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Published August 20, 2012, 11:13 AM

Markets retreat after USDA report

By: Ray Grabanski, Agweek

Wheat: Russia influence

Wheat lost big ground to start last week, but firmed the second half of the session to cut the week’s losses significantly. For the week ending Aug. 15, September Minneapolis dropped 15.25 cents, September Chicago dropped 23.5 cents, and September Kansas City gave back 20.5 cents.

All three of the wheat exchanges traded with losses the first two sessions of the week. The Aug. 13 pressure was tied to spill over selling from a lower U.S. corn complex. Additional selling spilled over from the negative Aug. 10 U.S. Department of Agriculture August crop production report, which showed an unexpected increase in wheat stocks. The Aug. 14 session started with small gains, but once news came out of a lost export, wheat sold off. Egypt was in tendering for wheat and most had expected the U.S. to garner at least a portion of the sale, but in the end Egypt awarded the entire 120,000-metric-ton sale to the much cheaper Black Sea wheat.

After experiencing three lower trading sessions, wheat started to rebound. Wheat was supported by technical buying as traders tried to correct an oversold market condition. Additional support was caused by spillover buying from a stronger corn and soybean complex. Additional buying was a result of the Aug. 17 coverage that CNBC is giving the drought. All day Aug. 15, CNBC highlighted the drought and how devastating it has been on the U.S. crops. This has resulted in a new flush of spec buying.

Wheat continued to rally higher Aug. 16, as wheat took over as the leader of the grain complex. Late Aug. 16, a Russian grain analyst put Russian wheat stocks at 10.6 million metric tons as of Aug. 1, 30 percent lower than last year and the lowest stocks estimate for Russia in over nine years. Russia, Ukraine and the Black Sea region have been aggressive exporting wheat, as many exporters try to get as much wheat sold before some sort of export restriction program gets implemented. Traders feel that some sort of ban will be put in play and in the end, it will increase the demand for wheat in the U.S. Overall, though, U.S. wheat fundamentals are negative.

As of Aug. 12, 94 percent of the nation’s winter wheat crop had been harvested, compared with 88 percent the previous week and 91 percent for the five-year average. Spring wheat harvest was estimated at 65 percent, compared with 47 percent the previous week and 24 percent for the five-year average. Spring wheat crop conditions dropped 2 percent to 61 percent good to excellent, 28 percent fair and 11 percent poor to very poor. Last year at this time, the crop was rated 66 percent good to excellent.

Corn: lack of demand

The market traded in a sideways pattern last week, as it struggles to find buying interest. Demand has certainly slowed with the lack of export sales and fewer bushels going into ethanol. For the week ending Aug. 16, September and December dropped 2 cents each.

The corn market was under pressure the first two days of the week. Traders were expecting a lower yield and production number in the Aug. 10 report and it was realized. After the release of the report, buy the rumor/sell the fact trading took center stage and that continued last week. Also, pressure is coming from growing pressure to change the ethanol mandate. Five states have now filed for a waiver, but a cut in the ethanol mandate will have little impact on corn usage as long as ethanol prices remain below unleaded gas. Corn demand has been lackluster, as corn is in competition with wheat for feed rations.

Corn traded with strength on Aug. 15, closing back above $8 in the December contract. Support came from a decent ethanol report and the strength in the soybean market. There was also talk that the Chinese crop is having issues with army worms. Small gains were seen on Aug. 26 with spillover support from the sharply higher wheat market. The upside was limited as export sales came in below estimates and continue to struggle at these high prices, along with cheaper corn and wheat around the world.

Ethanol production for the week ending Aug. 10 averaged 819,000 barrels per day, which is up 0.24 percent versus the previous week and down 8.9 percent versus last year. Corn used in production the week ending Aug. 10 is estimated at 87.2 million bushels versus 87.03 million bushels the previous week. This crop year’s cumulative corn used for ethanol production is 4.7 billion bushels. Corn use needs to average 105.7 million bushels per week to meet this crop year’s USDA estimate of 5 billion. Ethanol stocks were 18.447 million barrels versus 18.651 the previous week.

Crop conditions had 23 percent of the crop rated as good to excellent, 26 percent fair and 51 percent poor to very poor. Corn in the dough stage was 78 percent, compared with 46 percent one year ago and a five-year average of 49 percent. Corn that is dented was 42 percent, compared with 14 percent one year ago and a five-year average of 16 percent. Corn that was mature was 10 percent, compared with 6 percent one year ago and a five-year average of 3 percent.

Soybeans: slightly lower

For the week ending Aug. 16, November soybeans were down 18.5 cents. Longer-term fundamentals remain bullish for the soybean market as global stocks tighten. Weather remains the main force in the market.

Soybeans opened the week sharply lower after beneficial rains over the weekend. The market closed just off the daily low as the forecast continues to have rainfall and moderate temperatures. Traders think better weather could still improve soybean yields, prompting profit taking.

The Aug. 14 session had soybean higher early, but slipped lower as a result of a more favorable weather forecast. The forecast is better for crop production because of less heat, though moisture is still lacking in many areas. Despite the better weather, soybeans were able to bounce off the lows to close just slightly lower. Demand is expected to remain strong, with Chinese buying expected to continue.

Soybeans traded higher and closed near the daily highs on Aug. 15. Strong support from commercial buyers combined with renewed interest from investors to lead the market higher. Supplies are tighter than USDA stated on its recent supply and demand report, and these tight supplies combine with still strong demand to support the soybean market.

Lackluster trade was seen during the Aug. 16 session with support coming from weakness in the U.S. dollar and gains in corn and wheat. Commercial interest remains strong, but Aug. 16 weakness can be attributed to light profit taking after sharp gains on Aug. 15. Overnight storms in Iowa and Wisconsin pressured the market, as well. The weather forecast looks favorable through the month of August, though traders expect 25 to 35 percent of the Midwest to remain stressed.

Soybean blooming as of Aug. 12 was at 97 percent, compared with 93 percent the previous week and the five-year average of 92 percent. As of Aug. 12, soybeans setting pods were at 83 percent, compared with 71 percent the previous week and the five-year average of 70 percent. USDA’s weekly crop condition rating report estimated soybeans at 30 percent good to excellent, 32 percent fair and 38 percent poor to very poor, an increase of 1 percent.

Barley

As of Aug. 12, 45 percent of the nation’s barley was harvested, compared with 30 percent the previous week and 22 percent for the five-year average. USDA’s 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, off 1 percent from the previous week.

Durum

USDA reported durum export inspections estimate for the week ending Aug. 10 at 1.322 million bushels with all of the bushels going to Italy. Durum export sales pace was estimated at 300,000 bushels.

Aug. 16 cash bids for milling quality durum were at $7.50 per bushel in Berthold, N.D., while Dickinson, N.D., bids were $7.50.

Canola

Canola futures on the Winnipeg, Manitoba, exchange ended the week ending Aug. 16 at $6.30 (Canadian) lower. Canola struggled to start the week as a result of selling tied to a sloppy soybean complex, as well as from reports of advancing canola harvest in the Northern Plains. Canola traded with gains late in the week with strength spilling over from a stronger U.S. soybean complex. Demand for U.S. soybeans remains strong and many canola traders are still expecting some soybean demand to switch over to canola because of short soybean supplies.

Aug. 16 cash canola bids in Velva, N.D., were at $26.66 per hundredweight.

Dry beans

For the week ending Aug, 12, the following states were reporting dry bean conditions: North Dakota: 49 percent good to excellent, 37 percent fair and 14 percent poor to very poor, an increase of 3 percent from the previous week, 76 percent was fully podded, compared with 27 percent for the five-year average; Minnesota: 65 percent good to excellent, 28 percent fair and 7 percent poor to very poor, an increase of 1 percent from the previous week, 99 percent was fully podded; Nebraska: 51 percent good to excellent, 39 percent fair and 10 percent poor to very poor, an increase of 6 percent, 75 percent has set pods, compared with 68 percent for the five-year average; Idaho: 1 percent harvested, compared with 3 percent for the five-year average; and Michigan: 44 percent good to excellent, 33 percent fair and 23 percent poor to very poor, a decrease of 1 percent from the previous week, 95 percent has set pods, compared with 61 percent for the five-year average.

Sunflowers

As of Aug. 12, North Dakota’s sunflower crop was 96 percent in bloom, compared with 87 percent for the previous week and 67 percent for the five-year average. North Dakota’s sunflower crop condition report estimated the crop at 70 percent good to excellent, 26 percent fair and 4 percent poor, an increase of 3 percent.

Cash sunflower bids in Fargo, N.D., Aug. 16 were at $25.60 per hundredweight.

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