** The AM trading session has been corrective with US wheat futures enduring rounds of profit taking amid overbought technical considerations. Corn and soy futures have followed, but traders are impressed with the ability of soybeans to hold around steady levels!
ARC notes that Minneapolis Sept wheat has traded in a wide 64 cent trading range as market volatility expands. More than 115,000 contracts of Sept Chi wheat futures have already changed hands (3x normal daily volume) and the interest from funds to trade wheat is expanding.
Research suggests that there is value on any break below $7.50 spot Minn wheat futures and ARC doubt’s that seasonal or annual highs have been forged. The break in wheat is largely technical and key support is offered below $5.20 September Chicago. The price range in wheat has shifted upwards by about $1.00/Bu from last year.
ARC maintains that drier/warmer weather will continue to drive CBOT values higher with the mean position of the Ridge expanding eastward next week across the C Midwest. The heat offers an increasing risk to pollinating US corn.
** CBOT floor brokers report that funds have sold 13,000 contracts of wheat, 5,000 contracts of corn, and are nearly flat in soybeans. In soy products, funds have bought 2,400 contracts of soymeal and sold 2,600 contracts of oil.
** US weekly ethanol production was 298.1 Mil gallons vs 298.4 Mil last week. US ethanol stocks rose to 906 Mil gallons, down 11 Mil gallons from a week ago, but down slightly from last year. Weekly US crude oil stocks fell to 237 Mil barrels, down 1% from a year ago, and down 4 Mil barrels from last year. The fall in US crude oil stocks should offer support below $42.00 in spot crude oil futures. ARC research maintains that WASDE should raise their estimate of 2016/17 US corn use for ethanol by 15-25 Mil Bu in July.
** There is a considerable amount of “farmer angst” that last week’s US corn rating did not reflect what is happening out across the Midwest. Producers that ARC consults with argue that US corn crop conditions are well below last, and that conditions continue to decline amid the heat/dryness. ARC research argues that crop observers will reduce US GD/EX ratings in corn next week, with the Plains corn crop being ravaged by heat/dryness.
** Ukraine crop prospects are in decline on well below normal rainfall and above normal temps. Corn yield estimates are being cut by traders with limited rain expected over the next 7-10 days. The EU will need to import larger quantities of corn, and Ukraine production is a must. The reduced Ukraine corn crop will make it easier for the US and South America to export their harvests.
** US weekly export inspections for the week ending June 29th are estimated at; 450-550,000 MT of wheat, 500-600,000 MTs of corn, and 200-300,000 MTs soybeans.
** Midday GFS Weather Model Update: The midday forecast is warmer/drier than the overnight run for the Plains/W Midwest with mean position of the Ridge e progressing eastward to a position across the Midwest. This more eastern Ridge location is much warmer and poses the risk of extreme heat with high temps to reach the 90’s to lower 100’s across the W Midwest. Some of this heat could leak into MN, WI and IL late next week. The Ridge stays in this Plains/W Midwest location into July 18th before a tropical storm pushes across FL and takes a path up the eastern third of the US. ARC maintains that forecasting tropical storms this far in advance is risky business and subject to sizable changes. However, the market is alert to the potential for tropical activity that could dislodge the current Ridge/ Trough pattern. Our bet is that the GFS model is wrong on the tropical system just like late last week.
** AgResource Market Comment: The midday GFS is much warmer/drier for the W Midwest and Plains. The drop in wheat futures is limiting corn’s rally potential, but we doubt that wheat can maintain a break beyond early Friday. The July USDA report is out next week and no change in US corn/soy yield is expected. Central US weather is too warm and too dry to be overly bearish of corn or soybeans.
** GFS 10 day Rainfall Forecast and difference from Oz Run: