23 June 2021

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  • HEADLINES: Corn sags on weather and spread pressure; US ethanol production down 2% from 2019 with margins best since 2018; More US beans to China?
  • Chicago futures are mixed at midday with corn and soybean futures lower while wheat hangs in the green on curtailed N American supplies. Spread trade has been active with the July/December corn spread pushing out to a new rally high at $1.31 July premium while soyoil/soymeal have rocketed to their best levels in 2021. Corn has also come under pressure as traders liquidate long corn/short wheat futures which were a darling position during the spring. The combination of spread liquidation and chart-based selling pulled December corn futures below last week’s low for a moment.
  • Cash soyoil, corn and soybean basis are well above Chicago July futures which is likely to maintain nearby spread firmness. US farmers are not interested in sweeping out their bins until corn is post pollination. Spot Chicago soymeal futures fell to their lowest level since early October at $354.20/basis July. The downside in July soymeal is limited below $350/ton and in $5.25 basis December corn.
  • The USDA reported that China booked another 330,000 mt of US soybeans on Tuesday’s dip and is still bidding for additional supply at midday. Another 2-4 cargoes of US soybeans were likely sold.
  • Chicago brokers estimate that managed money has sold 7,900 contracts of corn and 3,400 contracts of soybeans, while buying 4,500 contracts of wheat. In the soy products, funds have bought 3,200 contracts of soyoil and sold 4,100 contracts of soymeal.
  • US gasoline consumption jumped to 9.44 million barrels/day last week which is unchanged from 2019, but up 10% from last year. The US produced 308 million gallons of ethanol, up 17% from last year, but down 2% from 2019. The US only needs to produce 297 million gallons of ethanol per week to reach the USDA annual forecast for 2020/21 at 5,075 million gallons. We would argue that the USDA is too low by 75-100 million in 2020/21 and 100-125 too low for 2021 /22. Assuming that the USDA is too low in its US 2020/21 corn export estimate by 125 million bu and too low in ethanol at 75 million bu and correct in feed/residual, US 20/21 corn stocks would be 907 million bu. The old crop stocks fall would cut 2021/22 US corn end stocks to 1,157 million bu assuming no change in 2021/22 demand. The point is that it does not take much of a demand increase (corn exports or ethanol grind) or fall in yield to produce an ultra-bullish new crop US corn balance sheet. End users need to be buying corn on this break.
  • The midday GFS weather forecast is drier the overnight run and keeps any heavy rainfall across Missouri/S Illinois. The S Illinois rain may pose a quality issue for SRW wheat, but corn/soy crops will benefit from the moisture. The W Midwest/N Plains will see widely scattered showers with totals ranging from 0.4-1.25″, some help, but not the soil moisture cushion that crops would like heading into corn reproduction and the warmest days of summer. The Canadian Prairies will gather increasing concern as limited rain is forecast for the next 2 weeks. And extreme heat will return to Kansas and the Western US with highs ranging from the mid 90′s to the lower 100′s. There continues to be a clear sign of the Western US high pressure ridge progressing eastward in July.
  • The rains start across the W Midwest on Thursday with the 1–4-day period being the wettest of the next 10 days. Thereafter, price direction hinges upon the June 30 NASS Stocks/Seeding Report and first notice day against July futures. It only requires a modest yield fall to produce a sizeable Chicago rally. Wheat has become a bull market amid US and Canadian spring wheat yield reductions, and the need to expand seeding in 2022. Wheat now must limit its feed use, not encourage it in the Plains.

22 June 2021

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  • HEADLINES: Rain forecast sinks new crop corn/soybeans at midday; China books 5-7 cargoes of new crop soybeans off PNW for October.
  • Chicago mixed at midday; The battle of condition ratings vs wet weather for Illinois, Indiana, and Missouri. It has been a broadly mixed and thinly traded morning of trade. July contracts continue to outperform on the upside amid the lack of supply that is producing premium cash markets. The July/Dec corn spread has gained a hefty 17.50 cents to $1.20 premium while July soyoil is back to gaining on December with the nearby rail soyoil basis priced at 7.5 cents over. July futures are expected to keep performing with shorts caught on the wrong side of the futures market. The July/December corn spread is back at contract highs with a close above $1.22 projecting a $1.40-1.50 July premium.
  • Farmers in N Plains, Minnesota and Nebraska worry about heat returning without rain, while farmers in the E Midwest report that their crops are looking better. Traders continue to debate US production with weather producing differing outcomes depending on your Central US location. E Midwest crops are improving following the coolish/wet weather, while crop struggles deepen amid short soil moisture across the N Plains and the NW Midwest. The one thing that N Plains and NW crops cannot endure is heat. Any temperatures above 90 degrees in the next few weeks is going to cause a sharp fall each state’s crop conditions.
  • Since the morning reopen, Chicago brokers estimate that managed money has sold 3,200 contracts of wheat, 2,900 contracts of soymeal and 9,000 contracts of corn. On the buy side, funds have purchased 4,300 contracts of soybeans and 3,700 contracts of soyoil. Active soyoil/ meal spreading is returning.
  • There are strong cash reports that China used the morning decline to secure another 5-7 cargoes of US soybeans off the PNW for October. The demand lifts recent purchases close to 14-17 cargoes since Friday. Sinograin is said to the be the buyer for the reserve. China’s cash soybean crush margins are still in the red which is keeping crush demand limited. We hear that China’s Government will be using breaks in Chicago soybeans and corn to add to their new crop purchases. China is rumoured to have resting buy orders under $5.20 basis December corn futures for late 2021 export.
  • Central IL cash corn is trading at 27-32 cents over according to elevator sources. This makes taking July receipts profitable with a US export program to China underway in the Gulf.
  • Central Illinois spot cash soybean bids are 70 cents over November or $13.81/bu. This price is below spot July futures. The July/November soybean spread is trading at $.98/bu premium, well off the highs that were set back in May at over $2.00 over. With a US soybean export program that will be ramping up during July, stopping deliverable receipts makes some economic sense for an exporter, but not for a domestic crusher.
  • The midday GFS weather forecast is outright wet across Illinois, Indiana and Arkansas with 10-day rains of 3-7.00″. The forecast is wet enough that worry of localised flooding is real/concerning. Some areas of IL/IN could receive more than 7-10″ of rain which following the weekend rainfall, will spark low level flooding. On the other side of the Midwest is Iowa, Minnesota, Nebraska and the Dakotas where the forecast has gone starkly drier. A cut-off low pressure vortex that is a slow mover will produce Midwest “haves and have nots”. Chicago will see E Midwest rain as bearish, but we hold a growing concern that Illinois/Indiana and Arkansas will see excessive rain. Pattern stagnation is a growing problem of climate change, and this looks to be playing out with some rigor into July.
  • Wet weather is seen as bearish to Chicago, but it is all about rainfall locations and amounts. The N Plains and the NW Midwest will be short-changed on the rains with coming heat for the western half of the US adding to yield worry. China is back securing US new crop soybeans while US spring wheat yield potential is in sharp decline. Dec corn is nearing downside targets at $5.25-5.35. This is no place to make new sales.

21 June 2021

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  • HEADLINES: Chicago bounces with July leading; Midday GFS weather forecast stays with active weather pattern for Central US into July; Brazilian corn crop still in decline.
  • Turnaround Monday – July futures lead on cash premiums; Traders debate Central US July weather; Following rain related opening selling, Chicago futures were able to recover with July leading the gains as first notice day looms with cash markets still priced at a premium. July soybeans and soyoil paced the recovery with traders remembering the strong rally that occurred in late April as the shorts covered, fearful that they would be forced to perform/deliver. The rains may help make additional new crop supply, but the old crop is tight, and users do not have as much coverage as many in the industry have pencilled in. End users are hoping that farmers sweep bins clean in July, but most Midwest farmers have already sold out any/all cash length.
  • 100 deliverable receipts were cancelled in soyoil leaving just 767 remaining. Illinois rail soyoil is trading at 7-7.5 cents over July Chicago futures which is likely to cause zero deliveries. Major grain and energy companies are pushing through with their renewable biodiesel plant construction plans. No one is concerned by any wavier from the EPA/Biden Administration..
  • Since the morning reopen, Chicago brokers estimate that managed money has bought 3,000 contracts of wheat, 6,000 contracts of corn and 5,500 contracts of soybeans. In the soy products, funds have bought 2,000 contracts of soymeal and 1,200 contracts of soyoil. The algo buyers have been on the long side of the market following the push lower to new lows on the reopening.
  • FGIS export inspections for the week ending June 17 were 58.3 million bu of corn, 20.1 million bu of wheat, and 6.4 million bu of soybeans. The exports were in line with trade expectations and weekly vessel loadings. For their respective crop years to date, the US has shipped out 2,185 million bu of corn, 2,093 million bu of soybeans, and 45.7 million bu of wheat. Remember that monthly Census exports are running 753 million bu more on corn and 124 million bu more on soybeans. Research argues for a 3,000-3,050 million bu corn and 2,325 million bu US 2020/21 soybean export estimate. Both are well above the latest June USDA forecast.
  • USDA/FAS reported that 336,000 mt of US soybeans were sold to China with another 120,000 mt sold to an unknown destination. The combined sale is 456,000 mt and we have heard that another 200-400,000 mt could be announced on Tuesday or show up in Thursday’s weekly export sales report. The buyer is (unsurprisingly) rumoured to be Sinograin for their reserve. China crush margins in the new crop position are improving, but still negative, which has China crush importers concentrating on Brazilian/Argentine supplies for August/September.
  • Brazilian corn crop estimates continue to slide on poor yield performance. Although just 5% of the Brazilian corn harvest has been completed, yield data points to a Brazilian corn crop of 86-88.6 million mt. Some sources are refining their estimate awaiting additional information from Deral, Parana’s crop ministry. Such a meagre Brazilian winter corn crop is going to limit their July/August exports and shift demand back to the US.
  • The midday GFS weather forecast is drier than the overnight run across the SW Midwest and the E Plains, but slightly wetter for North Dakota. Extreme heat is forecast for early next week with rains to return starting Thursday/Friday. NW Iowa, Nebraska, Minnesota, and the Dakotas remain extremely dry and in dire need of rain. This NW Midwest and N Plains drought looks to worsen in the coming weeks. Crops cannot endure extreme heat amid the lack of soil moisture. It is heat that will become of sizeable importance
  • Mother Nature cannot make additional old crop supply. It is July futures that will lead Chicago upwards into mid-summer. Yet, it is July weather that determines Midwest/N Plains corn yield and August weather for soybean yield. We maintain a bullish bias in that any yield loss is too large amid US 2021 corn end stocks under 1,000 million bu and soybean stocks under 120 million bu. Don’t sell sharp breaks.

18 June 2021

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  • Chicago soars as China starts a new crop purchase program from the PNW; Midday GFS weather model shifts rain to the E Midwest; West short changed.
  • A bullish day, demand surfaces from China and Chicago grows horns; Chicago futures are sharply higher at midday with new crop corn/soybeans the upside leaders.
  • Chicago volume has been more active than Thursday with yesterday’s sellers returning as today’s buyers. Note that Chicago markets lack bids and offers under and above the market that exacerbates daily price ranges. Brokers are struggling amid margin calls amid the huge daily/weekly price ranges.
  • The drier forecast for W Iowa, W Minnesota and the Plains placed a bid under Chicago values this morning. Also, China has shown up asking for new crop US soybean offers. We understand that China has booked 6-8 cargoes of US soybeans with the Government of China (Sino Grain) rumoured to be the buyer. This would be the first China purchase of US soybeans in some weeks, and likely starts a lengthy campaign of demand. We believe that China will book/import 40-44 million mt of US soybeans in 2021/22, which will push US soybean exports above 2,200 million bu for the second year in a row. China is intent on meeting its commitment on its Phase 1 Trade Pledge to get to Phase 2 negotiations and a new trade deal that could reduce tariffs. The US/EU’s deal to end tariffs via airline production offered China hope for 0% tariffs.
  • An extremely volatile Chicago trade is expected Sunday evening. Key will be amounts/locations of Midwest rainfall this weekend. Moreover, the extended range forecast looking into July will play large as corn pollination starts across the Southern Midwest/Central Plains right after the July 4 holiday. The US corn/soy markets cannot afford to lose a single bushel of production due to record large demand. This week’s Chicago break has allowed end users to extend their forward coverage well into early 2022. Strap in for high octane markets in July when each and every raindrop will be counted and measured against yield.
  • Somewhat surprising is that on this week’s sharp futures break, Chicago open interest had not liquidated more. As spot soyoil futures fell nearly 10 cents/pound, open interest was down just 12,000 contracts. July soybean futures dropped $1.50/bu with open interest down just over 11,800 contracts. July corn is down over $0.50/bu with Chicago open interest down 50,000 contracts. We aretold by large institutional traders that index fund money is still pouring into the raw material space that likely replace the selling from faster moving managed money. Most fund managers report that they will hold onto “net long” ag positions into the heart of the growing season in July.
  • The weather risk of a Russian Sukhovei is growing and being closely monitored by Black Sea traders. A Sukhovei is a weather phenomenon in which crops can be decimated in a matter of days due to hot/dry weather and wind. Such weather has knifed Russian wheat crops by 10-20% in a matter of days. KC wheat has recaptured all of Thursday’s loss as it most closely reflects Russian wheat.
  • The midday GFS weather forecast is drier than the overnight run for the W Midwest with the model’s homing in on the potential for better rains for the E Midwest vs. the West. The Central US Plains stays dry with continued warm to hot temperatures. Crop areas west of the Mississippi look to receive limited 0.25-1.50” of rainfall through June 30. That is not enough to slow or end the drought.
  • It is the Western Midwest that needs the rain as the dire drought of the west will continue its slow progression eastward in the coming weeks. July weather then becomes critical as the corn crop starts its pollination phase with soil moisture limited. The extended range forecast calls for a ridge West/trough East which follows prevailing soil moisture trends. Heat will back from west to east and our view is that the GFS midday weather model is not warm enough for the Plains and the W Midwest. Our concern for West Central US weather remains extremely high.
  • “Wax off/Wax on” has been the trend of Chicago grain markets in recent days which is producing large liquidity holes. The midday models shift the rain trend to the E Midwest to the worry of W Midwest/Plain’s farmers. Ongoing dryness in the Plains/W Midwest will cause yields here to fall off the table. We stand by our longer term view, do not rule out new contract highs.
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17 June 2021

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  • HEADLINES: Massive fund selling pummels Chicago prices with GFS weather forecast staying wet for Midwest; Just out, Canadian model reduces rain for W Midwest/N Plains.
  • Chicago futures are sharply lower at midday as funds take risk off the table. Soybeans, soyoil, corn and even wheat futures are sharply lower on the prospect of Central US rains and a firming US$. Gold has dropped more than $90/oz to best reflect the “get me out” mentality. December corn futures have fallen to the lower end of support at $5.40 while November soybeans have dropped below chart support at $13.00. The waterfall decline in soybeans is based on massive speculative liquidation in soyoil futures, which was the cornerstone of the demand soy bull based on renewable biodiesel investment/demand. Chicago volume has picked up on the decline as key technical levels were triggered. July corn futures fell sharply once the 50-day moving average was breached at $6.52. November soybeans fell sharply once support at $13.00 was exceeded. Scale down buying is noted with commercial sources reporting that China is back looking for new crop soybean offers. A sharply lower close is expected with Friday’s trade to be about an important weather weekend. At these prices, the rain must fall, or crop yield has the potential to fall off a cliff in July.
  • Chicago brokers estimate that funds have sold a large 24,000 contracts of corn. And managed money has also sold 11,000 contracts of soybeans and 4,500 contracts of wheat. In the soy products, funds have sold 3,200 contracts of soymeal and upwards of 7,000 contracts of soyoil. Funds are active sellers.
  • Questions abound on the Biden’s Administration’s policy on biodiesel and ethanol, but importantly, there does not appear to be any change on the commitment to reduce carbon through renewable fuels such as biodiesel. There were over 20 groups that pressed Congress late Wednesday to begin working on US Clean Air Policy that will help in reducing carbon emissions. The groups made an appeal to the House Energy/Commerce Committees and the Senate Environmental and Public Works Committees. Biofuels are cornerstone/steppingstone to decarbonisation/electrification. We see no coming change for renewable biodiesel tax credits and plant completion and start-up dates.
  • US weekly export sales were disappointing. For the week ending June 10 the US sold 10.5 million bu of wheat, 0.7 million bu of old crop corn and 10.9 million bu of new crop corn, and 2.4 million bu of old crop and 0.2 million bu of new crop soybeans. The sales pace was just poor. The US has sold 2,729 million bu of corn (1,096 million more than last year) and 2,264 million bu of soybeans (649 million more than 2019/20. US 2021/22 wheat sales stand at 213 million bu, down 20 million from last year’s pace. China cancelled new crop US soybeans but bought additional old crop. FAS announced the sale of US soymeal to the Philippines this morning. Brazilian fob soybean basis keeps rising on the Chicago decline.
  • The midday GFS weather forecast is like the overnight run with short waves embedded within a southward sagging jet stream producing rain for Iowa/Illinois and much of the E Midwest on the weekend and through much of next week. Rain totals for Iowa/Illinois/ Wisconsin and Michigan are estimated in range of 1.00-2.50″ with locally heavier amounts. The best rain is slated to drop across the Eastern Iowa, Southern Wisconsin, and Northern Illinois with 10-day rain totals over 2.50″. The remainder of the Midwest receives 0.4-1.50″ with only the Plains short changed. Heavy rains would exacerbate the flooding across the Gulf States with a tropical storm to make landfall across New Orleans on Saturday. A strong ridge rebuilds across the Southern US with additional rain for Iowa/Illinois.
  • It is a get me out day with November soybeans back to where the rally started at $12.50 following the March Seeding Report. Research argues that corn/soybean values are too cheap, but with rain slated to drop on the weekend and next week, traders will wait until Sunday for any new buying. The volatility of Chicago prices is amazing. Western Midwest crops are under acute stress, it had better rain in abundance next week.

16 June 2021

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  • HEADLINES: Midday weather forecast model runs (still) at rainfall odds for next 10 days, which forecast is correct? Biden debates biofuel mandate trim for 2021-2022.
  • Biofuel miscalculations amid uncertain Central US weather. Chicago futures are mixed at midday with corn/wheat futures trading stronger while soyoil sags to sharp losses on a Bloomberg wire story that states the Biden Administration is weighing a small cut in the renewable fuel mandates for 2021 and 2022 in a nod to the refinery industry and their labourer’s. Whether the Administration will offer to trim or hold the 2021 and 2022 mandates steady is under debate. In March, the Biden Administration updated 2019 and 2020 Biofuel mandates and their compliance. No timeframe is announced as to when a decision will be reached.
  • The Biden Administration will also be abandoning a program that incorporated waivers that were used by President Trump. Although a modest cut in the biofuel mandates would be seen as slightly bearish, the miscalculation by the market is that renewable biodiesel demand growth is not being pushed by mandates. Plants are coming online via a desire for reduced carbon and tax credits. Renewable Biodiesel demand is unaffected by 2021 or 2022 RFS mandates. The demand outlook or US vegoils is exceptionally bright and based on the volumes of plants under construction, it is difficult to find enough feedstocks for all to run at capacity. The soyoil fall produces a long-term purchase opportunity.
  • Brazil approves US GMO corn varieties for import. Brazil has given the green light for US corn imports from a phytosanitary measure by approving US GMO seed traits. However, Argentine corn remains cheap both on a fob and freight position. We doubt that any old crop US corn will sell into Brazil with their winter corn harvest underway across Mato Grosso.
  • Chicagog brokers estimate that funds have sold over 1,500 contracts of soybeans and 6,300 contracts of soyoil, while buying 9,500 contracts of corn and 3,200 contracts of wheat, and 3,900 contracts of soymeal. Active oil/meal spread unwinding is occurring this morning.
  • We estimate that some 900,000-1.2 million acres of crops may be lost or called failed for crop insurance purposes across the Delta and Gulf States due to excessive rainfall/flooding. Insurance sources argue that this total could rise even higher depending on the track of a tropical storm this weekend. An extended period of drying is needed following regular heavy rains that added up to 200-400% of normal for the month of June. Also impacted on double cropped soybean acres and the ability of farmers to harvest SRW wheat. Some quality loss to SRW wheat in Arkansas, Mississippi and lower Tennessee appears to be unavoidable. Monitor the path of the tropical storm closely.
  • Rumours are flying that China has advised its state-owned trading firms to liquidate length in overseas commodity markets to tap down on inflationary pressures. We believe that such liquidation orders have occurred in the metal markets, but we doubt that such orders exist in Chicago markets, such as soybeans or the grains. COFCO Geneva did release 26 cash traders in late May, but that release was not based on speculative futures trading. The Geneva office is a freight/logistics procurement office. The release of COFCO cash traders was based on performance according to European sources. If China wanted to tap down on inflation, they would import additional ag goods.
  • The midday GFS weather forecast is like the overnight run with short waves embedded within a southward sagging jet stream producing rain for Iowa/Illinois and much of the E Midwest on the weekend and through much of next week. Rain totals for Iowa/Illinois/ Wisconsin and Michigan are estimated in range of 1.00-2.50″ with locally heavier amounts. The best rain is slated to drop across the southern half of Iowa, Southern Wisconsin and Northern Illinois with 10-day rain totals over 2.00″. The remainder of the Midwest receives 0.4-1.50″ with only the Plains short changed. Heavy rains would exacerbate the flooding across the Gulf States with a tropical storm to make landfall across New Orleans on Saturday. This system then slows its north/northeast path to produce heavy rains of 2-8.00″ across Mississippi/ Alabama. The storm is further east. A strong ridge rebuilds across the Southern US and retrogrades west to the lntermountain West by June 28 returning a hot/dry pattern.
  • One forecast is wet and the other is dry, which is one is correct? The interaction of tropical systems and Midwest rain is always difficult. Traders will square positions heading into the weekend amid the uncertainty. A blend of the forecasts is likely right, which means that Iowa soils will stay drier than producers desire.

15 June 2021

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  • The market this week so far has shed considerable weather premium based on favourable changes to Midwest 6-15 temperature and precipitation forecasts. However, it is only mid-June and weather/supply risks remain sizeable. In fact, our concern over soil moisture and yield potential remains the highest since 2012.
  • The afternoon run of the EU weather model, the last of the day, trended significantly drier across all but the far Upper Midwest. The EU’s latest guidance confines rainfall to MN, WI and parts of northern IA. Heavy rain is also offered to the Delta/Southeast, where it is unwanted. Market action in recent weeks is evidence that the trade will be incredibly sensitive to both bullish and bearish weather forecasts. This won’t change until the middle part of August. Latest EU weather model guidance leans bullish as widespread soil moisture erosion continues into late June.
  • Soybean futures fell for the third day on technical pressure and forecast rains at the end of the week.
  • NOPA’s soybean oil stocks declined for the fourth consecutive month. NOPA soybean oil stocks were down 11% from a year ago at a 6-month low of 1,671 million lbs. This was also the smallest May stocks figure in 6 years. Based on the NOPA data, we look for NASS to report total US stocks near 2,140 million lbs.
  • The midday weather models maintain that rains will begin falling at the end of the week, with cooler temperatures next week. But for today, crops in the West are suffering under 100+ degree temperatures. Quantifying any crop losses at this stage is impossible. But the need for record yields has not changed. Support for November soybeans holds around the 50-day moving average near $13.60.
  • Chicago corn futures ended mixed, with July adding premium as delivery approaches. New crop futures ended weaker, but we strongly caution against chasing this break. On the margin, weather model guidance has trended drier in Iowa and Minnesota, and there are doubts as to whether soil moisture will improve at all in the next two weeks. Heat and dryness have also returned to the Black Sea region, which we note as climate forecasts have targeted Ukraine and Russia with adverse summer growing conditions. There has been no change to this year’s massive weather risks.
  • Dec Chicago corn has held major chart-based support at $5.60. An outright weather pattern change is unlikely across the Plains and Midwest prior to early July. Brazil’s interior market remains perched at $310 per ton, which keeps exporters there out of the world marketplace until safrinha harvest reaches 50% complete in late summer. A recovery in price is anticipated prior to NASS’s June stocks and seedings release.
  • US wheat futures ended mixed, with winter contracts lower but spring wheat stabilising on the return of arid/warm weather to the US Northern Plains. We also mention that soil moisture loss will continue across much of Central Russia and Kazakhstan into the end of June. The spring wheat’s market goal is to prevent acreage contraction next year, and further breaks are unlikely until North American spring wheat yields are known.
  • Elevated fob prices and soaring freight costs pushed Egypt’s GASC to cancel this morning’s tender for August supply. Note that only three vessels were available to Egypt this morning, and the availability of freight will be more closely watched moving forward. Actual demand is strong, but logistical issues already are disrupting early season grain flows. Note that ocean freight rates do not tend to peak until early autumn.
  • Some measure of downside risk remains present in Chicago/KC contracts as harvest looms. But work indicates Sep Chicago is undervalued below $6.50. Sep KC is too cheap below $6.00. Continue to use nearby weakness to add to long-term supply coverage. Concern over corn yield potential remains elevated, which lends further support to wheat on breaks.

14 June 2021

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  • HEADLINES: Chicago stays weak but rebounds from morning lows; GFS weather forecast trends in drier in Central Midwest at midday.
  • Chicago futures are sharply lower at midday, but they have recovered some of their early losses on end user pricing and short covering. The expectation that US corn/soybean crop condition ratings will fall 3-5% and spring wheat 1-2% in the good/excellent category this afternoon has offered support. Today’s fall in ratings heightens the importance of coming rainfall this weekend and early next week. The coming rains are a “big deal” for US corn and soybean yield potential.
  • We would argue that the top end of 2021 corn/soy/spring wheat yields have been curtailed by the hot/dry late spring. The market will be extremely sensitive in the location/amount rainfall this weekend. Key will be whether Iowa and the surrounding drought areas receive the needed relief.
  • Iowa’s soil moisture as measured by the US Drought monitor is at its lowest point looking backwards to 2000. With Iowa the US’s first or second producer of corn/soybeans, rain/cooler temperatures will be of the upmost importance. The marketplace will use crop condition ratings, weather and yield modelling and satellites crop health measurements to gauge yield. By late week, a 2021 US corn yield of 174-176 bushels/acre will likely become popular with private analyst estimates.
  • Chicago brokers estimate that funds have sold over 22,000 contracts of corn, 13,000 contracts of soybeans, and 5,500-6,000 contracts of wheat. In the soy products, funds have sold 5,500 contracts of soyoil and 4,900 contracts of soymeal.
  • US weekly export inspections for the week ending June 10 were 60.8 million bu of corn, 4.7 million bu of soybeans, and 17.6 million bu of wheat. For their respective crop years to date, the US has shipped out 2,124 million bu of corn (remember that Census US corn exports are running ahead of FGIS by 153 million bu for a total of 2,277 million bu), 2,087 million bu of US soybeans (Census ahead by 124 million bu for a grand total of 2,211 million bu), and 24.7 million bu of wheat (down 5 million or 21% for the second week of the new crop year). China shipped out 21.5 million bu of US corn last week as their shipping total now exceeds 620 million bu. China has another 290 million bu of corn that looks to be exported by the end of the crop year in late August. This works out to exporting a little more than 25 million bu of US corn per week. We maintain a US 2020/21 US corn export estimate of 3,050 million bu, another 175 million bu larger than the USDA’s latest estimate.
  • Some are pessimistic that the Biden Administration will alter or change their existing biofuel rules. This offers a low probability of their enacting biofuel refinery waivers, which Biden campaigned against prior to the election. Several key US farm congressional leaders have sent Biden letters urging that there be no change. Like the Obama Administration, we expect that EPA will hear out refiners, but change existing proposals.
  • The midday GFS is much drier next week than the overnight run across the Plains and Central Midwest as the looming tropical system turns abruptly eastward into the Southeast on Sun/Mon. Moisture available for the remainder of the Central US will be scant, leaving rainfall across the Plains and Midwest over the next 10 days limited to regional event. Totals of 1.00″ or better next Tues-Fri will be rather scattered in nature. We also mention max high temperatures this week will reach into the 90s and low 100s, with much of the Western Plains to labour under max temperatures of 102-105.
  • Precipitation details next week hinge upon the path of this tropical storm, and clarity won’t be available until next week. Widespread soil moisture loss persists over the next 5-6 days. Whether it continues thereafter is key to market direction.
  • Today’s break shows clearly the market’s sensitivity to even modest changes in the Central US climate pattern. Our concern over drought expansion/intensification remains elevated. Next week’s projected precipitation MUST fall as indicated to prevent the trimming of soy/corn yield potential. We advise against chasing this break.

11 June 2021

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  • Managed funds on Tuesday were long a net 416,000 contracts of corn, Chicago wheat and soybeans combined. This compares to 432,000 contracts the prior week and following late-week liquidation in wheat and soy, we estimate current managed fund length at just 381,000 contracts – the smallest since September.
  • The market has been content to wait on weather improvement as crop moisture demands are low currently. However, this changes dramatically in the next 2-3 weeks. Should the Central US pattern fail to change by late June, managed fund length in Chicago ag markets will score new highs.
  • We have previously mentioned how even small perceptions in supply change have a massive impact on even daily price determination. Watch weather forecasts intently.
  • Palm oil market weakens on rising production but stocks unable to gain: Spot Malaysian palm oil futures have fallen 20% from highs scored in mid-March. Asian palm oil production continues to climb seasonally, with Malaysian output in May up 3% from April at 1.57 million tons. Palm oil production peaks in June amid concern over Covid-based demand weakness in India, the market understandably shed premium. Additionally, amid tight global vegoil stocks, elevated volatility can be expected.
  • Yet, we would reiterate that the palm oil market remains tight. Despite the seasonal boost in production, Malaysian palm oil stocks in May totalled 1.57 million tons, up just 1% from April and down 23% from May 2020. Monthly stocks/use actually contracted in May. Palm oil will be the weakest of the world’s vegoils moving forward, but seasonal lows will be scored $0.40 per pound, vs. $0.20 a year ago. The world’s vegoil market structure stays bullish. Soaring biodiesel production and consumption compounds US soyoil supply issue long-term.
  • Soybeans fall following western rains: Soybeans were under pressure to start the day as some better-than-expected rains fell in the Plains. Rains were a welcome relief for crops in the areas that received them, but not enough to break drought conditions.
  • Selling accelerated at midday following a news report that said President Biden was considering a number of small refiner waivers. The report sent RIN prices sharply lower and took soybean oil futures to limit losses. Given the administration’s hard-line stance on climate change, it would be a surprise to see any relief on the RFS granted.
  • The CoT report showed another big week of liquidation in soybeans and soybean meal. Funds bought 2,695 contracts in soybeans, 5,835 contracts in soybean meal, and sold 4,764 contracts in soybean oil.
  • November soybeans found support under $14.30, and we maintain our bullish outlook on breaks. Rain in the Plains offered mild relief in the areas that got it. But drought continues to spread across IA and MN, while crops in N IL are now under weather stress.
  • Dec Chicago corn ends weak on North Dakota/W Iowa rains; Forecasts next week critical: Chicago corn futures ended lower on Friday, but Dec ended the week up 19 cents amid the addition of weather premium. Any rainfall is welcomed across the driest areas of the North Central US, but moderate/scattered totals will not solve long-term moisture issues. As of June 9, rainfall of 10 or more inches is needed across the Dakotas, IA and portions of the Great Lakes to end drought prior to pollination. Dry/warm conditions are most probable into late month.
  • Forecasts late next week begin to peek into the opening days of July. The models have been abysmal in forecasting extended range weather as of late, but for better or worse extended range guidance drives price action nearby.
  • There will be no tolerance for sustained heat/dryness, and in fact such a pattern will make any acreage hikes on June 30 somewhat irrelevant. We would strongly advise against chasing breaks as weather becomes critical to yield and price determination.
  • Amid record old and new-crop demand, even minor corn yield loss is bullish. Managed funds on Tuesday were long only 276,000 contracts vs. 290,000 the prior week and vs. April’s peak of 402,000.
  • Spring wheat drags Chicago wheat lower: US and European wheat futures ended lower as unexpected rain impacted swaths of North Dakota. Short-term regional benefits to spring wheat yield have occurred, but concern over massive production loss is intact as heat/dryness resumes across the Northern Plains over the next 10 days. Close attention will also be paid to ongoing heat and dryness across the Black Sea spring wheat belt. Little to no moisture relief is forecast into late month. Soaking rain is needed across Central Russia and Kazakhstan during July.
  • Managed funds on Tuesday were net short 1,400 contracts of Chicago wheat. There will be no shortage of world wheat supply in the short-term as the Northern Hemisphere harvest begins in July.
  • Yet, cash HRW in W Kansas this evening is quoted $60 per ton below cash corn for July-Aug. EU wheat’s discount to corn has reached $59/mt. And importers have returned to the market despite new crop fob prices being some $60-65/mt above last year’s seasonal low.
  • We doubt that the spec community opts to hold a short position for any length of time. The new crop harvest gets absorbed quickly by record global consumption. Sep KC wheat below $6.20 and Sep Chicago wheat below $6.50 are places to add to forward end user coverage.
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10 June 2021

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  • HEADLINES: USDA leans bullish corn; Central US drought continues expansion.
  • The June USDA report is mixed in terms of statistical data. US corn stocks data was bullish, while the 15 million bu cut in US crush rate was seen as slightly bearish. And the 2021 US wheat crop expanded just 26 million bu (1,898 million bu) with 2021/22 wheat end stocks declining by 4 million bu to 770 million bu.
  • In general, the USDA is moving closer to the weekly data that calls for an increase in the 2020/21 US ethanol grind and US corn exports. It is a process! USDA cut 2020/21 US corn end stocks to 1,107 million bu, a 150 million bu reduction as exports were raised 100 million bu to a record large 2,857 million bu while ethanol use was increased 50 million bu to 5,025 million bu. We would argue that the USDA is still 150-175 million bu too low with 2020/21 US corn export estimate and 25-75 million bu too low on ethanol. This would pull final old crop US corn end stocks to 925 million bu. Any change in the feed/residual use estimate will have to wait until the June 30 Stocks Report, but the old crop US corn balance sheet cannot afford to find any additional feed demand. The finding of feed demand is likely based on soaring cash sorghum/barley prices. US 2021/22 corn end stocks fell to 1,357 million.
  • NASS should find an additional 1.5-3.0 million acres of US corn seeding in the June report, but that will not be enough to prevent US corn end stocks from reaching levels not seen since 2012, assuming trend line yield of 179.5 bushels/acre. If the US corn yield were to fall to last year’s 172 bushels/acre or less, we have no way of modelling how high is high for US corn/feedgrain prices.
  • The USDA lowered the 2021 Brazilian corn crop to a conservative 98.5 million mt, down 3.5 million. This was slightly above the average trade guess of 97.0 million mt, as million mt is just too conservative in making a deeper adjustment. Brazilian 2020/21 corn exports are a still far too high 33 MMTs (down 1 million from May) which is only down 2.3 million mt from the year prior. We estimate the 2020/21 Brazilian corn crop at 89.5 million mt, and the USDA will not reach this lower estimate until August. At that time, it will have to aggressively raise 2021/22 US corn exports to make up for the Brazilian shortfall. The USDA is being too slow in sending the right market message in Brazilian corn crop adjustment. 2021/22 world corn end stocks are estimated at 289.4 million mt with China importing 26.0 million mt. US corn exports at 2,450 million bu are too low by 500-600 million bu.
  • The USDA increased US 2020/21 soybean end stocks by 15 million bu to 135 million bu and adjusted new crop by a like amount to 155 million bu. Amid June-August US crush margins that are deeply positive, the cut must be made on local supply shortages that slow crush operations. This does not alter the bullish soy outlook.
  • 2021/22 US wheat end stocks were lowered 4 million bushels from May amid reduced carry-in (higher old crop exports) and as a 26-million-bushel hike in winter wheat production was partially offset by enlarged feed use.
  • NASS pegged 2021 HRW production at 771 million bushels, up 40 million from May but very close to expectations. SRW production was raised 3 million bushels to 335 million. White winter production was lowered another 18 million bushels amid ongoing drought in PNW, and at 202 million bushels will be the smallest since 2015 and down 44 million (18%) from Last year. Additional downgrades to winter white wheat production are anticipated. And spring wheat production is likely to be dropped 100-130 million from last year resulting in a year-over-year decline in US wheat output of 30-60 million bushels.
  • The 2021/22 world wheat balance sheet was Loosened slightly as combined EU/Black Sea production was raised 4.5 million tons. Global consumption was raised only 2.4 million tons. Yet, global spring wheat yield risks are high as crops across the Northern and Western US, Kazakhstan and Russia labour under heat and dryness.
  • The USDA’s June release was largely in line with known input, though US corn and soy demand is still understated. A further reduction in Brazilian corn production results in an ongoing re-shuffling of the global corn trade matrix, to the benefit of US exporters. Otherwise, it is back to watching weather and gauging if a shift from ongoing Central US warmth and dryness occurs prior to July 1. We remain bullish.