The markets had plenty of news to feed on this week. Some of the news encouraged the bears, but most of the news was for the bulls. Aug. 10’s Crop Progress report was friendly to the grains. The report continues to show a corn and soybean crop that is advancing in crop development. Currently all states except for a few in the eastern part of the U.S. (and North Dakota) are showing crop development ahead of the five-year average pace. Wheat harvest on the other hand continues to lag the average pace. Spring wheat harvest is behind in every state except South Dakota.

As for the crop ratings, spring wheat conditions took a hit last week, dropping 4%, which was not expected by the trade. North Dakota's spring wheat crop dropped 5% and Minnesota's crop was 1% lower. Corn conditions came in close to expectations, but with most of the major states showing steady to declining ratings (except Illinois up 3%, Nebraska up 1%, and North Dakota steady) all other states were lower (Iowa slipped 4% as did Ohio). U.S. corn conditions are 4% above the five-year average and 15% above last year. Soybean conditions fared a little better, showing a 4% better than expected increase in ratings. Most states were steady to slightly better, except for Iowa down 3%, Ohio down 3%, and Indiana down 1%.

The real shocker in the report, topsoil moisture conditions dropped 4% last week to 60% surplus to adequate. Iowa's topsoil moisture conditions dropped 14% to 39% surplus to adequate. Subsoil moisture levels for the U.S. dropped 2% to 63% surplus to adequate Iowa dropped 12% to 47% surplus to adequate.

The U.S. Department of Agriculture kept the trend of friendly reports rolling on Aug. 12 with the release of the August Crop Production estimate. Sure, it put a few key items of interest at record levels (other spring wheat yield, corn yield, corn production and soybean yield) but it also showed a much larger than expected increase in demand. Some of those increases are questionable, but still these are the numbers we have to go by.

For wheat, the old crop numbers were a non-issue as USDA corrected rounding errors. For new crop though, USDA increased yield (which was not expected) which in turn increased production more than expected. But that increase was more than offset by a decrease in imports and increase in exports. Now we could argue about the increase in exports, but the thought is China will need more wheat. In the end, stocks were trimmed more than expected, which made the report friendly to U.S. wheat. World numbers, on the other hand, were negative all the way around. Both old crop and new crop ending stocks were higher than expected as the world continues to be awash in wheat. World production estimates saw cuts to the European Union and Argentina but increases in Russia and Ukraine.

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For corn, the report was friendly as well. Although USDA increased yield much more than expected (to a new record yield and record production), demand was increased more than expected. And this is where some debate can come into play. With three weeks left in corn’s export marketing year, and corn exports behind the pace needed to make projections, USDA increased old crop corn exports 20 million bushels. This seems odd. But that put old crop stocks tighter than expected. For new crop, production was increased more than expected due to the yield increase but increases in feed demand and exports helped to take the sting out of the production increase. To us, it looks like USDA is a little high on demand. In the end, ending stocks did increase, but less than expected. World corn ending stocks estimates were also below expectations.

The soybean numbers are what shocked the trade, coming in bearish. But in the end, the market was not concerned with the negative soybeans numbers as continuing strong export demand and concerns about crop damage from the Monday, Aug. 10, storm took center stage and helped to support soybeans. The report was a nonevent for old crop as only minor adjustments were made (5 million bushel increase in crush). For new crop, USDA increased yield more than expected which followed through to a higher than expected production estimate. But like corn, soybean demand saw a sizable increase (crush, exports and residual were increased by a combined 100 million bushels). The increase in demand was not enough, though, as stocks were increased more than expected. World numbers were better than expected, with both old crop and new crop stocks being trimmed more than expected.

But after the first 10 to 15 minutes the market had the report worked into the market and moved onto other news. The trade is extremely concerned about the damage from the Aug. 10 storm. Estimates have not started to come in on the damage as of yet, but there have been estimates placed on the size of the path. Early estimates had the storm 75 miles wide and 770 miles long. The storm ran from the South Dakota/Nebraska borders to Michigan. Iowa was hit the hardest as earlier estimates placed 20% of Iowa's corn (2.8 million acres) in the direct path of the storm. It will take a week to 10 days to get the real extent of the damage. Iowa officials are saying just more than 10 million of their acres were affected in some way shape or form from the storm. This has traders concerned that corn production could decline by as much as 500 million bushels and soybean production by 100 million bushels. That would more than offset any increase that came from the Aug. 12 report.

To add to the bullishness, China continues to buy aggressively. Talk is this is just a warmup and that China plans on stepping up U.S. grain purchases in the fourth quarter of the year. But we have to get by the Aug. 15 six-month phase one trade deal review first.

China continues to be a buyer of U.S. soybeans. China on Aug. 11 bought 132,000 metric tons of soybeans with rumors floating that they bought another eight to 10 cargoes. Other sales of soybeans reported this week were a 588,000 metric ton and 132,000 metric ton sale to China and a 111,000 metric ton sale to an unknown destination. Reports has China looking to buy soybeans from the US through the end of the year. That stands to reason since the U.S. has the cheapest soybeans in the world. But will it be enough to satisfy the phase one trade deal?

To add to the report jitters, traders continue to be concerned about trade. Reports have U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He having a video conference call Aug. 15. The purpose of the call is a six-month review of the phase one trade deal. The U.S. will likely focus on the recent build up in purchases and request more be purchased in short term to get trade deal back on track. China will raise concerns about U.S. recent sanctions and crack down on technology companies.

Traders are very nervous that the phase one trade deal could be canceled and that would result in the return of tariffs. If the deal is canceled and China walks away from U.S. ag products, and tariffs are placed on products again, it would be devastating to U.S. ag prices.

Another trade issue has popped up as well. The U.S. last week placed tariffs back on Canadian aluminum and Canada responded by placing tariffs on $2.7 billion of U.S. goods.

Last week’s ethanol production estimate was at 918,000 barrels, a decrease of 13,000 barrels from the previous week. Stocks were estimated at 19.75 million, a decrease of 596,000 million barrels and the lowest since December 2016.

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