The second week of June had the grains trading on the defense. A change in the weather combined with fund selling drove the grains lower. Weather continues to be the main focus of traders’ attention as every bushel counts this year, especially with the lighter than expected Prospective Planting acreage estimate from March.
Drought is not only impacting the U.S. crop but it is starting to become more of an issue in Brazil as well. Combines are rolling on the safrinha corn crop, and they are not finding much, especially in the central regions of the country. The yield drag was enough for both StoneX and Informa to cut Brazil’s corn production estimate dramatically. Informa cut their crop estimate 5 million metric tons to 88 million metric tons versus USDA’s 102 million metric tons.
The grains gave a little something to everyone on June 7, gapping higher on the opening on the night of June 6, then rallying sharply higher through the overnight session only to run into a brick wall during the day session. Minneapolis wheat started the session as the darling and ended up as the ugly duckling. September Minneapolis wheat saw a trading range of 64.75 cents, posting strong gains to start the session but reversing to close sharply lower. Technically it was not a good close. Corn and soybeans ended mixed with old crop lower while new crop held onto gains.
The wheels started to come off the bus for Minneapolis wheat when rain entered the forecast on the night of June 7. Once that forecast was verified in the noon runs, Minneapolis collapsed, taking the other wheat contracts as well as old crop corn and soybeans down with it. But as has been the case all summer, the rains were spotty with some areas seeing light rains while other received flooding rains.
The grains should have gotten a shot in the arm from the June 7 Crop Progress report. Wheat conditions continue to be variable with the hard red winter wheat crop rated the third highest in 11 years while the soft red winter wheat crop is rated at its highest level in 20 years. White winter wheat is at the lowest rating in history and the hard red spring wheat crop is rated the second lowest on record.
The actual numbers from the report had spring wheat conditions dropping 5% (3% more than expected) to 38% good/excellent, one of the worst ratings in history. What was the most surprising was that North Dakota was not responsible for the decline. North Dakota’s crop improved by 1% (as did Washington). The declines came in Idaho (-2%), Minnesota (-8%), Montana (-12%), and South Dakota (-29%).
Corn also held a few surprises. Corn’s crop condition rating came in at 72% good/excellent, 2% lower than expected, and it likely should have been lower since most of the major states declined more than expected. Illinois dropped 6%, Indiana slipped 1%, Iowa down 4%, Minnesota down 7%, Nebraska down 4%, North Dakota down 6%, Ohio off 3% and the biggest decline was South Dakota which dropped 21%.
The soybean numbers were friendly as well. Traders continue to think that the planters are bigger than they are as once again they overestimated planting progress. As of June 6, soybeans were 90% planted, 11% ahead of average but 2% behind expectations. This was the first look at soybeans’ crop rating, which came in at 67% good/excellent, 5% lower than last year and 3% lower than expected by the trade. Most of the major producing states are showing ratings in the mid 70s, except for North Dakota which is 25% good/excellent and South Dakota at 45% good/excellent.
The Crop Progress report really showed how backward the Northern Plains went last week. That included topsoil moisture condition as well. North Dakota’s dropped 9%, Minnesota lost 27%, and South Dakota was down 24%. Illinois’s topsoil moisture even dropped 12%. Subsoil moisture conditions also dropped last week. Illinois was down 6%, Minnesota down 12%, North Dakota down 4%, and South Dakota down 11%.
Although it is early in the growing season to be betting the farm on the Crop Progress report numbers, the report does tell us that the Northern Plains are not in good shape and that it will be difficult for the grains to reach the yield projections needed to build supplies. It will take an increase in acreage. It will be interesting to see if this week’s rains will improve the crops in North Dakota, South Dakota and Minnesota.
Last week’s ethanol production report was friendly. Production was estimated at 1.067 million barrels per day, up 33,000 barrels from the previous week and a 66-week high. Stocks were estimated at 19.96 million, up 372,000 barrels from the previous week.
Another interesting aspect to the week’s trading was that old crop corn was the strongest contract in the corn complex while old crop soybeans were the weakest. Old crop basis level has been widening out for the past month as end users have likely secured most of the product they need in the short term. Old crop exports have also slowed which has taken away the competition for crush plants and ethanol facilities. But recently, old crop corn futures started to show some strength, outpacing the other months. This is likely due to the recent uptick in ethanol production. U.S. soybean exports continue to be lackluster as Brazil sets records for monthly sales.
Rain has blessed a lot of the Northern Plains and Canadian Prairies this past week. The big question left to be answered is, was it in time? Reports have spring wheat in the southeast region of North Dakota as well as in the southwestern regions of North Dakota only about a foot tall and heading out. Estimates have North Dakota’s crop production slipping close to 30% below early estimates. And that is only if conditions continue to improve.
Minneapolis wheat, corn and soybeans all traded down to major support lines, and so far, those levels have held. September Minneapolis wheat was able to erase all of June’s gains and trade to levels not seen in 10 days. Corn and soybeans slipped enough to touch the high end of the June 6 gap. A close below these levels would open the grains up to further selling pressure.
Cattle continued to struggle as cash seems to be stuck at the $119 to $120 level. The extreme heat is likely resulting in poor feedlot performance and resulting in lighter slaughter weights but with the backlog of slaughter ready cattle, the market can’t take advantage of this. Cattle are still expected to see better times ahead; it is just taking longer than expected to get there.
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