All three major markets roared back yesterday, trading double digits higher on doubts regarding Ukrainian grain exports and less than desirable weather in both the US and Europe. At the end of the day we saw September wheat up 33 cents, closing nearly 50 cents off last week's lows. December corn was up 17, recovering nearly 40 cents since last week's lows, with November beans up another 30 cents for the day, regaining a dollar after trading below $13.00 last week.
Weather continues to be the focus with hot and dry conditions expected across a good portion of the Western Corn Belt and Southern Plains next week. While some areas will welcome the return of heat and dryness after receiving big rains this week, the worry is the areas where rainfall has been below to much below normal over the last several weeks if not months will really struggle with the heat this time around.
The GFS model, which runs historically hot this time of year, put highs in the 100's across all of Iowa, well north into the Dakotas for next week helping spur more buying yesterday. Other models don't show temperatures near that hot, with highs in the mid 90's more in line with expectations. In addition to questions about how hot it will actually get, where the ridge sets up will have a lot of impact on how much rains production areas see, with ridge riding storm clusters expected.
European heat and dryness remains in place as well. French wheat production is down year over year, though at this point early harvest results and cash values don't necessarily indicate production is as low as initially feared. Corn production looks like it may be harmed the most though as temperatures remain elevated and rainfall seems somewhat hard to come by throughout the region.
Reports of Russian attacks in Mykolaiv, a Ukrainian port city, also lent support to corn and wheat yesterday as traders believe this is further indication Russian will not play as nicely as many had hoped when the grain corridor deal was signed.
It is important to note however, Mykolaiv is not a part of the agreement when it comes to grain shipments. The city has been the target of attacks over the last several weeks as it sits very close to the frontline currently and would be a very valuable asset for Russia if they were to take it over. Shipments of grain that has been loaded but unable to ship since February are expected to start this week, with many traders waiting to see what happens with a fresh ship lineup in the weeks ahead.
At this point it appears the country is targeting around 3.5 mmt worth of monthly exports with the reopening of three ports, though many continue to contend this is an optimistic outlook. UN and US officials claim to also be working on "plan B" if the corridor were to fail, working to facilitate better logistics and increase storage capacity along the border.
All eyes seem to be focused on energy currently, with European energy values skyrocketing to record high levels on the back of cuts to Russian gas flows. Members of the EU have agreed to work towards a voluntary 15% cut to energy demand in an attempt to stop the rise in values, but with uncertainty over when or even if Russia will resume normal gas flows after 'maintenance' is complete on the Nord Stream 1 pipeline, prices are likely to remain elevated.
The Biden administration announced another 20 million barrel release of oil from the country's strategic reserve, helping to reverse the rise in oil prices yesterday. We will get updated energy information this morning, with traders looking to gasoline demand to try to get a feel for what the consumer is thinking.
Looking ahead, today is Fed decision day, with Fed Chair Powell set to announce the rate decision at 2 eastern. The market seems to be pricing in a 75 point hike, though some feel that with the continuation of elevated inflation figures we could see a more aggressive 100 point move. It's interesting to note many are ignoring the short-term increases in rates, choosing to instead focus on when the Fed will reverse its policy, with some believing we could see cuts to rates happen before year end on an economic downturn.
Powell's responses today will be important when it comes to determining the Fed's thoughts regarding a policy reversal, and whether or not the current moves being made will be enough to stabilize prices.
Weather forecasts will be important today as well, as the heat is expected to arrive across the Western Corn Belt this weekend. Some meteorologists believe this heat will be slow to evolve but quick to leave, while others aren't so sure. How the models start to come together beyond the first week of August will be key when it comes to how we handle production outlooks and what we see when it comes to market direction.
Corn up 2 to 5
Beans up 8 to 12