Grain trades relaxes while heat and dryness is still on the way.
Grains are softer this morning, with soybeans leading the weakness after gaining $0.50 in two sessions. Central US weather forecasts are working to decipher the upcoming heat and dryness duration across the Plains and W Midwest. Remember that recent US weather finishes have not been favorable and have kept trendline potential at bay. Traders are beginning to postulate that August could be warmer and drier than normal. Filling corn and podding soybean crops will have yield risk, but now even the Northern Plains spring wheat crop is enduring dryness and disease pressures, similar to what the Canadian prairies have been dealing with. The Spring Wheat Tour is underway, so grain buyers who populate the tour will find optimal yields in the state's Eastern half, which helped promote weakness yesterday and likely today.
Again, yesterday’s open interest data did not reflect short covering. Corn open interest rose again, this time to 9004 and 63 contracts, while Chicago wheat gained 693 contracts. Soybean open interest fell to 2466 contracts. The grain market trade is heavily skewed short by index funds, leaving the market vulnerable to future sharp rallies if a hot and dry weather pattern sets up in the Central US going into August.
Indonesia is testing a plan to boost palm oil biodiesel from 35% to 40% starting in 2025. An additional three MMTs of palm oil would be needed to hike Indonesia’s annual biodiesel blend rate by 5%. Currently, Indonesia uses 11 MMTs of palm oil in biodiesel production.
The EU imports 14 MMTs of soybeans annually, and starting in January, those soybeans must be certified to be produced in areas that have not been deforested in the past decade. US exporters are stepping up certification, and for many of Europe’s soy and soybean product importers, the US will be the origin of choice. It appears Europe’s EUDR program will benefit US farmers.
The weather forecast for the Central US is consistent with prior-day solutions and offers crop-threatening heat into August 10. The lack of rain and coming heat will quickly drop central US soil moisture, creating crop stress and reducing crop ratings over the next few weeks. There is a concern that a flash drought will develop in the Northern and Central Plains by August 5. North Dakota corn silking was already put at 10%, and South Dakota’s at 23% through Sunday. Plains and Midwest high temperatures will rise into the mid-80s to mid-90s on Friday and hold at elevated levels next week. The heat becomes oppressive, with highs pushing into the lower hundreds across the Plains and W Midwest in the 10-15 day period. This high-pressure Ridge holds across the NC US well into August 8. This hot/dry weather pattern will be the most adverse in the Plains and W Midwest during the reproducing corn and soybean crops. The record corn and short soybean position will become at risk in the next week if the hot and dry weather becomes the primary daily focus in the W Midwest.
Live and feeder cattle futures were sharply higher on Tuesday, with August live cattle leading the strength as the market begins to price in a steady to higher cash trade this week. Strengthen deferred live cattle lifted feeders in the cash index gained $1.07 to 257.74. A light trade was reported in Kansas at $187, which was $1 lower from last week, but volumes are too late to call a trend, and the futures rally on Tuesday will have sellers looking for higher cash prices this week. The nearby feeders/fat spread fours a double bottom in May in July at just over $75 feeder premium, falling short of the record $78 premium was traded in 2014. Deferred spreads are steady with the nearby, but with feeder cattle supplies estimated to be record-low, the nearby spread should be well supported on breaks and could still set a record later this year. The wide discount to cash offers support this week, with futures keeping the cash outlook steady.