On the Grains: Grains are steady-to-mixed in overnight trade as we go to press. Positioning ahead of Friday’s June WASDE report will be the dominant feature barring any major shifts in the weather outlook. Trade estimates are out and the most dominant metric for the balance sheets is the bottom line: Ending stocks. For old crop, on average, they’re expected to rise slightly for corn, soybeans and wheat on reduced usage estimates. Nonetheless, there’s a surprisingly wide range of estimates that allows potential for market-sensitive surprise: 2022-23 U.S. Corn Ending Stocks – Avg. 1.443 billion bu., up 66 million from last month with estimates ranging from 1.267 to 1.515 billion. 2022-23 U.S. Soybean Ending Stocks – Avg. 223 million bu., up 8 million from last month with estimates ranging from 200 to 255 million. 2022-23 U.S. Wheat Ending Stocks – Avg. 605 million bu., up 7 million from last month with estimates ranging from 592 to 643 million. Somewhat surprisingly, the average trade estimates for new crop ending stocks are also up from last month and even wider variance in the range of estimates. I find the increases particularly surprising for corn and soybeans because initial crop condition ratings for both crops are below last…
On the Grains:
Even though the new 7-day weather outlook shows needed rain for the central Corn Belt, grain futures are strongly higher and led by wheat in overnight trade. The wildcard driver is destruction of a huge dam and power station in Eastern Ukraine that both sides are blaming on each other. The Kakovka Dam destruction in the Kherson region threatens more than 80 communities over a large part of prime wheat country subject to flooding and power loss. It also threatens the safety of Europe’s largest nuclear power plant. The manager of SovEcon, a Black Sea Ag Research Firm, darkly warns, “This is a major escalation with dire consequences.” Since it happened overnight, those “consequences” are still ill defined and the knee-jerk grain trade reaction to the upside despite the better weather forecast.
After the close, we got the weekly Crop Progress Report with a host of noteworthy features. Corn is 96% planted vs. 91 on average and 93 last year. Emergence is at 85% vs. 77 on average and 76 last year. Most importantly, as expected, crop condition fell last week, at 64% good-to-excellent it’s down 3 points more than expected, 5 points from the week before and down 9 points from a year ago. The portion rated poor-to-very poor came in at 6%, up a point from last week and up 2 points from a year ago. Week-to-week declines in the ECB were most noteworthy.
REVISED CORN RECCO DAY 2 Per the special advice revision issued yesterday, we’ve raised our price targets for additional hedging. We’ve laid out why we think this weather scare is a 4th wave upward correction with a 5th wave down likely later this summer. We just hedged a third of our new crop at 536 and had set targets of 542 and 548 for similar sales. That’s now changed. For reasons discussed below, wait for 548 to hedge another third of ’23 production and raise the target for the final third to 576. This weather scare seems like it could persist and possibly complete a head-and-shoulders bottom on the December chart, which would project to 581. (I’m fading that by a nickel to 576.) I’m also staying with the secondary advice (for those willing to take on the risk) of matching the hedges with sales of $6 December calls for 20 cents or better. That’s because once this weather scare ends, I still see a 5th wave breakdown where we’ll lift the hedges and take profits on the short calls. UPDATED RECCO ON SOYBEANS DAY 2: We are able to count a smaller degree 5-wave decline from the April 3 high in November soybeans (April 18 high basis July) to…
Time Sensitive New Recco: The Saudis will reportedly unilaterally cut their daily oil production by 1 mln barrels but there is not a lot of solidarity in the OPEC+ cartel. Others have been known to cheat on quotas. The Saudis also reportedly need $81 barrel to meet their revenue requirements for spending commitments. Funds have built a short position in oil. There were pop-up rains favoring the WCB with little relief in the ECB. Drought will expand in the ECB while the forecast uncertainty for the timing for relief fluctuates with subsequent runs. *** Our 542 offers for hedging another one-third increment of new crop December corn was just missed Friday. Increase the offer from 542 to 548. Maintain the order for the next increment of hedges at 576….
On the Grains:
Grains are just steady-to-mixed in overnight trade after yesterday’s gains. The debt deal was approved by the Senate and is off to the President’s desk for signing so default is off the table, finally. Along with some better economic data from China, that’s given crude oil a boost. In turn, that’s increased the likelihood OPEC will not decide to cut production further at this weekend’s meeting. Meanwhile, some soft U.S. data has traders back to thinking the Fed will not hike interest rates again this month but “wait and see” how the summer economic stats unfold.
At 7:30, we’ll get weekly export sales. Expectations remain very modest for corn and beans. They range from a net loss in YTD sales of 100,000 tonnes to a gain of 400K at most for corn, a net loss of 100K for beans to 300K at most. Wheat expectations are least in the “green” at both ends, from 200K to 450K in new net sales.
It’s officially a “weather scare” market after yesterday’s performance. It started with that hot-dry June forecast on Wednesday and then was fanned by the updated Drought Monitor that showed the drought footprint expanding. (I’ve got all the detail on that below in the Other Ag Headlines and Hotlines section.) Yesterday’s rally gave another shot at executing our recommended hedging for a third of ’23 production in December at 536 or better. It also gave another opportunity for those willing to sell $6 December calls for 20 cents or better as a price enhancement strategy.… Continue Reading
On the Grains:
Grains are higher in overnight trade as we go to press, led by soybeans. (The weekly export sales normally announced today will be delayed until tomorrow due to the Monday holiday.) After making new lows yesterday, prices managed to come back and close near highs of the day and now we’re seeing follow-though in the overnight. Palm oil prices are higher on concerns El Nino conditions threaten production in Asia. Also injecting a bit of optimism is overnight passage of the debt limit deal in the House.
But I’m suspecting the biggest reason for the rebound overnight is the updated 30-day weather outlook released yesterday. It shows the whole month of June and (not just the first half) will be warmer and drier over a larger part of the Corn Belt and Dakotas than the prior maps showed.
On the Grains:
Grains are all weaker in overnight trade, with crude oil back in a freefall after China’s official manufacturing activity gauge fell deeper into contraction in May and way below economists’ expectations. Also adding to pressure on grains is continued uncertainty the debt deal will pass Congress and avoid default, plus hints by a Fed governor another rate hike is coming after all.
After the close, we got the Crop Progress Report and it held several surprises. Corn planting is 92% complete and in line with expectations. Its 8 points ahead of average and last year’s pace. Emergence is at 72% vs. 63% average and only 58% last year.
The View from 40,000 feet for CBOT markets-Take Five PLEASE REFER TO THE HEDGE AND TRADE STRATEGY PAGE FOR UPDATES!! The global weather pattern is in a transition from what was a strong La Nina to an El Nino where crop conditions around the world essentially flip regionally. Australia, Indonesia and India tend to produce well during a La Nina while the US corn-belt/plains and southern Brazil/Argentina do not. The opposite conditions tend to occur during an El Nino. 2023 is the transition year. The current climate pattern has not yet fully conformed to what is seen during El Nino but is forecast to get there later this year. The timing of the ENSO transition will impact crop outcomes. A dry June actually conforms to a typical ENSO transition. If crops went in well and got started in moisture then a dry June gets them rooted in. If rains then come later in July and August, the bins will bust. There will likely be some places where rains do come too late. The positive PDO (cool water temps off California) is not what it needs to be yet for a typical El Nino but is weakening so it is heading in the…
On the Grains:
The grains are lower in overnight trade with soybeans weakest. (Before turning lower, December corn did manage to hit and exceed the 536 target mentioned for beginning the strategy described above that we outlined in yesterday’s “Monday Preview”.)
Beans are weakest this morning for two reasons. First, they’re less threatened than corn by the forecast for early June to be warmer and drier than normal in much of the Corn Belt and also by weakness in crude oil and its connection with renewable diesel demand. The weakness in crude stems from several sources. First there’s concern the debt limit deal struck by both sides over the weekend faces opposition by members from both parties. Normally, that’s the very definition of successful compromise when neither side gets all that they wanted. The stock markets nonetheless, are firm in overnight trade, likely for that very reason.
Another source of weakness in crude is a growing consensus that when OPEC+ meets this weekend they will not cut production further. The global economy remains on shaky footing with Europe already in recession and a new fast-spreading strain of COVID in China (dubbed XBB strain) is threatening to make that engine of global commerce start sputtering again. In other geopolitical news, the extension of the Black Sea deal looks less meaningful with weekend drone attacks on port facilities at Odessa and Russia again threatening to renege on the extension.
Weather-wise, not much has changed for the U.S. outlook. The first part of June is going to stress crops and it’s already showing in the Western Corn Belt.… Continue Reading
On the Grains: Based on overnight trade as we go to press, grains will head into the long Memorial Day weekend on a firm note. Since the end of the Civil War, the last Monday in May has been set aside to remember those who have died while serving our country. A salute to all of you who have served or have loved ones in the service now. (This AM report will resume on Tuesday.) Oil prices gave back Wednesday’s gains yesterday after Russia pooh-poohed the hint by Saudi Arabia’s oil minister that OPEC+ was mulling another production cut. The latest on the budget ceiling crisis is that both sides will only say they’re “closer” to a compromise that will avoid default, which is improvement from days of both sides saying they “remain far apart”. Weekly export sales were awful, but could have been worse. Corn sales were a negative 75,000 tonnes but estimates ranged as low as a negative 500K. Wheat sales were a negative 45k, but some thought they’d be minus 75K. Soybeans were the only decent number. At 115,000 tonnes in new net sales, they were at least close to the midpoint of estimates ranging from minus…