A topic that is starting to come up in several markets is that paper trade is not matching physical trade. What this means is that the value of the futures markets is not matching the value of cash commodities. Right now, this is most evident in the energy complex where crude oil futures have broken below $80 a barrel while the world crude oil supply is falling to historically low levels. In the ag sector, we are seeing this between futures and cash markets as interior basis remains historically strong and processing margins are near record high, yet futures have fallen to contract lows. This separation makes the monitoring of cash markets much more important than in recent history.

Market sentiment in the United States has been mixed in recent months, but in Brazil, the farm economy outlook is rather bleak. Farmers in Brazil have been under considerable economic pressure recently with high interest rates, low commodity values, and spiking input costs combining to bring numerous farm bankruptcies to the country. It is believed that 20 percent of Brazil’s farmers are under severe financial stress and may lose their operations.

This comes as the country is also starting to see weather stress from a building El Nino weather event, one that is expected to be the strongest in history. To see crop loss in Brazil from an El Nino is not uncommon, giving farmers in the country even less incentive to plant a high-priced crop. These reports make acreage expansion in Brazil even less likely.

The Chinese wheat harvest is well underway, and for the second year, not only is crop size being debated but so is crop quality. The Chinese wheat crop is now 70 percent harvested and yields are in line with expectations, but the volume of usable wheat is another question. Sources in China report excessive rains have made up to 10 percent of the crop unusable due to molds and sprouting. These worries have led to several terminals rejecting incoming loads of wheat as storing low quality grain is an issue. As a result, Chinese wheat millers are already paying a premium for high quality stocks. Low quality wheat is also prompting the release of government grain stocks, along with keeping China engaged in the import market.

A developing factor in gulf basis is the lower water levels in the Panama Canal, a normal occurrence in an El Nino year. Drafts are already being reduced in the canal, and this is going to impact demand from the Gulf into the global market. It will also push more demand to the Pacific Northwest, same as it did in the prior El Nino-influenced year. The current El Nino is expected to be the strongest on record and may have even more impact on global trade.

The National Oilseed Processor Association soybean crush for May was well below the range of trade estimates at 208.79 million bu. This was 8 mbu below the average trade guess. May’s soybean crush was down 1.4 percent from April, but up 8.3 percent from May 2025. The average daily crush in May was 6.74 mbu, the lowest volume in eight months. Many plants were idled in May for spring maintenance, leading to the lower volume. Soy oil stocks were below all estimates at the end of May and totaled 1.74 billion pounds, the lowest volume in 5 months.

Private analysts are starting to release estimates ahead of the June revisions to U.S. acreage estimates from the USDA. The firm S&P Global is now predicting U.S. corn plantings of 96 million acres this year, up from their prior estimate for 95.2 million acres. Soybean plantings are now forecast at 85.3 million, up 300,000 acres from the group’s earlier number. These are still sizable shifts from last year’s 98.8 million corn and 81.2 million soybean acres. The USDA is currently forecasting acreage of 95.3 million on corn and 84.7 million for soybeans.

The most interest on U.S. planting is in parts of Ohio and Indiana where excessive rainfall continues, flooding already saturated fields in some regions. This is already to a point where replants are needed, but given current market economics, many farmers may opt for insurance payments instead. Even in fields that have dried out, poor crop stands are being reported. This is generating doubt over reports that indicate plantings of both corn and soybeans will be up from March intentions.

Interior basis values remain strong even though processing margins have become pressured. The current margin on ethanol grind is between 30 and 35 cents per gallon. This is down 15 to 20 cents from recent highs, but still a favorable return. Soybean crush margin is currently from $3.40 to $3.50, down 75 cents from May highs, but as with corn this is still favorable and above average. At the level of returns it is unlikely processors will reduce their purchases or soften bids.

The Federal Reserve released its latest interest rate decision, and to no one’s surprise, left it unchanged in a range from 3.5-3.75 percent. The Fed noted there is elevated uncertainty in the U.S. economy due to the Iran war. The Fed is also noting that while energy costs are a major factor in current inflation, they are not the only ones, and higher rates will likely be needed to rein in spending. 

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 collected from a variety of sources and is believed to be reliable but is not guaranteed to be accurate. This report is provided for informational purposes only and is not furnished for the purpose of, nor is it intended to be relied upon for specific trading in commodities herein named.