The USD has quietly firmed back toward 12-month highs with weakness in the AUD, CAD, EUR and GBP all supporting the Dollar strength. Crude oil trying to stabilize after dropping $7/bbl off its highs from earlier in the month. Weekly energy inventories released yesterday showed a surprise jump of 5.84 million bbls vs. expectations for a 3.60 million bbl drop. Still, crude oil inventories at 411.08 million bbls would compare with 490.62 million a year ago and 469.71 million bbls on the three year average. Gasoline stocks remain just above both last year and the three year average. Weekly gasoline demand bounced back from last week’s swoon to rise above last year’s same week demand and just below the high end of the 5-yr range.
More rain across the WCB and Northern Plains this morning, adding to totals from the previous 24-hours which saw widespread rains across North and South Dakota. Combined with the cool down in temps, Northern Plains corn and soybean crops are entering reproductive stages with almost ideal weather. Rainfall returns from yesterday’s system will not be available until later this morning. The forecast this morning sees more rain in the WCB/Northern Plains as well as widespread rains across SE-WI/IN/OH/MI in the week ended July 26th. Dry areas of KS/MO will continue to be missed in the coming week. Temperatures are below normal in the 6-10 and 8-14 day for the entire Midwest with no heat threats of any kind seen. Precip maps are mixed with below normal precip across all of the Midwest except NE/KS while the 8-14 days sees MO pulled into that group. Northern Plains should be dry which will promote swift spring wheat harvest.
Slightly easier markets this morning, but prices aren’t going anywhere fast after the last several sessions of gains are consolidated. There are an increasing number of analysts making the call that lows have been put in, despite the fact we are 60-days in front of harvest which often sees seasonal lows put in. With the amount of unpriced old crop, in addition to the lack of forward sales for new crop, we have a difficult time making the claim lows are in and its up and away from here. The speculative selling may have exhausted itself for the time being, but we’re not sure an impending rally is in the offing, at least not until USDA updates yield estimates for the August WASDE. While many areas of the corn belt have received superior growing conditions this summer, some areas have been pushed due to warm temps, the results of which may not be known until harvest. US wheat prices continue to tighten the gap with competitor offers, and it looks increasingly likely US wheat will enjoy a backloaded marketing year for exports. US wheat offers would do well to not run away from global business, even if major exporter stocks are going to be near record lows by the end of the marketing year. Corn open interest was up 9,385 contracts, soybeans were down just 457 contracts, meal up 1,703, oil up 1,625 contracts, SRW wheat up 1,932 contracts and HRW up 1,311 contracts.
Last week on the WASDE report, the World Board released a special breakdown of Russian wheat production by variety going back to 1987 as opposed to their normal all-wheat production number. This allowed us to take a look at where production is suffering, and also what yield ideas look like by variety. All-wheat production of 67MMT was broken down to 18.5MMT of spring wheat and 48.5MMT of winter wheat. The winter wheat production figure, as the chart below shows, is still the third largest winter production number on record owing to the second highest harvested area on record. The winter wheat yield of 3.46MT/ha is the lowest since 2016/17, but only looks low relative to the last two seasons which were incredibly strong yielding years. Spring wheat is a bit different story with production seen at 18.5MMT being the lowest since 2014/15 on harvested area of 11.5 million hectares, the lowest since 2013/14. The spring wheat implied yield of 1.60MT/ha is the lowest since 2016/17, but again, not that low compared to the 5-yr average of 1.57MT/ha. Based on this breakdown, we can see were it not for the incredibly late spring planting campaign across Siberia which resulted in low planted area, and ultimately low yields, Russia probably would have been able to pull off another 72-75MMT crop. Most analysts were fixated on how dry it was across southern Russia and how it would impact the winter wheat yields, but this wasn’t really the case. I think this needs to be kept in mind next year when weather adversity is encountered in the former Soviet Republic. That said, USDA is still counting on Russia to export 34MMT this year vs. 41MMT last year, but the second largest on record. If private analyst estimates are accurate, both production and exports could still come down another 1-2MMT.
Data out yesterday included weekly ethanol production of 1.064 million bbls which was up 31,000bbls/day on the week and 3.7% above last year’s same week production. This sort of run rate is well above the level needed to hit the USDA’s ethanol demand for corn estimate, and should lead to USDA raising their 5.600bbu demand estimate on next month’s WASDE. US ethanol stocks declined sharply by 625,000bbls to 21.768 million bbls, which was also below last year’s same week stocks for the first time in many weeks. Ethanol exports are a concern based on the latest month worth of data in June when exports fell sharply m/m and y/y. Without a solid export program, stocks should build, although the decline this week is short-term supportive. Between tariffs from China and the Brazilian new crop program getting ramped up, the US will be looking for destinations. The RBOB/Ethanol spread at $0.60/gln remains incredibly advantageous for blending as much ethanol into gasoline as possible.
Back to the global wheat situation, Black Sea wheat futures closed a touch softer yesterday but have been rallying swiftly with all contract October forward notching new contract highs on Tuesday. The most actively traded September contract hit a high of $217.75/MT which is just below the $218.25/MT set on June 12th. Heavier rains impacting Russian wheat areas which are both delaying harvest and raising concerns over quality seems to be putting a bit of strength underneath things. Black Sea wheat futures still sporting a fair amount of carry, however, as the U/Z spread closed at -$9.75/MT yesterday, off the lows of -$11.25/MT from June but still in an overall downtrend. 26c/bu carry from U to Z compares with 25c/bu on the KWU/KWZ, so plenty of incentive to store wheat. Paris futures have also been strong, trading at €188.25/MT this morning, just below highs for the move at €189.75/MT. After setting 5-yr highs earlier this week, London Feed Wheat is about £5/MT off those highs this morning but still trading incredibly firm on ideas of reduced production out of the UK and prospects for sizable imports this marketing year. European and Black Sea prices need to lead rallies.
Export sales out later this morning with more of the same expected. Worth noting, US FOB corn offers remain the cheapest corn in the world despite a solid export program. South American prices should be cheaper than US prices at this time of the year, highlighting how strong the US program is set to be in 2018/19. US FOB corn ex Gulf closed last night at $160.33/MT vs. Argy at $161.00/MT and the nearest Brazilian offer at $176.07/MT for September.
Bottom Line: We’re not sure futures prices are in a hurry to go anywhere until more objective data is collected out of the corn belt. No resolution in trade appears close, and even though soybeans have enjoyed a little relief bounce, most feel better about US production prospects on soybeans than corn at the moment. Wheat prices, of the major three commodities, appear most likely to have made their bottom, but US wheat can’t afford to run away from business. Storage demand will remain strong until exports decide they want to carry the torch.
Good Luck Today.
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