Grains are all sharply higher this morning, led by the wheat trade. It is not just a heat story; it is also a war story and a demand story that continues to keep the market firm overnight, pushing wheat to new highs for the year. The latest move is being led by French milling wheat, which is up €10.00/MT this morning to €244.75 (equivalent to about a $0.29-per-bushel gain), while Euronext corn is higher by €7.50/MT at €259.24 (roughly a $0.22-per-bushel gain). European weather forecasts remain locked into the worst drought in decades, with hot and dry conditions expected to persist for at least the next 10 days, pushing EU corn production well below 50 MMTs. World grain values continue to climb, and US corn and wheat prices are chasing those higher values. Meanwhile, Argentine farmer soybean sales remain slow, with US soybean meal carrying much of the strength in the soybean complex.

The Strait of Hormuz remains closed as fighting intensifies. Crude oil traded as high as $88.60 overnight before easing back, although the September WTI contract was still up $2.61 this morning at $86.90. With oil movement through the Strait of Hormuz effectively shut down, strategic petroleum reserves have been drawn to their lowest levels in 43 years following heavy sales to Europe and Southeast Asia. Those exports will eventually need to slow, placing additional upward pressure on Brent North Sea crude. Let’s just say the biofuels story could quickly come back into vogue.

As our special report discussed yesterday, it is becoming increasingly apparent that the supply of inexpensive Black Sea wheat is being pinched off as additional drone and missile strikes continue targeting Ukrainian port facilities and grain loading infrastructure. Ukraine also continues targeting vessels attempting to move Russian grain through the Black Sea. Russia’s deep-water export ports remain operational, but CIF values continue to rise because of soaring freight insurance costs and the ongoing threat of drone attacks.

Restricted Black Sea grain movement appears likely to remain an issue for months to come, with no meaningful peace negotiations taking place. That is helping lift French milling wheat, along with US and Canadian wheat values, as importers seek reliable supplies. HRW wheat needs to continue pricing itself out of the export market because supplies remain limited. As the bears have repeatedly argued, HRW wheat is too expensive. Well, now it may need to become even more expensive.

The Hard Red Spring Wheat Crop Quality Tour is underway, with the first day finding an average yield of 46 BPA. That is below last year’s 50 BPA but still slightly above the five-year average of 45.8 BPA. The recent stretch of temperatures near and above 100 degrees has trimmed yield potential, and additional reductions are expected as the tour continues west over the next two days.

US weather forecasts call for cooler temperatures across much of the Midwest over the next few days, offering the crop a brief break. However, heat is expected to return this weekend, with the Plains and western Midwest once again seeing temperatures climb into the 90s and lower 100s. With the jet stream positioned well north into Canada, the high-pressure ridge is expected to oscillate between the Intermountain West and the Plains. Meanwhile, the eastern Corn Belt should avoid the worst of the heat, although rainfall across much of the central United States is expected to remain near to below normal over the next 10 days.

We are not advising additional corn sales on this rally, as we statistically see demand increasing, yields declining, and the USDA woefully too high on its new crop carryout number. It is likely closer to 1.5 BPA if not lower, and we anticipate corn values for the December contract to push well above 5.00.