It's still a weather market
The grains traded with solid gains to start the session Monday, July 12, and extended session gains once USDA released their July World Agriculture Supply and Demand Estimates report. The report was bullish wheat, as expected for corn, and a little negative soybeans. But the weather forecast turned hotter and drier and that helped to add strength late in the session.
The grains pushed higher this past week (at least up to the time this article was written) with most of the support coming from technical support and weather concerns. Technically the grains have traded back to the low end of their trading range and found support. It seems that the grains are set up in the trading range, and until the crop gets through its critical crop development stages, volatility will be the name of the game. To add to the technical buying, weather forecasts have turned hot and dry.
The grains traded with solid gains to start the session Monday, July 12, and extended session gains once USDA released their July World Agriculture Supply and Demand Estimates report. The report was bullish wheat, as expected for corn, and a little negative soybeans . But the weather forecast turned hotter and drier and that helped to add strength late in the session.
The report held more than a few surprises for wheat. The first came in the old crop wheat numbers. USDA decreased imports by 5 million bushels, seed demand by 2 million bushels, and feed demand by 1 million bushels. So far nothing out of the ordinary. But then USDA increased wheat exports by 7 million bushels, which seems really strange since we are already in the seventh week of the 2021 export marketing year. The net result was an 8 million bushel drop in old crop stocks, now estimated at 844 million bushels.
For new crop, as reported in the June 30 Planted Acreage report , USDA increased all wheat planted acreage 300,000 acres and harvested acreage 700,000 acres. The increase is likely due to less abandonment of the hard red winter wheat crop. Yield did take a big drop, slipping 4.9 bushels to 45.8 bushels. Yield will likely continue to decline as will the harvested acreage estimate. The hard red winter wheat and soft red winter wheat numbers might see further increases moving forward, but the hard red spring wheat and white winter wheat numbers are going to see further cuts.
Spring wheat planted acreage was estimated at 11.58 million, down 670,000 acres from last year. Harvested acreage is estimated at 11.22 million, which shows abandonment at about 3%. That likely will grow to 10% to 15% before harvest is over. Spring wheat yield is estimated at 30.7 bushels per acre, a decline of 17.9 bushels from last year. This puts spring wheat production at 345 million bushels, a drop of 241 million bushels from last year. For North Dakota, planted acres were at 5.95 million acres (increase of 250,000 from last year), harvested acreage at 5.75 million (up 120,000 from last year) and yield of 28 bushels, down 21 bushels from last year. This puts the state’s spring wheat production at 161 million bushels down 115 million bushels from last year. The spring wheat production estimate is the lowest in 33 years.
U.S. durum production is estimated at 37 million bushels, 18 million bushels lower than expected by the trade and 32 million bushels lower than last year. North Dakota producers planted 750,000 acres of durum (204,000 lower than last year) and plan on harvesting 725,000 acres (180,000 less than last year). Yield is projected at 22 bushels, 17 bushels lower than last year. That puts production at 25.95 million bushels, 19.3 million bushels lower than last year. If realized, this will be the lowest durum production in 60 years.
As for corn, the numbers in the report were close to expectations. Old crop stocks were trimmed 25 million bushels due to an increase in feed demand. This followed through to show up as a decrease in old crop ending stocks, putting stocks at 1.08 billion bushels, 10 million bushels lower than expected.
For new crop, planted acreage was increased 1.6 million to 92.7 million and harvested acreage was increased 1 million acres. Yield was left unchanged at 179.5 bushels. With harvested acreage increasing 1 million and yield left at 179.5 bushels, production increased 175 million bushels to 15.17 billion bushels. The increase in supply was offset by a 25 million bushel increase in feed demand and a 50 million bushel increase in exports. The net change was a 75 million bushel increase in ending stocks, putting them at 1.432 billion bushels, 128 million bushels above expectations. The question for corn is how many acres will be abandoned in the Northern Plains and western Corn Belt?
Another crop that saw a sharply lower production estimate was oats. Production was estimated at 41 million bushels versus 53 million bushels last year. Stocks are expected to drop to 25 million bushels versus 30 million bushels last month. This will be the lowest production estimate on record for oats. This has helped oats to trade sharply higher. There is an old saying that “oats knows where corn goes.”
The soybean estimate was clearly USDA kicking the can down the road a few months as no major adjustments were made. For old crop USDA decreased supply by 15 million bushels by decreasing imports by the same amount. The drop in supply was offset by a 5 million bushel drop in crush and 10 million bushel drop in exports, leaving the ending stocks estimate unchanged at 135 million bushels. No changes were made to the new crop estimates, other than a 15 cent drop in the national average price, putting it at $13.70.
That was the first of the USDA reports on Monday. The other was the Crop Progress report. This report did not hold as many surprises, but there were a few. Spring wheat conditions were left unchanged at 16% good/excellent, which was negative as the trade was looking for conditions to drop 2%. Spring wheat did see 2% slip from fair to poor/very poor. The surprise came in a 9% improvement in Montana while all other states dropped.
Corn’s crop condition rating increased 1% to 65% good/excellent, which was 1% less than expected. The surprise in corn was most of the Corn Belt state ratings decline while only a few saw improvements. Soybeans did not fare as well as corn as conditions were left unchanged at 59% good/excellent, 2% lower than expected by the trade. Illinois dropped 7% while Iowa improved 6%.
Winter wheat harvest progress continues to forge ahead as reports have combines entering southern South Dakota. With the winter wheat harvest over 65% complete, the winter wheat exchanges are being able to see some post-harvest rally. The key for Minneapolis to continue to see strength is for the winter wheat contracts to also have strength.
Corn was under pressure early in the week with light selling being tied to weather forecasts calling for decent rains to move across South Dakota, Nebraska, southern Minnesota, and Iowa. This rain system did move across the region, but it tracked further south and east than expected, leaving southern Minnesota, North Dakota, and northern South Dakota with little moisture. Updated weather forecasts are calling for much above average temps and much below average precip for the Northern Plains and western Corn Belt as well as into central Corn Belt over the next week to 10 days. The forecast is creating doubt that the U.S. corn yield can reach record levels this year.
Soybeans also saw spillover support from the sharply higher canola and soybean oil markets. Support came from hot and dry forecasts for the next 10 days for much of the Midwest.
Cattle struggled this week with pressure from the stronger grain complex and disappointing cash trade. Losses were kept in check from the Crop Production estimate, which left 2021 beef production unchanged at 27.9 billion pounds. The lack of a cash trade pressure live cattle as the FCE Online Auction only saw 364 head sell out of the 4,322 head offered. Prices came in at $117 for lighter weight cattle. Bids were at $119 while asks were at $120 to $122.
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