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Published July 23, 2012, 11:30 AM

Strong gains, declining conditions

Wheat traded higher throughout the week ending July 20, as drought conditions in both the U.S. and the Black Sea region helped put a substantial premium into all three wheat exchanges.

By: Ray Grabanski, Agweek

Wheat: trading near 2008 levels

Wheat traded higher throughout the week ending July 20, as drought conditions in both the U.S. and the Black Sea region helped put a substantial premium into all three wheat exchanges. For the week ending July 19, September Minneapolis increased 72.5 cents, September Chicago increased 87.25 cents and September Kansas City was up 87 cents.

Wheat opened last week with strong gains, supported by continued dry weather concerns, not only in the U.S., but also in Russia. The winter wheat harvest is almost wrapped up, with the crop coming in, at best, close to average. The spring wheat crop is approaching harvest. Thoughts that wheat’s crop condition rating will show another decline helped to push wheat. Additional support spilled over from a stronger corn market, as both wheat and corn fight to stay out of the feed ration.

Wheat traded mixed July 17, as the market tied to follow corn and soybeans. Corn slipped early in the session because of profit taking. Drought-like weather and decreasing crop conditions remain the primary force in the market. The commercial outlook for wheat is increasingly bullish, as end users grow more concerned about the global supply of wheat. Wheat is expected to fill more feed demand because of corn prices.

The July 18 session gave wheat solid gains after opening sloppy. Early selling was tied to technical pressure, as well as from spill over selling from a sloppy start to the corn and soybean complex. But as corn firmed, the buying strength spilled over to wheat. By the close, wheat was trading at levels not seen since 2008, as were corn and soybeans. Soybeans had enough strength to push to new all-time contract highs. Wheat continues to be supported by drought conditions.

Wheat opened and traded with strength throughout the July 19 session because of spill over strength from a sharply higher corn and soybean complex. Additional strength came from a bullish export sales report. U.S. wheat exports are starting to increase because buyers are switching from Russian or Black Sea region wheat to the U.S., as the U.S. has plentiful supplies, while drought conditions have depleted the Russian and Black Sea supply. The dry conditions in the Black Sea region have once again spurred thoughts of export bans as those countries try to secure their own needs before putting extra bushels out for sale. But wheat was not able to hold onto its gains throughout the session once corn slipped. Most of the selling appeared to be centered in the winter wheat exchanges and in the 2013 crop year, but in any event, it did make for an ugly close in wheat in those contracts.

Corn: declining conditions

For the week ending July 19, September corn gained 67 cents, while December was up 38 cents. Hot and dry weather continues to push corn yields lower and prices higher. The forecast continues to call for blistering temperatures and the lack of any rain for the next two weeks. Ending stocks continue to shrink, but demand has slowed for ethanol and exports.

Buying interest was brisk again on July 16, as traders expected another drop in the afternoon’s crop condition report. The crop condition rating for corn dropped a whopping 9 percent to 31 percent good to excellent. The poor to very poor rating also increased to 38 percent, from 30 percent the previous week. The report showed poor to very poor ratings in Illinois, 56 percent; Indiana, 71 percent; Missouri, 72 percent; and Iowa and Nebraska at 27 percent. The market remained firm through midweek, with triple-digit temperatures in the western Corn Belt. Also, the Nebraska Department of Natural Resources issued notices to more than 1,100 irrigators to stop pumping from rivers and streams.

The market took a breather July 19, but did trade sharply higher in the overnight, making new all-time highs in the September contract at $8.1675. The market continues to find support from blistering temperatures last week, which will continue to hurt yields, as well as from forecasts calling for the same weather pattern for this week. The day session saw profit taking come into play after trading the December contract to $7.99 (0.25 cents off its all time high). Additional weakness came from talk that Chinese importers are selling back undelivered shipments at a profit from the price increase. The export sales report was also disappointing and well below estimates. Exports slowed dramatically once corn crossed over $7, which will likely result in USDA having to lower its export estimate for corn. Also, South Korea formally asked the U.S. to back off on the ethanol mandate to ensure corn for food. The ethanol report was also disappointing last week, a four-month low.

The ethanol production report for the week ending July 13 showed production averaged 802,000 barrels per day. This is down 2.3 percent versus the previous week and down 8.1 percent versus last year. Also, total ethanol production for the week was 5.61 million barrels, which is a four-month low. Corn usage for the week was estimated at 85.4 million bushels, compared with 101.7 million needed each week to reach the USDA forecast for the marketing year.

Crop conditions had 31 percent of the crop rated as good to excellent, 31 percent fair and 38 percent poor to very poor. Corn silking was at 71 percent, compared with 28 percent one year ago and the five-year average of 36 percent. Corn in the dough stage was 12 percent, compared with 3 percent one year ago and a five-year average of 4 percent.

Soybeans: sharp gains

For the week ending July 19, November soybeans were up 99.75 cents. Longer-term fundamentals remain bullish for the soybean market as global stocks tighten. Weather remains the main force in the market.

Soybeans were higher on the session on July 16 as drought-like conditions continue to support gains. Some rain fell over the weekend, but it was not enough, as the next two weeks look to be hot and dry. Above-average temperatures and below-average rainfall are forecasted for the next several days. The poor weather has led to deteriorating crop conditions, prompting traders to question if the current USDA yield estimate of 40.5 bushels per acre is too high. Demand for soybeans remains strong as the global supply shrinks. July 16 export inspections were bullish, coming in above the amount needed to keep pace with USDA’s projection.

The July 17 session had soybeans trading in a range from 15.25 cents down to 16.5 cents up before closing unchanged. The market is extremely overbought and saw investors taking some profits. Commercial traders continue to grow more bullish because of longer-term global supply concerns, as indicated by the strengthening inverse in futures spreads. The forecast remains threatening over the next two weeks, making further reductions in crop conditions likely. Traders think USDA yield projections may be too high.

Soybeans traded mixed through the first portion of the session July 18 before a late rally led to a new contract high at $16.22 and a sharply higher close. July 19 saw a new all-time high overnight and another sharply higher close. Weather remains the primary factor, as the next month is the most important weather period for soybean development, and the July 19 30-day forecast remains hot and dry, supporting the early gains. Yield is expected to continue to drop, with global supplies already at a critical level. A sale of 112,000 metric tons of new-crop soybeans to the United Kingdom was announced on July 19. The July 19 export sales report was neutral, coming in within expectations.

Barley

USDA reported barley export inspections for the week ending July 13 at 4,000 bushels. Barley export sales pace for the week ending July 13 was estimated at 1.9 million bushels.

USDA’s weekly crop condition rating report estimated the U.S. barley crop at 60 percent good to excellent, 29 percent fair and 11 percent poor to very poor, a decrease of 4 percent. Barley heading was at 95 percent, compared with 82 percent the previous week and 73 percent for the five-year average.

Cash barley bids in Minneapolis increased slightly last week, putting feed barley bids at $6 per bushel, while malting barley bids remained at $7.10.

Durum

USDA estimated durum export shipments pace for the week ending July 13 at 93,000 bushels. There were no durum export sales reported. As of July 15, North Dakota’s durum crop was estimated at 66 percent good to excellent, 28 percent fair and 6 percent poor to very poor.

July 19 cash bids for milling quality durum were at $8 per bushel in Berthold, N.D., while Dickinson, N.D., bids were at $8.40.

Canola

Canola futures on the Winnipeg, Manitoba, exchange closed the week ending July 19 with about $11 (Canadian) gains. Canola traded with strong gains to start and end the week, but struggled during the middle of the week. The canola market was supported by strength from a stronger palm oil market, as well as from spill over strength from the U.S. soybean complex. Commercial demand remains strong because of export pricing. Gains were kept in check by prospects for a large crop out of western Canada.

As of July 15, North Dakota’s canola crop was estimated at 76 percent good to excellent, 20 percent fair and 4 percent poor to very poor.

July 19 cash canola bids in Velva, N.D., were at $27.25 per hundredweight.

Sunflowers

As of July 15, North Dakota’s sunflower crop was estimated at 70 percent good to excellent, 28 percent fair and 2 percent poor to very poor. Soybean oil export sales pace for the week ending July 13 was estimated at 20.3 trillion metric tons, with 14.3 trillion being old crop and 6 trillion being new crop. This brings the year-to-date total to 537.3 trillion metric tons, compared with last year’s 1,263.3 trillion.

July 19 cash sunflower bids in Fargo, N.D., were at $23.60 per hundredweight.

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