The grains have seen a variety of news over the past week. Soybeans were rocked with the most news while corn seems to be waiting for something to give it direction. As for wheat, harvest activity will be the main driver in the short term.
The June 1 Crop Progress report was negative for wheat. Warm dry temps in the Plains are helping to wrap up spring wheat planting and advance harvest in the Southern Plains. Winter wheat conditions were 3% below expectations coming in at 51% good/excellent. Spring wheat planting progress came in as expected at 91% complete. The most bearish number came from the spring wheat crop condition rating. The crop rating came in at 80% good/excellent, 6% above last year and 14% above expectations. North Dakota's spring wheat planting progress was estimated at 85% complete, 10% behind the 5-year average. That equates to 610,000 acres left to plant with the insurance final planting date just around the corner.
Corn’s planting progress was slightly slower than expected. Estimates came in at 93% complete versus expectations of 95%, but still 4% above the five-year average pace. Corn’s crop condition rating was estimated at 74% good/excellent, up 4% from last week and 3% better than expected. North Dakota continues to post the slowest progress. North Dakota is reporting planting progress at 75% complete, 15% behind the five-year average pace. That equates to about 800,000 acres left to plant in the state after the crop insurance final planting date has passed.
Soybean planting progress is also trailing expectations. As of May 31, soybean planting progress was estimated at 75% complete, 7% ahead of average, but 4% behind the average trade estimate. Once again, North Dakota is reporting the slowest progress at 51% complete, 29% behind the average pace. This equates to about 1.9 million acres left to plant in the state. Soybean’s crop condition rating was also better than expected, coming in at 70% good/excellent, 2% higher than expectations.
It has been interesting how fast corn and soybean planting progress started, but how quickly that pace has slowed down. It appears that the good ground that was fit was planted at breakneck speed, but the tougher ground and wetter areas remain. There is going to be quite a bit of prevented planting in the Northern Plains, especially North Dakota, northern Minnesota, and northern South Dakota. Spring wheat prevented planting could approach 750,000 acres, corn 1.5 million to 2 million acres, and soybeans could see 500,000 acres go to prevented planting.
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But last week was not just influenced by the Crop Progress report as China remained a main attention grabber early in the week. In late May, President Donald Trump held a press conference on the status of China and Hong Kong. The retaliation against China for its actions in Hong Kong was nothing that had not been threatened before. What was new in the press conference was how the U.S. will handle trade status with Hong Kong. The administration will remove Hong Kong from the most favored nation status, which was not what China was hoping for.
That press conference was followed by a Bloomberg article that quoted a Chinese official saying China ordered all state owed ag companies to halt purchases of U.S. ag products and to cancel all pork purchases on the books at this time. Private companies are not part of this order. In true government fashion, while Chinese officials were ordering the stop of U.S. ag purchases, a Chinese state agency was securing 180,000 metric tons of U.S. soybeans.
A few days after the Bloomberg article was released, Chinese officials dismissed the article as inaccurate news from an individual who had no knowledge of the subject. That is likely true, as China, or an unknown destination, has been a frequent buyer of U.S. soybeans over the past week. The market discounted the article as soybeans continued to perform with gains the entire week.
Wheat pushed higher because of a change in weather forecasts for both the U.S. and Russia. Russia’s weather forecast has pulled moisture out for the next 10 days in some regions. This will likely result in lower wheat production. As for the U.S., the Southern Plains are expected to see hot and dry conditions as well. Texas and Oklahoma are likely to enjoy the hot dry conditions as it will help advance harvest progress. Kansas and Nebraska are not as excited about the heat as their wheat could still see yield reductions from heat stress.
Corn is the market that seems to be stuck in a rut. The market wants to rally but improving weather forecasts and the expectation of more than 3 billion bushel ending stocks continues to keep a lid on corn’s rally. But weather concerns and the fact that the funds are holding an extremely large short position in corn has kept the market from drifting lower. Another stronger weekly ethanol production report added support. For the fourth week in a row, U.S. ethanol production increased while stocks decreased.
OPEC+ is planning on holding a meeting soon with the agenda focusing on recent production cuts. The current reduction is expected to end at the end of July, but OPEC+ is hoping to extend the production cut another month. Reports have Saudi Arabia wanting to extend the cuts for three months. Russia does not want to extend the cuts at all but is willing to compromise and extend through August. This would be supportive for the energy and corn markets.
The grains have not given us much in the way of pricing opportunity over the past 18 months, until recently. Seasonally corn and soybeans see firmer markets this time of year as traders work in weather premiums. So far this year, that seasonal move has been somewhat muted because of all other outside distractions. Do not rule out the ability for the market to stage a rally as in the last six years soybeans have been able to rally between 55 cents and a dollar this time of year.
It is for that reason, and the uncertainty of production, that if producers want to protect harvest prices, they should consider puts. All of the grains are at or near multiple year lows. That is not a time to be locking in futures. But with the early rapid planting progress and demand concerns, any rally in the grains will be muted (especially if no weather issue develops). Using puts locks in a floor but keeps the upside open in case of some unforeseen event. Since puts are just about locking in a floor, there is no risk of needing to make delivery, which in uncertain production years gives the producer some piece of mind.
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Cattle struggled this past week. Not only did cash trade slightly lower than last week, but boxed beef prices have declined every day this week. Expectations of higher slaughter weights because of the slowdown in slaughter runs added to the pressure. Plants are reopening and traders are staring to be concerned about increasing supplies. June live cattle options expired Friday, June 5.
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