-Aug delivery. It remains that there is limited tolerance for yield loss, even corn, which makes the next 2-3 weeks of growing conditions critical. Current subsoil moisture is lacking or absent entirely in pockets of the Central and Northern Plains and Northwest Corn Belt.
  • Export demand is struggling but domestic processing margins are elevated. Spot futures-based soy crush at midday is $1.85/bu, vs. $0.40-0.80 in mid-June. Ethanol margins remain profitable amid relative strength in cash ethanol prices.
  • The midday is GFS weather forecast is consistent with morning output, and unfortunately maintains a pattern of lengthy and widespread dryness and a growing likelihood of extreme heat throughout next week. High pressure ridging currently aloft TX and the Southwest expands rapidly into Central Plains and far W Midwest this weekend. The GFS forecast keeps this ridge in place across the western part of the US Ag Belt into August 1-2. The GFS is unwavering in projecting max temperatures across TX, OK, KS, NE, MO and parts of IA at 96-107 degrees, which is probably overdone but there is agreement that a much warmer temperature profile impacts the Central US in late July. Meaningful precipitation will be confined to W KS and the mid-South. The outlook is threatening.
  • Midwest rain in late June/July was welcomed, but heat/dryness in the second half of July is as or more threatening than early-season drought. There is a more broadly supportive tone to the global ag market amid ongoing firm prices in India, rising interior prices in Russia, firm South American corn fob basis the return of adverse US conditions.

17 July 2023

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  • HEADLINES: Chicago wheat/corn fall on profit taking and selling the fact; GFS 10-15 day forecast blazing hot/dry; NASS condition ratings to rise 1-3% in good/excellent.
  • Chicago grain futures are mixed at midday. Trade this morning has been a; “Tale of two markets”. Chicago grain futures were sharply higher overnight on the Russian’s ending of the Black Sea Grain Initiative. The news sent futures higher on algo buying related to the headline. The rally persisted into the morning reopening pushing double digit gains.
  • However, the Chicago rally quickly uncovered profit taking since the market had already feared the corridor closing, and that Ukraine’s smaller 2023 corn/wheat harvest will be able to flow through Eastern Europe and down that Danube River to facilitate monthly exports of 2.5-3.0 million mt. Such a monthly export average would be enough to ship Ukraine’s sharply diminished 2023 harvest. The weaker corn/wheat markets then applied modest selling pressure to soy which dropped November soybean futures back to unchanged.
  • The ending of the Ukraine Grain export corridor had been widely discussed since early May. Russian President Putin made it clear that Russia felt that NATO sanctions needed to be curtailed to allow unfettered export of grain and fertiliser. Russia will continue to export record tonnages of wheat estimated at 45-46 million mt in 2023/24. The Ukraine wheat exports of 10-10.5 million mt are important, but the grain will find its way out of Ukraine at a cheaper price. The impact is the cost of logistics and a lower price back to the Ukraine farmer.
  • Chicago brokers estimate that managed money has sold 4,500 contracts of wheat, 6,200 contracts of corn, and 1,200 contracts of soybeans since the reopening. In soy products, funds sold 2,500 contracts of soyoil and bought 2,000 contracts of soymeal. Funds were buyers overnight and large sellers this morning.
  • US export inspections for the week ending July 13 were 14.3 million bu of corn, 5.7 million bu of soybeans, and 9.3 million bu of wheat. All were below the weekly averages needed to reach annual WASDE targets and deemed disappointing. The US has sold 1,333 million bu of corn (down 648 million or 33%), 1,833 million bu of soybeans (down 102 million or 5%), and 65 million bu of wheat (down 12 million or 15%). US exports continue to disappoint.
  • NOPA reported a June Crush of 165.0 million bu of soybeans, down 7% from May, the lowest monthly crush since September 2022. The industry expected a June crush of 170.6 million bu with soyoil stocks falling to 1,690 million pounds, down 130 million pounds from trade expectations. The 5 million bu decline in crush would have produced 56 million pounds of less supply, which argues that June domestic soyoil demand was record large and that the US is on the cusp of where monthly crush cannot keep up with biofuel demand for soyoil. US monthly crush rates are modest in July/August, and a further tightening in US soyoil stocks is forecast which will maintain or rally cash soyoil prices. The demand led market in US soyoil is underway with Canadian canola production under pressure due to a worsening drought across the Prairies.
  • The midday GFS weather forecast is drier and warmer than the overnight run. The midday GFS forecast brings back extreme heat in the 11–15-day period as the high pressure ridge in the Intermountain West amplifies and progresses eastward. The Plains and the SW Midwest would be exceptionally hot with high temperatures ranging from the 90’s to the lower 100’s. Such heat would be devasting for crops that have not seen more than 1.00” of rain in the past 10 days. This is a below normal rainfall and above normal temperature pattern with close attention to be paid to the heat that is projected after July 23. Until then, showers will be widely scattered this week with rain totals ranging from 0.2-0.8” and coverage being no better than 40% of the crop area. Close attention is again warranted as the last half of corn pollination and soybean pod filling is ahead.
  • Soil moisture across the Central US is short to very short, even amid recent the recent rain, and only half of the US corn crop has pollinated with soybean pod fill to occur in August. US corn/soy crop conditions are expected to be up 1-3% in the good/excellent category later today with spring wheat ratings being steady. Canada is securing US corn for import due to drought. This is no place to be short corn!

14 July 2023

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  • HEADLINES: Black Sea grain corridor uncertainty; GFS weather forecast offers dryness and heat in midday run beyond July 21: Key weekend ahead.
  • Chicago grain futures are mixed at midday as headlines and weather forecasts clash. Selling emerged after the morning opening on news that Turkey’s President Erdogan and Russian President Putin agreed that the Black Sea Grain Corridor should stay open. This news produced a sharp Chicago selloff as the bulls banked short term profits heading into an uncertain Central US weather weekend.
  • However, the Russian Government has not confirmed a deal and Putin did not commit to keeping the corridor open. Russian demands for its continuance have not been met by the UN or the EU offers. And Russia has been cagey in prior months saying that Ukraine grain has not flowed to those that need it most, sub–Saharan Africa or SE Asia where food security is acute. We have doubts that the corridor deal can be struck, but traders are less certain today as to whether the corridor will close. This has produced early Chicago selling which has dropped values into midday and curtailed volume.
  • Chicago brokers estimate that managed money has bought the grains and sold the soy complex. Fund managers have bought 3,200 contracts of wheat and 2,900 contracts of corn while selling 5,300 contracts of soybeans, 5,900 contracts of soyoil and 600 contracts of soymeal. It is a reduction of Chicago risk.
  • The US dollar is little changed at midday, which is slowing the flow of new capital into commodities. However, there continues to be an appetite for raw materials in a further drop in the greenback. Historically, as the US Central Bank ends its rate rising cycle, there are flows back into raw material markets and traditionally such moves occur over several months. The US labour market is strong enough that a 2023 recession will be avoided. However, a Q1 economic dip is likely if the US dollar stays in a nosedive on rising and record large US Government debt.
  • We look for US corn/soybean ratings to rise 1-2% on Monday due to this week’s rain. Even with the gains, ratings will stay historically low as producers report that soy crop growth was stunted by the acute dryness of May/June. Midwest corn is reported to be short with the nodes stacked on each other. We believe that US corn/soybean yields will be below trend, it is the next 6 weeks of Central US weather that determines how far below. The coming hot/dry forecast of the N Plains and the NW Midwest suggests that US corn/soybean ratings will fall again into early August. NASS will produce US corn/soy yield estimates in August based on their producer surveys. Actual NASS field surveys will wait until September/October.
  • Canadian producers fear a rerun of 2021 in that their crops are pounded by dryness with heat ramping up in late July and August. Talk of a 17.0 million mt canola crop is growing which would have a negative impact on crush/exports. The US and Canadian biofuel industry is counting on canola oil as a feedstock. If prices keep rising, it is soyoil that must replace lost canola production.
  • The midday GFS weather forecast is like the overnight run with limited rainfall to fall across the N Plains and the NW Midwest into July 25. Near normal rainfall of 0.5-1.50” is forecast for the Southwest, Central and Eastern Midwest, with the Delta sharing in the rain this weekend.
  • Temperatures hold at near to below normal with no extreme heat into July 21. Highs will range from the upper 70’s to the upper 80’s. Thereafter, a much warmer temperature pattern returns with extreme heat noted for the Canadian Prairies, the Northern Plains and the NW Midwest highs running from the mid 80’s to the lower 100’s. A ridge of high-pressure forms across SC Canada and extends southward into the Northern Plains. This ridge pattern is like the North American weather pattern of May. How long it persists is unknown.
  • What will the weekend headlines be on the Black Sea Grain Corridor, will the agreement be extended, or will it cease? The UN’s last-ditch effort to extend the pact is being listened to by Moscow. We put low odds on a Black Sea extension which is marginally up from earlier this week. W Midwest cash corn bids are red hot and amid a new threatening weather pattern.
To download our weekly update as a PDF file please click on the link below:

13 July 2023

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  • HEADLINES: US corn in drought at 64%; US soybeans in drought at 57%; An Indian rice export ban is a big deal; GFS weather forecast drier at midday in the 6–10-day period.
  • Chicago grain futures are sharply higher at midday with soyoil/soybeans pacing the advance. Corn and wheat futures have followed in the wake of July USDA crop report as the market’s focus shifts to weather/yield and the sharp fall of the US dollar. The volume of Chicago trade is average with brokers suggesting that new money is entering the market from macroeconomic managers due to the acute weakness of the US dollar. The sharp fall of the US dollar boosts foreign purchasing power and curtails the profitability of farmers outside the US. This is having a noted impact on S American farmers.
  • A key 6 weeks is ahead of US crops and as indicated this morning by the Drought Mitigation Centre in Nebraska. A large 64% of the US corn and 57% of the US soybean crop are in drought. The area of drought has been falling far slower than the bears would have hoped for which accentuates that crops will be surviving off surface water. This means that regular rainfall is required each week if there is any chance for US corn, soybean, and sorghum crops to reach the yields depicted by WASDE yesterday. Central US crops cannot withstand any fresh periods of dryness or extreme heat without an immediate and adverse impact on yield.
  • Chicago brokers estimate that funds have bought 4,600 contracts of wheat, 11,500 contracts of corn, and 8,000 contracts of soybeans. In the products funds have bought 4,400 contracts of soymeal and 4,800 contracts of soyoil. One can see the fingerprints of new money coming into the Chicago markets from the intraday volume spikes on the buy side of the market.
  • US weekly export sales for the week ending July 6 were 14.5 million bu of wheat, 18.4 million bu of old and 18.5 million bu of new crop corn, 3.0 million bu of old and 7.7 million bu of new crop soybeans. Respective crop year to date US wheat sales stand at 184.4 million bu (down 75 million or 30%), 1,556 million bu of corn sales (down 823 million or 38%), and 1,933 million bu of soybeans (down 249 million or 23%). WASDE has correctly reflected the existing old crop US corn/soybean export paces within their balance sheets. It is too early in the crop year to make any comment on US wheat exports.
  • Although not much fanfare was associated with a media report that India was going to halt rice exports due to domestic shortages and rising prices, it is important. India is the world’s largest rice exporter according to USDA at 23.0 million mt in 2023/24 out a world total of 56 million mt. This would be an incredible 41% of world rice trade. No other exporter can fully make up for the Indian shortfall. World rice fob prices would start rising sharply with China taking 5.0 million mt of Indian rice. If rice is not available, it is wheat that would produce the next grain of food sustainability. World wheat trade/demand would likely set new records. Watch developments on Indian rice trade closely.
  • The midday GFS weather forecast is drier in the 6–10-day period that was offered overnight. The model extracted rain from the N Plains and the NW Midwest which will stay dry over the next 10 days. Near normal rainfall of 0.5-1.50” is forecast for the Central and Eastern Midwest. Temperatures will stay near to below normal with no extreme heat into July 23. The midday GFS forecast has been running cooler vs either the overnight GFS or the European model run. The 11–15-day forecast was like the overnight run with limited rainfall for the Midwest as high pressure ridge retrogrades west and then builds north. The coming dry weather in the week 2 forecast needs to be closely monitored with soybean podding to accelerate during August.
  • Soyoil futures are on the doorstep of scoring new rally highs while November soybeans are nearing initial resistance at $13.75-14.00. The grain markets are forming longer term lows with dry Central US weather a worry for late July and early August. CONAB estimated the 2023 Brazilian corn crop at 128 million mt, 5 million below WASDE with soybeans at 154 million mt, down 2 million. Brazilian basis bids are in a rally as is W Midwest corn basis on a lack of farmer movement. We stay bullish on Chicago breaks. Cash is leading the advance in corn.

12 July 2023

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  • HEADLINES: USDA July report bearish on extra 2023/24 soybean/wheat stocks; US 2023/24 corn stocks large as expected at 2.25 billion bu.
  • Chicago grain futures are sharply lower at midday following a bearish USDA July Crop Report. WASDE decided to cut the US corn yield to 177.5 bushels/acre (down 4.0 bushels/acre) due to record dry May/June but held their soy yield at trend at 52.0 bushels/acre. Although not a surprise, the trade was estimating 2023/24 US soybean end stocks at 200 million bu, so a total of 300 million bu was bearish. US corn stocks at 2,260 million bu was at trade expectations while the US wheat yield was better than forecast at 46.1 bushels/acre. On a bullish note, China’s 2022/23 soy imports were raised to a record 100 million mt and WASDE is still low by 2-3 million.
  • Chicago wheat, corn, and soy futures are sharply lower, but we doubt that values drop into a lasting bearish trend. We expect that December corn will test key support below $4.80 while November soybean futures hold $13.00.
  • WASDE estimated 2022/23 US corn end stocks at 1,402 million bu, a drop of 50 million bu due to an expansion of US corn feed residual to 5,425 million bum(+150 million) and a cut in exports to 1,650 million bu (down 75 million bu) and a 25 million cut in ethanol usage to 5,225 million bu. US corn exports account for slow sales.
  • World 2023/24 corn end stocks rose to 314 million mt, unchanged from June. The 2023 Brazilian corn crop was raised to 133 million mt (up 1 million) while the Argentine crop was cut to 34 million mt (down 1 million). Yield data argues that WASDE is too high by 2-3 million on the Argentine crop with future cuts ahead. 2023/24 world corn stocks were up a modest 17 million mt and assume large S American corn harvests.
  • US 2022/23 US soybean end stocks were raised to 255 million bu (+25 million) due to a 20 million bu reduction in exports, a 5 million reduction in seed use, and 5 million bu increase in imports and a 5 million bu increase in residual use. The stocks increase was seen as bearish with the June Stocks report calling for a 30-35 million bu in the residual, not just 5 million bu. The cash market seems to reflect tighter cash soybean stocks than is indicated by WASDE.
  • US new crop soy stocks were forecast at 300 million bu due to an export cut of 125 million bu to 1,850 million bu and a 10 million bu cut in the crush to 2,300 million bu. The 2023 estimated US soybean crop was slashed 210 million bu due to the 4 million acres of lost seedings. US 2023/24 soybean end stocks fell to 300 million bu, down 50 million bu from June, but well above the average trade estimate of 200 million bu. The average farmgate soybean cash price is estimated by WASDE at $12.50/bu.
  • World soybean end stocks were forecast at 121 million mt, a decline of 2.3 million from June. We see strong support for Nov soybean futures below $13.00 while soyoil holds on a bull market on renewable diesel demand with support below $0.60/lb.
  • USDA wheat data leans mixed, with US new crop US stocks larger than expected but with the global and exporter balance sheets tightening on lower production and near unchanged demand.
  • US all wheat production was lifted 74 million bu as harvested area was boosted 600,000 acres following NASS data in late June. Winter wheat yield was slightly higher amid late season rainfall across the Plains and favourable SRW conditions into harvest. Feed use was increased 20 million bu to account for larger than expected feed/residual disappearance in 2022/23, and end stocks are pegged at 592 million, vs. 562 million in 2022/23, and up 12 million bu year on year. We do note that NASS’s initial spring wheat yield estimates are below last year across the Dakotas and MN. Additional downgrades are likely if current weather forecasts there are proven correct. By class, 2023/24 HRW stocks are estimated at 227 million bu, vs. 232 million last year. SRW stocks are estimated at 129 million, vs. 90 million last year. HRS stocks are estimated at 155 million bu, vs. 158 million last year.
  • However, total exporter production in 2023/24 was lowered 4 million mt from June, with larger US output unable to offset a combined reduction of 6.5 million mt in Europe, Canada and Argentina. We fear that additional cuts will be made to yield in Canada. Exporter stocks/use this month is pegged at 13.5%, vs. 14.6% in June. The global wheat balance sheet is tight.
  • Corn remains the bearish anchor of the ag space until harvest combine data is available, but overall, we caution against chasing large daily moves as warmer/drier Central US weather is probable in the second half of July. Wheat and soy balance sheets lean bullish in the long run.