Evening Report | June 21, 2023

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Corn hedgers: Claim profits on short-dated calls, establish new position... The December $5.70 call options short-dated to August (July 21 expiration) we purchased on 25% of expected 2023-crop for 17 cents last week have more than tripled in value. We advise hedgers to claim profits on that position and buy December $7.00 calls short-dated to August (July 21 expiration) on 25% of expected production. Our exit on the $5.70 calls was 61 cents and our fill on the $7.00 calls was 12 cents. Also, be prepared to increase 2023-crop sales when the market shows signs of topping.  

Soybean producers: Increase new-crop sales, hedgers reown in short-dated calls... Soybean futures have rallied sharply on weather concerns. We advise hedgers to sell another 25% of expected 2023-crop production to get to 35% forward priced for harvest delivery and reown 25% in November $14.00 call options short-dated to August (July 21 expiration). Our fill was 37 cents. We also advise cash-only marketers to sell another 15% of expected 2023-crop production to get to 25% forward sold for harvest delivery. Be prepared to increase old- and new-crop sales when the weather rally runs out of steam.

Wheat producers: Increase 2023-crop sales... Wheat futures are rallying in the face of winter wheat harvest due largely to spillover from the corn and soybean markets. We advise hedgers and cash-only marketers to take advantage of the contra-seasonal strength by selling another 10% of 2023-crop to get to 50% priced.

EPA finalizes RFS mandates for 2023-2025... EPA announced a final rule to establish biofuel volume requirements and associated percentage standards for cellulosic biofuel, biomass-based diesel (BBD), advanced biofuel and total renewable fuels for 2023–2025. The rule also establishes a supplemental volume requirement of 250 million gallons of renewable fuel for 2023. The final volume targets:

In December, EPA proposed conventional renewable biofuels mandates of 15.25 billion gallons for 2023-25. Total renewable fuels were proposed at 20.82 billion gallons for 2023, 21.87 billion gallons for 2024 and 22.68 billion gallons for 2025.

EPA said, “This final rule includes steady growth of biofuels for use in the nation’s fuel supply for 2023, 2024 and 2025. The Energy Independence and Security Act (EISA) of 2007 does not specify statutory volumes after 2022, and EPA in this rule is establishing final biofuel volume targets for all categories under the ‘set’ authority. When determining biofuel volumes for years after 2022, EPA must consider a variety of factors specified in the statute, including costs, air quality, climate change, implementation of the program to date, energy security, infrastructure issues, commodity prices, water quality and supply.”

Perspective: The biomass-based diesel requirements are well below the increase sought by producers, who warned the White House that recent surges in U.S. production warrant much higher targets and that multi-billion-dollar investments in renewable diesel capacity hang in the balance. The main reason why EPA went light on biodiesel and renewable diesel mandates: The food vs. fuel debate was highly discussed within EPA, sources advise.

Brazilian soybeans flood Chinese ports... A flood of Brazilian soybean cargoes into China is weighing on soymeal purchases and may curb buying of beans later in the year, traders and analysts told Reuters. After a record 12 MMT of soybean arrivals in May, 11 MMT in shipments are expected to arrive at Chinese ports this month, two Beijing-based traders at commodities consultancy Zhouchuang said. They noted July’s soybean arrivals also are expected to be near 11 MMT, with another 10.5 MMT booked for August. Most of the summer shipments will originate from Brazil.

While soybean arrivals are active, soymeal demand is weak following months of losses for hog farmers. Soymeal demand is not expected to improve during the heat of summer when hot weather typically curbs meat consumption. As a result, feedmakers are limiting their soymeal inventories, which will back up supplies at ports and could lead to some cancellations or deferring delivery on some shipments.

SovEcon lowers Russian wheat crop forecast... SovEcon cut its Russian wheat crop forecast by 1.2 MMT to 86.8 MMT due to worsening crop conditions for spring wheat in the main growing regions – Siberia, the Volga Valley and the Urals. Soil moisture has been declining since late May and in many cases fell to the lowest level in recent years. That was only partially offset by improved production potential in the South, where yields could be record-high.

SovEcon cut its total grain/pulses production forecast by 2.3 MMT to 134 MMT.

Powell: Expect more interest rate increases... Fed Chair Jerome Powell told the House Financial Services Committee additional interest rate increases are “a pretty good guess” if the U.S. economy continues on its current path. In response to a question late in a three-hour hearing, Powell said he would not characterize the Fed’s decision last week not to increase rates as a “pause,” and noted the majority of policymakers see two more quarter-point rate increases as likely by the end of the year.

“We didn’t use the word... and I wouldn’t use it here today,” Powell said, when questioned about a pause in monetary policy. Powell noted the Fed “has a long way to go” in its fight against inflation. While “inflation has moderated somewhat sine the middle of last year,” Powell said price pressures “continue to run high.”

Powell also addressed the U.S. dollar’s status as the world’s reserve currency. He said, “The status of the dollar as the world’s reserve currency is a very important thing to us. I think the reason we have that status is largely due to our great democratic institutions, the rule of law and the fact that we have, generally speaking, had strong levels of price stability. I think the dollar will remain the reserve currency as long as those things are in place.”

Next wave in ESG battle takes shape in Congress... Republicans in the House, led by Rep. Andy Barr (R-Ky.), are preparing to launch a new offensive against environmental, social, and governance (ESG) investing. Barr is set to introduce a bill aimed at limiting investments in ESG funds, which critics have labeled “woke.” Proponents of ESG argue the approach enables investors to both make money and contribute to social good. However, Republican critics and conservative Democrats argue that investment funds should prioritize maximizing returns. Barr believes ESG investing has a negative impact on capital markets, leading retail investors to lower-performing, less-diversified, and higher-fee funds. The proposed bill may be part of a broader House GOP effort to target ESG investing in July.