June 12 - Modest gains in stocks is the norm on Wall Street today ahead of this week's meeting of the Federal Open Market Committee to discuss monetary policy. The VIX is trading mostly between 14 & 15 today, reflecting a slightly elevated level of caution ahead of the Fed meeting. The dollar index is trading firmer near 103.8. Yields on 10-year Treasuries are trading near 3.78%, while yields on 2-year Treasuries are trading near 4.60%. Crude oil prices are 4% lower after spiking to a fresh five-week low this morning, while the grain and oilseed sector is mostly firmer. Corn prices led the way higher on disappointing weekend Midwest rain totals, tripping buy stops as prices broke above levels of chart resistance. That provided support for new-crop soybeans as well, while old-crop contracts struggled under weak demand. Wheat prices were mixed, lacking a story today. Speculative short-covering continues on bottoming signs in hogs, while cattle futures continue to chase the cash market higher.
USDA inspected 46 million bushels of corn for export shipment in the week ending June 8, along with 9.1 million bushels of wheat, 5.2 million bushels of soybeans, and 2.3 million bushels of grain sorghum. The portion of the above that included grain destined for China included 8.0 million bushels of corn, 2.0 million bushels of grain sorghum and 0.3 million bushels of soybeans. No wheat was inspected for shipment to China in the week ending June 8. USDA lowered its corn export target by another 50 million bushels on Friday, while cutting 15 million bushels from its soybean export target. Marketing year to date corn inspections total 1.224 billion bushels, which is down 547 million bushels, or 30.9% from the previous year's pace, and down 36 million bushels from the seasonal pace needed to hit USDA's newly revised target. Unfortunately, the pace of export shipments is slowing as cheaper new-crop Brazilian supplies become available. This morning's edition of China Direct, published by our Shanghai office, noted that U.S. corn prices are currently 89 cents per bushel cheaper than local cash prices, but Brazilian supplies booked for August / September delivery are another 71 cents cheaper than U.S. corn. That is expected to result in a continued decline in U.S. shipments through the summer, risking another downgrade in USDA's export target. Marketing year to date soybean export inspections total 1.794 billion bushels, down 62 million bushels of 3.3% from the previous year. That exceed the seasonal pace needed to hit USDA's newly revised target by 47 million bushels, but that surplus continues to shrink on a weekly basis. I was not surprised that USDA cut its export target, but I was surprised that it cut it so soon.
The change in the Midwest weather pattern happened on cue over the weekend, with much cooler temperatures dropping across the bulk of the region. This is just the first phase of the transition to an El Nino weather pattern that is expected to express itself across the Ag Belt during the current growing season. We will still face risks of below-trend corn and soybean yields until this transition is complete. The length of that transition is yet unknown. New-crop corn and soybean prices led the way higher this morning due to disappointing rainfall totals over the weekend that is expected to result in additional declines in this afternoon's USDA weekly crop progress and condition report.
Rainfall less than 0.50" was deleted from the lower left graphic to show heavier amounts. Most of Iowa and northern Illinois and northern Indiana missed out on the heavier rains. The graphic on the right shows where expected rainfall will be over the next 2-1/2 days. Pay less attention to rainfall totals, and more to locations of rain. Forecasters note that the current pattern is loaded with disturbances in the flow aloft that will create storm clusters over the next 10 days that did not show up in the forecasts, which is expected to be the trend this summer. That doesn't end the debate over yield losses, but it eases those concerns to some extent.
