Advertise in Print | Subscriptions
Published July 13, 2010, 07:27 AM

Weather concerns support markets

Wheat started the short week higher with much of the strength coming from production concerns in the Black Sea region and issues in the European Union helped to added early strength to the wheat exchanges. Late in the week wheat was supported by fund buying and short covering.

By: Ray Grabanski,

Wheat

Wheat started the short week higher with much of the strength coming from production concerns in the Black Sea region and issues in the European Union helped to added early strength to the wheat exchanges. Late in the week wheat was supported by fund buying and short covering. The market continued to see support from concerns that hot dry weather conditions are causing damage to wheat in the Black Sea region and Europe. The Black Sea region has been the sixth man off the bench in the wheat export game and with production concerns popping up there might be a chance that more export demand could switch back to the U.S. The concerns have been enough in Russia and parts of Europe that the ag officials have started to reduce production estimates for some regions. Fund buying and short covering also was seen.

The wheat market gained a lot of ground back this past week. For the week ending July 8, September Minneapolis wheat gained 43.25 cents, Chicago September gained 45.5 cents, and Kansas City September gained 46.0 cents. Some of the gains were given back July 9 after a very bearish USDA July crop production report. USDA increased old crop wheat stocks 43 million bushels, 10 million bushels more than expected. The cut was a result of USDA decreasing feed demand 21 million bushels, seed demand by 3 million bushels and exports by 20 million bushels. The new crop numbers had a lot of adjustments starting with an increase in production of 149 million bushels. This was done by USDA increasing planted acreage by 500,000 acres, harvested acreage by 1.2 million and yield by 2 bushels per acre. The net result was an increase of 182 million bushels (beginning stocks jumped 43 million bushels, production increased 149 million bushels, but imports dropped 10 million bushels) in wheat’s supply. The increase in supply was offset slightly by an increase of 80 million bushels to use. USDA decreased feed demand by 20 million bushels but increased export demand by 100 million bushels. The net result was an increase of 102 million bushels in wheat’s ending stocks estimate. All of the adjustments increased wheat’s stocks-to-use ratio to 49.8 percent and were extremely bearish to wheat’s outlook.

Corn

The corn market ended the week up 12 cents. USDA released its supply and demand report the morning of July 9, and it came out a little disappointing compared with expectations. USDA estimated old stocks at 1.478 billion bushels compared with 1.603 billion bushels last month, with the average estimate of 1.4 billion bushels. USDA estimated new crop stocks at 1.373 billion bushels compared with 1.573 billion bushels last month, with an average estimate of 1.3 billion bushels. Stocks were expected to be down because of the numbers seen in the June 30 report, but they came in above estimates. USDA left the estimated yield at 163.5 bushels an acre. The stocks-to-use were at 10.3 percent, which is tight as this number has only been below 10 percent twice since 1973. A large heat dome is forecast for the Corn Belt in the next two to three weeks, which will be during pollinating. This should add additional support.

To start the week, corn opened 5 to 7 cents higher, with the higher overnight market and the strength in the outside markets supporting. The double-digit gains in the wheat market also added early strength to the corn trade. But the market started to back off within the first hour and drifted into negative territory at the close, ending the day down 4 cents. The weekly export inspections were bearish for corn. At the same time, the crude oil came off of its $2 gains to trade lower and the Dow Jones Industrial Average backed off its triple-digit gains to trade with losses.

The July 7 and 8 sessions had corn higher. The higher overnight sessions and the strength in the outside markets supported corn. Additional buying interest entered the market from buying that was tied to the friendly crop conditions report and the weather forecast. The crop conditions dropped 2 percent in the good to excellent category from the previous week (Iowa dropping 7 percent). Also, the weather forecast has excessive rain falling in key growing areas for the next five days, causing sellers to go to the sidelines. It is interesting to note that the condition ratings are the same as they were one year ago and that crop went on to produce a record setter.

Soybeans

The soybean market started the short week higher and traded to double digit gains early. Early support was a result of traders who were thinking that soybean’s crop condition rating will decline. Also supporting the soybean market was a sharply lower U.S. dollar as well as from a stronger performance in crude oil. Reports China was in overnight and bought more soybeans seemed to give the market strength. The sloppy corn market was enough to spill over and pull the wheat and soybeans lower on the close.

Soybeans opened higher July 7 with early support coming from a friendly crop progress report. The report showed another week of declining crop conditions for soybeans. Fund buying and short covering also were seen in the soybean complex as well. Soybeans were trading with decent gains going into the last five to seven minutes, but as the close approached, the market shot sharply higher on technical buying, pushing soybeans over resistance.

The soybean market closed sharply higher July 8. Soybeans started higher with support coming from production concerns. Traders have been pushing the soybean market this week as many think the recent wet weather has resulted in more damage to the soybean crop than expected. The old crop month also saw good support as strong demand for soybeans continues.

The soybean complex had a good week and that strength continued into July 9 as USDA’s report was surprisingly friendly to the soybean complex. For the week ending July 8, August soybeans gained 38.5 cents while new crop November jumped 40.25 cents. The July 9 crop production report was expected to be neutral to soybeans, but instead, it was friendly. As expected, USDA did cut the 2009 ending stocks estimate, but by a smaller amount than expected. Old crop stocks were trimmed 10 million bushels (23 million bushels was expected) as USDA increased both the crush and export demand estimates 5 million bushels. The new crop numbers had a few more adjustments. USDA increased production 35 million bushels because of an increase in acreage. The net result was an increase in supply by 25 million bushels (10 million-bushel cut in beginning stocks offset by 35 million-bushel production increase). The surprise came in an increase in new crop demand as USDA increased crush 5 million bushels and exports 20 million bushels. The net result was a no change in ending stocks, 360 million bushels.

USDA estimated last week’s soybean export shipments pace for last week at 2.3 million bushels. This brings the year-to-date export shipments pace for soybeans to 1.36 billion bushels compared with 1.15 million bushels for last year at this time. USDA is estimating soybean exports at 1.455 billion bushels. With eight weeks left in the soybean export marketing year, soybean shipments will have to average 11.9 million bushels per week.

Last week’s soybean export sales pace was estimated at a combined total of 31.7 million bushels with 9.6 million bushels being old crop and 22.1 million bushels being new crop. This brings the year-to-date export sales total for soybeans to 1.453 billion bushels compared with 1.261 billion bushels for this same time last year. USDA is estimating soybean exports at 1.46 billion bushels. With nine weeks left in the soybean export marketing year (starts Sept. 1), soybean’s export sales pace will have to average 780,000 bushels per week.

Barley

USDA made numerous changes in barley’s supply and demand estimates. USDA cut the planted and harvested acreage by 300,000 acres (3 million planted and 2.5 million harvested) but increased barley’s potential yield 4.7 bushels. The net result was an 8 million-bushel drop in production (182 million bushels). Barley’s total supply dropped 11 million bushels to 312 million bushels (8 million-bushel production cut, 5 million-bushel cut in imports and 2 million-bushel increase in beginning stocks). No changes were made in the demand estimates, leaving total use at 225 million bushels. Barley’s ending stocks were trimmed to 87 million bushels.

Durum

USDA is estimating durum’s 2010 ending stocks estimate at 34 million bushels. Production is estimated at 104 million bushels (a decrease of 5 million bushels from last year). Demand is estimated at 139 million bushels.

As of July 4, 73 percent of ND’s durum crop was jointing compared with 62 percent last week and 82 percent for the five-year average. Durum in the boot stage was estimated at 42 percent compared with 18 percent last week and 57 percent for the five-year average. Durum’s crop condition rating decreased 2 percent to 87 percent good/excellent and 12 percent fair and 1 percent poor/very poor.

Canola

Canola futures on the Winnipeg, Manitoba, futures closed the week ending July 8 with close to $13 (Canadian) gains. Most of the strength continues to come from continued weather concerns toward this year’s crop. Heavy rains have continued to fall over much of the very wet Canadian prairies as well over much of the northern regions of North Dakota. Light support spilled over from spill over buying from a stronger U.S. soybean complex.

Tags: