Weather Caps Rally Despite Strong Export Demand

Sharply higher overnight grain prices on more Black Sea ship and port attacks faded through the day with corn and beans finishing modestly lower while wheat held onto small gains. The cooler and wetter Corn Belt outlook pressured prices after the early advance but solid weekly export sales and a small, announced bean sale to China were good demand news for the markets. Other news was limited as the volume slowed through the day after the active overnight session. The same factors that impacted trade today will set the stage for the trade into the weekend as the trade closes the books on July.

News and Notes:

• A swath of rain moved across parts of NE and the Dakotas today with more expected through the weekend. The cooler forecast for the key reproductive bean stages int eh weeks ahead continues to limit rallies as bean yields now have a chance to hit trend expectations and possibly a little more. Weather patterns in the rest of the world are largely unchanged and, other than Europe, mostly non-threatening. US forecasts over the weekend will be closely watched.
• The daily September wheat chart is on Page 2 and shows the orderly pullback this week with prices retreating over 50-cents from Sunday night’s new contract high near the open. The market is correcting an overbought condition, but today’s sharp rally and inability to hold those gains shows world supplies are still available, and the bulls will not be as aggressive chasing Black Sea news at these levels. Support should be seen at the 20-DMA (red line) just below today’s close and with the funds holding a very small net short position, there is plenty of money on the sideline to send the market in either direction based on the news.
• Cattle futures have found bullish traction since last week’s announcement of a plan for opening one point of entry for Mexican feeder cattle with feeders $10 off Monday’s low while live cattle futures are $8 higher. Several spending habit concerns have entered the beef demand picture, but prices will remain elevated even if they do not rally back to the record highs in early May.
• Wheat prices are being almost completely driven by the Russia/Ukraine war and the escalating attacks from both sides on important grain shipping ports. As both target and destroy more ports and infrastructure, the combined export capacity for both countries is about 60% of what it was before the war. With the #1 (Russia) and #3 (Ukraine) world wheat exporters seeing such diminished export capacity and Europe going from a net exporter to a net importer because of their devastating drought, the wheat market has significant upside potential. The Russia/Ukraine war is much further away from ending than the US/Iran war.
• Weekly ethanol production totals hit a 28-week high and were 5% above the same week last year. Ethanol margins remain large (15-30 cents) and domestic and export demand has remained stout despite the gas price volatility that has taken over the market this summer. Ethanol is on pace to use 34% of the US corn crop this year.
• The export news was positive today with a daily flash sale of 5 MBU of beans announced to China while the weekly export totals were slightly above estimates with new crop corn and bean sales showing solid weeks and week over week improvement. It is a good sign that China is being specifically named in the sales reports as the momentum will hopefully continue heading into the US/China trade summit in Washington on September 24th.

It would have been nice to see the markets hold the early gains, but a non-threatening US weather pattern for early August is the most important fundamental factor to consider. Demand is strong and the wars are not going away, but a “normal” weather finish to the growing season would be welcomed by all farmers after a tough spring and summer. Closing out July and starting August should add some volatility to Friday and Monday’s trade, but US weather, Black Sea news and Chinese demand will remain the key factors to watch.