AgResource Daily Farm Marketing Advice for Tuesday: 1/ Corn Producers: Buy September $4.10 calls at 4.5-5.0 cents for 25% of the estimated 2017 corn crop to help protect against hot/dry weather during pollination. ARC has previously advised the sale of 45% of the 2017 crop at $4.10 Dec futures on average. This call purchase helps reduce the sale risk if adverse weather develops. Some are clients are filled, if not filled go to the market.
CBOT corn, soybean and wheat futures are firm in morning trade as the market adds additional premium for the uncertainty of Central US and Russian weather over the next few weeks. Both the Central US and SE Russian weather forecasts offer a high pressure Ridge and the potential for hot/dry weather conditions into the middle of July. Whether these mean Ridge positions are able to be maintained longer term is being hotly debated by traders and weather forecasters. ARC notes that weather forecasters did not foresee the N Plains drought this spring, and often times drying soils catches up on a marketplace. It’s the west more than the Eastern Midwest which shows the risk of heat/dryness in the last half of July.
CBOT brokers report that funds are net buyers of 5,200 contracts of corn, 2,600 contracts of wheat, and 3,700 contracts of soybeans. In soy products, funds have bought 1,200 contracts of soymeal and 3,100 contracts of soyoil. The funds are mostly on the buy side of the marketplace this AM.
ARC has been vocal in our call that Minn wheat futures would head to at least $7.00/Bu based on our stock/use and price modeling. The question going forward is whether $7.00 is enough as the US HRS crop keeps shrinking and the race to secure hi pro wheat intensifies? ARC notes that domestic and international end users are still open on coverage beyond the next quarter. Protein prems are soaring and the bears can only hope that Canada has a decent harvest for any lasting price pressure. Historically low US HRS wheat stocks opens the door for additional CBOT wheat gains.
Private Russian crop watchers are pegging the 2017 all wheat crop at 68-69 MMTs, down from last year’s 72.5 MMTs, but right at the USDA forecast of June. The upcoming hot/dry weather will push maturity and could help crop quality at the expense of yield. Harvest will be delayed 2 weeks due to the cool/wet weather conditions of spring. However, of a bigger issue is the VAT tax and that non registered grain buyers may be prevented from securing any portion of the harvest. And that Russia has yet to pay back multinationals on prior VAT tax that now extends back to December. Another large winter wheat crop will be harvested, but Russian fob price offers could continue to rise on politics.
The Brazilian real has fallen this AM to 3.32:1 USD as corruption charges are levied on President Temer. If the real finishes above $3.325 it would argue for a further rally to $3.45-3.50 which would like spur another round of cash soybean and corn sales from producers. The real is acting to cap gains on CBOT soybeans amid the potential for another round of producer selling.
Midday GFS Weather Model Update: The forecast is slightly drier in the east and slightly wetter in the west as the mean position of a high pressure Ridge is farther west in the extended range. This opens the door for better rains across IA, MO and E NE next week, with reduced totals over IN/OH in the 10 day period. The mean location of the Ridge is located across CO in the 8-12 day period and extends into the N Plains. Limited rains are expected across the N Plains for the next 2 weeks with building heat. The Ridge tries progresses eastward with time during the 11-15 day period into the W Plains and the NW Midwest. Rainfall totals decline and high temps reach the 90’s to lower 100’s. The rains ahead of the heat will have to fall to minimize crop stress.
AgResource Market Comment: So does the rain ahead of the heat more helpful to crops, or is the heat following the rain more harmful? Our response is one of how long does the heat last and is this a change to a new summer weather pattern? ARC research argues for limited downside price risk in corn, soybeans or wheat at current prices and that option vol is too cheap. Don’t make sales here with uncertain summer weather ahead.
