2 August 2022

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  • HEADLINES: Ag markets weak but off session lows; Chinese reaction to Pelosi landing muted.
  • Markets extend correction on geopolitical uncertainty. weather debates; energy recovery; late August US weather critical.
  • Chicago futures are lower again this morning amid negative prevailing macro themes. China’s response to Pelosi’s landing in Taiwan has so far including the flying of Chinese military jets over Taiwan Strait. Chinese military exercises are planned through Thursday in the region, but so far China’s reaction has been muted. There is also continued optimism over improved Ukrainian logistics amid talk additional vessels stuck in Ukraine will be exiting the region in the near-term, though there has been no additional boat movement as of yet. Chinese demand for US soy is typically strong in August, and all eyes will be on Chinese importer activity in the weeks ahead, with new uncertainty mounting as US-Chinese tensions escalate. Ag markets remain hostage to the recent flood of general global uncertainty.
  • All markets are off morning lows as buying emerges in global energy markets. Spot WTI crude at midday is up $1.00/barrel at $94.80. The Dow is down a modest 100 points. Equity market sentiment is less certain that major damage will be done to the US/global economy through the balance of 2022.
  • Paris milling wheat futures, too, have shrugged off early weakness and look to settle €1.25-2.75/mt higher. Our wheat thesis is that the coming post-harvest recovery will be led by cash markets, and there is already evidence of this beginning in Europe. Protein premiums in Central Europe have soared in recent weeks and following yield loss in Europe and quality loss in Russia, the very high protein wheat market is facing imbalance. Brazilian corn futures have been somewhat firm since late July as record European demand is funnelled there.
  • And European drought will be unrelenting into the latter part of August as heat returns with vigour to Spain, France, Germany, and Italy this week. Max temperatures in Western Europe Wed-Thurs return to the low/mid-90s, or some 12-20 degrees above normal. Much of Europe’s Corn Belt is experiencing 2012-like conditions with limited relief expected. Europe will remain an active buyer of Brazilian corn amid uncertainty over the size/pace of Ukrainian shipments.
  • Most important to long-term fair value is that of Northern Hemisphere production. Unfortunately, weather model volatility is ongoing, and the GFS and EU models fail to agree on even 7-day precipitation in IA and IL. The intensity of Plains temperatures this week and 10-day precipitation coverage is a big deal given that long-range guidance maintains a pattern of above-normal temperatures and below-normal precipitation across the Plains and far edge of the western Midwest. And following late seeding, it is crunch time for yield determination in key producing states NE, SD, ND and MN.
  • The midday GFS weather forecast is consistent with the morning run and remains the most concerning of the major forecasting models. The entirety of the North American climate into Aug 15 hinges upon the placement intensity of high-pressure ridging. The GFS forecast keeps an amplified ridge in place aloft the C Plains/W Midwest throughout the next 10 days, which if realised will confine precipitation strictly to areas east of the MS River. This upper air pattern will also sustain well above normal temperatures through the period and trigger acute crop stress. Confidence in forecast details beyond 6-7 days is low, but the evolution of GFS/EU forecast output must be monitored closely. The GFS forecast is worrisome. Its accuracy will be partially measured by the afternoon run of the EU solution. Regional flooding in S IL is also an issue.
  • Finding a lasting trend remains difficult as nearly all possible uncertainties are present today. However, our long-term opinion hinges upon global corn production falling short of consumption in crop year 2022/23, while record S American soy yields are needed to build global soy stocks.

1 August 2022

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  • HEADLINES: Chicago falls in macro-Monday as Pelosi plans to visit Taiwan; Midday Central US forecast is hot/dry; 3 Ukraine ports open to corridor.
  • Soybeans fall sharply as House Speaker Pelosi to visit Taiwan on Tuesday. The US’s worsening political ties with China, what will China’s response be? China has promised that the visit won’t go by without consequences. Market sees Ukraine’s boat sailing as signal of export resumption; what does Putin think?
  • Chicago futures are lower this morning with geopolitics playing an oversized role in price discovery. Corn, soybeans, and wheat futures have fallen to sharp losses as Ukraine exports restart and the trade worries about the worsening political relationship between the US and China. A lower close is expected, with any recovery rally depending on what China does as House Speaker Pelosi heads to Taiwan to speak to their parliament.
  • Taiwan/Pelosi media confirms that the House Speaker will not be intimidated by China and will land in Taipei as early as Tuesday. On Friday and the weekend, China had promised that there could be military consequences, but that threat seems harsh. Since China is one of the US’s largest importers of ag goods, fears of reduced trade and worsening political tensions abound. China has been largely absent from US soybean purchases for weeks and is securing as much as possible from Brazil for August and September.
  • The US must show its political might to the world following the exit disaster of Afghanistan. Pelosi seems dead set on starting that process with a visit to Taiwan. China will carefully watch what she says and if she pledges a policy other than the Administration’s One China policy that has prevailed for decades. The hope is that China will not invoke a military response that could cause another geopolitical conflict to flare.
  • We expect that China will have harsh words for the US and potentially even some economic sanctions. Yet China needs the US’s soybeans/LNG and crude oil for now. Thus, we doubt that the Pelosi visit will ripple into an outright conflict. However, the market is right to worry that longer term, China will pivot to S American soybeans/grains/meats away from the US due to rising political strife. Chinese President Xi is up for an extended rule via their Congress and the US mid-term elections are in November. China needs to bridge the gap in its soybean supplies and S American new crop offers in late January/February.
  • For the week ending July 28, the US exported 33.7 million bu of corn, 9.4 million bu of wheat, and 20.4 million bu of soybeans. All were below the average weekly trade estimates. China did ship out 4.8 million bu of old crop soybeans.  For their respective crop years to date, the US has exported 2,044 million bu of corn (down 439 million or 17% from last year), 1,968 million bu of soybeans (down 176 million or 8.2%) and 104.7 million bu of wheat (down 34.2 million or 24% from last year). The US export pace has slowed in midsummer due to cheap Brazilian corn offers.
  • Funds have sold 4,300 contracts of wheat, and 7,200 contacts of corn, and 12,300 contracts of soybeans. In the products, funds have sold 6,600 contracts of soymeal and 5,400 contracts of soyoil. Funds have been big sellers in the complex and there are few resting orders in Chicago futures.
  • The midday GFS weather forecast is warmer/drier than the overnight run and much drier than the EU model solution with a strong high-pressure ridge holding across the NC US into mid-August. The ridge looks to fan heat with highs in the 90’s to lower 100’s that will push crop maturity.  The only Iowa rain is forecast to be traces to 0.5” with soil moisture in the W Midwest in fast retreat. High temperatures look to range from the 90’s to lower 100’s  into mid-August. The midday GFS forecast calls for highs in the 95-110 range but is too hot.
  • It is a macro-Monday with a host of commodity markets down sharply on recession/Pelosi fears. However, the midday GFS weather forecast is threatening across the Plains/W Midwest. Market volatility stays high during August. Don’t sell sharp breaks. A more sustained demand bull market develops following the NASS September Crop Report. We see US crop conditions declining into Monday August 15.
  • The EU cut its corn crop by 8% overnight to 65.8 million mt, down 5.9 million from June and down 6.9 million mt from last year. We forecast additional cuts of 6.5 to 9 million mt once real yield data is available following severe drought. In addition, the EU has cut its soft wheat crop estimate to 123.9 million mt compared to 130.1 million last year. Such a smaller harvest has led to a reduction in export volumes to 36.0 million mt down 2 million year on year, at a time when global demand is very much directed at EU supplies.

29 July 2022

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  • HEADLINES: GFS weather forecast cooler with some rain for Iowa on day 10; Ukraine corridor to start working this weekend? Bulls take profits on weather uncertainty.
  • Soybeans surge in old crop cash squeeze; Midday GFS weather forecast less threatening for Central US crops; Rumours abound that several stranded vessels will leave Ukraine ports this weekend, Russia selling fob wheat.
  • Chicago futures are mixed at midday with a strong early rally uncovering windfall profit taking from early week buyers. US wheat futures have set back on news that several stranded cargoes could leave Ukraine ports this weekend as a corridor is mapped out as agreed to by Russia and Ukraine. August soybeans rallied to $16.71/bu, their best price level since June 10, while nearby soymeal futures scored new contract highs above $513/mt. December soymeal is resting at contract highs with a push above $440/ton confirming a bullish technical breakout on the charts. The next upside price targets rest at $15-15.20 basis November soybean futures and $6.50-6.55 basis December corn. We maintain that market volatility is going to stay extreme with each new weather model run gaining in importance.
  • Chicago brokers estimate that fund managers have bought 9,800 contracts of soybeans, 10,500 contracts of corn and 2,500 contracts of Chicago wheat. In the products, funds have bought 5,400 contracts of meal/6,400 contracts of soyoil.
  • The soybean market has enjoyed its best weekly rally since 2004, 18 years ago. Record high US cash crush margins ($3.25-4.00/bu) along with Argentina slowing their soymeal exports as producers hold fast to cash soybeans due to soaring inflation, has sparked the recovery. US crushers look to produce at full capacity into the new crop US export season that starts in mid-September. Amid Brazil’s nearly sold-out soybean position of old crop, the US will gain world soybean demand going forward. And making matters worse, the 2022 US soybean crop is behind in maturity, which further adds to the bullish cadence with crush margins so profitable. Record large US soybean crush rates are expected in Q1 of the 2022/23 crop year which will firm cash basis bids.
  • FAS/USDA reported the sale of 132,000 mt of US soybeans to an unknown destination. The purchase was one of the first sales announcements in weeks. US China relations are politically chilly, but China has an estimated 8.6 million mt of new crop purchases on the books with another 1.5-2.0 million mt of US soybeans held in the unknown destination category. China has about 1.5 million mt of old crop soybeans left to ship before the end of the 2021/22 crop year.
  • Ukraine President Zelenskiy made a surprise visit to Chornomorsk near the southern city of Odessa today. He denounced the Russian blockade of grain and stated that Ukraine is ready to start feeding the world again. Whether the Russian’s allow Ukraine to export much corn/wheat will be closely followed once the stranded vessels leave. The Russian’s are aggressive sellers of their wheat in recent days with new purchases by N Africa/the Middle East. Chicago wheat/corn futures have been pulled off their highs on the news that a Ukraine Export Corridor could become operational this weekend.
  • The midday GFS weather forecast is like the overnight run and keeps any meaningful precipitation confined to the S Plains, Delta and Midsouth into the first full weekend of August. However, there will be a few showers across the W Midwest late in the 10-day forecast. The mean position of the high-pressure ridge is further east on the latest run. And the GFS model struggles with ridge riding storm systems and where to place rain until 2-3 days before the storm’s arrival. The more eastern located high-pressure ridge and its clockwise upper air movement offers a better chance of NC Midwest showers. The midday forecast is warm to hot, but not as hot as the overnight run with fewer days of 90–100-degree heat across the N Plains/Minnesota. Highs elsewhere will range from the 90’s to lower 100’s for numerous days. The GFS forecast has rain for Iowa on Aug 9 with totals of 0.5-1.00”. Any Iowa rain will be welcomed!
  • The less threatening Central US weather forecast is allowing corn, soy, and wheat futures to retreat from opening highs. Wheat values are falling on Russian grain sales amid the hope that the corridor will become operational this weekend. We remain bullish, but the midday GFS forecast is less threatening. The big question is whether the EU model will validate the more Eastern US high pressure ridge. The GFS forecast does rebuild the ridge in the 10-15 day period with a new round of searing Midwest heat. So, the midday GFS weather forecast is not calling for a pattern change.
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28 July 2022

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  • HEADLINES: Macro markets weather negative GDP data; US forecast stays worrisome into mid-August.
  • Chicago adds weather premium; Energy/equity markets shrug off US economic contraction; GFS weather forecast extends heat/dryness into August 12.
  • Global ag markets are higher at midday as there is no sign that needed rain and cooler temperatures lie in the offing prior to mid-August and as energy and financial markets have weathered this week’s interest rate hike and confirmation that US GDP contracted (by 0.9%) for a second consecutive quarter. The textbook definition of recession is two consecutive quarters of GDP contraction, and there is little doubt that growth challenges lie ahead amid sticky inflationary trends. But the US labour market is strong and consumer spending data suggests that real economic harm is not being felt – right now. The Dow at midday is up 235 points. Spot WTI crude is up $0.50/barrel at $97.70. With the Federal Reserve not meeting again until September, ag markets will be free to trade existing fundamentals, which increasingly includes a rapid decline in Northern Hemisphere corn production, and the potential for sizeable US soybean yield loss.
  • We also note that global canola/rapeseed markets have soared this week, with Paris rapeseed up 8% week on week. Recent strength in wheat and rapeseed markets is noteworthy as both normally find seasonal lows in mid/late summer. To that end, time is also running short to be bearish of US row crop markets.
  • US export sales data is viewed as mixed. Old crop corn sales through the week ending July 2t totalled 6 million bu, vs. 1 million the prior week. Global corn demand has shifted to Brazil. Net soybean cancellations, mostly from China/unknown, of 2 million bu were recorded, which follows positive sales of 7 million bu the previous week. Yet, new crop soy sales were a sizeable 28 million bu, the largest since mid-April. Total new crop US soy commitments, excluding outstanding old crop sales, sit at 585 million bu, the largest since 2014. When including old crop outstanding sales, 2022/23 US soy export commitments are a record large 772 million, or 36% of the USDA’s forecast, with the beginning of the new crop marketing year still 5 weeks away.
  • US wheat sales totalled 15 million bu, vs. 19 million the previous but week but still 4 million above the pace needed to meet the USDA’s forecast. Soyoil sales were 10 million lbs, vs. 1 million the prior week.
  • Confusion surrounding the timing/execution of Ukrainian grain exports continues. Vessels stuck at ports have not yet left, but there is hope movement will be seen in the next 1-2 days. Newswire reports indicate insurance companies, via steep premiums, can handle manoeuvring around mines but concern over Russian noncompliance lingers.
  • Logistics in the south and east of Ukraine will remain challenging indefinitely, and logistics will be compounded as Ukrainian producers work both to harvest a new corn crop as well as transport supplies to ports. A full 30-60 days of vessel line-up data is needed to confirm the success of the export corridor deal.
  • The midday GFS weather forecast is similar to the morning run is keeping meaningful precipitation into mid-August confined to the S Plains, Delta and mid-South. Regional flood risk is elevated in portions of AR, TN and KY. Intense/expansive ridging triggers near complete dryness and dangerous heat across the Central Plains and Western/Upper Midwest August 1-10. GFS max temperature forecasts of 110-115 in KS NE, IA, SD and MN are very likely overdone, but there is less doubt that temperatures will be at/above 100 for some 8-10 consecutive days. Flash drought lies ahead for the western US ag belt, including much of IA.
  • Market fears are now cantered on weather and the potential for sizable yield loss, which follows guaranteed corn yield loss in Europe. Premium will be added, particularly in the soy complex, until signs of a pattern shift emerge. Such a sign is not available today.

27 July 2022

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  • HEADLINES: GFS model shows ongoing hot/dry central US weather; Turkey awaits first grain ship to leave Ukraine; Soybeans lead on tight US stocks.
  • Chicago battles the hope for a Ukraine grain export corridor against threatening central US weather and a US bank rate hike.
  • Chicago values are mixed at midday. Traders note that a fundamental battle is taking place in Chicago this morning. The bears are selling wheat on the hope for a reopening of Ukraine grain trade as stranded vessels are led out of the war zone later this week. Turkey confirmed that vessel monitoring has been set up in Istanbul, which means that Ukraine could allow stranded vessels out of the 3 nominated ports as early as Friday. This pressured Chicago/Paris wheat futures after firmer overnight trade on the hope for “additionality” in terms of nearby world wheat supplies.
  • The bulls are buying corn/soybean futures on the hot/dry Central US weather threat and the prospect of declining production. Extreme heat/dryness has caused farmers to abandon corn/sorghum/soybean fields in KS/NE and MO. The damage is done and a US second year for a record corn yield is a longshot.
  • Soybeans will have time to recover if needed rain returns, but the next 2-3 weeks are the most important of the 2022 growing season. Unfortunately, the forecast models are consistent in calling for hot/dry weather across the Plains/W Midwest. US crop conditions/yield prospects are in decline.
  • There has also been cash talk that China has purchased several US August/September soybean cargoes or that they were short futures on basis sales against August soybeans. We cannot find any confirmation of such buying, but the large volume of trade in Nov soybean and December soymeal futures on the opening smacks of new fund inflows. Funds have been exiting Chicago positions for weeks, but amid the ongoing Central US and European weather woes and charts that are breaking trendlines and turning up, they are again looking to the long side of the market. If the US Central Bank were to suggest that they are ever taking their foot off the interest rate breaks, you would find many more fund managers wanting to return to long commodity positions.
  • Chicago brokers report indicate that funds have sold 3,900 contracts of wheat, while buying 6,900 contracts of corn and 7,400 contracts of soybeans. In soy products, funds have bought 5,700 contracts of soymeal and 3,900 contracts of soyoil. Funds are on the long side of soy.
  • The US produced 300 million gallons of ethanol last week, down 4 million gallons from the week prior, but up 1% from last year. The US needs to average 308 million gallons of ethanol production per week to reach the WASDE annual forecast for corn use of 5,375 million bu. We do not look for an ethanol change on August 12, but there could be a modest 10-15 million bu reduction in the Sept WASDE.
  • The midday GFS weather forecast offers limited rain for the N Plains and the NW Midwest over the next 12 days. IA, MN, NE, and the Dakotas hold in an arid trend with warming temperatures. Highs will return to the 90’s to lower 100’s. A high pressure ridge builds northward beyond the weekend and set up residence in the S Midwest/Delta. The ridge is more expansive than prior runs. The cool waters off the SW Canadian coastline should maintain this ridge position. Our concern for Central US corn/soy/sorghum crops is high.
  • There is a hesitancy to be buying commodities too aggressively ahead of the US Central Bank’s rate hike this afternoon. However, the US$ is struggling, and its price performance must be closely followed. US President Biden will be talking to Chinese President Xi overnight. Hopes are building that the US could drop tariffs on Chinese goods, which may unleash additional Chinese demand for US soy/grain. EU/US crop losses are building amid historically tight world stocks. Buy breaks remains our considered advice.

26 July 2022

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  • HEADLINES: Central US weather warmer/drier into August 8; China buys Brazilian Aug/Sept soybeans; Chicago close is key today.
  • Chicago higher on threatening Central US/European weather; Market stalls as it worries about Wednesday’s Central US bank rate hike. Midday GFS weather forecast hotter/drier
  • Chicago values are sharply higher at midday following a push above $6.00 in December corn futures and $8.00 in September wheat. Soybean futures followed with August soymeal gaining another $12/ton on the cash premiums paid. Indiana and Ohio crushers are offering spot soymeal at +$60-70.00 over while the Volga Valley crush plant in South Dakota is +$20 over. Even the Iowa rail is offering meal at $45-50 over August which makes August soymeal futures and August soybeans appear to be cheap. August soybean futures have pushed back above $15.00 with first notice day on Friday. The August/December soymeal spread is trading at a strong premium of $54.00.
  • Profit taking was noted on the early Chicago rally with traders betting that open chart gaps could be filled in coming days. The fall in US crop condition ratings sparked a gap opening overnight which makes today’s close important. A close in the upper end of the price range would prove bullish, while a lower closer would argue for additional sideways trade. Chicago futures have had a history of higher Monday trade with values then sliding into Friday. A break in this recent price pattern would argue that seasonal lows are being formed.
  • Chicago brokers report that funds have bought 5,100 contracts of wheat, 8,900 contracts of corn, and 6,400 contracts of soybeans. In soy products, funds have bought 4,300 contracts of soymeal and 1,100 contracts of soyoil.
  • The Ukraine is preparing to allow stranded vessels to start dodging ocean mines in a corridor out of its war zone late this week. It is estimated that some 22-24 vessels are stranded in the 3 ports that will produce the Ukraine export corridor. The quality of the grain on these vessels is said to poor following months of demurrage. It will take at least a week before all these stranded vessels can leave Ukraine waters.  Loading grain on incoming vessels will be a challenge. Export facility owners do not want to place their people in harm’s way while vessel owners stay clear of the area for the same rationale. However, ADM’s CEO indicated that he was optimistic on the Ukraine grain export corridor. Time will tell, but the size of the ships will be down with few wanting to make the trek into the Black Sea
  • US sorghum yield/supplies will be cut substantially this year amid the Plains drought. The US planted 6.3 million acres of sorghum in 2022 with harvested acres estimated at 5.4 million. This means that each bu of yield loss amounts to 5.4 million bu. Crop scouts estimate the US sorghum yield closer to 56 bushels/acre or a crop cut of 71 million bu. The production loss may not seem like much, but amid the area’s corn shortage, cash basis bids for grain will stay stout.
  • China booked 2-3 cargoes of Brazilian soybeans for August-September. China continues to seek Brazilian soybeans when they can. Basis levels for both corn and soybeans are rising in Brazil on strong demand. EU demand for Brazilian corn is active.
  • The midday GFS weather forecast offers limited rain for the N Plains and the NW Midwest over the next 12 days. IA, MN, NE, and the Dakotas hold in an arid trend with warming temperatures following the weekend. Highs will return to the 90’s to lower 100’s which will push crop maturity. A high-pressure ridge is forecast to build northward beyond the weekend and set up residence in the E Midwest. This ridge fans dryness and extreme heat for the Plains/W Midwest with highs projected from the mid 90’s to the lower 100’s.   The mean ridge position is further east, across the Midwest. The cooler waters off the SW Canadian coastline could maintain this Ridge position. Our concern for Central US corn, soybean and sorghum crops is rising amid the midday run that was warmer/drier.
  • Sliding stock/energy markets tugged Chicago values off their early morning highs. However, the Central US weather threat is too great for any widespread selling. August Central US/European weather will direct Chicago valuations. Cash market basis strength tells you that futures have discounted/digested a considerable amount of bearish economic news. Stay bullish, each new weather model run looks more concerning. Iowa/Minnesota/Nebraska weather during August is key.

25 July 2022

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  • HEADLINES: Debate over the Ukraine grain export corridor; Russian interior wheat price; GFS hot/dry beyond day 9.
  • Chicago higher on debate over Ukraine grain export profile; US crop yields and the central US bank lending hike of 0.75 basis points on Wednesday.
  • Chicago values are higher at midday and are following prior week price trends in which there is a rally to start the week with selling pressure mid to late week. Key to deciphering whether seasonal lows are being formed will be Chicago price action this week. Can Chicago values hold, or will they again decline into Friday. A rally on the start of the week that allows for steady or firming grain prices into the close would be an indication that wheat/corn are close to seasonal lows. Soybean values are a function of August weather and Chinese demand. There are rumours that China has booked 2-3 cargoes of Brazilian soybeans for August and are back asking for US offers for October/November. We look for a higher Chicago close and that weekly crop condition ratings will decline 1-2% for US corn/soybeans, while holding steady in spring wheat.
  • Chicago brokers report that funds have bought 3,400 contracts of wheat, 5,900 contracts of corn, and 6,700 contracts of soybeans. In soy products, funds have bought 5,300 contracts of soymeal while being flat in soyoil.
  • The world grain industry is debating how much grain can Ukraine export if the Russian’s allow the export corridor to be open. There are 50-54 grain vessels that have been caught behind the mines/blockades of Ukrainian ports. Of the 3 ports that are trying to open via Friday’s agreement, some 21-24 vessels could be allowed to sail. This could occur as early as next week. No measure of grain quality is being offered on these ships, but since the ships have been standing at port since March and now enduring the heat of summer, it is doubtful that wheat/corn will make the grade specified in the original sales contracts.
  • The UN/FAO and Ukraine Government has estimated that it will be able to export as much as 5.0 million mt of grain per month due if the export corridor deal. Industry sources are far less optimistic based on the war, the reluctance of vessel owners to let their ships enter a war zone with insurance companies will not be willing to offer coverage or charging exorbitant rates. Private sources estimate that 2.6-3.0 million mt of grain in total could flow out of Ukraine in the best of circumstances, which compares to 1.5-1.9 million mt of grain/month heading through the EU. The real help could be the cost of domestic transit which will raise the local price bid to Ukraine farmers. At best, the 3 Ukraine ports will be able to ship 2.0 million mt of grain/month which along with 1.0 million into Europe is where the maximum monthly export paces are derived from. Such Ukraine export volumes indicate that world grain prices are too cheap.
  • For the week ending July 21, the US shipped 28.5 million bu of corn, 14.2 million bu of soybeans and 17.5 million bu of wheat. Corn/soybean exports were disappointing.
  • Russian interior cash wheat prices are rising with the estimated cost of replacement put at $365/mt, up $25/mt in the past 2 weeks. And Russian wheat quality is struggling amid the forecast for soaking rains of 2-3.50” over the harvest areas. Russian wheat protein quality is in fast retreat.
  • The midday GFS weather forecast is further south with rains over the next 10 days which assures that IA, MN, NE, and the Dakotas hold in an arid trend. The good news is that temperatures will be seasonal with highs in the 80’s to the lower 90’s. Rains were also be reduced across KS, AR and MO with totals of 0.5-1.50” with soaking rain of 2-4.00” slated for TN/KY. A period of hot/dry weather follows with a high-pressure ridge residing across the Midwest. The 10–15-day GFS model has made these hot/dry weather forecasts before to no avail this summer which leaves forecasters/traders sceptical. If correct, the forecast would return mid 90’s to lower 100’s to the Midwest.
  • The E Midwest cash soybean meal market is hot and Argentine crushers are not able to pry soybeans away from producers amid Argentine inflation of 80-90%. August meal shorts will cover into first notice day. Chicago corn/wheat markets will focus on Ukraine export potential and can the corridor agreement be properly executed. This may require a few weeks for certainty. Our stance is bullish into late 2022.

21 July 2022

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  • HEADLINES: Paris wheat pushes to strong gain; UN head to Turkey; GFS drier at midday.
  • Chicago markets are mixed at midday with the summer row crops of corn/soybeans lower while the wheat market holds in the green. Improved Central US weather and lacklustre export demand has pressured Chicago corn/soy futures to key chart support. World wheat prices trend higher on improving import demand and the slowing US winter wheat harvest.
  • We look for a mixed Chicago close as the European Central Bank raised its bank lending rate by 0.5%, its first hike in 11 years. The US$ weakened following the EU rate increase with WTI crude oil values falling $4.00/barrel to $95.00.
  • The US Central Bank will raise its rates next week which has sparked worry about a coming US recession. Thereafter, the next US Central Bank rate increase won’t occur until September, so raw material asset prices could catch a bullish tailwind late next week. Our research argues that Chicago grain futures are mispriced relative to their fundamentals. However, a sustained recovery must be led by the cash grain market and tightening future supplies.
  • Chicago brokers estimate that managed money has sold 2,500 contracts of corn, 3,600 contracts of soybeans, 2,900 contracts of soyoil, and 1,100 contracts of meal. Funds have bought 4,500 contracts of wheat.
  • FGIS reported that for the week ending July 14 that the US sold 18.8 million bu of wheat, 1.3 million bu of old crop and 22.4 million bu of new crop corn, and 7.5 million bu of old and 9.4 million bu of new crop soybeans. This was the first week of the past 3 that USDA did not report net soybean cancellations.
  • For their respective crop years to date, the US has sold 279 million bu of wheat (the same rate as last year), 2.380 million bu of corn (down 367 million or 13%), and 2,190 million bu of soybeans (down 88 million or 4%). China did secure a cargo of US corn last week.
  • The Russian wheat harvest is sizeable, and maybe record large at 87.5-89.5 million mt. However, wheat quality is being questioned amid low protein levels. The low protein levels could push world hard wheat buyers to Northern Europe or Argentina. The US may also find increased HRW demand on quality.
  • UN Secretary General Gutterres will be heading to Turkey this afternoon for the hopeful signing of the Black Sea Grain Intervention pact in the coming days. There are details that have yet to be worked out but hope for a signed deal can happen on any day. However, we remain sceptical about the logistics to export sizeable quantities of Ukraine grain in a war zone.
  • Paris wheat futures closed sharply higher with gains of €10.75/mt or some $0.295/bu if related back to Chicago in $/bushels. EU wheat crop estimates are being cut by another 1.4-2.1 million mt due to hot/dry weather conditions across N Europe. More important is that EU corn crop estimates are in a freefall from those that surveyed fields to 55-56 million mt, a 17% yield fall from trend.
  • The midday GFS weather forecast is drier for the Plains and the W Midwest compared to recent forecasts. The midday GFS forecast has cut back rain prospects by 40-50% and reduced coverage to 45-55% of the area. This leaves some significant areas of the W Midwest and Plains needing rain. S Minnesota and portions of Iowa must be closely watched. The latest forecast reflects a high pressure ridge forming across the SE US and retrograding west into the Central Midwest. A period of heat/dryness looms which makes the coming rains important.
  • It is a macro day in a host of markets with the volume of trade in decline. Chicago has not traded its own fundamentals for some weeks. EU crop losses are sizeable and important to world trade flows of grain. Chicago values have become too cheap!

20 July 2022

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  • HEADLINES: Lacklustre trade in Chicago; GFS allows heat/dryness to return early August.
  • Low volume, lacklustre trade in Chicago; wheat fully digested Black Sea uncertainty; position of Central US ridging of incredible interest.
  • Chicago markets are mixed in meagre volume, with modest selling/liquidation ongoing in corn and soy and wheat finding support despite Tuesday’s news that Europe will begin the relaxation of sanctions on select Russian banks. Perhaps coincidentally, wheat has found support almost exactly at pre-Russian invasion levels, and our works suggests that spot Chicago is fairly valued at $8.00, even assuming Russian exports of 40 million mt. And there is much unknown as to how much grain Russian can ship on a weekly basis given the exporters’ inability to hedge forward tax risks. Russian flour prices remain perched near record highs, and so the wheat export tax is highly unlikely to be eliminated in 2022.
  • Outside markets are similarly lacking conviction. Spot WTI crude is flat at $104/barrel. The Dow is up 80 points as the market’s fears that Nord Stream 1 remains closed eases slightly.
  • Vessel insurance companies have responded to ongoing talk of establishing a grain corridor by demanding assurance that Ukrainian vessels will be accompanied by third-party Naval ships and that mines are cleared. Concrete details surrounding the timing and execution of any corridor establishment remain absent. The ongoing blockading of Ukrainian ports will have a more significant impact on wheat trade flows as Ukraine’s wheat surplus sits in the heart of the conflict currently.
  • Weekly EIA data leans slightly positive corn and ethanol and neutral to bearish gasoline. US ethanol production through the week ending July 15 totalled 304 million gallons vs. 295 million the previous week and up 1% on the same week in 2021. Ethanol stocks fell a modest 2 million gallons amid larger residual/export disappearance. Cumulative US ethanol residual disappearance in 2022 sits at 1,110 million gallons, up 14% year on year, and strong exports are anticipated to be revealed in June and July once Census data is available. Cash ethanol production margins remains positive, with ethanol prices this week up $0.04-0.11/gallon.
  • US gasoline disappearance last week totalled 8.5 million barrels/day, up sharply from the prior week but down 13% from last year. Elevated gasoline prices have, generally speaking, slowed consumption but the recent break in retail prices is expected to encourage/sustain late summer holiday plans. Overall, the US energy markets remains imbalanced, with crude stocks still the lowest for July since 2014 despite the release of some 84 million barrels of strategic reserves.
  • The midday GFS weather forecast is similar to the overnight run in projected a brief hiatus from extreme heat and complete dryness across the Central Plains/W Midwest. Yet, it is highly probable that the position of high-pressure ridging returns to the Southern and Central Plains beginning July 31 due to deep negative soil moisture anomalies, which are typically the source of extreme heat. Plains temperatures drop into the 70s and 80s in the 6–10-day period, but a pattern of warmth and dryness resumes thereafter. The best chance of Central US rainfall occurs July 26-28, with cumulative totals of 1-2” offered to E NE, S IA, KY and the E Midwest. Unfortunately, this appears to be just an interlude in an otherwise dry climate setup.
  • Markets will continue to struggle for conviction amid macro/geopolitical uncertainty. However, the failure of soaking rain to appear in August mandates the addition of weather premium. Corn yield loss of 10-15% relative to trend is increasingly likely across the Plains/SW Midwest.

19 July 2022

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  • HEADLINES: Chicago mostly weaker; GFS weather forecast trends cooler in extended range; Egypt cancels wheat tender.
  • Egypt’s GASC cancels Sunday tender, to announce new direct tender Tuesday including Russia/Europe. risk off ahead of Russian decision on Nord Stream restart. Central US rainfall debate in 10-15 day period.
  • Chicago grain prices fell to sharp losses at midday on the forecast of improving Central US weather and the fear that the US$ could rally sharply if Russia does not turn on the gas following the maintenance of the Nord Stream pipeline. The US$ is weaker at midday, but macroeconomic concerns have been directing Chicago prices since the last 10 days of June. The back and forth of the market has limited trader/fund participation in recent days. We look for a lower close without conviction as the trade worries about sluggish US export sales for the third week in a row. Weekly US ethanol production, to be released Wednesday, will also be uneventful amid current large stocks and difficulties sourcing remaining old crop supplies from the producer. Uncertainties abound.
  • Egypt’s GASC cancelled its tender for North and South American and Australian wheat supplies. This was not completely unexpected as it was suspected GASC was simply checking on non-EU and non-Black Sea cash prices. Recall there have been few to no offers from the Americas and Australia in recent tenders. However, GASC will buy additional wheat via direct deals on July 20, and our work suggest Egypt is wise to boost supply coverage into latter part of autumn. A purchase of US SRW remains possible following Egypt’s lowering of moisture standards and as US Gulf SRW remains comparable to EU origin.
  • There remain many unknowns over the near-term creation of an export corridor in the Black Sea. Europe will reportedly ease sanctions placed upon Russian banks in order to facilitate the movement of grain and fertiliser more easily. Otherwise, Putin stated he expects additional talks over the safe passage of Ukrainian grain, but no other details are available.
  • We do note that Russian interior cash wheat prices are up sharply this week amid strength in the Ruble. Best guesses on Russian fob wheat sit at $375/mt for late summer and autumn, and based on current interior prices, downside risk is low when accounting for normal costs/freight and an export tax of $85/mt. Russian wheat is not overly cheap an sits some $10/mt above hi-pro wheat in Germany and the Baltics. Black Sea exports will stay challenged for some time.
  • The midday GFS weather forecast is much warmer in the Plains, MO and IA this week, but has added rainfall to NE and the E Midwest beyond July 26 as the mean position of high-pressure ridging meanders into the Southeast. If verified, this will allow for regionally better rain chances across the eastern half of the US Ag Belt. This will also allow temperatures to moderate to more normal levels in the 8–15-day period. We would advise caution into putting too much faith on weather details beyond 5-7 days amid fluctuating model performance, but in the last 18 hours, forecasts have trended cooler/wetter in late July.
  • Markets appear to be finding some measure of near-term equilibrium at $5.80-6.20, Dec corn, $13.20-14.00, Nov soy, and $8.00, Chicago wheat. Stability in wheat is notable given the time of year and wheat will be the first to score a lasting bottom. It is critical that mild temperatures and regular rain are established well into late August following recent heat and rapid soil moisture loss across the Plains/SW Midwest and mid-South. We remain sceptical that the US weather pattern changes outright prior into late summer.