Morning Commentary 7/26/21

CBOT Lower on Less Hot Weather for the E Midwest Next Week; Palmoil Rallies to Fresh Contract High; US/China Politics Strained/Stalemate?

6:30 CT CBT Prices: Nov soybeans are down 10.75 cents at $13.41, Dec corn is down 3.50 cents at $5.395 with Sept Chi wheat down 11.00 cents at $6.7275.

AgResource Morning Grain/Soy Comment & AnalysisGood Morning! CBT futures opened the week higher and quickly turned tail to lower levels based on chart based selling amid the forecast of cooler temperatures for the E Midwest starting this weekend. Soybeans paced the decline with the grains in tow.

 The CBT witnessed new selling when high level political talks between the US/China were termed as tense. China called US/China relations at a stalemate. China is said to have presented the US a list of demands including US wrongdoings that must stop and individual cases that China has concern with.

 Moreover, China stocks fell sharply amid Beijing’s broad crackdown on some industries including education and technology as the Central Gov’t appeared to want more control. The Hang Seng index fell 4.1% - the most since May. The selling spilled over to other sectors including property/health care stocks.

 US Sec of State Sherman had a final closed-door meeting with Chinese diplomats on Monday which was more conciliatory. China and the US are the world’s biggest trading partners and in keen economic competition. Sherman called for cooperation between the US/China and that global responsibilities are offered to the world’s great powers including climate change and COVID-19.

Ag traders will be watching to see if China returns following the US/China meetings with new purchases of US ag goods? It is expected that China will continue to fulfill its obligation under the January 2020 Phase 1 Trade Agreement which is $43.6 Bil in 2021. China needs the US’s ag goods and trade is one thing that both sides seem to agree on – a start for communications.

September Malaysian palmoil futures rallied to gains of 139 ringgits/MT to 4,556 on fresh export demand. Paris Sept wheat futures are down €2.25/MT at €209.75. Dalian Sept corn closed $.07 higher at $9.98/Bu while Sept meal lost $7.80/MT to $543.00/MT. Soymeal declines continue to cut into crush margins.  

September Palmoil Futures Score new contract highs in Extended Bull Run: 

Extreme heat/dryness will focus on the Plains and the W Midwest this week with high temps reaching into the 90’s to lower 100’s. A cooling trend and some rain will fall on the weekend as Ridge riding storm systems produce .25-1.00” of rain over 30-40% of the Midwest. The favored areas for rain are the Lake States early this week and from E Nebraska through S Iowa and Missouri on the weekend. A front then slides southward and holds across the Delta/Gulf States into August 5th. Temps subside to more normal levels next week with coolness occurring in the E Midwest. The spotty rains and extreme temps will lower crop conditions over the next 2 weeks & lead to eroding yield potential. 

The Parana River in Argentina has reached such low levels that its threatening navigation and ag exports. The river has reached its lowest levels in 77 years. And the Parana River is forecast to keep declining into October.

World crops are in decline and Central US weather is far from perfect. ARC’s bullishness is not based on the size of the US crop, but the size of the coming demand. A demand led bull returns after the weather hoopla has passed!  Canada is seeking US corn this morning which is highly unusual, but begs the question of the Canadian crop losses and forage availability following months of drought. ARC expects that an extra 400-700,000 acres of US corn will be put as silage amid the rising price of hay and the lack of forage across the Western US and Northern Plains.

North American Weather Pattern Discussion: The forecast models agree and are consistent with prior day runs for the next 6-8 days. The GFS wants to produce a more amplified Ridge/Trough pattern across the US starting on the weekend while the EU compresses the high-pressure Ridge to a position across the Southern Plains. Our forecast lean is to the EU model, with a somewhat more amplified South Central US Ridge that what is being depicted.

The GFS/EU models agree that a strong Central US High Pressure Ridge will produces 5-6 days of hot weather. Extreme heat builds with widespread 90’s to lower 100’s featured for the Plains and the W Midwest. Cooler upper 80’s to mid-90’s occurs across the E Midwest. Such extreme heat will push crop maturity. Its not only the daytime heat, but it’s also the warm evenings that will limit the ability of corn to respirate.

The 10-day rainfall graphic is from the EU model. Ridge riding storms will produce rains late week from Nebraska into SE Iowa and through Missouri. The E Midwest will stay dry into mid next week. Storms will also be featured for the Lake States early this week. 60-65% of the Plains and W Midwest corn/soy crops will be under acute stress. This is not a wet pattern for the Central US into August 10th.

EU Model 10 Day Rainfall Forecast: 30-40% of the Midwest Receives .25-1.00" of rain:

GFS Ensemble Model Forecasts Broad Above Normal Temps for the Plains/W Midwest: 

European Ensemble Coming Around to the Warm to Hot Theme for Plains/Midwest: 

10 Day Rainfall Percent of Normal - Broad Dryness E Midwest and Northern Plains: 

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