23 July 2021

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  • HEADLINES: Chicago slides on wetter midday GFS weather forecast for IA/W IL/TN late next week; Brutally hot through the Plains/limited rain; Chart selling accelerates.
  • Chicago futures are mostly lower at midday on bearish technical momentum and weather-related long liquidation ahead of the weekend. Traders are waiting to see which extended range weather model is correct before placing any new bets. The bulls are worn out by the inability of the market to rally and are getting out. The bears are pleased with the break and argue that any early August rain can still produce a trend line yield. Following weeks of on and off again weather, traders are worn out and waiting for the August USDA Crop Report.
  • It is the stale long liquidation that is pulling Chicago values lower at midday. US farmers are having a hard time understanding the late week Chicago decline other than to suggest that the “rain had better fall, and fall soon to preserve their crop yield potential”. Another 10 days of hot/dry weather is not what is needed to produce trend corn/soybean yields. That early August rainfall is so important in preserving good US corn/sorghum and soybean yield potential.
  • Chicago brokers estimate that funds have sold 4,500 contracts of corn, 2,500-3,200 contracts of soybeans, and 1,300-1,500 contracts of wheat. Funds have sold 3,100 contracts of meal while buying 2,900 contracts of soyoil.
  • Mexico purchased 100,000 mt of US soybeans. But other US demand is slow/quiet. China purchased soybeans from Argentina this week, while US vessel loadings indicate that China could take more than 1.0 million mt of US corn in Monday’s inspection report. US corn exports on Monday could return to 60-70 million bu and stay at an elevated weekly level into the end of summer.
  • Typhoon In-Fa is expected to produce heavy rainfall for Taiwan and Coastal areas of Central China in the province of Zhejiang on Sunday. The Government there has raised their flood warning risk to the second highest level calling on local ministries to take preventative measures. Flooding this week struck Henan and likely adversely impacted 15-17% of China’s 2021 corn crop. No damage assessments for the Chinese crop are offered by the Government tapping down on information flow to stymie rising inflationary pressures.
  • Brazilian corn prices are just below their record high at over $8.00/bu as domestic end user reach for a sharply curtailed 2021 winter corn harvest. End users understand 2.5-3.0 million mt of corn imports are required for the domestic market with traders estimating that Brazil purchased 17-20 cargoes of Argentine corn early this week. Elevated imports from Argentina and the US are forecast while the Brazilian corn export pace slide to 20-21 million mt. Brazil will fall to the world’s third largest exporter in 2021/22, behind Argentina.
  • We estimate that US good/excellent corn/soy condition ratings will hold steady or decline 2% on Monday. Spring wheat ratings hold steady at a low 11%.
  • The midday weather model is wetter across Iowa/West Illinois than what was offered overnight. The model tries to forecast several ridge riding storm systems that produce isolated to widely scattered showers across MN/WI this weekend and then IA/MO/IL late next week.
  • The ability of the model to forecast ridge-riding storms more than 24-48 hours in advance is poor which produces a low confidence rainfall forecast.
  • The one forecast certainty is brutally hot temperatures that exist for the next 9-10 days across the Plains/W Midwest. Highs in the 90s to low 100′s will be commonplace with some areas enduring 105-110 degrees. The hardest hit states will be Kansas, Nebraska, and the Dakotas. Crops in these areas will be under extreme stress. The Iowa rain will help, but the area covered will not be extensive. The GFS forecast may be overdoing the heat, but it is going to be hot in the Central US.
  • It is an important weather weekend with the market extracting weather premium from price for the past 2 days. Whether this extraction is right is debatable. Extreme heat/limited rain for the us Plains/Canadian Prairies is a certain forecast. And the Central US ridge is not going to go away during August, the forecasts offer high odds that it will stick around without tropical storm development.
To download our weekly update as a PDF file please click on the link below:

22 July 2021

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  • HEADLINES: Chicago recovers after a morning of heavy fund selling as midday GFS weather forecast takes out rainfall for Plains/W Midwest; US weekly export sales disappoint.
  • Chicago futures are sharply lower at midday with funds massive sellers on liquidation. Midday price direction has been basically momentum. The market was unable to gather any rally early this week on threatening Central US weather and the bears sensed a chance to produce liquidation. Fund selling ensued with the wetter 11-15 day extended range European weather model in the background providing fundamental fodder for the algo weather trading systems. It is now about the charts.
  • November soybeans have fallen back to support at $13.25-13.50 while December corn uncovered buying below $3.50. So far, December corn has been able to hold Monday’s low, a positive sign. And the big declines in highly charged speculative weather grains like canola and spring wheat futures, has added to the Chicago selling. We doubt that the Chicago break can be sustained, but momentum trade has been a summer theme.
  • Chicago brokers estimate that funds have sold 8-9,500 contracts of corn, 12,500-14,000 contracts of soybeans, and 5,400-5,800 contracts of wheat. Funds have sold 5,500-5,800 contracts of soyoil and 4,100-4,600 contracts of soymeal. Funds have been aggressive sellers of soybeans/soyoil on liquidation.
  • Weekly US export sales for the week ending July 15 were 17.4 million bu of wheat, 2.3 million bu of old crop and 6.5 million bu of new crop soybeans, and net cancellations of 2.1 million bu of old crop and sales of 6.5 million bu of new crop corn. China cancelled just over 2 cargoes of US old crop corn which fuelled the net corn cancelations for the week.
  • For their respective crop years to date, the US has. sold 279 million bu of wheat (down 46 million or 14%), 2,278 million bu of US corn (up 1,026 million or 60%), with US soybean sales at 2,278 million bu (up 574 million or 34%). The wheat sale included 4.2 million bu of US HRS wheat with crop year sales at 84 million bu. Somehow through spreads and price, the US HRS market must see US HRS exports slowed.
  • US export demand has been stalled for weeks as Gulf/PNW fob price offers for corn/soybeans have been well above Argentina/ Brazil and the Baltic on wheat. This has slowed US export demand and left the weather algos to run Chicago price direction. However, US corn sales are record large in an old crop position with new crop sales record large for the middle of July at 635 million bu. US new crop soybeans are not record large, but they are sizeable at 362.5 million bu.
  • We expect that the Chicago break combined with the sharp rise in Brazilian fob corn/soybean export offer prices should push back world demand to the US on corn and soybeans on the US’s newfound competitiveness. There is talk that China has become interested in securing US soybeans for an October forward timeslot. Monitor the daily sales report for new buying.
  • The midday weather model is drier across Minnesota, Iowa, W Illinois, and Wisconsin and more like the overnight EU model forecast. The model has taken out a good 1-2.00″ of rain. The forecast is wetter through the Delta/SE US where rains should be regular. A strong high-pressure ridge holds across the Plains, the Delta, and lntermountain West next week. This is a 594 millibar ridge and capable of producing heat/dryness for an extended period. High temperatures will be in the 90′s to lower 100′s across the Plains/W Midwest starting tomorrow and continuing next week. It is a hot/dry Plains/W Midwest forecast. It has not rained across lowa/Minnesota/S Dakota in over a week. The coming forecast is stressful and crop ratings will decline.
  • When November soybeans fell below the 50-day moving average overnight it triggered a slew of sell stops that dropped values a quick 10 cents and sparked the massive fund sales of nearly1 4,000 contracts this morning. Corn/wheat selling followed. The midday GFS weather forecast is dry for the N Plains and the W Midwest, and Canadian Prairies into August 1. US and Canadian crops are not getting larger with temperatures in the 90s/100s. We continue to see the weather as crop threatening.

21 July 2021

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  • HEADLINES: Low volume Chicago trade at midday as traders debate Central US weather; Soyoil drop based on sharp canola losses.
  • The bears/bulls have been battling with corn, soybeans, and wheat trading on either side of unchanged. Minneapolis wheat is lower on spread unwinding while canola falls to sharp losses on the rain that fell across S Saskatchewan and Manitoba. The biggest Chicago volume was on the early break as Dec corn failed to fill its open chart gap at $3.735, while November soybeans failed to take out their overnight highs. That failure turned the momentum down with fund selling following. Exceeding either technical point will determine the next corn/soy move. Traders are unwilling to sell Chicago with threatening weather across the Central US next week. A bearish weekly export sales report will provide a chance to position for a hot/dry Central US weekend. A higher Chicago close is expected with the midday GFS weather forecast showing consistency from the hot/dry overnight run.
  • Chicago brokers estimate that funds have bought 2,600 contracts of soymeal and 2,200 contracts of Chicago wheat while selling 2,100 contracts of corn, 1,500 contracts of soybeans and 5,400 contracts of soyoil. The biggest selling this morning has been in soyoil with the cash market said to be unbending. The delay in US biofuel mandates from the Biden Admin will not impact demand.
  • China purchased 4-6 cargoes of Argentine soybeans yesterday and is showing improved interest for US soybeans off the PNW for late September/October this morning. The changing cost (almost daily) of grain transit via 77-year lows of the Parana River makes it difficult to calculate the delivered cost of Argentine soybeans to China. However, the point is that China has cleaned out Brazil and is now turning to cheaper Argentine offers before US interest is expected to emerge in coming weeks. A year ago, China started its massive US soybean buying program in late July.
  • Chinese sources also claim widespread crop and infrastructure losses due to flooding rains that fell within a matter of hours across Henan. Livestock and crops were adversely impacted while drought across northern crop areas is also gaining in importance. With the typhoon season starting, the worry for Chinese crop production is starting and it is something that Asian sources report to be worth following.
  • US weekly sales are estimated at 140-200,000 mt of old crop corn and 350-500,000 mt of new crop, 50-100,000 mt of old crop soybeans and 200-350,000 mt of new crop, with wheat at 300-420,000 mt. Soyoil sales are -10,000 mt to +5,000 mt with soymeal at 80-140,000 mt in the new crop position. The sales report is expected to follow prior week totals and be non-inspiring. Brazilian corn wash outs are not yet being transferred to the US with their being no new daily sales announcements.
  • The primary weather models are going to have great difficulty in calling the location or rainfall totals of ridge riding short waves. There will be several chances of light shower chances in the next 2 weeks for the Lake States, but rain location/amounts are impossible to call. The midday GFS weather forecast is drier through the N Plains and Wisconsin, while being wetter across Minnesota and E Iowa. The models are struggling with the position of the high-pressure ridge after August 1. The GFS weather model sees the rain as being cantered on Wisconsin/Michigan/Northern Illinois and Indiana. Otherwise, the Plains and the remainder of the W Midwest are dry.
  • High temperatures will be in the 90′s to lower 100’s across most of the Plains and W Midwest starting Friday and continuing next week. This is a hot Plains forecast.
  • The midday GFS weather forecast is arid, but cooler for the Plains/W Midwest in the 10–14-day period. The GFS/EU models differ on the amplitude of a high-pressure ridge in the extended 10–14-day range. The GFS forecast is further south and less amplified with the ridge, while the EU model has the Central US baking under a strong ridge. The EU model has the strong track record of late. We look for the heat/dryness to extend into August.

20 July 2021

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  • HEADLINES: Chicago corrects morning gains as midday GFS weather forecast is slightly cooler with rain for Iowa in days 9-11; Central US ridge shows no change into August 4.
  • Chicago futures are higher at midday with corn /soybeans pacing the rally. The wheat market also jumped with Minneapolis September testing its prior contract high set yesterday at $9.445. Threatening Central US weather is the catalyst for the Chicago rally as traders can look past Monday’s macro financial market meltdown. A strongly higher Chicago close is expected with December corn nearly filling its gap while November soybeans pushed back above $14.05.
  • The DOW has a recovered over 600 points of Monday’s decline while US Treasury yields continue to decline on economic slowing worry due to the Delta Covid variant. Stock/commodity investors are putting risk on as Monday’s decline was overdone. The options market in stocks/commodities was laden with short put holders that were forced to sell futures/stocks to raise cash. That option related selling pressure has subsided, at least for now. The US 10-year note is trading at 1.2% which has some wondering about a US and world economic growth scare. It is way too early in this growth cycle to worry about an economic slide, the Delta Covid cases need to be monitored. With 68% of Americans vaccinated, the prospect of a US Covid closure is extremely low. Vaccinated Americans will strongly avoid any closure to gain any economic traction.
  • Managed money has bought 3,500-4,000 contracts of wheat, 7-8,200 contracts of corn, and 5,500-6,000 contracts of soybeans. In soy products managed money has purchased 2,300 contracts of soymeal and 4,000-4,400 contracts of soyoil.
  • Russian wheat yield data continues to be disappointing, but it is too early to make any final conclusion on  the crop. We suspect that the final Russian wheat crop will be under 80 million mt, as spring wheat yields struggle on heat/dryness.
  • There is talk that China is again looking for US wheat, this time US HRW wheat for September/October. We cannot confirm that any wheat has traded, but we wanted signal China’s ongoing interest for US wheat. The China wheat demand shows that China is real about complying with its Phase One Pledge and would like to get into negotiations over Phase Two ag trade details.
  • Changeable US weather and its importance to yield and price has caused the implementation of weather trading algos that buy or sell Chicago depending on whether the latest Central US weather forecast is warmer/cooler drier/wetter. The overnight run was warmer/drier while the midday was slightly less warm with rain for Iowa beyond the next 9.5 days. Confidence for Iowa rainfall 10 days from now is low. The forecasts are always in flux, but the overall pattern of a Central US ridge and generally hot/dry weather conditions for the next 2 weeks has not changed. Do not get caught up price action produced by the weather algos, on the other side of this weather market is tight world grain stocks and a demand led bull for US corn, soybeans, and wheat.
  • The midday GFS weather forecast is drier through Wisconsin/Minnesota/North Dakota and wetter through W Iowa, Missouri, and the Delta. Otherwise, the entire Plains, the Canadian Prairies and the remainder of the W Midwest are devoid of meaningful rain.
  • Ridge riding rains are difficult to forecast. The midday model is less amplified with the ridge (compared to the overnight run) allowing the rains that were forecast for Wisconsin to retrograde west. We would caution that these ridge riding rains are not widespread and impossible to forecast with any accuracy more than 48 hours in advance. We doubt the IA rains in 9-11 days and would strongly suggest that the rain location/amount will shift.
  • High temperatures will be rising to the 90′s to lower 100′s across a vast majority of the Central US starting on Friday. There is no indication yet that a tropical system is forming in the Gulf that can dislodge the ridge with the hot/dry weather persisting into August 4.
  • The midday forecast is a few degrees cooler (than the overnight) with rain forecast to drop across Iowa next week. Our confidence in the Iowa rain is low as ridge riding rains are difficult to forecast so far in advance. Do not sell breaks in this weather market.

19 July 2021

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  • HEADLINES: Chicago early rally fades on macro financial meltdown; Central US weather stays threatening at midday; Kazakhstan moves to limit grain trade.
  • Chicago futures are mixed at midday as traders are unwilling to chase an early Chicago rally with the US’s macro financial markets in decline. A growth scare being offered by the Delta variant of Covid along with the expectation that US corn and soybean crop conditions will increase led to early Chicago weakness. The DOW is suffering losses of over 900 points, making it the largest daily loss for 2021 to date. Crude oil is down $5.00/barrel which pressured the biofuel crops of soyoil/corn. The macro weakness has cast a bearish pale across Chicago this morning, but no trader or farmer is willing to make fresh sales with a threatening weather forecast ahead. The selling has all been in relation of risk aversion and if the DOW/energy markets stabilise, a quick rally to the upside will ensue. The break this morning is ALL related to macro market declines and nothing to do with US/world corn, soybean, and wheat fundamentals. The weather and fundamental aspects of Chicago are bullish.
  • Managed money has sold 6-8,000 contracts of soyoil and 2-3,000 contracts of soybeans. Managed money has bought 3,400-4,000 contracts of wheat, 2,400 contracts of corn, and 2,100 contracts of soymeal. Funds were active buyers overnight and then sold back some of those purchases this morning.
  • The USDA/FGIS reported that for the week ending July 15, the US exported 39.4 million bu of corn, 5.3 million bu of soybeans and 18.1 million bu of wheat. For their respective crop years to date, the US has shipped out 2,368 million bu of corn, 2,123 million bu of soybeans and 103 million bu of wheat. Remember that US Census corn exports are running 173 million bu above inspections. We expect that China will be more robust in their US corn/soybean program during August.
  • Kazakhstan has moved to limit their wheat exports amid a dire drought that has dramatically cut production and raised domestic prices. It is expected to move to limit wheat and ban animal feed exports starting on August 15. The decision was made at the meeting of the Multiagency Commission of the Government. The political decision will further raise grain prices for nearby importers, but the policy move will be reviewed in 6 months. The limitation of Kazak wheat (spring wheat) is another loss of a world hi-protein supplier.
  • A weekend Brazilian freeze likely caused additional damage to corn and winter wheat crops according to sources. The cold could have nudged corn production downward by 500-900,000 mt and a yet to be determined loss in wheat. The cold onslaught produced freezing temperatures across the Southern third of Parana and through Santa Caterina/RGDS. The weekend cold offered another cut to the Brazilian corn crop which many now peg at or below 86 million mt. We now estimate the 2020/21 Brazilian corn crop at 85.9 million mt which could cut Brazilian corn exports through their local marketing year to just 18-20 million mt. Brazil may import 2-2.5 million mt of corn into southern livestock areas.
  • The midday GFS weather forecast is drier through Iowa and the Northern half of Illinois with better rains across Wisconsin and Indiana compared to the overnight run. The entire Plains, the Canadian Prairies and the W Midwest are barren of meaningful rain. A high-pressure ridge that is located over the lntermountain West shifts south and east this week with temperatures rising into the 90′s to lower 100′s across a vast majority of the Central US. The GFS forecast continues to run hotter than other models, but this is a trend that now extends for days. The Western US high pressure ridge is progressing east due to the monsoonal flow out of Mexico. There will be ridge-riding rains across the N Lake States of Wisconsin/Michigan and Ohio, but Illinois will be on the dry side for at least 12-13 days. Our concern is that a tropical storm is needed to dislodge the ridge from its Central US location during August.
  • It’s a macro-Monday with Chicago “risk off” the theme due to near 1,000-point fall in stock market and near $5.00 plus drop in crude oil values. The Central US/Canadian weather are threatening with hot/dry conditions. This is not a market to be short, when world financial markets stabilise, a sharp Chicago rally follows. The Canadian drought is one for the ages and US crop losses across the Northern Plains and the W Midwest will be building into August.

16 July 2021

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  • HEADLINES: Wheat, soy, canola extend rally; Midday GFS weather forecast much drier in Minnesota.
  • Chicago futures are higher at midday, with wheat and soybeans extended overnight gains. Pictures of very low-quality wheat in Europe are circulating this morning, with Paris milling futures up 5.00-6.00  €uro per tonne ($0.16-0.19 per bushel), while updated early yields from Russia show little improvement. Spring wheat and has scored new rally highs as model guidance has extended warmth and complete dryness in southern Canada into July 26. Canadian weather thereafter will have little or no impact on yield stabilisation. Canadian canola production estimates have cantered on 16-17 million mt, vs. USDA’s 20.2. Canada must ration its available canola supplies moving forward.
  • China this morning bought 134,000 tons of US SRW. Traders are debating whether this is due to quality loss in France or whether this reflects the beginning of state-sanctioned Chinese buying of US products. China’s total purchase of SRW is estimated at 400-600,000 mt. We note that US SRW is expensive in the world marketplace, which suggests that new Chinese demand for new crop US corn and soybeans lies close in the offing. US Gulf soybeans for Sep-Oct arrival are now offered $12-16 per ton below Brazilian origin.
  • Massive logistical issues will continue to plague Argentina, with Paraguay declaring low river levels as a state of emergency. Resources will be allocated to dredging waterways, but real improvement in river levels there will not occur until seasonal rainfall arrives in early/mid-autumn. Little/no rainfall is offered to Brazil/Argentina throughout the next two weeks.
  • A sizeable grain elevator in the Central Midwest, which provided ample liquidity to the US rail market, has been forced into default. Structured contracts that performed well in neutral/bear markets have blown up during this year’s rapid transition to multi-year high prices. This underscores that the US farmer will not make the same mistake as last year in selling too much grain until production is known in Sep/Oct. In fact, our bet is that the world farming community as a whole will sell only what is necessary in the months ahead.
  • Improved Central US weather in July triggered massive fund liquidation. As of Monday, we estimate managed funds net corn long position at 196,000 contracts, vs. 219,000 last Tuesday and vs. April’s peak of 400,000. Funds’ net long in soybean is pegged at 96,000, vs. a recent peak of 175,000. We mention this as North American weather will be a more bullish feature over the next 10-14 days as expansive high pressure ridge meanders aloft the Plains and Midwest. The critical question for the market is whether this pattern lingers into mid-August. Updated EU weather model guidance keeps high pressure ridging intact into Aug 15.
  • Most likely, a tropical storm event will be required to materially change the Central US upper air flow.
  • The midday GFS weather forecast is drier than the morning run across Minnesota and the Central Midwest. The GFS forecast also advertises regionally soaking rainfall in Nebraska, SE South Dakota and Iowa July 28-29, but confidence so far out is lacking. Otherwise, excessive warmth returns to the Central and Northern Plains next Tues-Fri, with max highs reaching the low 100’s across Kansas, Nebraska and the Dakotas. A cooler but very dry pattern evolves across the Central and Eastern Midwest beyond the next 48 hours. Our weather concern stays high.
  • US weather continues to dominate price determination, but there are signs that market focus is shifting to demand as evidenced by this week’s sizeable rally in soybeans. Wheat extends its bull run on Russian yield downgrades. Use nearby weakness in corn to add to supply coverage, as a boost in export demand is imminent amid Brazilian cash prices stay perched above $8.00 per bushel.
To download our weekly update as a PDF file please click on the link below:

15 July 2021

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  • HEADLINES: Chicago wheat rallies on German flooding and need for protein wheat; Midday GFS weather forecast hot/dry, how long will the Central US ridge last.
  • It is a mixed midday Chicago session with US wheat futures rising while corn/ soybean futures hang in the red in low volume trade. Wheat/corn spreading has been active with excessive European rainfall starting to inflame wheat crop quality concerns. The big export seller of world wheat for August/September has been Germany as their wheat was the cheapest in the world.
  • However, the German/Baltic wheat harvest is delayed by excessive rainfall/flooding, and questions abound on whether German/Baltic hi pro wheat can make export grade. With Russian farmers holding cash wheat off the cash market via lower than expected yield and their floating export tax rate, a quick rise in world wheat fob prices could develop should the EU wheat deteriorate via quality amid cool/wet weather. Importers and end users are short of forward wheat coverage with recent world wheat tenders for nearby or even spot shipment. As we have previously highlighted, world wheat values have formed their seasonal lows and the dire drought in Canada and the flooding in the EU is offering upside market potential into October.
  • Chicago corn/soy futures are slightly lower in a correction of 3 days of rally. Chicago needed a technical breather, the big question for Friday is who will want to be short heading into an important weather weekend with extreme heat forecast. There are suggestions that extreme heat/dryness for 4-6 days would limit US corn yield losses across the Dakotas/Minnesota to 150-300 million bu (these states account for 19.5% of seeded acres). But should the high-pressure ridge hold into August, US corn and soybean production losses could be much larger. As of Sunday, just 8% of the North Dakota corn crop, 5% in South Dakota and 16% in Minnesota was pollinating. The coming heat could not come a at worst time in the last week of July when 40-60% of this areas crop will be in pollination. It is the duration of the NC US ridge that will key prices.
  • Chicago brokers estimate that funds have bought 2,100 contracts of wheat and sold 2,700 contracts of corn and 3,100 contracts of soybeans. In soy products, funds have sold 1,200 contracts of soymeal and 2,100 contracts of soyoil.
  • US weekly export sales for the holiday week ending July 8 were 15.6 million bu of wheat, 5.5 million bu of old crop and 5.2 million bu of new crop corn, and 800,000 bu of old crop and 10.7 million bu of new crop soybeans. The sales were poor as expected due to the US holiday. US export interest is expected to improve with it now costing $1.05/bu to top off Argentine corn boats. We believe that Brazil purchased just over 500,000 mt of Argentine corn yesterday.
  • NOPA’s June crush rate was 152.4 million bu, a 2 year low and some 7.0 million bu less than trade expectations. June NOPA member soyoil stocks were 1.537 billion. The lower-than-expected June NOPA crush of 152 million bu was bullish soy products, but bearish of soybeans. However, Midwest crushers are raising their spot soybean basis bids amid a tightening soybean supply. Bids rest at $0.45-0.65 over August futures are noted. This has limited the bearish aspect of the NOPA report with future weather forecasts driving Chicago soy price direction.
  • The midday GFS weather forecast is slightly drier across E Iowa and the northern Eastern Midwest compared to the overnight run. The forecast holds just a few spits of rain for drought stricken Canadian Prairies, the N Plains, and the NW Midwest. Iowa holds in a dry weather trend for the next 10 days. Extreme heat will prevail across the Plains and into the Canadian Prairies with intrusions into Iowa/Missouri. High temperatures on numerous days will reach into the mid 90′s to lower 100′s. The jet stream is pushed far to the north and is lazy which allows Central US ridge stability into August.
  • Our concern over North American weather is high with the Canadian drought to worsen while extreme heat catches the pollinating corn crop across the Dakotas/Minnesota. A Central US high pressure ridge is the new US weather pattern unless a tropical system can dislodge it in August. The risk in Chicago is to the upside, it is just that market participants are worn out by the back and forth of weather markets.

14 July 2021

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  • HEADLINES: Chicago prices rise sharply on hot/dry Central US weather; Brazil buying 8 cargoes of Argentine corn; Cash fob corn basis rising in Argentina.
  • Chicago corn, soybean and wheat futures are sharply higher at midday. The strong opening fuelled a rally that carried December corn in the chart gap at $5.52-5.735 while November soybeans nearly filled its chart gap at $13.825 ($13.8225 high this morning). The dire 2021 Canadian drought along with the return of hot/dry NC US weather in the final 10 days of July sparked new fund buying and unease from short speculators. Remember, there are few resting orders above or below the market which exacerbates rallies/declines such as today. Chicago has a firm undertone at midday. A sharply higher close is expected as the market adds back weather premium and world fob corn values firm from S America. Firming fob S American corn basis will shift demand to the US.
  • Chicago brokers estimate that funds have bought 11,600-11,900 contracts of corn, 6,300-6,600 contracts of wheat, and 6,500-7,100 contracts of soybeans. In soy products, funds have bought 1,500 contracts of soyoil and 3,500-3,700 soymeal.
  • Egypt’s GASC purchased 180,000 mt of Romanian wheat at an average price of $231.88/mt basis fob. Freight costs ranged from $30.31-35/mt for a wheat delivered price ranging from $262-266.88/mt. The wheat sales price appears to be done cheaply.
  • Based on replacement and GASC specs, we calculate that the wheat was sold on a Black Sea comparable basis at $226-227/mt. We have no idea why 2 exporters would sell Romanian wheat below replacement, except that they maybe needed to clear storage for the new crop harvest. Two firms were the cheap GASC sellers while Ukraine/Russian folb wheat were some $8-14/mt above Romania. There were 17 offers to GASC which is the largest in nearly a year. The GASC wheat price went down cheaply which sets this week’s wheat price baseline.
  • Brazil is rumoured to have bought 8 cargoes of Argentine corn which is cleaning up their offers and firming FOB basis bids for S American corn in general into September. Brazilian corn offers are limited beyond October as domestic supplies tighten. Another hard frost/freeze is expected in coming days across Brazilian corn areas which could further hurt supplies/quality. Brazil is actively seeking additional Argentine corn for import. Brazilian cash corn today is trading above $7.80 and likely to return above $8.00 in coming weeks. Brazilian interior corn is trading $45/mt ($1.15/bu) above export offers which is why some sellers are washing out prior sales. We doubt that Brazil exports more than 20-21 million mt of corn in their local crop year.
  • US weekly ethanol production was 306 million gallons which was down 2% vs 2019. The US needs to produce 294 million gallons of ethanol/week to reach the USDA forecast. This week’s production was 12 million gallons or 4.15 million bu above what USDA is forecasting. We continue to believe that the USDA is 25-40 million bu too low on their 2020/21 US corn ethanol grind. US weekly ethanol stocks fell 887 million gallons.
  • The midday GFS weather forecast is slightly drier across N Iowa and the northern Eastern Midwest compared to the overnight run. The forecast is slightly wetter for Kansas/W Nebraska. Limited rain is offered for the N Plains, Canadian Prairies and NW Midwest. The best chance of rain is over the next 48 hours before a lengthy dry period unfolds as a front sags south to the S Plains, Delta and the SE US as a high-pressure ridge forms across Colorado. This ridge slowly shifts northeast with its mean position across the Plains/W Midwest into July 29 which produces hot/dry W Midwest weather.
  • Opening volume was the largest seen in weeks in Chicago which offers a fresh hint at new fund buying. The Canadian drought will worsen while heat/dryness is featured in the Plains/W Midwest forecast into late July. The big unknown is whether that Central US ridge will be lasting and carry forward into August. That is the key. Fund managers see Chicago values as an opportunity.

13 July 2021

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  • HEADLINES: July corn soars to new contract high; Canadian drought is dire and looks to worsen; Midday GFS weather forecast wetter.
  • Chicago futures are higher at midday (July corn sharply higher at new highs at $7.505) following through with its post report rally on Monday. The 2021 Canadian drought is forecast to worsen over the next 2 weeks and is becoming one for the record books. The volume on the morning Chicago rally has been normal, it is just that uncovering resting sell orders above the market is difficult. We maintain that whether the farmer is in Russia, the Midwest, Brazil, or Argentina, sparking new cash sales is going to be tough to find. This will cause end users/importers to reach for supply in coming weeks by raising cash basis bids. Black Sea/European exporters are banking on Russian farm selling of wheat/barley which heretofore, has not developed. The initial upside price target is open chart gaps at $5.52-5.735 December corn and $13.73-13.825 basis November soybeans. The bears are surprised by the swiftness of the Chicago rally.
  • The US Northern Plains spring wheat crop was slashed to its lowest level since 1969, and spring crops in Canada are in real trouble according to producer sources. The big question that traders are pondering is whether the Western US high pressure ridge can march eastward into the W Midwest in late July and August. The Canadian Prairie forecast is especially threatening amid dryness.
  • Chicago brokers estimate that funds have bought 2,600 contracts of wheat, 8-9,000 contracts of corn, and 4,500-5,000 contracts of soybeans. In the soy products, funds have bought 2,100 contracts of soyoil and 1,900 contracts of soymeal. It is getting difficult to move size in Chicago soyoil futures amid diminished bid/offers either side of traded prices.
  • July corn futures had a massive $0.865 range today {$6.64-7.505) with 313 contracts trading by midday. Chicago indicated that July corn open interest was 245 contracts at the start of trading, so most of the July’s open interest should be liquidated. Yet, the sharp rally of July corn futures reflects the premium cash bids and being short in a discounted futures market. July soyoil is also witnessing a like rally with cash soyoil offered 6 cents above futures. The volume of July soyoil futures has been just 14 contracts with open interest at the start of today’s trading being 185 contracts.

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  • Russian wheat production forecasts are declining with private analysts adjusting their crop estimates downward. The Russian Weather Service pegged the crop between 77-81 million mt with others dropping their production forecasts to 79-82 million mt. Early winter wheat yield data has been disappointing. The USDA has the 2021 Russian wheat crop at 85.0 million mt (down 1 million from June), but likely 4-6 million too large. Amid a sharp fall in North American spring wheat production, a Russian wheat crop over 80 million mt is required. We see 2021/22 Russian wheat exports at 36 million mt, down 4 million from the USDA. The loss of Canadian and Black Sea wheat should boost EU/US/Aussie wheat exports.
  • The midday GFS weather forecast is slightly wetter. Showers/storms are expected to form across S Dakota and push east across Iowa late Wednesday/Thursday. Rain totals are estimated in a range of 0.25-1.50" with locally heavier amounts. The system exits through the E Midwest on Saturday with like rain totals. Highs will range from the 70's to the mid 80's. Mostly dry weather follows as a cold front sags south into the Delta and Gulf States next week. This produces an extended period of dry weather for the Canadian Prairies, Northern US Plains and Upper Midwest.
  • Monday's USDA balance sheets reflect that it does not take much of a corn/soybean/spring wheat yield drop to produce a rather spicy Chicago heading into late summer. Losing 1 bushels/acre of yield in soybeans or 4 bushels/acre in corn produces new contract highs. And world end users/importers are sitting on their hands hoping for lower prices, but their patience is wearing thin amid the dire Canadian drought. The loss of 5-7 million mt of canola and spring wheat is a big deal to longer term price direction. Look to buy rain inspired Chicago breaks would be our preferred strategy.

12 July 2021

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  • HEADLINES: Chicago rallies on the lack of bearish surprises.; US corn, soybean and wheat stocks are historically tight; Largest 2021/22 corn stocks of the year?
  • Chicago futures are holding their morning gains based on a neutral to slightly positive July USSA crop report The report confirmed the USDA’s conservative nature in adjusting US/Canada and Brazilian crop estimates. We believe that the USDA will further cut its Canadian crop and Brazilian corn crop estimates in August and September based on adverse weather. Brazil will suffer another freeze late this week.
  • US 2021 /22 corn end stocks at 1,432 million bu is likely to be the high of the crop year based on a record US corn yield of 179.5 bushels/acre. Remember that the record US corn yield is 176.6 bushels/acre set back in 2018. We, and private analysts, gauge the 2021 US corn yield between 172.5-177.5 bushels/acre due to N Plains drought. US soybean yields depend on August weather. NASS made a sharp downward adjustment on US spring wheat/oat and barley yields based on the worsening drought across the N Plains. The loss of wheat, oats, canola, and other small grain crops is going to have a bullish tailwind that lasts well into 2022 based on Canada’s importance with world exporter corn, soy and oilseed stock/use ratios at record lows.

  • The USDA raised their estimate of 2020/21 corn feed/ residual use by 25 million bu to 5,725 million and cut end stocks to 1,082 million bu. We would argue for another 25-50 million bu increase in feed/residual based on the June stocks data. However, following the recent erratic quarterly changes in US corn stocks estimates, the USDA decided to be conservative. No change was made to the US ethanol grind even with the US gasoline demand running hot in the post pandemic economy. We maintain that US ethanol use should rise another 50-75 million bu which will drag 2020/21 US corn stocks to well under 1,000 million bu.
  • US 2021 /22 corn production was raised 180 million bu based on an additional 1.0 million harvested acres found in the June Seeding Report. The USDA held yield at trend at 179.5 bushels/acre citing that there was crop stress across the N Plains and NW Midwest, but that the index was not low enough to justify a July yield cut. US 2021/22 corn end stocks rose 75 million bu to 1,432 million with an average farmgate price at $5.60  (down $0.10/bu).
  • The US soybean 2020/21 and 2021/22 balance sheets were completely unchanged from June with stocks of 135 and 155 million bu, respectively. Such stocks are historically tight and reflect zero room for adverse weather. A 1.8 bushels/acre drop the 2021 US soy yield would eliminate projected 2021/22 soybean end stocks. Really a 2021 US soy yield less than 49.5 bushels/acre is unacceptable. China’s 2021 /22 soybean imports were adjusted down by 1 million mt to 102 million. The risk in Chicago soy futures is to the upside.

  • NASS pegged US all wheat production 1,746 million bu, vs. 1,898 million in June amid major cuts to spring and durum yields. Combined spring/durum production is estimated at 382 million bu, down 207 million from USDA’s implied forecast in June and down 273 million (42%) from last year. US wheat stocks were placed at 665 million bu, vs. 770 million in June. The loss of spring production will accelerate US stocks contractions, which persists into 2022/23 unless sizeable acreage expansion of 1.0-1.5 million is encouraged (via price?). 2021/22 HRS stocks are forecast to drop to 119 million bu, vs. 235 million in 2020/21, which assumes demand rationing of 131 million bu. Such spring wheat demand rationing only occurs at much higher prices.
  • Major exporter wheat production is pegged at 409 million mt, down 2.7 million from June and up just 2.4 million from last year. Russian production was down 1 million mt at 85. This along with a cut to N American production worth 4.6 million mt more than offset modest hikes in Europe and Ukraine. Exporter wheat stocks in 2021/22 fall to 60 million mt, a new 8-year low. Exporter stocks/use is calculated at 14.2%, a new 14-year low. The long-term bull trend in world wheat markets will be extended into the winter months. We also note that further downgrades to production in Canada and Russia are anticipated in August.
  • Chicago futures will go back to counting raindrops, but midday model guidance maintains the return of dryness across the Central and Northern Plains into July 25. Temperatures warm with time. US/exporter stocks are historically tight even assuming trend US corn/soy yields. Demand-led bull markets is in the market’s future. The 2021 Canadian drought is a big deal with a canola/wheat crops that could easily be 5-7 million mt smaller that WASDE is forecasting.

USDA-Recap-12-July-21