• HEADLINES: Midday weather forecast leans hotter/drier with additional rain for Dakotas Thursday pm/Friday; US old crop corn demand understated?

• Chicago futures are mixed at midday with July corn trading in the green while soybeans/wheat slide in risk off trading ahead of the USDA June Crop Report due tomorrow. The USDA report and rain for portions of the Dakotas have set a slightly bearish market tone this morning. However, since the medium and extended range forecasts offer limited rainfall for the Plains and W Midwest, any selling pressure has been modest. And outside of July corn futures, it is more a lack of buying than any aggressive Chicago selling.

• We look for a mostly lower Chicago close today with US weekly export sales to be uninspiring ahead of the USDA/CONAB June Crop Reports. Buyers would rather wait until after the USDA June report to make sure they are not sideswiped with any bearish surprises.

• July corn futures are firm relative to new crop corn as the index fund roll is in its third day and US old crop corn demand shows no sign of abating. We mentioned that US Census corn exports through April are 153 million bu above weekly FGIS inspections (allows for 3,050 million bu of 2020/21 US corn exports) and that the weekly US ethanol grind is nearly back to 2019 levels, and well above where the USDA forecast the US corn ethanol grind for the 2020/21 crop year.

• The point is that 2020/21 US corn demand could be understated by some 350-400 million bu (not including any change in feed/residual). The high price of corn has not had much (if any) impact on US corn exports or the US ethanol grind as Americans return to their old driving ways. This old crop demand would drop US corn end stocks to just 900 million bu. And we would argue that the USDA is making an even larger demand mistake in 2021/22 US corn demand with exports and the ethanol grind too low by a huge 650-750 million bu. Why should US 2021/22 corn exports be any smaller than 2020/21 with Brazil losing 18-22 million mt of corn and China importing corn throughout the entire crop year.

• Chicago brokers estimate that managed money have been sellers of 2-3,000 contracts of corn, 2,500-3,000 contracts of wheat, and 7-8,000 contracts of soybeans. In soy products, funds have sold 2,600 soymeal and 4,700 contracts of soyoil.

• US weekly ethanol production was 314 million gallons, down just 3% from a comparable week in 2019 and up 10 million gallons from last week. US ethanol stocks stand at 838 million gallons, down 8% from last year. US ethanol margins are highly profitable, and we would argue that the USDA should raise their ethanol corn grind by 75 million bu for 2020/21. A USDA bump of 50-75 million bu is expected Thursday. The midday GFS weather forecast is like the overnight run with showers/storms for the Dakotas on Thursday night/Friday with rain totals of 0.25-1.25″ favouring the western halves of each state. A few light showers also fall on Nebraska, Iowa, and Missouri on the weekend. Unfortunately, only a few spits of rain are offered for Minnesota, Wisconsin and Michigan as their soil moisture levels sharply decline.

• A ridge of high pressure then expands across the West Central US producing another lengthy period of heat/dryness with high temperatures returning to the mid-80s to the mid-90s next week. As the summer season progresses, a high-pressure ridge will become dominate across the West Central US. We remain concerned by the N American pattern of ongoing heat/dryness into July.

• December corn futures nearly filled an open chart gap at $5.9275 before reversing. November soybeans fell to support at $14.15-14.30 with wheat unable to engender any downside momentum as Black Sea producers are not willing to sell a new crop that is 2-3 weeks away from harvest. Corn has the most bullish story followed by soybeans. We continue to lean towards a bullish corn surprise from USDA tomorrow on demand.

• HEADLINES: Chicago tentatively higher on concerning Central US weather; Census 2020/21 corn exports 153 million bu over FGIS, tightening US corn stocks.

• Chicago futures are sharply higher at midday as the market adds weather premium to price amid the fall in US spring wheat and corn crop conditions. We now believe that US corn/soybean crop conditions have set their highs for the 2021 year on their initial release. Adverse weather and seasonality will produce a slide in weekly ratings going forward. Traders and analysts will look to each week’s crop conditions as a measure of yield. Today, using trend yield in corn at 179.5 bushels/acre and soybeans at 50.8 bushels/acre is the starting point, a level that traders/analysts will subtract yield from in the future.

• The parched W Midwest and N Plains 2-week forecast is likely to have the industry discussing a US corn yield of 174-176 bushels/acre and soybean yield of 48.8-50.1 bushels/acre by June 21. This opens the market up to additional upside risk on the expansion of weather premium at historically high prices.

• North American weather markets tend to rally on each end of the week and sag in the middle. This is due to traders willing to take on more risk on Monday (than Friday) with a Friday rally sparked by the bears as they cover shorts (amid the concern that US crop conditions will deteriorate over the weekend and that weather trends will persist). Like markets, weather is trend following and the acute dryness across the Western half of the US is extremely worrisome.

• Chicago brokers estimate that managed money have bought 7-9,000 contracts of corn, 2-3,000 contracts of wheat, and 5-6,000 contracts of soybeans. In soy products, funds have bought 1,900 contracts of soymeal and 2,200 contracts of soyoil. It does not take much order size to move the market with their being nothing above the market in terms of resting sell orders. US and S American farmers have pulled offers with some W Midwest farmers feeling uncomfortably with new crop corn and soybean sales of 50-70% of estimated 2021 production.

• The USDA will be out with their June Crop Report on Thursday. The highlight of the report will how far they cut the 2021 Brazilian total corn crop. Most of the private industry is estimating Brazil’s total corn crop around 90 million mt. Early Mato Grosso yields are coming in below producer expectations, but the harvest will have to push south into MGDS/Parana for a deeper corn crop cut. Deral, The Dept of the Rural Economy, in Parana kept this week’s corn good/excellent ratings at 22% with 32% of their winter crop rated poor/very poor. Just 1% of the Parana corn crop has been harvested, so it will be a few more weeks before Parana corn yield data is available.

• Traders are now positioning amid the weather model’s biases. We note that traders are selling Chicago ahead of the midday GFS forecast based on its being wetter than the EU/Canadian model forecasts. However, traders cover their shorts after the GFS forecast release to position for a late session rally when the European model forecast is available. The drier EU forecasts have been starting the overnight markets higher for the past 10-12 days. It is all about weather (forecasts).!

• The US exported a record 334.6 million bu of corn, 96.1 million bu of wheat, and 51 million bu of soybeans in April. The strong export pace of US corn and soybeans is ongoing and the USDA is expected to boost US 2020/21 corn exports by 500-100 million bu on Thursday. Just 827,541 bu of US soybeans were imported in April, well below expectations. The USDA’s soybean import estimate of 35 million bu is too high. Census corn exports for the crop year through April is 153 million bu above FGIS weekly export inspections.

• The midday GFS weather forecast added rain for the N Dakota on Friday. The often more accurate Canadian model is drier. The GFS forecast pulls a secondary system through N Dakota on Friday which produces 0.25-1.50″ of rain. Like recent weeks, the GFS forecast may be right in seeing the rain, but its coverage is too broad and extensive. More likely, the rains will be widely scattered and not offer much assistance in ending the drought. Thereafter, the high-pressure ridge forms in the SW US and progresses eastward creating a broad ridge/trough pattern across the Central US. This a generally dry weather pattern.

• The market will keep adding weather premium in a concerning overall SW US ridge pattern. Any modest Chicago correction will find end user and importer pricing. We see no reason to alter our bullish outlook into late June. Our concern for N Plains and W and N Midwest weather and crop yields stays at the highest levels since 2012, which was a drought year described as one of biblical proportion.

• HEADLINES: Chicago corrects off overnight highs on index fund roll and expectation of strong crop ratings; Spring wheat crop suffers under weekend heat.

• Chicago futures are mixed at midday with an early Chicago wheat break unable to follow through to the downside on tightening world wheat supplies and talk that the Black Sea wheat harvest will be delayed by 2-3 weeks. The initial wheat selling was tied to the GFS operational weather forecast model that is trying to place needed rain across the drought-stricken Dakotas. The Dakota rain is desperately needed, but as has been the case for months, the GFS forecast has been overpromising and underdelivering on actual rainfall totals. The Canadian and European forecast models offer far less rain for the Plains/W Midwest over the next 10-14 days.

• However, the GFS weather model is free to the public and is often cited by analysts. Chicago values are all about US weather forecasts with concern building that 2021 could be a close sister to the 2012 Central US drought year. The next few weeks will be key in this price determination. The lack of a US old crop supply cushion in terms of stocks produces an acute focus on US 2021 crop yield potential with the market trying to decipher the price that finally starts demand rationing. Currently, there is no evidence that demand is being rationed by $7.00 cash corn or $16.00 cash soybeans. November soybeans and soyoil futures scored new contract highs today.

• Chicago brokers estimate that managed money have sold 2,900 contracts of wheat, while buying 7,800 contracts of corn, and 3,900 contracts of soybeans. In soy products, funds have bought 3,600 contracts of soyoil and 2,100 contracts of soymeal. Resting orders above or below the market are limited on the widening daily trade ranges.

• FGIS/USDA reported that for the week ending June 3, the US exported 55.6 million bu of corn, 8.7 million bu of soybeans, and 15.4 million bu of wheat. The US corn export total was disappointing with vessel loading calling for a significantly higher total. For their respective crop years to date, the US has exported 2,063 million bu of corn (up 887 million or 75%), 2,082 million bu of soybeans (up 767 million or 58%, and 4.7 million bu of US wheat (not yet comparable to last year). The US will have to export circa 72 million bu of US corn per week to reach our 3,000 million bu export estimate for the 2020/21 crop year. China exported just 17 million bu of US corn last week, down from loading counts which called for a total over 40 million bu. We anticipate a large upward revision in next week’s report.

• Private crop scouts assessing the coming Ukraine and Russian winter wheat crops bemoan that although yield prospects are promising, the harvest will be delayed due to slow maturity by 2-3 weeks. This raises the risk of heat/dryness impacting yield in the last 2 weeks of June and first 2 weeks of July. Moreover, old crop stocks are already tight in Ukraine/Europe which makes old crop supplies dearer. European corn values are trading well above feed wheat and compounders are anxious for the coming winter wheat harvest.

• Private traders fear that ongoing hot/dry weather has produced big yield/crop falls in the Iranian, Turkish and Pakistani wheat crops. Well placed private sources estimate that Iran’s 2021 wheat crop will only be 5-6 million mt vs the USDA estimate of 15.0 million. And Turkey’s wheat crop has declined from 17 to 13 million mt. Iran and Turkey are actively seeking additional world wheat supplies.

• The midday GFS weather forecast has cut its rainfall estimate almost in half of the overnight run for the Dakotas with totals of 0.25-1.50″. A ridge of high pressure sets up residence across the 4-corner area and the lntermountain West creating an arid NW Upper air flow through the N Plains and W Midwest beyond Friday. This produces warm/dry weather which further reduces soil moisture as the flow of Gulf moisture flowing northward is shut off. High temperatures range from the mid 80′s to the mid 90′s. Gone are readings in the lower 100′s until the mean position of the ridge progresses back eastward.

• The index fund roll and the prospect of high US corn and soybean crop ratings has pulled Chicago values from their overnight highs. However, the Central US weather forecast is threatening, and any corn/soy market fall will likely be modest.

• As of Tuesday, the managed money net long position was a combined 432,000 contracts, up 20,000 on the previous week. The spec community has been reluctant to add to net length established just after the USDA’s January crop and stocks report. However, the N American growing season has begun in earnest, and increasingly there is a new bullish story to grab onto in the face of unwanted heat/dryness. Depending on yield perceptions, December corn and November soybeans are modestly to extremely undervalued.

• Our bet is that the managed fund community more actively participates in the ag space this summer. Extended range forecasts will key day to day trade. If a pattern change is not indicated in late June, expect a large influx of capital in corn, soy, and wheat futures markets.

• North Central drought concern rallies soy futures; Yield less than trend unacceptable: Soybeans/soyoil finished the week with heady gains. The weather forecast for the Northern Midwest and Northern Plains offers limited rains for the next two weeks with the extended range calling for the arrival of Midwest heat.

• The nearby Chicago soybean crush spread turned higher after falling to an 8-month low last week. Estimated cash crush margins are still $0.50-0.55 over Chicago at $7.20-1.25/bu, $0.50 higher than a year ago. Historically high soyoil prices and record high cash basis bids are the contributors to margin calculations.

• And the Chicago soyoil share of crush reached a 12 year high today at 47.8%. US soybean processors will crush soybeans until old crop supply is exhausted.

• Last week, the EIA reported 791 million gallons of renewable fuel production capacity in operation in the US. Private estimates of existing and planned expansion suggest that the industry could nearly triple in size within several years. US domestic demand for fats/oils is rising sharply.

• Initial soybean ratings will be out Monday with ratings of 68-71% good/excellent expected. Chicago soy is all about weather with a 2 bushels/acre acre yield loss creating an argument for $16-17/bu basis November futures.

• Chicago corn soars on weather; Massive disappearance continues through summer: Chicago corn futures ended sharply higher with December futures taking over the bull leadership. There is no reliable indication that North Central US heat/dryness will end prior to the second half of June. Corn’s bullish outlook is cantered on sizeable cash demand that will persist deep into autumn.

• US old crop export sales through the week ending May 27 totalled 21 million bu. Sales of only 5 million per week are needed to meet the USDA’s annual forecast. Pace analysis continues to suggest a final export figure much closer to 3.0 billion bu. Outstanding old crop sales are a record 702 million bu, which highlights the pace of shipments expected between now and August. China has NOT cancelled cargoes since early May and is not expected to throughout the duration of summer. US corn export inspections on Monday are pegged in a range of 75-85 million bu based on loadings with shipments to China estimated at 45-50 million bu.

• Old crop US corn consumption rates will be record large through the summer on record large US export shipments and the return of normal American driving habits (ethanol).

• The addition of weather premium will accelerate if next week’s North Central US weather forecast fails to include rainfall. The coming heat/dryness will cause a 1-3% drop in good/excellent crop ratings on Monday.

• Spring wheat futures score 8-year high; Black Sea spring wheat production concern rising: US wheat futures ended sharply higher with spot Minneapolis rising another 35 cents. Without a dramatic shift in weather across the N Plains/PNW in the next two weeks, spring wheat yield loss of 15-20% relative to trend is assured. Unfortunately, hot/arid conditions are most probable into the second half of June. Additionally, April 1-June is predicted to show just 15% of normal rainfall across spring wheat areas of Central Russia/Kazakhstan. Concern there stays elevated. Spring wheat production in Russia accounts for 25% of its total production.

• The USDA already assumes total US wheat demand growth in 2021/22 of just 7 million mt. US export prospects are poor, but net production losses moving forward must be taken from end stocks. Longer term, wheat stocks continue to contract unless acreage expands. Tight exporter stocks/use and the need for wheat to compete with row crops for seedings is bullish longer term.

• How high is high is unknown given eroding spring wheat yield potential and rapidly rising concern over corn yield performance.

• Expanding Iran/Turkish and SE Asian demand underpins any world wheat fob correction of $5-10/mt. A post USDA report break offers a new wheat purchase opportunity.

OUTLOOK:

BEANS: Soyoil may see less demand due to premium to other oils.

CORN: Hot and dry forecast may support more buying short-term.

WHEAT: Record heat for Dakotas and hot and dry two-week outlook.

FUNDAMENTAL OVERVIEW:

SOYBEANS: The further advance in soybean oil helped to support the bounce overnight. The November soybean technical action is bullish as the close above $14.09¼ opens the door for a resumption of the uptrend with $15.12½ as the next upside target. November soybeans traded up to the highest level since May 13 overnight.

CORN: December corn closed slightly lower on the session yesterday with an inside trading day as the market consolidated recent gains. The market jumped 85¼ cents from Thursday’s lows as threatening weather for the Dakotas and for much of the northern and Western Corn Belt. The first crop condition report of the year showed better than expected ratings with 76% of the crop rated good/excellent which is up 5% versus the 10-year average.

WHEAT: December Minneapolis wheat is up 15 cents this morning and within 3 cents of the contract high. July wheat closed lower with an inside trading session yesterday and July Kansas City wheat also closed lower as winter wheat crop conditions improved 1% for the week to 48% good to excellent. December Minneapolis wheat closed 13 cents higher on the session and tested the May 7 contract highs and the nearby contract hit the highest level since July 2017.

• HEADLINES: Chicago futures retreat as midday GFS forecast adds rain to Northern Plains for next week; Canadian midday stays dry with US ensemble model also drier.

• Chicago futures are slightly lower in back-and-forth trade as the market tries to gauge early summer Central US weather, and what will be the US pattern heading into July 7. Traders understand it is only June 3, it is the Central US weather pattern in future weeks that will have a far more important impact on crop yields. As such, Chicago rallies struggle while breaks uncover support. Tight stocks and premium cash markets offer a bullish old crop story, but it is Mother Nature that dictates longer term price direction.

• We note that the midday GFS forecast added rain for the Dakotas next week which caused the midday Chicago retreat. Whether this rain chance is confirmed by the EU model near the close will be closely followed. The Canadian forecast did not indicate the rain, casting doubt on the GFS model.

• Brokers estimate that funds have sold 4,500 contracts of wheat, 5,500 contracts of corn, and 2,300 contracts of soybeans post the 8:30 opening. In soy products funds have sold 2,200 contracts of soymeal while buying a net 1,900 contracts of soyoil. Managed money has been lightly selling on the mid-morning decline.

• Russian exporters are having trouble securing cash winter wheat from SW Russian farmers amid the existing tax structure. Most Russian farmers are not willing to sell wheat with the floating tax pressuring domestic bids. The winter wheat harvest starts in just a few weeks across far SW Russia and the lack of cash bids/offers is a shock to the domestic Russian grain market. The lack of farm selling could keep Russian wheat exports at a low level. It will be important to monitor Russian new crop wheat cash movement as the harvest commences, but for today, there is limited forward selling occurring.

• US ethanol production has finally returned to 2019 levels according to this week’s EIA report, a healthy sign for the US ethanol industry. The US produced 304 million gallons of ethanol last week, up 35% from last year and nearly equal with 2019. US ethanol stocks increased to 823 million gallons, a gain of 26 million. Such stocks are still down 26% from last year.

• As Americans return to their normal driving habits, we look for US gasoline consumption to hold firm. We maintain that the USDA is understating the US 2020/21 ethanol grind by 50-75 million bu and 125-200 million bu in 2021 22. We estimate today’s current US corn ethanol margin at +$0.53/gallon.

• The midday GFS weather forecast is delayed. The forecast increased rainfall potential for the N Plains mid next week while also keeping the C and E Midwest well-watered. The change for rain across the N Plains and portions of the NW Midwest is not supported by other models. Confidence in the GFS forecast rainfall of 0.5-1.50″ for the N Plains is low. The better preforming Canadian model has none of the rain that was advertised by the GFS forecast. In fact, the GFS ensemble model is also far drier with rain of just 0.1-0.6″ across the N Plains and the NW Midwest through next week. The GFS midday model has been the worst performing of the models and confirmation will be required by the EU model which comes out later today. The 11-15 day period builds a ridge of high pressure across the lntermountain West which pushes the jet stream northward into S Canada.

• Chicago futures are retreating at midday on the prospect of rain for the N Plains and portions of the NW Midwest. Our confidence is the GFS forecasted rain is low, other models are not confirming the frontal pass. We see Chicago as choppy until more is known about the coming summer weather pattern. Our bet is that the better performing Canadian model has a better handle on the coming 10-14 day N American weather pattern.

• HEADLINES: Chicago mixed at midday; GFS weather forecast trends wetter in North Dakota but confidence in forecast low.

• Chicago is mixed at midday, with Turnaround Tuesday in full effect in corn following better than expected Midwest crop ratings, while wheat soy and wheat find relatively better support. Volume has been somewhat mediocre and key in the next few days is whether looming Central US heat and dryness is extended into the latter part of the month. We would highlight that weather pattern stagnation has been featured in both hemispheres in recent years, which makes the abrupt shift in N American weather more concerning. Yet, the market must see and feel ongoing drought expansion before accelerating the addition of weather premium.

• Spring wheat futures will be the leader in the very near term as yield concerns across the US Northern Plains and Canada is more immediate. Spring wheat crop ratings in early June correlate poorly with final yield potential, but conditions in early July do provide solid guidance with respect to production potential. Recall the current spring wheat rating is the lowest in decades. Without dramatic improvement in the next 30 days, yield loss of 15-20% relative to trend can be expected. This will drop US HRW stocks below 150 million bushels for the first time since 2008.

• Spring wheat futures in Minneapolis have sustained overnight strength and are unlikely to experience fund liquidation until near-term forecasts include widespread soaking precipitation. Cumulative rainfall of 6-10″ is needed in North Dakota to eliminate drought there prior to July 1. The forecast remains dry into at least June 16.

• There is also no indication in global cash markets that supplies will be adequate without perfect weather. Brazil’s interior corn market has recovered quickly this week and is again perched above $8.10 per bushel. EU rapeseed futures are up €4.50 per tonne amid rising concern over drought intensification in Canada. We note that Canadian canola exports account for 60-65% of world canola/rapeseed trade. Even yield loss of 5% in Canada mandates the elimination of global rapeseed demand. Malaysian palm oil futures have held major chart-based support throughout the 12 months, and it is clear that rising vegoil prices and rapeseed supply issues will provide a strong pillar of support to Chicago soybeans, Midwest weather aside.

• The continued rise in crude and gasoline futures has lifted spot Chicago ethanol to $2.48 per gallon, the highest price since March 2014. OPEC’s plan to only gradually boost production rates, during the peak Northern Hemisphere driving season, will sustain firm crude/gas prices, and this requires enlarged ethanol and biodiesel production throughout the summer months. The spot futures-based ethanol production margin is calculated at $0.45 per bushel, vs. $.30 last week. Margins were negative just 30 days ago.

• The EIA on Thursday is expected to reveal another week in which US gasoline disappearance was at or above the level of 2019. We also mention that restaurant traffic in recent weeks, too, has exceeded the level of 2019. Slowing demand due to potential yield issues will be tough amid post-Covid economic expansion.

• The midday GFS weather forecast is much wetter in North Dakota and Minnesota beginning June 11 compared to the morning release. The GFS forecast advertises a brief relaxation in high pressure ridging late next week, which will allow needed showers to move across the Northern US and Canada. However, confidence in this outlook is low. Key will be whether the better performing EU and Canadian models include this shift this afternoon. Our overall concern stays elevated as strong high pressure ridigng meanders across the US Ag Belt in the first half of June.

• The collision of demand growth and weather concerns will keep breaks isolated to periodic profit taking. Use modest weakness to add to supply coverage. Soaking rain across the Northern and Western US is needed no later than late June.

• HEADLINES: Chicago soars on threatening N American weather forecast; Funds add risk across commodity spectrum; US 2020/21 corn exports understated.

• Chicago futures are sharply higher at midday with Minneapolis spring wheat futures testing their prior highs while corn, soybeans and soyoil surge and follow. It is difficult to find a commodity market that is not higher today with “risk on” the feature on the first day of June (and summer).

• The CFTC report showed that managed money had cut its net long grain position to its lowest level since late 2020. These fund managers do not want to miss a N American drought market if it were to develop. Yet, history shows that bull markets always let you in as evidenced by last week’s Chicago early week break.

• What is slightly different today is that weather is the driver of corn and soybean yield potential and each day’s price range will be determined by the latest model forecast. If the weather forecast maintains a threatening trend for crops, the market will keep adding premium to price. We must remember that anything other than normal weather is unacceptable with US/world old crop supplies exhausted. The massive corn demand from China and renewable biodiesel demand for US vegoil mandates trend or record large US crops. The new month and summer season has started with this weather focus in mind.

• Chicago brokers estimate that funds have been sizeable buyers on the Chicago rally. Managed money has secured 9-11,000 contracts of corn, 6-7,000 contracts of soybeans, and 4,500-5,000 contracts of wheat. In soy products, funds have bought 3,400-3,800 contracts of soyoil and 2,900-3,400 contracts of meal. The market lacks resting sell offers as US/Brazilian farmers are sold out.

• Black Sea export sources have raised their estimates of Chinese old crop corn demand to 9.0 million mt with new crop sales already at 6.5-7.0 million. China has been quietly active in securing large new crop purchases. Combined with an estimated 11.5-12.0M million mt of US new crop corn purchases, we estimate that China has booked 18-19 million mt of world corn already. And there are strong rumours that Brazil has sold China 1.0 million mt of corn for August-September. What is interesting about the Brazilian purchase is that China/Brazil do not have a phytosanitary agreement on corn. Potentially, the Brazilian corn purchase could tell the world that China is willing to reach a phyto corn deal with Brazil. The USDA has China taking 26.0 million mt of world corn in 2021/22 of which by our calculations, China has already booked 71% of this total.

• US export inspections for the week ending May 28 were 80.7 million bu of corn, 9.4 million bu of wheat, and 7.0 million bu of soybeans. For their respective crop years to date, the US has exported 2,005 million bu of corn (up 877 million or 78%), 2,073 million bu of soybeans (up 768 million or 59%), and 927 million bu of wheat (up 11 million or 1%). China exported 1 million mt of US corn last week or 40 million bu. If US corn exports average 65 million bu/week in the final 13.5 weeks of the crop year, the final 2020/21 US corn export total will be 2,950 million bu.

• The midday GFS weather forecast is coming around to the thinking of the overnight EU/Canadian models and they are drier across the N Plains and the N Midwest. Any heavy rainfall will be confined to the Delta and the Southern Ohio Valley. Other US crop areas will be shortchanged including the drought stricken Northern Plains, Canadian Prairies, and the NW Midwest. Nebraska will be moved into the dry corridor along with Iowa,Minnesota, and Wisconsin by June 10. The extended range forecast offers soaking rain for Minnesota/Wisconsin on June 12-13, but confidence this far out is extremely low. The GFS forecast has been struggling with rainfall forecasts beyond the next week.

• Welcome to June and summer!.The volatility of Chicago markets is going to be extreme through mid-August. US corn crop condition ratings are expected to be 69-72% good/excellent as of Sunday. We forecast a condition decline into mid-June based on the dry and warm Central US forecast. And we are concerned that the existing N Plains and NW dry weather pattern could persist into late June. This is a big deal for US spring wheat, canola, and corn. Hold to bullish Chicago positions, the grains should outperform the oilseeds for now.

• HEADLINES: Chicago corrects Thursday’s gain on profit taking into three-day US weekend; Russian floating export taxes are complicated; Frost/wind in S America.

• Chicago futures are lower at midday in a corrective session following Thursday’s sharp rally. US and world importers/domestic end users used the Tuesday/Wednesday break to add to their forward length while the bulls need adverse weather to push their stance next week. Chicago ends the week with sort of a stalemate with the bulls banking profits (ahead of a long weekend) while the bears do not want to press their luck following the failed break that occurred midweek. Key will be US corn crop condition ratings next week and whether this week’s favourable weather pattern can be maintained. The bears understand that there is zero tolerance for a 2021 yield decline below trend and that old crop US corn/soybean tightening.

• Chicago brokers estimate that funds have sold 3,500-4,000 contracts of corn, 3,200-3,800 contracts of soybeans, and 2,900-3,200 contracts of wheat In the soy products, funds have bought 2,200 contracts of soymeal while selling 3,400 contracts of soyoil. July/December corn futures has been featured with reports of a US corn exporter short of barges for loading. Vessel counts show that China loaded out nearly 1.0 million mt of US corn this week. The China loadout of US corn has been building in recent weeks.

• The Brazilian Government issued a water emergency alert from the period of June through September for the states of: Minas Gerais, Mato Grosso do Sul, Soa Paulo, and Parana. These states are in the Parana River Basin, the centre of Brazilian ag production. This was the first such water emergency alert in 111 years of meteorological services in Brazil, reflecting the severity of the 2021 drought. This is going to further diminish water flows through the Parana River in Argentina making exports more difficult. And Brazil’s winter corn and wheat crops will continue to suffer under a dire drought. We look for a deeper decline in the Brazilian winter corn crop, it is just a question of degree and will any bonus rains fall during June.

• Since we are discussing S American weather, a frost developed in the lower areas of Parana overnight which harmed filling and pollinating corn. The degree of damage can only be assessed in 5-7 days, but producers are worried. And strong wind gusts were reported across Cordoba, Argentina which downed corn. The corn was mature, but harvest losses will be elevated as combines struggle to pick up downed and tangled stalks.

• Russia will start its floating export tax on June 2. The initial tax was placed at $28.10/mt. The tax is calculated by the 7-day export price published by a panel of experts and published by the Moscow Commodity Exchange. Russian corn export taxes will jump from $30.52 to $52.20/mt while the tax on barley was hiked from $12.14 to $39.60/mt. The export tax is only good for loadings that week with no ability to calculate or know the forward tax rate.

• The Russian floating export tax rates of grain are so complicated that we expect that Russia will export substantially less wheat, corn, and barley through September than last year. Consequently, for wheat, the primary exporter will be the EU as the feed industry and exporters fight for early harvested winter cropos.

• The midday GFS weather forecast is drier in North Dakota but wetter across the Eastern US. 10-day precipitation accumulation will stay south of the driest area of the Northern Plains/Canada. Soaking rainfall of 1-4″ favours Texas, Oklahoma and pockets of SE Kansas. Nebraska has moved into the dry corridor along with Iowa, Minnesota and Wisconsin. This area will endure additional drying into June 10. The extended range forecast offers the return of rainfall in the 11-15 day period, but our confidence in that rain is low. Frosty temperatures will be confined to N Wisconsin and N Minnesota with lows of 29-34.

• Tuesday is June 2 and the question for traders is, can Central US weather get any better? Will the N Plains and Upper Midwest receive needed rain after June 10? Until 2021 US corn, soybean and spring wheat crops are made, it will be difficult to sustain a bearish price trend. We are bullish on Chicago price breaks.

• HEADLINES: Chicago markets rally sharply on better than expected corn sales.

• Chicago futures are sharply higher at midday in a recapture of Tuesday’s losses. Better than expected US weekly export sales, with the USDA reporting 21.9 million bu of old crop corn sold, lifted bullish spirts. And as we reported on Wednesday, there continue to be reports that China purchased an additional 1.0 million mt of US old crop corn which would confirm that state buyers have no intention of cancelling or rolling existing sales. Tightening cash corn markets are the theme amid a fight for supply from US exporters and US ethanol producers. Soybean and wheat futures have followed corn’s bullish lead.

• The wheat market is also growing worried about the heavy rainfall that is forecast for the Central and Southern US Plains on the weekend and over the next 10 days. The rains could produce fungal diseases that reduce seed quality and yield. The HRW wheat harvest is starting across Northern Texas and will pull northward into Southern Oklahoma by June 5, weather permitting. The forecast is too wet which is raising crop concern.

• Chicago traders estimate that funds have been early buyers of 5-6,000 contracts of corn, 3,500-4,000 contracts of wheat and 3~3,400 contracts of soybeans. In soybean products, funds have bought 3,100-3,500 contracts of soymeal and 2,100-2,800 contracts of soyoil. The volume has been active, and it is difficult to measure fund demand this morning.

• FAS/USDA reported that for the week ending May 20, the US sold 21.9 million bu of US old crop corn and 224.1 million bu of new crop, 1.1 million bu of old crop and 13.7 million bu of new crop wheat, and 2.1 million bu of old crop soybeans and 9.1 million bu of new crop. The old crop corn sales were well above expectations.

• For their respective crop years to date, the US has sold 943 million bu of wheat (down 40 million or 4% compared to last year), 2,700 million bu of corn (up 1,132 million or 72%), and 2,260 million bu of soybeans (up 719 million or 46% above last year). The US has already sold 25 million bu more corn that the USDA forecasts for the annual total. We continue to maintain a 2020/21 US corn export estimate of 3,000 million bu and a 3,050 million bu for 2021/22. The US has ALREADY sold a record 576 million bu (14.66 million mt) of US new crop corn and that total will quickly build via the loss of Brazilian winter corn production.

• FAS/USDA reported the sale of 152,400 mt of US corn to an unknown buyer for the 2021/22 crop year in its daily reporting systems.

• The midday GFS weather forecast is drier in North Dakota but wetter across the Southern and Eastern Midwest. 10-day precipitation accumulation will stay south of the driest area of the Northern Plains and Canada. Soaking rainfall of 1-4″ favours Texas, Oklahoma and pockets of Kansas and Nebraska into late next week. The GFS forecast also maintains the arrival of warmth to the Northern Plains and Upper Midwest beginning June 3. Whether this heat expands into the principal Midwest in the first half of June will be watched closely in the days ahead.

• Markets are recovering as focus, for now, shifts from favourable early Midwest growing conditions to end user margin improvement. Interior cash corn basis levels have failed to break, and it is the competition for demand between livestock, ethanol and export sectors that will continue to underpin the marketplace even amid normal weather. Focus on regional weather issues will be elevated following the coming 3-day weekend.

• HEADLINES: Chicago recovers as rumours abound that China has purchased US old crop corn; Record $1.50/bu margins for US ethanol producers in December.

• Chicago futures fell to sharp losses in early day trade on leftover liquidation of stale long positions in corn/soybeans. July corn tested $6.00 and December corn reached $5.00 before active commercial buying emerged. That end user buying has rallied corn/soybean futures sharply off the morning lows. July soybean and July corn futures are higher at midday on firming cash basis levels and talk that the break produced new importer interest. It appears that corn/soybean futures scored their seasonal lows on panic fund selling.

• We mentioned yesterday that China’s private feed users may cancel a modest number of US old crop corn purchases (600,000 mt or less), but that China’s state buyers of COFCO/Sinograin would continue shipping their record old crop purchases that stand at 10 million mt. Bloomberg reported a like story this morning, but we hear that China’s state buyers are willing to take any corn that feed users would like to cancel. China appears to be consolidating its corn/ wheat purchasing at government level. China still must issue 7.2 million mt of corn and 9.6 million mt of wheat TRQ import licenses that are duty free. Chicago traders will find that China bought a record or near record amount of US corn last week that will be reported in this week’s FAS weekly export sales report.

• China is checking October-November US Gulf soybean offers and will be starting a new crop purchase program shortly. China is importing record tonnages of South American soybeans, but they will soon need to shift their demand over to the US Gulf from October onward.

• Let us not forget that China has an acute import need for corn/soybeans amid their expanding livestock herd and tight carry-in feed stocks. We believe that China will import a record 30-35 million mt of world corn in 2021/22, well above the USDA forecast of 26 million mt. China is rumoured to have bought 1.0 million mt of US July/August crop corn on the break this morning.

• Chicago brokers estimate that funds have sold 12-15,000 contracts of corn, 4-5,000 contracts of wheat, and 1,000 contracts of soybeans. In soy products, funds have sold 2,000 contracts of meal and 2,200 contracts of soyoil through midday.

• The US produced 294 million gallons of ethanol in the week ending Tuesday, up 38% from last year but down 5% on 2019. The production rate was well above the pace needed to reach the USDA forecast for 2021/22. US ethanol stocks fell to just 797 million gallons, down 18% from last year. This is the lowest stock/use ratio for US ethanol in the middle of May since 2011, when records started to be kept. Importantly, US consumers used 9.48 million gallons of gasoline, 1% above 2019 and 38% above 2020.

• We calculate that December US ethanol margin stands at a record $1.50/bu. US ethanol firms should be locking in this margin by selling ethanol and securing corn futures. Such a margin with corn at $5.00/bu seems impossible, but lack of small refinery waivers will push US 2021/22 corn grind rate to 5,400 million bu plus. A real demand story is being built for US ethanol in 2021/22.

• The midday GFS weather forecast targets the harvest areas of Texas/Oklahoma and Nebraska with 1-3.00″ of rainfall. Midwest rainfall will be more widely scattered with totals of 0.25-1.50″ and coverage of about 50%. The Dakotas and upper third of the Midwest will hold in a dry weather trend with just a few light showers in Eastern South Dakota and SE North Dakota. The Western US holds in a very dry trend with the drought worsening. High temperatures range from the mid 70’s to the lower 90′s.

• China used the break to add to their old crop corn purchases on the morning break in taking any cancellations from the private sector and securing another 1.0 million mt of US old crop. A seasonal low was likely set this morning. Central US weather cannot get any better if you are a bear. Buy breaks.

• Our early morning commentary included the following:

Chicago corn futures are lower than they were mid-April when the Brazilian winter corn production loss was far less. The decline in world and Chicago ag futures is based upon speculative liquidation. The Chicago price break will act to boost demand at a time of declining old crop supplies and stocks. In addition, the 2021 US growing season is just starting and a major drought across the Dakotas and S Canadian Prairies is of major concern to us. We have to admit to surprise at the speed/depth of the decline since the “top” was forged on May 7. That said, the grain bull is, in our opinion, a multi-year trend and our view remains that a seasonal low (bottom) will form in coming days. This break is an opportunity to fill gaps and extend cover before prices resume their upward momentum.