Weather has had more of an impact on futures trade than normal for this time of the year in recent weeks. We may now start to see even more weather-driven trade as we approach the start of the pollination window for corn. Much of the U.S. corn crop will pollinate in early July, and weather models remain mixed for much of the Corn Belt. Extreme heat can have a negative impact on pollination, as can a lack of precipitation. While we have seen risk premium both added and taken out of futures in recent weeks, now is when trade will start to really show more interest in how much premium needs to be in futures.

There are other factors that will determine how much premium needs to be added than just weather however, with demand being a primary one. Demand for U.S. commodities has trailed off in recent months as the larger crops out of Brazil make their way into the global supply line. Total demand for U.S. commodities is shrinking as importers have shifted their overall buying patterns as well. Given this change it makes it less important for the U.S. to have large volumes of commodities to export and does take some of the urgency away from buying on crop loss possibilities without actually seeing proven yield loss.

Discussion surrounding the Black Sea corridor continues as Russia is stating they will end the agreement in July unless all sanctions against them are lifted, same as they did in prior talks before an extension was granted. The main objection Russia has is to its exports and banking sanctions. Mediators believe if they allow Russia to export ammonia and fertilizer they will agree to an extension, but Russia is standing firm on all restrictions being dropped. The threat of this ending is preventing shippers from entering the region to load as they are afraid ships will be held up and demurrage rates will be costly. The potential loss of exports is not gaining as much interest as it previously has given Ukraine exports via land routes instead.

We are starting to see a difference in how importers are covering their needs. When COVID disrupted global trade, many buyers started to stock up on commodities, especially those for food. This was most noticed in wheat trade. The U.S. dollar has recently rallied to an elevated value which is slowing import interest. Rising interest rates have further reduced large-scale import buying. Many world buyers are again going hand to mouth for coverage which has slowed not just U.S. exports but those from all sources.

Chinese commodity demand has been less than expected since the easing of COVID restrictions took place. This demand has been further strained by China’s stricter import regulations on soybeans that have extended unload times from three-five days to almost three weeks. China has now announced it may implement even tougher import guidelines and potentially cause even greater delays. It is believed that China is doing this more to manage soybean reserves and support domestic values than for safety concern over the imports themselves. Poor feeding margins in China may also be impacting the country’s overall feed grain demand, including soybeans.

China has also shifted its base feed grain formulas, and this is impacting imports as well. The greatest of these is elevated use of wheat in feed rations rather than corn. Wheat can not only displace corn, but soy meal as well as the grain is higher in protein and needs less supplementing. Wheat is also more readily available for China to use and import. The country’s own wheat crop is expected to total 137 million metric tons, and 30 million of this may be for feed purposes. Russia is also projecting record wheat exports this year and China will be quick to buy this over corn from the U.S. and South America.

The June cattle on feed report held a few surprises for trade. The total numbers of cattle on feed on June 1 totaled 11.55 million head, 97 percent of last year which was at the top end of expectations. May placements were 105 percent of last year at 1.96 million head. This was 3 percent over the highest trade guess. May marketings came in as expected at 1.95 million head, a 2 percent increase on the year.

The cold storage report for May showed a 7 percent decline in total U.S. red meat supplies from April and a 12 percent reduction from May 2022. As of May 31, the U.S. had 423.65 million pounds of beef in storage compared to 526.2 million pounds a year ago. Frozen pork supplies totaled 525.87 million pounds, down from the 546 million pounds from May 2022. Pork bellies increased from 56.7 million pounds last year to a current 82.54 million pounds.

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named. This is not independent research and is provided as a service. As such, this is considered a solicitation.