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UPDATE for July 21st, 2023

Black Sea Grain Deal Revoked, Crop Conditions & Hot Finish to July

The Russia/Ukraine war is back in the headlines this week. Russia failed to renew the Black Sea grain deal and have been bombing the Odessa port and the surrounding area nightly. In a statement they said that going forward they will assume all ships traveling to Ukraine could potentially be transporting military cargo. The Russian Defense Ministry said, “The flag countries of such ships will be considered parties to the Ukraine conflict.”

In response Ukraine also issued a threat to ships heading to Russian ports. Officials there have warned Russia that any vessel destined for a Russian port will now be considered a military target. The U.N. meets today to review the “humanitarian consequences” that will result from the termination of the Black Sea grain agreement.

Dmitry Peskov, spokesman for the Kremlin was the first to confirm that the grain deal was not being renewed but also said that Russia was willing to renew the deal if certain demands are met. “As soon as the Russian part of the agreements is fulfilled, the Russian side will return to the implementation of this deal immediately.” The 5 key requirements that must be met in order for Russia to reenter the grain deal are:

• Readmission of the Russian Agricultural Bank to the SWIFT payment system.

• Exports of agricultural machinery and spare parts to Russia resume.

• Remove restrictions placed on insurance and access to ports for Russian ships and cargo.

• Restoration of the damaged ammonia export pipeline that runs from Tagliatti, Russia to Odesa, Ukraine.

• Unblock the accounts and the financial activities of Russian fertilizer companies.

The U.S. corn crop conditions improved this past week. The GD/EX rating increased by 2% to 57%. Even so this is the worst seasonal rating since the 2012 season when the GD/EX rating was 31%.

Harvest of Brazil’s Safrinha crop continues but remains behind the normal pace however yields appear to be better than expected. These recent yield reports have led to the speculation that the USDA may need to raise their Brazilian production estimate of 133 MMT by 2 to 4 MMT. So, while Brazil’s crop is increasing around half of China’s corn crop is expected to find yield losses of 5% to 7% due to the somewhat dry conditions and extreme heat during pollination. Overall, the International Grain Council has raised its total world production forecast by +9 MMTs which increases total global production by 64 MMT more than last year.

The U.S. soybean crop GD/EX rating also improved this week. An increase of 4% brings the rating to 55% GD/EX. Comparing conditions to other years this is the worst seasonal rating since 2019. In 2012 the soybean GD/EX rating was only 34%.

The ever-changing weather models from NOAA are now forecasting August will be much more seasonable in temps and even cooler than normal for some. The precipitation model indicates that above normal to normal precipitation is also likely across the entire key soybean growing areas. In the meantime, we have some hot and dry days ahead of us next week and the trade is trying to balance out these forecasts. Extreme heat and dry on one side of the scale and slightly below normal temps and above normal precipitation on the other side. The month of August is vital to soybean yields so price action will likely be largely dictated by the weather models.

We know it’s going to get toasty next week but just how hot is it going to get? Well, that depends a lot on which weather model you chose to follow. The EURO model seems to be more realistic than the GFS for temps next week. The EURO gets temps up into the low to mid 90’s and upper 90’s for a few spots. On the other-hand the GFS is off the charts with their forecasted temps beginning next week. Currently the GFS has highs reaching 115 to 117 on July 31st, these forecasted highs would set all-time records in that region. The Climate Prediction Center has upgraded a large portion of Iowa, Illinois and Missouri to a high risk of excessive heat July 28th and 29th and again July 30th. (First map) The second map is from NOAA and gives us their 6-to-10-day temperature outlook.

Weekend temps will be comfortable, the warmup gets underway Monday and gradually increases each day through approximately Thursday. After that, the ridge will slowly deteriorate, and the high temps will slowly begin to fall once the NW air flow starts. There are some scattered thunderstorms possible Tuesday night and Wednesday as the heat really begins to get ramped up and again late week when temps begin to back down due to an incoming cold front.

The following maps are the GFS models forecast for the expected high temperatures on 27th and followed by a map for August 1st. These temps are record setters and are likely 15 to 20 degrees too high.

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