Grain Futures Rally On Monday With Stormy Weather And Positive Weekly Inspection Data In Focus

by: Andrei Evbuoma

Wheat futures surge more than 3% after a bullish inspection report.

Corn and soybean futures trade higher after weekly inspections fall in line with expectations; weather and planting delays also in focus.

Storms will continue to plagued the central U.S.

Investment Thesis

Weather and slow planting will continue to support prices to the upside. But be aware of the U.S.-China trade war news. Look for prices to move higher overall in the days ahead.

Wheat leads all grains higher Monday after bullish weekly shipment report

Monday's export inspection report showed corn from the week ending May 16 at 821k metric tonnes. This came in less than last week's mark of 1,001k metric tonnes but in line with trader expectations of 600k-1,000k metric tonnes. Japan (177k) and Mexico (147k) were the main destinations.

Wheat reported 758k metric tonnes, less than last week's 842k metric tonnes but more than trader expectations of 400k-600k tonnes. Wheat inspections included 290k tonnes of Hard Red Winter (HRW) and 123k of Hard Red Spring (HRS). Indonesia (130k) and the Philippines (118k) were the main destinations.

Soybeans came in at 497k metric tonnes, less than last week's 514k tonnes but in line with traders' range of 400k-700k tonnes. China (206k) was the main destination.

Source: USDA

The U.S. July corn futures finished Monday's trading session up 1.14% to $3.8838, with the U.S. July soybean futures up 1.16% to $8.3150 and the U.S. wheat futures leading all grains higher 3.36% to $4.8026. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished up 1.08% ($0.17) to $15.63, the Teucrium Soybean Fund (SOYB) finished up 1.25% ($0.18) to $14.75 and the Teucrium Wheat Fund (WEAT) also finished up 2.96% ($0.15) to $5.38. Figure 2 below is a price trend chart of the front-month July futures contract for corn over the past 24 hours.


Figure 3 below is a price trend chart of the front-month July futures contract for soybeans over the past 24 hours.


Figure 4 below is a price trend chart of the front-month July futures contract for wheat over the past 24 hours.


July Chicago Soft Red Winter Wheat (SRW) futures were seen up 15.4 cents to $4.804, with July Kansas City Hard Red Winter Wheat (HRW) futures up 15.4 cent to $4.356, resulting in a bearish 45-cent premium of CBOT wheat to KCBT wheat. MGEX's Hard Red Spring Wheat (HRSW) July contract was up $0.156 to $5.434. Figure 5 below is a price trend chart of the front-month July futures contract for spring wheat.

Source: Barchart

Weather not giving farmers a break across the central U.S.; slow planting to continue

On the weather front, the first heat event of the season is set to get underway later this week and over the weekend. This will be driven by a strong upper troughing over the western U.S. with downstream strong upper level ridging over the Southeast U.S. Strong cooling demand with record to near record-breaking heat across the Southeast U.S. is expected. Daytime high temperatures during this timeframe will range in the 90s with some 100s possible. Figure 6 below is a map from the 0z ECMWF depicting the 4-9 day (May 23-28) upper level/jet stream pattern.

Source: WeatherBell

Figure 7 below is a map from the 0z ECMWF depicting the 4-9 day (May 23-28) temperature pattern.

Source: WeatherBell

In between these two large scale upper level features in the near term will be an active jet stream associated with a baroclinic zone/surface frontal boundary draped along the periphery of the Southeast U.S. heat dome. Numerous rounds of showers and thunderstorms will travel along this narrow channel/boundary resulting in unneeded precipitation across the major crop production centers of the central U.S. (Plains/Midwest). The epicenter looks to be centered over the western corn/soybean belts. This will continue to create disruptions and planting delays for farmers across these regions. Additionally, shippers will continue to face challenges with logistics due to river system closures from high waters along the Mississippi and Illinois Rivers. The warmer changes in the weather outlook is a good thing, but until we see prolonged period of dryness taking place over the central U.S., this scenario will continue to be the case. Figure 8 is a map showing the 7-day accumulated precipitation forecast across the Lower 48.

Source: NOAA

Figure 9 is a map from the 12z GFS ensemble depicting a wetter-than-normal (in green) precipitation pattern over the corn/soybean belts, with normal to drier-than-normal precipitation across the southeastern U.S. courtesy of the heat ridge in the 6-12 day time frame (May 24-31).

Source: Tropical Tidbits

Final Trading Thoughts

Look for grain prices to continue to edge higher overall as weather/slow planting will continue to support prices to the upside, and as long as export data remains positive. Weather will likely result in corn and soybean yields being lowered. There could be some delays over the spring wheat belt as well. While weather and positive export data will continue to provide upside support, we must continue to keep an eye on the U.S.-China trade war developments as well as other factors such as export and supply.

Stay Tuned For More Updates!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.