Morning Commentary 8/2/2021

CBT Mixed with Sharp Fall in Palmoil Futures Pressuring Soybeans/Soyoil; Wheat Rallies on Smaller Russian Crop; NASS Condition Rating Fall?

AgResource Farm Marketing Advice for Monday: 1/ No new advice.

6:30 CT CBT Prices: Nov soybeans are down 6.00 cents at $13.4325, Dec corn is up 1.00 cents at $5.4625 with Sept Chi wheat up 15.00 cents at $7.19.

AgResource Morning Grain/Soy Comment & AnalysisGood Morning! CBT futures mixed in opening week trade. Winter wheat futures are higher on rising world wheat values and a decline in the 2021 Russian wheat crop, while corn/soybean futures wallow on bearish chart-based considerations. Weekend rainfall across the Central US was a tad better than expected, but broad swaths of the Plains and Midwest were missed. ARC estimates that 60-65% of the Central US are in dire need of rainfall with the forecast arid in the week ahead.

CBT open interest rose on Friday with gains of 796 contracts in soybeans, 2,064 contracts in corn, and 7,156 contracts in Chi wheat. The gain in wheat in a slightly lower trading session was a bullish surprise.

Russia’s private ag analytical firm IKAR, dropped their estimate of the 2021 Russian wheat crop to 78.5 MMTs, a 6.5 MMTs decline from the WASDE July forecast. Russian wheat yield data remains hugely disappointing with further cuts in the crop expected. The yield data with 46% of the crop harvested argues for a crop of 74-76 MMTs which would be 9-11 MMTs below WASDE. The disappointing 2021 Russian wheat crop yield and dire Canadian drought offers further upside to world wheat values on tightening exportable supplies.

The Chicago spot wheat/corn spread has widened out to a $1.72/Bu wheat premium. The upside resistance on the spread rests at $2.10-2.20 Chi wheat premium. The wheat rally has taken wheat out of the US and world feed ration.

Chicago Spot Wheat/Corn Futures Spread: 

And the Russian Gov’t in their release of their 2022 budget has maintained its floating export tax well into next year. The coming increases in the Russian wheat export tax along with its smaller harvest shifts world trade demand to other suppliers. This is where Canada’s drought and Russian crop shortfall leads to a shortage of world high protein milling wheat.

AgResource looks for strong US weekly corn export inspections today 50-60 Mil Bu as China actively loads out its US purchases. As of July 22, China had 3.58 MMTs of US corn purchases yet to load before September 1st for a weekly average of just over 600,000 MTs (23.5 Mil Bu/week). China looks to take a record 22.50-23 MMTs of US corn in the 2020/21 crop year.

NASS crop condition ratings for US corn/soy crops are expected to slide 2-3% this afternoon following last week’s heat/dryness across the Plains/W Midwest. A further decline in conditions is expected next Monday amid this week’s dry and warming weather forecast. This is not the finish US row crops desired.

September Malaysian palmoil futures fell a massive 237 ringgits to 4,310 RM/MT on slower than expected July export demand. Paris Sept wheat futures is up €2.75/MT at €226.00. China’s Dalian Sept corn closed $.01 higher at $10.10/Bu while Dalian Sept meal lost $3.350/MT to $553.75/MT.

AgResource Research argues that the trade is overstating US corn/soy yield potential, with shrinking global crop production spurring expanding US export demand. This is no place to turn bearish amid arid Central US weather into mid August.  The US corn balance sheet is tightening with soybeans already tight. It does not require much yield loss to cast both corn/soybeans into an even more bullish category than wheat.

North American Weather Pattern Discussion: The forecast models agree and are consistent with prior day runs. This raises our confidence in the forecast.

An arid/warm weather pattern will hold across the Central US into August 12th. Crop areas that did not witness rainfall on Friday and the weekend will endure increasing stress amid declining and short soil moisture. A high-pressure Ridge across the Western US produces a NW upper air flow thru the Midwest. This flow limits Central US rainfall chances for the next 8-9 days. Temperatures will be cooler than normal for the next 4-5 days before warming late week and on the weekend from west to east. Highs return to the upper 80’s to the upper 90’s which will further push crop maturity from Thursday onward. The heat spreads eastward into the E Midwest next week.

The lack of rain trough the Plains/W Midwest is a growing concern for crop yields. The next chance for meaningful moisture does not arrive until the 10th day of the forecast across Iowa/W Illinois which is too far out for any confidence. The 10 day rainfall graphic is from the EU model. Notice the broad area of Central US dryness. The GFS and EU models maintain the Plains and W Midwest drier than normal weather pattern into August 17th.

1o Day EU Model Rainfall Forecast; Arid Conditions with the rains for IA/IL not projected until August 12th:

GFS Maintains the Dry Weather Trend into August 17th; Percent of Normal Rainfall

Above Normal Temperatures across a Broad Area of the Plains and the Upper Midwest: 

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