Macro trading pushes commodities lower.
Grain futures had opened firm overnight on crop ratings which were less than expected in the EU forecast that was drier than midday GFS models. But that ended overnight, as the US dollar bolted to new highs over 108.00, and the euro collapsed to near parity with the dollar for the first time since November 2002. This heightens how European wheat with cheaper freight will move more freely until supplies tighten, and then the US and Canadian take over.
Macro selling overnight across the commodity complexes had seen crude oil down as much as $5.50, trading under $100.00 this morning, with gold steady and silver down $0.30. Tomorrow’s CPI for June will show a report of inflation of 8.6-8.9% year-over-year, which has the US dollar rising as the central bank lending rate will likely be raised by .75% later this month, keeping the recession fears running high. Note that with a host of commodity values collapsing since May, the CPI for August will likely be registering a much lower number.
Lost in the macro selling is that France reported its wheat crop would be down 7.2% in 2022 due to all the heat/dryness of recent weeks. The yield forecast was at 32.9 MMTs versus 35.4 MMT last year. A loss of 2.5 MMTs of French wheat production confirms that exports out of the EU will be down 7-9 MMTs from last year as Italian wheat continues to endure the largest yield declines of the drought. This loss of EU grain adds to complications that world importers are enduring amid record low stocks/use ratios. A fresh round of talks between Russia, Ukraine, and Turkey occurs on Wednesday with the UN. Still, again it’s doubtful that large grain supplies will move from Ukraine because of the prior stated concerns that Ukraine feels Russia is using in these talks. All is fair in love and war, including lying about potential grain movement to open up a flank for an assault.
The July WASDE crop production report is out today at 11:00 a.m.
EU and GFS models this morning show an extended period of hot/dry weather will impact the Plains and most of the Midwest over the next two weeks. A Ridge of high pressure will amplify over the Intermountain West and push eastward. This will produce extreme heat across the Plains, Delta, and the W Midwest. High temperatures will range from the 90s to the lower 100s in an extended period of warmth. It is becoming evident that a flash drought is developing across the Plains and portions of the W Midwest amid all this heat and dryness. Cooler forecasts will prevail from Minnesota, Wisconsin, Michigan, and Ohio, with a few Ridge writing rain chances through the states. None of the rains will be heavy, totaling .25-1.25”. Row crops will be under duress due to heat and dryness in the Plains and W Midwest over the next two weeks.
After a strong reversal yesterday, cattle futures, along with feeder cattle due to lower grain values, are called steady to slightly better in the face of macro selling. Last week’s weekly commitment of traders report showed that live cattle spec traders held only 14,000 long contracts, which is the lowest point for the year. This could help keep macro selling limited. Front-end cattle supplies though are keeping the market cautious from pressing through prior resistance values that have been prevalent in June in the 137.50-138.00 range. Yesterday box beef values had choice gaining $0.25, and select was higher by $1.15. The choice/spread stays wide at 25.14, reflecting the lighter cattle weights. The load count had 113 loads at midday. Cash cattle markets were quiet yesterday, but recent strength in the board and beef prices have feedlots looking to sell higher prices.