Traders’ attentions have narrowed to focus on only a few items in July: weather, demand, the economy, and U.S. Department of Agriculture reports.
Of course, the planted acreage estimate was just released as well as the quarterly grain stocks estimate, but those numbers become a little more real with the release of the July crop production estimate on July 10. This is where those numbers show up in the supply and demand tables.
As usual, weather forecasts continue to flip flop and the further away those forecasts are from the present, the more they change. But once the two major weather models start to agree, the trade takes them more seriously. That has been the case this past week.
Short term forecasts (one to five days) have been showing good chances for rain for much of the Midwest. The six- to 10-day forecast was not in agreement as one model was showing wet conditions while the other model was calling for it to be hot and dry.
Long term forecasts had both models in agreement calling for the last two weeks of July to be warmer and drier.
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Toward the end of last week, both models came into agreement calling for hot and dry conditions. The short-term rain showers will help reduce yield issues if the hot dry forecast becomes reality, but the biggest concern is that corn and soybeans will be in the middle of pollination when the ridging is expected to peak. This could severely impact the potential yield, so traders have put some weather premium into the grains. The next two weeks will be more important to corn as corn is made in July while soybeans are made in August.
As far as the past Monday afternoon’s crop condition ratings, all were lower than expected. Spring wheat conditions were expected to see a slight improvement due to generous rains in western North Dakota the previous week. Instead, conditions were only up 1% to 70% good/excellent (g/e), 2% lower than expected. ND’s crop only improved 2% to 61% g/e. Winter wheat conditions were also expected to remain close to unchanged, but instead dropped 1% to 51% g/e. The big change in winter wheat came in CO, which saw a decline of 7%. ND’s durum crop condition rating improved 18% to 66% g/e.
Corn and soybean ratings were expected to remain steady with the previous week. Instead corn’s crop rating dropped 2% to 71% good/excellent. The eastern Corn Belt was the region that took the biggest drop with Ohio declining 10%, Indiana dropping 3% and Illinois dropping 6%. The western Corn Belt showed improving conditions with North Dakota improving 5% and South Dakota improving 2%. With 10% of the corn crop in silk, it will not be long before the crop is in the middle of pollination.
Soybeans are not advancing as fast as the corn as only 2% of the crop is setting pods while 31% is still flowering. This might be why the soybean crop rating did not change from the previous week, which was as expected.
North Dakota’s canola and sunflower crops also show slight improvements in crop ratings. Canola’s crop condition rating increased 6% to 70% good/excellent while sunflower’s crop condition rating increased 11% to 67% good/excellent. Dry beans on the other hand could not take the heavy rains and conditions dropped 3% to 64% good/excellent.
Wheat is also getting a shot in the arm from a lower U.S. dollar as well as world production concerns. Argentina lowered its planted acreage for wheat by 500,000 acres to 16.1 million due to dry conditions. Russia will not have any quotas on exports for the first six months of its marketing year but will have quotas for the last six months.
That news was soon followed by reports of disappointing yields in Russia, which helped bring validity to the quota story. Dry conditions in Argentina, wet conditions in Canada, and poor yield reports out of northern Kansas all came into play to help support wheat. Reports have France’s potential production dropping 21% versus last year. That resulted in a sharp increase in wheat prices overseas as countries start to increase their wheat prices in an attempt to slow down demand.
Corn struggled the past week because of changes in weather forecasts and slow demand. Although there was a confirmation of export demand early in the week as China bought 202,000 metric tons U.S. corn and Mexico bought 183,000 metric tons, gains were limited by last week’s export shipments estimate which was put at the second lowest level in 11 weeks.
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Traders will be keeping an eye on the eastern Corn Belt as Ohio, Indiana, and Illinois are the most vulnerable states to adverse weather conditions. Northern Illinois, Indiana, and Ohio were set to see half inch to 1 inch rains over the next one to five days of of the end of last week, but then forecasts are calling for temps to warm up and dry out to finish out the month of July.
A sharply higher wheat complex helped corn hold gains early in the week, while weather concerns helped keep the December contract above support. Another friendly ethanol production report helped as well as it might be hard for USDA to reduce ethanol demand much more, at least until later in the year. Last week’s ethanol production came in at 914,000 barrels, up 14,000 barrels from the previous week. Stocks were estimated at 20.6 million, up 456,000 barrels from the previous week and the first increase in 11 weeks.
Soybeans have taken the same path as corn, trading in a lackluster fashion. The lack of export news has kept a lid on soybeans this week as China has been visibly absent. Early in the week, USDA announced a sale of 264,000 metric tons of old crop soybeans to China, but that has been the only announced sale this week. The ongoing tensions between the U.S. and China over the Hong Kong issue has kept some caution in the market.
Soybean’s technical picture has not been as strong either. The November contract has been flirting with the $9 support level. The market closed below $9 for the first time since March 6 this past week, but a change in the weather forecast helped push soybeans back above the $9 mark. Two closes below $9 could open this market up for more selling pressure, but if traders keep the market above $9, look for a push to the $9.45 level, especially if the July Crop Production report is not bearish and weather forecasts continue to show ridging.
Canola continues to try and work in a weather premium. Lower planted acreage in both the U.S. and Canada has helped to bring some strength into the minor oilseed prices. Forecasts for additional rains for the already saturated parts of Alberta also supported the market. The weekly Manitoba Agriculture report stated that fusarium head blight is a high risk across the province.
Cattle traded in a lackluster fashion throughout the past week with most of the selling tied to a disappointing cash trade. Most of the reported cash trades last week were reported at $95 with packers passing on $97. Pressure was due to economic concerns as well as from concerns about restaurant demand as many restaurants in the South are closing again due to the recent surge in COVID-19 cases. Boxed beef prices were under pressure again this week as white table dining continues to be slow in recovering.
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