· No Deal: We are no closer to a deal between Russia and Ukraine when it comes to movement of grain out of Ukrainian sea ports. In person meetings between Turkey and Russia, with no inclusion of Ukraine in addition to Ukrainian accusations that Turkey was buying stolen grain from Eastern Oblasts did not help matters.
Officials from the EU and the United States now say they are committed to moving grain out of Ukraine via land to border countries, with plans to build temporary storage and loading facilities along the Polish border. With the time and investment necessary to build out infrastructure this is perhaps the best indication neither group is expecting a quick resolution to the war.
Crop size estimates continue to grow out of both Russia and Ukraine, though traders will be watching as some hot and dry weather works its way east across Europe, targeting both countries in the extended forecasts.
· 75: With its biggest one day move higher in rates since 1994 the Fed bumped rates 75 basis points, indicating another 75 point increase in July followed by a 50 point bump in September could be expected at this point.
With mortgage rates jumping the most since 1987 and sitting at their highest level since 2008 we saw housing starts for May fall to a two-year low.
The Fed continues to speak positively of the economy, saying we are in the best position to weather the storm of anyone in the world, pointing to a strong job market and earnings, but more experts are indicating a recession is growing harder to avoid each day.
· Ridge Riders Needed: Markets rallied midweek on ideas of more heat and dryness working its way across much of the country’s growing regions. Models continue to indicate a hot and dry pattern will be entrenched across much of the nation’s midsection throughout the summer with drought development possible across Southern Illinois, Western Kentucky and Tennessee and points south and west.
However, one bright spot appears to be both the Euro and GFS models’ inability to forecast convergence and summer thunderstorm development, possibly leading to a wetter reality than forecasts show. According to a well-followed meteorologist in the industry, ridge riding storms will be fueled by a strong Southwestern monsoon and a strong jet stream to the north, possibly doing a lot to help with heat stress and limit yield losses.
· Fuel ‘er up: Continued record high gasoline and diesel prices aren’t doing enough to limit demand with refiner capacity still limited. Possibly seeing how well the shutdown to a major natural gas exporting facility worked to drop natural gas prices (down 17% on Tuesday), the Biden administration is now discussing a possible cap on gas and diesel exports. While nothing appears to be imminent according to one insider, talks are growing in frequency by the day.
Strong gas prices and steady demand helped ethanol production bounce back on the week, up 21,000 barrels a day from last week’s production figures. Stocks remain elevated from a year ago but were down on the week.
· Demand, Demand, Demand: While we focus a lot of our attention on weather and production potential this time of year, we also are watching demand. Exports on the week for corn were disappointing with another marketing year low seen for old crop. Soybean sales were decent, with another tranche of old crop beans sold. Wheat sales were good as we start into the new crop year.
One way to judge domestic demand comes from basis and spreads. Strength in bean basis throughout May into the start of June is starting to fade a bit as crushers are gaining coverage, with margins down significantly over the last 2 months and export interest remains limited. As a result, we are seeing bean basis back off and some subsequent weakness in spreads.
Lack of production due to drought throughout much of the Western Belt, in addition to strong rail demand early in the year has left end users in the region chasing corn bushels, with bids pushing higher over the last several weeks. Eastern Corn Belt values seem more driven by logistics than anything else, with some pops in cash seen, though overall values seem to be trading in line with normal--outside of Michigan where basis remains historically depressed.
· What next: Markets will be closed Monday in observance of the Juneteenth Federal Holiday. It will be all about weather when they reopen Monday night, continued heat without moisture will start to stress young plants and increase concerns over yield loss.
Obviously, there is no room for error this year, so the current forecast will likely keep traders on the edge of their seats far into summer.
Beans up 4 to 7
Corn up 3 to 7
Juneteenth Holiday Trading Hours
Sunday, June 19
- No evening trading session.
Monday, June 20 (Juneteeth Observed)
- CME Group CLOSED for daytime operations.
- Evening trading for grains resumes at 7:00 p.m. CST
Tuesday, June 21
- Grains trade normal hours.
- Livestock resumes trading at 8:30 a.m. CST