Heat, GASC tender and will Ukraine/Russia make the deal.

Grain futures are sharply higher this morning after a volatile start that found initial selling but recovered in the overnight back to session highs. Concerns for searing heat in the Central US along with Europe, reducing row crop yield potential, and Egypt tendering for wheat, while adding the US into the tender while excluding EU/Russian wheat supported the overnight market.

Focus turns towards Russia’s intentions this week on signing the Grain Pact agreed to last week on Wednesday and whether they will be turning on the gas to Europe via the Nord-Stream 2 pipeline. Ukrainian grain export potential is in limbo as Russia continues to advance along the southern border, with Odessa potentially being captured with or without the Grain Pact. Grain prices as of last week have factored in Ukrainian grain moving, when in fact, after this week, we may find this will not be the case, and grain prices have substantially collapsed, allowing Egypt again to tender for wheat at cheaper values.

The US dollar is starting the week lower on profit-taking the talk that the US central banks will only hike is lending rate to point 75%, not the widely discussed 1% after the CPI was released and 9.1%. Recall the US dollar tagged 109.00 and this morning is currently trading down $0.53 at 107.39. This has supported crude oil, which has recovered almost $4.00 from Sunday evening lows.

European weather has a drought worsening for another two weeks with hot and dry weather having private estimates for the EU corn production in freefall with now many analysts below 61 MMTs as Eastern and Western Europe crop sizes decline. Record-setting heat will continue for the next 72 hours, with high temperatures in the lower 100s. The EU will be a massive importer of Brazilian corn for lost feed production.

Extreme heat is scheduled for the Plains weather, and there is a concern about whether there will be a return of rains for NE/IA. The US corn and soybean ratings are anticipated to drift again today and likely lower again next week, as the Eastern corn belt will not be able to offset the West declines, as the East already is carrying strong ratings that will be difficult to improve. The EU and GFS models have an extended period of hot/dry weather that impacts the Plains and most of the W Midwest over the next 10 days. A Ridge of high pressure amplifies and progresses East into July 25. This produces more extreme heat across the Plains, Delta, and the W Midwest. High temps will continue to range in the 90s to lower 100s as a flash drought has developed across the Plains and SW Midwest. The models hold the mean position of the Ridge across the SW US in the 11-15 day period, allowing Ridge riding rains to continue to drop across the N and E Midwest.

Cattle futures are called mixed this morning with feeder cattle, likely softer on the strong performance of feed grains overnight. Futures continue to be trapped in a sideways trading range as the southern cash trade fails to perform stronger. This week has the Livestock Slaughter report released on Thursday, while the July COF and Cold Storage reports will be released on Friday, along with the Semi-annual Cattle Inventory report. Last week beef cutouts held reasonably well considering the large production. Choice gained $1.02, and select was down six cents for the week. The choice/select spread is now at $27, a record for mid-July and likely due to the heat reducing the ability to make choice.

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