The U.S. Department of Agriculture's June Crop Production and updated Supply and Demand tables were released to close out the second week of June. To say that the numbers were surprising would be an understatement. To add to the USDA report, the updated Drought Monitor map also added a little dash of concern.
Thursday’s Drought Monitor map continued to show drought conditions expanding in North Dakota, South Dakota, and Minnesota, even after the recent rains. And with no major moisture events in the horizon and forecasts for above normal temps for the next seven to 10 days, it is likely that the drought will continue to expand. The report showed the High Plains region in some stage of drought increased to 62.5%, up 2% from the previous week. North Dakota continues to show 100% of the state in some stage of drought while South Dakota’s area of drought expanded 2.6% to 97.7%. Minnesota’s area of drought increased 26.8%, putting the entire state in some stage of drought.
As for the June Crop Production report, the U.S. wheat estimates were friendly, but world estimates were a little negative. For old crop, USDA increased wheat exports by 20 million bushels, which followed through to show up as a 20 million bushel reduction in ending stocks. That put old crop stocks at 852 million bushels, 16 million bushels below expectations. It was a surprise that USDA increased old crop wheat exports after the marketing year ended.
For new crop, USDA increased wheat yield 0.7 bushels to 50.7 bushels/acre. This resulted in a 26 million bushel increase in production, which was 10 million bushels above expectations. The net result was a 6 million bushel increase in supply. On the demand side, USDA increased feed demand 10 million bushels, which offset the increase in supply and resulted in a net 4 million bushel drop in wheat ending stocks. That put 2021 wheat ending stocks at 770 million bushels, 5 million bushels lower than expectations.
On the world side, old crop world ending stocks were neutral coming in at 293.5 million metric tons, 0.9 million metric tons below expectations and 1.2 million metric tons below last month. But the 2021 world numbers were negative showing an ending stocks estimate of 296.8 million metric tons, which was 2.3 million metric tons above expectations and 1.8 million metric tons above last month. The increase was due to production increases for the EU, Russia, and Ukraine.
The numbers for corn were likely the most surprising. For old crop corn, USDA left the supply side unchanged but did increase ethanol demand 75 million bushels and export demand 75 million bushels. This stands to reason. With the economy on restart and travel and gas demand on the rebound, it is likely ethanol demand will increase. And ethanol stocks are extremely tight which means plants have to increase grind. The increase in exports might have been a bit premature. That 150 million bushel increase in demand followed through as a cut in ending stocks. This put old crop corn stocks at 1.107 billion bushels, 91 million bushels lower than expected.
For new crop USDA’s only adjustment came in the 150 million bushel decline in beginning stocks. The net result cut corn’s ending stocks to 1.357 billion bushels, which was 49 million bushels lower than expected.
On the world stage, Brazil’s corn crop production was estimated at 98.5 million metric tons which was a decrease of 3.5 million metric tons from last month. Argentina’s production was left unchanged at 47 million metric tons. World old crop corn ending stocks were estimated at 280.6 million metric tons, 2.9 million metric tons below last month. New crop stocks were estimated at 289.4 million metric tons, 2.9 million metric tons below last month.
The report was negative soybeans as USDA made very few adjustments to the soybean numbers. For old crop USDA reduced crush 15 million bushels (as was expected). That followed through to show up as an increase in ending stocks, putting stocks at 135 million bushels, 13 million bushels above expectations.
For new crop, USDA made no adjustments to any of soybean’s numbers, other than the 15 million bushel increase to beginning stocks. That ended up increasing soybean ending stocks to 155 million bushels, 13 million bushels above expectations.
For world numbers, Brazil’s soybean production was increased 1 million metric tons to 137 million metric tons. Argentina’s production was left unchanged at 47 million metric tons. World old crop ending stocks were estimated at 88 MMT, 1.4 MMT above last month. World new crop ending stocks were estimated at 92.6 million metric tons, 1.5 million metric tons above last month.
The selling that dominated the grains at the end of the second week of June spilled over to start the third week of June. The grains got thumped to start the week, trading sharply lower off technical pressure with additional pressure coming from a potential change in the weather forecasts. Although most regions remain in a drought situation, next week’s forecast is calling for cooler temps and rain for the Plains and Corn Belt.
The June 14 Crop Progress report was once again friendly to the grains. Conditions dropped more than expected as it seems the US crop is not off to a good start. Corn’s crop condition rating came in at 68% good/excellent, down 4% from last week. What was interesting was that every major corn producing state saw declining conditions, and some weren’t so small. Illinois’s crop rating dropped 6%, Iowa was down 14%, Minnesota was off 11%, Ohio down 4% and South Dakota down 1%.
Soybean conditions also took a hit last week. The crop was rated 62% good/excellent, down 5% from the previous week. The states that had the biggest declines in conditions were Illinois down 10%, Iowa down 12%, and Minnesota down 9%. What was interesting in the report was the declining ratings in the Corn Belt occurred before the major heat moved into the region.
Spring wheat conditions only dropped 1% while the trade was looking for conditions to drop 2%. The big losers in the report were Minnesota which saw conditions drop 6% and Washington which saw their ratings drop 5%. North Dakota dropped 3%.
Soil moisture conditions also went backwards last week with topsoil conditions dropping 4% to 62% surplus to adequate. Subsoil moisture conditions dropped 3% to 61% surplus to adequate. The Corn Belt states saw the biggest declines while North Dakota saw improving numbers. South Dakota’s numbers declined even after seeing decent rains last week.
But this week the market is not focused on past conditions. The focus is on next week’s weather forecasts. The futures market does not deal with today, it tries to anticipate and estimate what events that influence price will be in the future. That is why the market is not so worried about current news items, but potential news items in the future. And right now, the weather forecasts are starting to show a transition, with cooler temps expected to move in by the end of the week and last to the end of June.
Minneapolis wheat continues to see support from increasing reports of fields being destroyed. The winter wheat markets were under pressure from harvest progress as the warm and dry forecasts should allow for harvest to gear up. So far yield estimates have been strong but protein low.
Corn’s potential export demand picture changed slightly this week with news that Mexico is holding up approving import permits for GMO corn from the U.S. This has traders worried that Mexico’s GMO corn import ban will be on all corn imports, not just corn for human consumption.
Corn has also dropped enough to bring back exports as an unknown destination was in and bought 153,000 metric tons of U.S. corn. Reports that Brazil has approved importing U.S. GMO corn will help increase corn export demand. Last week’s ethanol production report continues to be supportive. Last week’s production was estimated at 1.025 million barrels per day, down 42,000 barrels from the previous week, but enough to keep production on pace. Stocks were estimated at 20.6 million barrels, an increase of 642,000 barrels and a 10-week high.
The soybean complex was all about the change in the weather forecast and rumors that EPA may reduce blending requirements for biofuels. That announcement combined with NOPA’s May crush report sent the soybean complex into a tailspin. The NOPA crush estimate came in at 163.52 million bushels versus expectations of 165.2 million bushels.
Cattle have finally seen a solid week of gains. Support came from strong cash trade as cash activity has taken place between $120 and $124, with cattle on the FCE Online Auction moving at $121.50. Outside of the auction, private sales were reported at $122 to $124. Gains in the live cattle were kept in check from the limit down move in the lean hog market. Feeder cattle traded back and forth with the corn market limiting gains. But in the end, support did come from the hot dry forecasts as the heat is slowing down cattle performance and limiting cattle movement. The strength in cattle has been enough to push prices back up into hedge able levels once again.
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