With the U.S. Department of Agriculture's Planted Acreage report out of the way and more known about what was planted, the market could go back to concentrating on weather. And that is just what it did the first full week of July.
Weather forecasts have been as volatile as the markets. One day shows rain, the next day has the rain reduced or pulled out completely. But as we get into July, the weather forecast has become a lot more important especially for corn as it starts to pollinate the first half of July.
So far, the U.S. weather has seen the haves and the have nots. The central and eastern Corn Belt are the garden spots of the country, seeing warm, wet conditions for most of the early growing season. Now that corn is entering its pollination stage, that weather trend looks to be continuing. On the flip side, the Northern Plains and western Corn Belt have seen some spotty hit and miss showers and a brief cool down in temps. But the 6 to 10 and 8 to 14 day forecasts issued Wednesday, July 7, are showing the return of hot and dry conditions for the Northern Plains and western Corn Belt. That will likely continue to put stress on the crop in those regions.
The big question is, can the ideal growing conditions in the central and eastern Corn Belt make up for the potentially lost production in the Northern Plains and western Corn Belt? That is going to be the question the market will seek the answer to going forward.
This week’s news was limited, due to the short week. But most of the market activity was focused on the improving weather conditions in the Corn Belt as close to ideal conditions are expected to bless the Corn Belt for the first half of corn pollination. The only other major news this week came in the Crop Progress report, which was once again friendly to the grains as conditions continue to decline more than expected.
Tuesday’s session opened with the grains posting heavy losses with most contracts touching limit down levels at one point. The pressure came from improving weather forecasts. Tuesday morning a rain system moved across North Dakota, South Dakota and northern Minnesota that brought needed rains to a lot of the region. But in true fashion for this growing season, most amounts were disappointing. To add to the bearishness of the rain, temps are expected to cool down and level off at average for the next week to 10 days, right at pollination.
Traders were also expecting to see improving crop ratings in Tuesday afternoon’s Crop Progress report. But instead, crop ratings once again dropped more than expected, showing that the weather has been a little tougher on the crops. Minneapolis wheat was once again the worst performer. Spring wheat conditions dropped another 4% last week to now be rated at 16% good/excellent (which is 3% lower than the trade expected). Only Minnesota (+6%) and Washington (+1%) saw improvements while the rest of the states declined. Idaho decreased 3%, Montana was down 14%, North Dakota dropped 2%, and South Dakota fell 3%. North Dakota’s spring wheat crop is rated 18% good/excellent, South Dakota is at 7% good, Montana is 7% good/excellent, and Washington is 8% good. Rain won’t help that crop at this point.
Corn conditions also saw a drop in ratings. Traders were expecting corn conditions to improve 2% but instead the rating was left unchanged at 64% good/excellent. Most states saw conditions remain unchanged from last week, but there were a few who improved (Iowa up 2% and Ohio up 9%) and a few who declined (Illinois down 3%, Minnesota down 2%, and North Dakota dropped 5%). North Dakota’s crop is now rated at its worst level since 2006 at 35% good/excellent, South Dakota is rated 24% good, and Minnesota is now at 41% good/excellent.
Not to be left out, soybeans conditions were expected to also improve by 2% but instead conditions dropped 1%. Most states saw declining ratings. Iowa and Ohio were the only states that saw improvements while Illinois dropped 4% while Indiana and Minnesota dropped 1% each. Nebraska slipped 3%, North Dakota dropped 6%, and South Dakota declined by 2%. North Dakota’s crop is now rated 19% good/excellent, South Dakota is 24% good/excellent, and Minnesota is 44% good/excellent.
As of July 4, 10% of the nation’s corn crop is in silk while 3% of the soybeans are setting pods. Traders are expecting this week’s weather to result in improving conditions in the next report on July 12. Time will tell.
The next big news item for the grains will be USDA’s July Crop Production report. The report will be released on Monday, July 12. This report holds a little more weight as it will not only include updated 2021 supply and demand estimates (using the updated acreage estimates from the June 30 planted acreage report), but it will also update 2020 supply and demand numbers as well.
The June 30 Quarterly Grain stocks report showed slightly smaller stocks than expected from the trade, which should result in USDA increasing 2020 demand for all three crops. For wheat it is likely USDA will increase feed demand. The demand increase for corn will likely lead to an increase in feed demand or ethanol production. For soybeans it will be interesting to see what number they adjust. It would be tough to change the crush estimate or the export estimate as both of those are tracked. It is likely USDA will make the adjustment in the residual estimate.
Production will likely see a small increase for wheat and corn as planted acreage was higher in the June Acreage report than in March’s Prospective Planting’s estimate. But soybean production could see a decline as the June estimate showed less acres than the March report. Currently estimates have the 2020 ending stocks for corn at 1.09 billion bushels versus 1.1 billion bushels last month. Old crop ending stocks for soybeans are estimated at 135 million bushels, same as last month.
For 2021, wheat’s ending stocks estimate is at 719 million bushels versus 852 million bushels last month. Corn stocks are estimated at 1.3 billion bushels versus 1.36 billion bushels last month and soybean stocks are estimated at 140 million bushels versus 155 million bushels last month.
The big question for the report is will USDA make adjustments to the yield estimates for corn and soybeans. It is unlikely at this point as July is a critical month for both crops.
The cattle markets struggled to keep their head above water after returning from the Fourth of July holiday. Early demand reports from the Fourth had beef demand lower this year than the past two years, which was feared. This could explain why boxed beef prices were lower the week leading up to the holiday. Losses were limited by the softer corn market. The deferred feeder cattle contracts were able to trade to new contract highs this week, which once again makes this an attractive time to be protecting some of this year’s calf crop.
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