6/17/21

Morning Commentary 6/17/21

Weather Models Add Rain to Their Forecast - CBT Extracts Weather Premium; Soyoil Too Cheap on Coming Renewable Biodiesel Demand

6:30 AM CT CBT Prices: July soybeans are down 22.50 cents at $14.26, July corn is down 20.0 cents at $6.53 and July Chi wheat is down 10 cents at $6.5275

AgResource Morning Grain/Soy Comment & AnalysisGood Morning! CBT futures are sharply lower as the weather models all add some amount of rain to their respective 10-day forecasts with the GFS remaining the wettest. And some lite and unexpected showers were noted across Iowa overnight. The combination looks to pressure December corn to support at $5.40-5.50 and November soybeans to $13.00-13.10. Wheat is following the liquidation in corn.

AgResource notes that metals and a host of other commodity markets are lower as the US Central Bank turned more hawkish and rattled their rate hike saber as price pressures gained. Fed Chairman Powell acknowledged the growing risk of inflation and said that officials have begun a discussion about scaling back bond purchases. The policy maker’s “Dot Plot” showed 2 US Central Bank rate hikes by the end of 2023. This news rallied the US dollar and produced selling across the world of raw materials. This is producing a bearish tailwind across the US ag futures markets.

The US dollar has reached its best levels looking backwards to early April. The index is sitting at $91.80 on the index after holding the early 2021 lows at $89.20 last week.

Plains and W Midwest farmers reported acute stress on corn/soybean and spring wheat crops on Wednesday as temperatures soared into the 90’s/lower 100’s. The extreme heat and lack of soil moisture rolled corn tight and caused a wilting of soybean leaves. US corn/soybean/spring wheat condition ratings are expected to fall further when released on Monday by 2-4% in the GD/EX category.

There were a few T storms producing rain across W Minnesota, W Wisconsin, and Iowa overnight. Rain totals were mostly under .50”, but any moisture is welcomed. The coverage of IA rain is pegged at 15% of the area. 

The importance of rain for Iowa, Dakota, Minnesota, Missouri, Wisconsin, and Michigan crops can not be overstated. The GFS model’s 1.5-4.00” of rain would be ideal for Iowa, but the Euro model’s .4-1.25” would fall woefully short. ARC research argues that the GFS model is too wet, but the Euro is too dry. A blend of the rainfall forecasts is the best solution amid all the uncertainty. 

In international ag trade, August Malaysian palm oil futures fell 23 ringgits/MT to 3,441 ringgits following Tuesday’s sharp fall in Chicago. India decided to delay a cutting of its export duties on the world price fall in vegoil values. Paris September wheat futures are down €1.25/MT at €205.25. China’s Dalian September corn futures lost 2 cents at $10.61 while September soymeal lost $2.60/MT to $541.10.

Volatility is the hallmark of the 2021 world grain markets with fund liquidation adding to this week’s decline. Yet demand for US corn/soy demand is record large and the key growing months of July/August are ahead. It is premature to argue that 2021 highs in new crop futures have been scored. Only a modest amount of US corn/soy yield loss is needed for new contract highs. This now place for new sales. The soyoil break is overdone as renewable biodiesel demand grows.

North American Weather Pattern Discussion: The primary weather forecasting models continue to struggle with a tropical depression that is developing in the Bay of Campeche. The storm has not formed yet, but the National Hurricane Center has raised the odds of formation to 80% in the next 48 hours (Friday) as the system starts to march northward later today.

The system is forecast to form into a cyclone that makes landfall near New Orleans on the weekend. The strength, location and intensity of the storm will have an impact on Central US rainfall and for at least 7 days and cause a relaxation of the Ridge/Trough pattern that exists currently.

The overnight models have all trended a wetter, with the GFS 10-day rainfall solution attached. The GFS model is the wettest followed by the Canadian and then the EU model. The GFS forecasts 2-4.00” of rain for Iowa, Illinois and Indiana into June 27th. The rain would go a big way in denting the developing drought.

GFS Model Wet Calling for 1.50-4.00" of rainfall in the next 10 Days for Iowa, Illinois and Indiana.  Too wet in our view!

Canadian Model may be the best Rainfall Solution into late June with Rains of .5-2.50"

The Euro model calls for Iowa and N Illinois rains of .5-1.50” which would leave key Iowa in a deepening drought. Temps turn seasonal.

Euro Model Calls for .4-1.50: of Iowa Rainfall with less Across the Dakotas - Not Enough!

Heat Stays a Feature Across the Drought Stricken Western US and Pulses East: 

The forecasts maintain dryness for the Plains with heat offering a sharp fall in soil moisture. Which rainfall forecast is correct will have an impact on yield heading into July. The odds are that the mid-June Ridge/ Trough pattern returns across the US in July.

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