The grains started the week off on the defense because of a larger than expected increase in crop condition ratings. Weather conditions continue to be as close to ideal for crop development as possible.
What took the trade back so much with the week’s crop condition rating increase was that seasonally, the crop declines slightly going into the end of July. The increase in ratings is counter seasonal and will likely result in the U.S. Department of Agriculture increasing corn and soybean yields in their August Crop Production report. The trade is expecting a corn yield closer to 181 bushels/acre and a soybean yield closer to 51 bushels/acre.
With that said, and with the expectation that USDA will increase yields, demand becomes a little more important. Export demand remains strong with China and an unknown destination aggressively buying U.S. soybeans — as they should. The U.S. soybean is the cheapest in the world right now, so it would be counter to previous comments from China that they would buy soybean anywhere else.
U.S. corn is not the cheapest in the world, but export demand remains strong. China came in and bought another 1.9 million metric tons of U.S. corn this seek. This was the third largest export sale in history. To top that off, the same day China sold another 4 million metric tons of corn out of their reserves, bringing their year to date total corn sales to 40 million metric tons. These bushels will need to be replaced at some point, which has most traders friendly on corn demand going forward.
As for Monday’s Crop Progress report, traders were expecting harvest for both winter and spring wheat to be further ahead. Winter wheat harvest came in at 81% complete, 2% slower than expected by the trade and spring wheat harvest was estimated to be 1% completed, also 2% slower than expected. Early yield results of the spring wheat crop have the crop average at best, but it is early.
But where the wheels went off the bus was in the condition rating. Last week’s rain and hot temperatures were enough to help straighten out the crop; it appears as almost every major producing state saw improvements. The only state that did not improve was Iowa, which is significant as Iowa is the largest corn producing state and second largest soybean producing state.
Corn’s crop condition rating came in 3% above expectations as timely rains have been enough to lessen the effects of the recent hot temps. What was impressive was how much each of the major state’s conditions did increase. The major states that saw good to excellent improvements were Illinois +11%, Indiana +6%, Nebraska +9%, Ohio +6%, and North Dakota +3%. One state that saw way too much rain over the weekend did see conditions drop as Iowa slipped 3%.
Soybean conditions went the same direction. Most of the states saw big improvement in ratings: Illinois +9%, Indiana +5%, Minnesota +4%, Nebraska +9%, Ohio +6%, and South Dakota +3%. Iowa did see conditions drop.
In all though, the crops are in better than average condition as most of the major producing states are showing condition ratings that are above 65% good to excellent. This will keep any major rally in the grains muted. Weather forecasts continue to be negative as the next 10-day forecast is calling for hit-and-miss showers for the major growing regions of the U.S. and for temperatures to be below normal — ideal conditions to wrap up corn pollination and for the start of soybean pod filling.
Monday was the first day in 10 that soybeans did not see an export sale announcement. For the previous 10 days, either an unknown destination or China had been in and bought soybeans. That streak ended Monday and has started to cause a little uneasy feeling that China demand could be decreasing.
Thursday’s export sales estimate had a little bit of something for everyone. Wheat sales were better than expected but not stellar. Corn sales were disappointing for both old and new crop. Soybeans were adequate for old crop, aggressive for new crop. USDA’s weekly export sales report estimated new crop soybean sales at 122.9 million bushels, the largest single weekly export same estimate since February 2012. On top of that, to date, new crop soybean sales are at 505 million bushels compared to 123 million bushels last year. This is the fastest new crop sales have been since 2014.
Corn’s weekly export sales estimate was not friendly at all, showing a negative number for old crop and a disappointing estimate for new crop. But a flash sale of 1.937 million metric tons (76.3 million bushels) of corn to China and another 130,000 metric tons to an unknown destination helped to take the sting away. This was the third largest export sales in history and puts 2020 corn export sales pace at 328 million bushels versus 153 million bushels last year, the fastest pace for corn since 2013. But the market was not able to hold gains into the end of the session Thursday, which was negative.
In other friendly demand news, last week’s ethanol production was estimated at 958,000 barrels, up 50,000 barrels from the previous week. Stocks were estimated at 20.27 million, up 471,000 barrels from the previous week.
Technical buying stepped in to stabilize the grains late in the week as end of week and end of month positioning influenced the grains. Traders have wheat and corn at the low end of their ranges and have little weather premium built into the market. Soybeans are sitting in the middle of their range and are vulnerable to see more pressure due to the weather forecasts. But traders are reluctant to push the gains lower at this time because of the strong demand. Without much in the way of adverse weather, it’s likely the grains will continue to drift lower.
Cattle are on track to wrap up another quiet week of trading. It appears that the cattle market has been able to absorb the heavier slaughter weights without much concern. Exports continue to be strong which is helping to offset a little slower domestic demand (due to restaurant closures). A strong cash trade and July 24's friendly USDA reports added support this week.
In other news, the stock market got a shot in the arm July 29 from the Federal Reserve. The Fed, as expected, left interest rates unchanged. But Chairman Jerome Powell made comments that the recent rise in COVID-19 cases is weighing on the economy and that more monetary and fiscal support is needed. So, the Fed will start to increase its purchases of securities and they are hopeful Congress will get a stimulus bill passed sooner than later.
The U.S. economy is officially in a depression. A depression is defined by a greater than 10% drop in the gross domestic product in two consecutive quarters of the year. The U.S. GDP dropped 9.5% in the second quarter of the year, bring the combined drop for the first half of 2020 to 10.8%, giving us the accepted definition of a depression. The decline was better than expected but still shows how devastating the coronavirus has been on the U.S. economy. To add to that negative news, unemployment numbers increased, and Congress left town July 30 without coming to terms on the unemployment bonus, which will expire the end of July.
Congress is at an impasse on negotiations on the next stimulus bill with the disagreements focusing on the employment bonus and liability shield for businesses, schools, and organizations. Ag is expected to see about $20 billion from this stimulus package, but no word on how it will be distributed.
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