HEADLINES: China buys at least 8-10 cargoes of US soybeans, they’re back!; Midday Central US weather forecast drier and further south with rain.
Chicago futures are slightly higher at midday with KC wheat/Chicago corn offering the upside leadership. Soybean futures rallied initially on the Chinese pricing of 8-10 cargoes of new US soybean buying before futures volume subsided. FAS/USDA announced another 2 cargoes of US soybeans sold to China, which offers additional confirmation that China is back securing US soybeans. Brazilian fob premiums keep rising and strong talk is developing in Brazil that soy crop estimates of 135-136 million mt are too high relative to cash market tightness amid the current export/crush programs. Brazilian farmers are not sitting on many old crop beans, and increasingly talk is likely to build that the 2021 harvest was overstated. Brazilian fob soybeans for September/October have rallied to $1.60 over which means that US soybeans are the cheapest in the world. US corn is about to capture that same crown in a few weeks, so the demand profile of US grain and oilseeds is set to rise into the harvest.
We look for a higher dose with traders reluctant to take on any new risk ahead of NC Midwest showers this weekend. Traders would rather have the rain in the rear-view mirror with the USDA August crop report ahead. Following the report, private crop tours will try to gauge US corn/soy yield potential.
We would remind that following the USDA August report, FSA will release their initial insurance program participation data. The trade will try to use the August program data to add or subtract US major cropped acres. Often, the August estimate is not complete enough to produce a definable acreage trend.
The Goldman roll will be underway at the close as index fund managers roll out of September futures and into December. This has September corn weakening vs December on spreads. We see the weakening as temporary due to China’s ongoing active corn export program.
Chicago brokers estimate that funds have bought 3,400 contracts of wheat, 4,100 contracts of corn, and 3,100 contracts of soybeans. In the soy products, funds have bought 2,100 contacts of soymeal and 1,200 contracts of soyoil.
China’s State Planner assured storm ravaged areas that it would release commodities that are essential for livelihood in a timely and targeted manner. The resurgence of Covid and storms have sent the price of a host of commodities including food goods higher. The Government said that it will take measures to assure supply and that price would retreat. The price of corn within interior China is holding well above $10/bu amid record large feedgrain imports that will surpass 50 million mt along with the release of nearly 130 million mt of reserve grain stocks (corn, wheat, rice) in the past year. To keep those reserves steady, China will have to import 30-40 million mt of corn in coming years.
This might be the reason why Dec 2022 corn futures is trading at $5.13 and November 2022 soybeans at $12.60, prices that exceed producer expectations. As we have previously documented, it is renewable biodiesel and China’s ongoing feedgrain imports which are the “demand drivers” of Chicago values in the years ahead. This is not a time to be selling 2022 or 2023 crops.
The midday forecast is drier and further south with rain than what the overnight run offered. The forecast offers light to moderate rains of 0.25-1.00″, but as the model has been doing in recent runs, it cut back on the heavier rainfall amounts. We look for 40% of the Midwest to receive 0.25-1.00″ of rain leaving 60% parched with extreme heat returning mid next week (90′s to lower 100′s) across the Plains and the W Midwest. The lack of rain and the coming heat is taking a toll on Plain’s corn/soybeans.
China’s return for US corn/soybeans adds a new bullish element following the USDA August crop report. Few expect a bullish USDA report next Thursday, which sets up a buy the break mentality for a rally into early 2022. It is the sharp drop in 2021/22 world crop supplies that will boost US corn/soy export demand this autumn.
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HEADLINES: Chicago steady/higher at midday; New crop demand surfaces; GFS weather forecast drier in Eastern Midwest.
Chicago futures are stronger today, led by row crop markets, as macro trends have reversed and new crop US corn and soy export demand begins to appear. Spot WTI crude at midday is up $0.85 at $69 per barrel. Gasoline futures have followed. The DOW is up 200 points and for now concern over potential Covid-based demand weakness has eased.
Old crop US export sales were virtually non-existent in corn and beans and near expectations in wheat Through the week ending July 29, exporters sold a net 2.7 million bushels of corn and just 0.4 million bushels of soybeans for 2020/21 delivery. US wheat sales totalled 11 million bushels, right at the pace needed to hit the USDA’s annual target.
New crop corn sales were a much improved 33 million bushels, vs. 21 million the previous week. New crop US soy sales totalled 16 million bushels, vs. 11 million the previous week. FAS this morning announced a sale of 300,000 tons of US soy to unknown destinations, which is rumoured to be China. Today’s sale to China follows ongoing active meal trade there and foreshadows a more regular pace of Chinese buying into late autumn.
Ignoring old crop outstanding sales, exporters to date have sold a record 688 million bushels of corn abroad. This compares to 452 million last year and implies that weekly new crop corn sales of just 32 million bushels are needed to achieve the USDA’s 2,450 million bushel forecast, which is easily 300-500 million too low. New crop US soy export commitments sit at 390 million bushels, down from 660 million a year ago in early August. Recall massive US soy sales made to China throughout July-August 2020. China’s return is inevitable but their absence in recent weeks has allow profit taking to occur unabated. Today, Brazilian beans for Oct delivery are quoted $20 per ton above US Gulf beans. US PNW soy is even more attractive into Asia.
We also highlight US Gulf corn’s increasingly competitive position in the world marketplace. Brazilian interior prices remain perched at $7.90-8.20 per bushel for Sep-Nov arrival, and there is strong talk that Brazil is seeking modest tonnages from the US for near-term shipment. That the second largest corn exporter needs imports to bridge its current supply gap is noteworthy, and this also suggests Argentine corn is not as competitive into neighbouring Brazil. Argentine logistics issues will only worsen in the weeks ahead amid labour strife and as river levels continue to shrink until seasonal rains return in early autumn.
The Argentine forecast into Aug 15 keeps rainfall confined to areas of eastern Buenos Aires, which will not aid river transportation. Eventually Argentine weather will also be monitored for changes to wheat yield potential there.
There is even some optimism surrounding winter/spring US wheat export demand as export production estimates slide further. Combined Russian, Canadian and Kazakh wheat exports in 2021/22 will be no larger than 63 million tons, vs. 74 million last year. Additionally, there remains massive concern over milling wheat availability in Western Europe as quality reports have been disappointing. Spot Paris milling wheatis up €1/tonne ($0.03/bushel).
The midday GFS weather forecast is drier in western Iowa and across the eastern Midwest into Aug 15. Otherwise, soaking rainfall of 0.75-2.00″ is still offered to eastern IA, WI, IL, IN and Ml Sun-Wed, while little/no precipitation occurs across the Plains. The GFS forecast also remains adamant that extreme heat returns to the Plains and Canada beginning Aug 14. The mid/late Aug temperature forecast must be watched closely.
Wheat’s upside vigour has paused as markets worldwide correct from overbought levels. Wheat breaks will simply be corrective in nature. We maintain that weakness in corn/soy is a buy as record yields are unlikely and the trade moving forward must contend with the return of US export demand.
HEADLINES: Chicago drops with the wetter midday GFS weather forecast with rains for IA/IL; Russian wheat yields disappoint; Canadian canola reverses early loss.
Chicago futures are mostly lower at midday in mediocre volume. StoneX’s lower yield projections have failed to spark much new buying interest, while weaker crude futures have weighed on Chicago soyoil. A larger than expected build in US crude stocks has reduced bullish energy market momentum at $74 per barrel, basis spot WTI crude. Concern over the rise in global Covid cases is noted. We doubt US energy consumption/consumer spending will be much affected in the near-term, but more uncertain is how European and Asian governments respond to the spread of the Delta Covid variant as autumn approaches. Interest in new ag positions remains lacking.
We note that Canadian canola futures. after filling an open chart gap, have reversed recent losses. November canola is up $9 per ton at $691, which compares to November Chicago soybeans at $485. Elevated US soyoil production will be required into early 2022 to fill the void left by reduced Canadian canola crush and exports. Recall world vegoil markets tend to find seasonal bottoms in midsummer, and so spot Chicago soyoil at $0.61 foreshadows newer highs by early winter.
Russia’s cumulative wheat yield at 49% harvested is down 7% from last year. This reflects a rapid widening of year on year discrepancy, which was largely expected as yields in the Central and Volga regions were unlikely to match last year’s incredible results. Russian wheat data must be analysed on a week-to-week basis, but the seasonal trend in yields (lower) implies a final crop size of roughly 75 million tons, 10 million below the USDA. US and European milling wheat futures are weak today, but only due to profit taking. Algeria bought an estimated 300,000 tons of EU origin wheat this morning. Turkey secured 245,000 mt of optional origin supply. Pakistan returns to the world wheat marketplace in late August.
US ethanol production through the week ending July 30 totalled 298 million gallons, unchanged from the prior week and 7 million above the pace needed to hit the USDA’s corn grind target. Assuming weekly ethanol production is unchanged over the next 30 days, corn used for ethanol in 2020/21 will be 5,060 million bu, 10 million above the USDA forecast. We would also highlight that US gasoline disappearance last week totalled 9.8 million gallons per day, up 1% from the same week in 2019. Elevated US ethanol production is required to prevent stocks contraction. US crude stocks last Friday totalled 439 million barrels, vs. 436 million the previous week and unchanged from 2019.
Other breaking news is absent and little change in volume/open interest is expected into next week’s USDA report. NASS should begin the process of lowering US production, but a dramatic bullish supply shock is unlikely.
The GFS weather forecast is wetter from E Iowa and into Central Illinois as the model has pushed the rains further south than what was indicated by the GFS/Euro models overnight. We would mention that the GFS ensemble is holding the rains further north in reduced amounts (E MN/WI) through next Wednesday and the Canadian model is similar. The Canadian model keeps Iowa drier with only 0.25-0.75″ of rain from E Iowa and NE IL. The EU model will be watched before the close as to the positioning of the rain next week. Our bet is that he rains will stay across the Northern Lake States.
The 11–15-day forecast features a US high pressure ridge West and another system passing through the Central US offering 0.25-1.00″ of rain. Confidence in the extended GFS operational model is low due to run-to-run differences.
Price is following the raindrops; Chicago futures fell amid the wetter forecast for Iowa/Illinois at midday. Yet, China cash soymeal trade was massive today for January-April with nearly 700,000 mt changing hands. China pig producers are tentative with nearby coverage as feeding margins are only neutral. A host of world end users have poor forward coverage and hope for a bearish August crop report to start purchase programs. We see strong support below $5.40 Dec corn and $13 November soybeans. Wheat drops are corrective. The Chicago soymeal market looks to be scoring seasonal lows against $350/December futures. Notice the bottoming chart pattern below.
HEADLINES: Chicago falls to sharp losses on fund selling amid a lack of resting buy orders from China; Stonex yields out this afternoon; GFS wetter for Lake States.
Chicago futures are sharply lower at midday with corn, soybean and wheat coming under acute selling pressure. November soybean futures fell below the 50 and 100-day moving averages which triggered resting layers of sell stops. The stops pushed November soybean futures back to key support at $13.00-13.10.
Corn/wheat followed the complex lower following active opening fund related buying. Several funds combined to secure 4,000 contracts of corn and 3,200 contracts of wheat which rallied both markets after the morningf reopening.
Trade volume has subsided at midday with few resting orders above or below the market. The midday tone of Chicago is bearish with algo traders on the sell side via bearish chart signals. But it is the sheer size of the algo selling this morning that could produce a late day bounce. There are no resting orders above the market but buying is noted in November below $13.00.
US soybean crop condition ratings unexpectedly gained on Monday, which started the overnight selling. More important is that Chinese soybean demand is slow to arrive for US soy. This has some wondering if US soybean values must fall to values to turns China’s crush margins positive for October I November.
The Chicago break has Chinese crush margins pushing close to near breakeven, the question is what levels would start China in making new US soybean purchases. China has been largely absent for weeks from the US soybean market after making record large purchases back in March/April. Brazil will mostly fill China’s soybean demand in September, with the US taking over in early October. We look for China to start a US purchase program in the next few weeks.
Chicago brokers estimate that managed money has sold 14,500 contracts of soybeans, 5,500 contracts of corn and 2,700 contracts of wheat. In soy products, funds have sold 5,600 contracts of soyoil and 3,500 contracts of soymeal.
The Delta Covid variant has traders questioning world commodity demand. Energy, grains, industrial metals are weaker at midday on liquidation. Yet, history shows that world raw material demand increased in 2020, amid all of the Covid lockdowns and negative GDPs. With 70% of American vaccinated and the vaccination total rising again, we doubt that economic lockdowns will be anything more than localised events. US livestock futures are higher at midday, and they would be the first to be impacted. For now, US GDP rates look to be 4-6% through to the end of the year.
In the past 28 years. the FC Stone/StoneX corn estimate has been high 61% of the time with the maximum variance vs the USDA August estimate being 4%. In soybeans, StoneX has been high 57% of the time with the biggest miss vs the USDA being in 1995 at 3.8%. Traders expect near trend 2021 yields from StoneX
The GFS weather forecast is wetter across Wisconsin/NW lllinois/S Ohio but otherwise unchanged from the overnight run. A few showers could fall on Wisconsin/Michigan on the weekend, but totals would be less than 0.40″ with coverage no better than 50%. The remainder of the Central US holds in an arid trend through the coming weekend.
A Northern Midwest storm system forms early next week that produces 0.25-1.00″ of rain for E Iowa/Wisconsin/Northern Illinois/Michigan. This system produces waves of rain for the Lake States with totals of 0.25-1.25″. The Midwest rain ends Wednesday with a drier trend following as a high-pressure ridge rebuilds across the Western US. An arid 11-15 day forecast is offered thereafter
Chicago soybeans are trying to find a price that entices fresh Chinese demand. Corn and wheat are reluctantly following. We would remind that resting orders above and below the market are limited which leads to exacerbated price moves. Rains come too late for Canadian crops and yield losses range from 30-60%. It is the loss of world crops that produce a bullish trend during the US harvest.
HEADLINES: Chicago corn/wheat rally strongly on fall in private Brazilian corn estimates; Egypt’s GASC books just 60,000 mt of Romanian wheat; Midday GFS weather forecast drier.
Chicago futures are higher at midday as the overnight selling pressure abated. Grain futures rallied sharply which has pulled soybeans higher on China Covid related selling amid the fear of economic slowing. The volume of Chicago trade today is well above late last week as a new month starts.
Wheat has been the Chicago upside leader on rising Black Sea wheat values and the lack of participation in today’s Egyptian GASC tender. Only 5 offers of fob wheat were pushed at GASC, well down from recent tenders where 12-18 offers were common. And two of the Russian multinational export offers were well above the cash market at an estimated $270/mt basis FOB. Rumours of poor-quality EU wheat via excessive July rainfall along with the decline in the Russian wheat crop has spiked world wheat prices upwards, a trend that we expect will persist as importers and end users having limited forward coverage beyond September.
Corn rallied as commercial US crop tours reported less than expected yield potential in the E Midwest and amid a sharp fall in Brazilian corn crop estimates. Private forecasters have knifed their Brazilian corn estimate to 82.7 million mt. AgRural went a step further and cut their Brazilian 2020/21 corn crop estimate to 77.5 million on poor yields amid the damage produced by drought and two hard freezes. A Brazilian corn crop of 77.5 million would be 15.5 million mt below the USDA’s July forecast and drop Brazilian corn export estimates to 12-14 million mt from the USDA’s 28 million. Most of Brazil’s corn export loss would be pushed to the US as China is rumoured to have bought additional Ukraine corn for October-November on Friday. The bid/offer on Ukraine fob corn is a wide $0.40/bu today. Few Ukraine farmers/commercials are looking to sell additional corn for harvest delivery with a big China program already underway.
Chicago brokers estimate that managed money has booked 6,500 contracts of corn and 4,700 contracts of wheat, while selling 1,900 contracts of soybeans. In the products, funds have sold 4,100 contracts of soyoil while buying 1,900 contracts of soymeal.
US weekly export inspections were larger than expected in corn with China taking 32.6 million bu. For the week ending July 29, the US shipped out 54.5 million bu of corn, 14.2 million bu of wheat, and 6.6 million bu of soybeans. For their respective crop years to date, the US has exported 2,472 million bu of corn (up 973 million or 65% from last year), 2,139 million bu of soybeans (up 692 million or 32%), and 138 million bu of wheat (down 35 million or 20%). We note that US Census monthly corn exports are 173 million bu larger than FGIS Monday inspection data which means that the US must equal just north of 51 million bu to reach the USDA’s annual US 2020/21 corn export forecast of 2,850 million bu.
The GFS weather forecast is vastly drier across the Southern Lake States and does not break out meaningful rain for S Iowa and C Illinois until August 11. N Iowa stays dry. A few showers will dot N Minnesota/N Wisconsin, but the rains will be north of key corn/soy areas. The best chance of rain is with a system that pulls across S Iowa and C Illinois on Aug 12, the tenth day of the GFS run, which is too far out for any confidence. Otherwise, the forecast is arid with limited rain chances for the Plains and the NW Midwest. Soil moisture levels will continue to fall. Midwest high temperatures will be cool in the 70′s to lower 80′s into Wednesday with warming pushing back into the N Plains/W Midwest thereafter. A high-pressure ridge rebuilds through the Central US which is anchored by a trough west of the PNW. High ttemperatures in the Plains/W Midwest return to the 90′s to the low 100′s. E Midwest temperatures hold in the 80′s to lower 90′s. The W Midwest/ Plains are they dry into Aug 15.
Chicago has been focused on Central US weather and each raindrop that falls. However, it is the sharp drop in 2021 world grain/oilseed production that should captivate the market with demand pushed at the US over the next 6-9 months. World falls in corn, wheat and canola (rapeseed) crops are massive with end stocks in fast retreat. A demand grain led bull market is ahead with corn/wheat being the upside leaders. We look for a fall in good/excellent crop ratings later today with StoneX estimating the US 2021 corn/soybean crop sizes on Tuesday afternoon. StoneX has a history of pegging the final US crop yield, not what the USDA will say in August.
HEADLINES: Chicago sharply lower on fund selling/profit taking ahead of the weekend; Midday GFS weather forecast drier for S MN/IAS with hot temperatures after August 4.
Chicago futures are lower at midday with corn, soy and wheat values retreating ahead of the weekend and the end of the month. The volume of trade continues to be light/limited which is exacerbating daily trading ranges. The green radar blobs across South Dakota, Minnesota and NW Iowa have not produced much rain, but the radar has set the bearish mentality of Friday’s Chicago trade. Any rain is desired by Northern Plains farmers, but totals of 0.1-0.6″ are just not enough.
Neither the bulls nor the bears have been able to make headway this week. Hot/dry weather has harmed US corn/soybean yield potential but measuring the impact on final 2021 US yield has been hardly debated in the industry. What is not being debate is the ongoing/widening loss of 2021 world grain/oilseed production. The total 2021 world grain losses will soon exceed last year’s 47 million mt, which will shift trade demand to the US. It is the fall in Brazilian corn, Russian wheat, and the dire Canadian drought which will support a demand led US bull market into 2022. It is August when US demand will start to build.
Chicago oat prices have risen to their best levels since 2014 at $4.70/bu this week amid the worsening Canadian drought and the growing shortage of feed. North American 2020/21 small grain stocks are at a record low which places growing importance on 2021/22 US corn supplies. Canadian/Northern Plains farmers will be feeding additional corn to make up for loss of forage. Canada continues to seek US corn, a demand trend that should lift 2020/21 US corn export estimates by 100-125 million bu in the coming monthly USDA reports.
Brazilian corn reached record levels at $8.50/bu before retreating on pre-weekend profit taking. Brazilian interior corn prices are rising daily, and farmers have shut down selling with many unable to fill existing sales contracts and rolling the unfilled sales forward to 2022 new crop production. Brazilian corn loadings are well below last year with annual exports unlikely to surpass 20 million mt. Brazil exported 36.25 million mt of corn in 2019/20 and is forecast to export 28 million mt this year by the USDA. Parana’s Deral cut their corn crop estimate to 6.1 million mt from 9.8 million in June. Mato Grosso farmers report that late planted corn having yields of just 30-35 bushels/acre.
36% of the US corn and 31% of the US soy seeded area is in drought in the case of corn, 20% of the acres are in severe/extreme drought and 16% in moderate drought. 100% of N Dakota corn, 98% of S Dakota and Minnesota, and 67% of Iowa corn is impacted by drought. Unless soaking rain falls in the next 2 weeks, we estimate that 40-43% of US corn crop will be affected by drought. US corn good/excellent ratings to fall 2-3% on Monday.
The GFS weather forecast is consistent with prior runs in producing rain across SW/S Iowa and through Missouri with totals of 0.25-1.25″ and several locally heavier amounts via convective thunderstorms. The rain stops before reaching the MO/IL border. A lasting period of dry weather follows through the N Plains/W Midwest. The 8–9-day period dry weather is a concern for the 60-65% of the Midwest that misses this weekend’s rain.
Midwest high temperatures cool in the 70′s to lower 80′s into Thursday with strong warming pushing back into the N Plains/W Midwest late next week. A high-pressure ridge rebuilds through the Central US which is anchored by a trough west of the PNW. High temperatures in the Plains/W Midwest return to the 90′s to the lower 100′s. A few light showers are possible across the Lake States on ridge riding storms during August 9-10, which is too far out to have any confidence in.
You can’t keep the wheat bull market down as Russian/Canadian/Brazilian crops decline in a world short of hi protein wheat. We are surprised by the weakness in corn/soy amid the ongoing fall in world feed supplies and threat posed by a hot/dry Central US weather forecast into Aug 10. US corn/soy conditions and yield estimates will be in decline into mid-August. US soybeans are the cheapest in the world beyond August and with this week’s big cash meal trade in China, it is likely that further weakness will produce new demand for US soybeans on the Chicago break. China is off for the weekend at midday, but any fresh weakness early next week should spark new demand. China’s time to secure large amounts of US soybeans is fast approaching. This is not a market to be selling amid the sharp fall in world grain production and threatening Central US Weather Pattern into mid-August.
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HEADLINES: Wheat, soyoil lead midday rally; GFS weather forecast trends drier next 10 days; Brazilian corn market at new record high.
Chicago futures are higher at midday, led by wheat and soyoil. This week’s tour of North Dakota’s spring wheat crop has validated the USDA’s decision in early July to peg national US spring wheat yield roughly 40% below trend, and the trade is well aware that near-identical weather has plagued much of the Canadian Prairies since late spring. EU and Canadian rapeseed/canola futures are today’s laggard amid talk that China is selling reserve rapeseed oil into its domestic market, but there is little doubt that higher spring wheat/canola future lie in the offing as supply rationing begins this autumn.
The overnight rally in Chicago markets has been extended despite another round of weak weekly export sales. Through the week ending July 22, exporters recorded net cancellations of old crop corn worth 4 million bushels and net old crop soybean cancellations of 3 million bushels. Importers response to lofty prices has been to seek cheaper feed wheat/Argentine corn, while Brazil continues to ship modest tonnages of soybeans.
Yet, the forward US export outlook is brightening as feed wheat prices continue to rally as exporter milling wheat supplies tighten, and as Sep-Oct Brazilian soybean fob basis reaches new seasonal highs.
We note that Black Sea wheat futures are up $8 per ton today. Feed wheat follows milling wheat values higher into late 2021 and are projected to reach parity with US Gulf corn offers by late August/early September. The cost of Argentine corn is rising as vessel loads are restricted by historically low river levels and as Brazil reaches for Argentine supply to bridge current supply gaps. Safrinha corn in Parana is only 7% harvested, which is an abnormally low figure. Many questions remain as to final safrinha production in Southern Brazil has been impacted by widespread damaging frost. Like a broken record, Brazil’s interior corn price index is again higher at $8.48 per bushel, a new all-time high despite the ongoing safrinha harvest.
New crop US corn sales totalled 21 million bushels, a 9-week high. New crop soybean sales were 12 million bushels, a 4-week high. Exporters this morning sold two cargoes of new crop beans to unknown destinations, likely Europe. US wheat sales through the week ending July 22 were an impressive 19 million bushels, vs. 18 million the previous week and included two cargoes sold to China. The USDA’s all-wheat export forecast of 875 million bushels is easily obtainable, despite lofty US premiums to other origins.
Extreme heat and a lack of precipitation returns to major corn producing regions of Southern and Central Russia over the next 10 days. Ukraine avoids the worst of this heat, but modest net draws in soil moisture persist there. This is important as the world needs record Black Sea corn output following historic yield loss in Brazil.
The midday GFS weather forecast is drier across the Northern Plains and Great Lakes Region than the overnight release and allows extreme heat to return to the Dakotas, Minnesota and Iowa beginning early next week. Temperatures cool in all areas briefly Aug 1-3, but expansive high pressure ridging resumes its influence on the N American climate thereafter. High temperatures in the 90s/low 100s returns to the N Plains/N Midwest next Tues-Sat. Concern is also growing with respect to widespread lack of meaningful rainfall projected over the next 10 days. Notice that rainfall in excess of 1″ will be rigidly confined to a small region encompassing southern Iowa and Missouri. Concern over soil moisture in August stays elevated.
Exporter wheat surpluses are in fast retreat, while two-week US forecasts bode poorly for maximising yield potential. A massive N American pattern change is needed no later than mid-August to prevent an acceleration in the addition of weather premium. Continue to use breaks to add to supply coverage.
HEADLINES: Chicago mixed at midday as traders wait to buy the market after Thursday’s poor weekly export sales report; Midday GFS weather forecast drier for Plains/Lakes.
Chicago futures are mixed at midday with an early rally failing in soy/corn {same as yesterday). Traders are not willing to chase a rally with showers falling across East Central and South Central Minnesota (and potentially far NE Iowa) this afternoon. The green radar blobs limited traders in chasing the early Chicago rally, but old/new crop cash markets are starting to show some independent basis strength. The bears argue that E Midwest yield gains will surpass the losses in the west, but amid a deepening drought across Iowa and the N Plains, this argument is weakening.
We continue to doubt that Chicago breaks can be sustained amid a midday GFS forecast that offers dry weather for most of the N Plains and the W Midwest (excluding Missouri) for the next 10 days. A Thursday recovery is possible as traders look to position long following another disappointing weekly export sales report. Monday’s NASS Crop Condition report is expected to show that US corn and soybean good/excellent ratings drop another 1-3% which will nudge the industry’s US corn/soybean yield discussion down heading into the August 12 USDA/NASS crop report. How deep of a fall in US corn/soybean yields will all depend on August weather conditions across the Central US.
Chicago brokers estimate that funds have bought 2,200 contracts of corn, 1,100 contracts of soybeans, and 3,200 contracts of wheat. In the products, managed money has bought 2,900 soyoil while selling 2,700 contracts of soymeal.
Bunge’s CEO Heckman indicated that they expect China’s big corn import program in 2020/21 will be repeatable/sustainable. We have noted that vessel counts and China’s own import data show that China will take 29-31 million mt in 2020/21 and a record 48-51 million mt of total feedgrains. We believe that China’s COFCO booked US new crop corn yesterday, but because COFCO is also a US grain merchant, the buying does not have to be announced until it hits the books of the exporter division.
By our count, China has already booked 12.5-13.0 million mt of US with 4-6 million mt of Ukraine corn for 2021/22. Thus, China’s total world corn purchase pace is 16.5-19.0 million mt for the 2021/22 crop year. We expect that China is well on their way to taking 29-33 million mt of corn from all sources and 18-24 million of corn from the US in 2021/22.
The US weekly ethanol grind produced 298 million gallons of ethanol or 4 million less than the week prior. The US needs to average 289 million gallons in the remaining 5 weeks to reach the 2020/21 USDA forecast. US gasoline consumption was down just 2% from 2019 with US ethanol stocks rising to 955 million gallons. The USDA is understating the US corn grind for US ethanol production by 25-40 million bu which will result in reduced 2020/21 US corn end stocks.
The forecast is consistent with the overnight run with another 10 days of arid weather for Iowa, the Dakotas, Minnesota, Nebraska, Kansas, and most of Illinois. Showers will be focused on Wisconsin/Michigan and far S lowa/N Missouri (0.25-2.00″ of rain from late Friday into Saturday). 60-65% of the Midwest will be missing the rain with heat returning in the 11-15 day period. Iowa, Minnesota, the Dakotas, and Nebraska are the concerns where high temperatures will be in the 90′s to low 100′s into Friday. The 10-15 day period stays dry for the Plains, Canadian Prairies, and Iowa. Our worry for US corn/soy yields is rising as some areas have not enjoyed any meaningful rain in 3 weeks. The heat/dryness is rapidly pushing crop maturing.
The forecast is concerning for the first week of August as declining soil moisture elevates crop stress across a broad area of the Plains and W Midwest (Missouri excluded). Canada’s drought is worsening with livestock feeders searching for feed. Our view is bullish on the sharp fall in world grain production since June.
HEADLINES: Chicago retreats from opening rally amid Central US weather pattern uncertainty; Midday GFS weather forecast dry for N Plains/W Midwest next 10 days.
Chicago futures are higher at midday, but well off their opening rally top. Corn and soybean futures pushed sharply higher after the morning opening with corn gaining 12 cents and soybeans up just over 30 cents on active fund buying. The weather forecast turned drier for the Central US, but the bulls desire to see confirmation in the midday run before chasing a rally. For most of June/July it has not paid to chase a rally or push sales in a decline. And traders want to be careful not get too bullish until they can itemise US yield declines. Remember that crops will hit a “moisture wall” in early August with Iowa/Minnesota being where crops have to the most to lose on condition/yield potential. Amid this week’s hot/dry weather forecast, our bet is that US corn conditions and yields are in decline, which begs a trading stance of buying sharp Chicago breaks. Funds are looking at the long side of commodities heading into August but will wait until the new month. And China needs to get started being a more aggressive buyer of US ag commodities. We look for a mixed Chicago close today.
Chicago brokers estimate that funds have bought 1,200 contracts of corn and 1,900 contracts of soybeans while selling 900 contracts of wheat. In soy products funds have sold 3,400 soyoil and bought 1,900 contracts of soymeal.
Talk is ongoing that China booked US corn, it is just that the tonnages are not adding up more than 2.0 million mt. China is said to be below the market with additional buying. And remember that Brazil has sold its soybeans to China for September, which pushes China’s soy buying from the US into August, about 2-3 weeks later than last year. 1.5 million mt of China corn demand would lift their US corn purchases to around 13.0 million mt, a record before the crop year has even started.
With 32% of the Russian wheat crop harvested, yields are disappointing and argues against Russia harvesting a wheat crop that is more than 80 million mt. Unlike last year, there will be a drag on spring wheat yields due to regional dryness and excessive heat. The 2021 Russian wheat crop is estimated to be in a range of 76-80 million mt. Remember that the USDA has the Russian wheat crop at 85.0 million mt. We look for a cut in the August 12 report. The combination of massive wheat imports by Iran/Pakistan, along with a bigger import need from Turkey and the smaller Russian crop is turning world wheat prices bullish.
The two weeks before and two weeks after pollination are when corn yields are determined. Corn can lose 15% of yield in the fill stage but yield losses will be mitigated once the crop reaches dent. If you split the US 2021 corn crop in half via the Mississippi River, some 7.6 billion bu is grown in the west. A 5% yield loss here would equate to 380 million bu, which could partially be made up by solid E Midwest yields. How much rain falls across Iowa, Minnesota, and Nebraska in the first half of August will be key to determining the final 2021 US corn yield. Dakota corn yields will be off 15-30% amid their dire drought.
Egypt’s GASC booked 180,000 mt of Ukraine/Romanian wheat at $245.39/mt basis fob for late September, $14/mt above their last tender. This was the fourth tender in a row that Russia did not participate. And the freight rate rose to $34.02mt, the highest cost in over 6 years. Freight rates will stay high for some years in our opinion.
The weather forecast is consistent with 10 days of dry weather for Iowa, the Dakotas, Minnesota, Nebraska, Kansas, and most of Illinois. Showers will be focused on Wisconsin/Michigan and far S lowa/N Missouri (0.25-1.50″ of rain from late Friday into Saturday) on ridge riding systems. 60-65% of the Midwest will be missing the rain with heat returning in the 11–15-day period. Iowa, Minnesota, the Dakotas, and Nebraska are the concerns where high temperatures will be in the 90′s to low 100′s into Friday. A front produces rain for Iowa in 11-12 days, but it is too far out for confidence. The EU weather model will be watched for confirmation of this front on August 7-9.
China corn demand is below the market, but bears want confirmation of the US August weather pattern before being chased out of their positions. ADM’s CEO has claimed that the world has lost 15 million mt of grain production in July which enhances US export demand from August onward. Our trading view is to buy Chicago breaks as US corn and soybean conditions and yield potential are in decline. How big of a decline will be determined by August weather conditions.
HEADLINES: Chicago bounces on rain shift south and west on midday GFS forecast and talk of interest from China for Jan-March soybeans; US crop conditions decline?
Chicago futures are mixed at midday with consumer demand noted on the early break which has steadied values heading into the noon hour. China’s big meal trade overnight (600,000 mt) and their resulting purchase of US soybean futures (January/March) along with cash talk that China has new interest in US corn on weakness has underpinned Chicago.
Traders also understand that it is only late July and there is an entire month of important US weather ahead with ENSO readings indicating that La Niña is coming on fast. Last year, La Niña slowed the early soy seeding campaign in Brazil which resulted in their winter corn supply woes. Brazilian interior corn prices rose to record highs this morning at 100+ Reals/bag which is occurring even with massive imports. Brazil will be lucky if it exports more than 20 million mt of corn in their local crop year, substantially below the USDA estimate.
The Central US weather risk and the arrival of demand is enough to produce a sideways Chicago as US corn/soybean yields are assessed. Traders correctly assume that big US crops are being made in the E Midwest, the unknown is the W Midwest/Plains yields and how far off trend could be they be. For now, it is a balancing act, but we anticipate that demand led bull markets are ahead as world grain demand is pushed to the US.
Chicago brokers estimate that funds have been buyers of a net 1,500 contracts of corn and 2,500-3,200 contracts of soybeans, while selling 1,800-2,500 contracts of wheat. Funds have sellers of 2-2,500 contracts of meal while buying 2,400 contracts of soyoil. The volume on the break and the rally has been nothing to write home about. The summer doldrums are underway unless there is a big shift in the Central US weather pattern to lasting heat/dryness.
US export inspections for the week ending July 22 were 40.8 million bu of corn, 8.9 million bu of soybeans, and 17.6 million bu of wheat. All were close to expectations, but the corn total came in below weekly vessel counts. This likely will produce an upward revision next Monday. Last week’s US corn exports were revised up 3 million to 42.4 million bu. China was the biggest destination for US corn of 489,000 million mt which is keeping up with their weekly averages.
We understand that Brazil’s strong demand for Argentine corn in taking at least 1 million mt last week. Argentina is down to where its remaining unsold corn is just 2.0 million mt with additional Brazilian demand noted this morning. We estimate that Brazil will import 3.0 million mt of world corn in 2021/22 with potentially 500,000 mt coming from the US. Exportable corn commitments are getting whittled down in Argentina which should soon shift demand back to the US. Canada due to its acute drought is also seeking US corn for October/November. World feed demand heading into 2022 will be strong.
The midday weather model is substantially drier across Iowa/Illinois/Indiana and Ohio than what was offered overnight. The midday GFS forecast has pushed any heavier rain south and west into Kansas. The model has extracted 1-2.50″ of rain for the heart of the Midwest which along with the coming 5-6 days of heat will drop soil moisture.
Highs in the 90s to low 100′s will be commonplace this week with moderation on the weekend and next week. The E Midwest never gets into the extreme heat with highs in the 80′s to the lower 90′s. The extended range 10–15-day period offers a high-pressure ridge across the South-Central US with heat returning to the N Plains and the E Midwest. US crop condition ratings should decline for the next few weeks.
The market is hearing some fresh interest on the demand side which has caused a pause in the weather-related selling of recent days. We look for more of a two-sided trade into early August unless the forecast maintains dryness across the N Plains, Minnesota, and Iowa. Longer term, we see the return of a demand led bull market much like last year amid the crop losses in Brazil, Canada, and the EU. Don’t chase rallies or sell sharp breaks would be our best advice.
