In the past two weeks the grains have come under some significant pressure. Selling was due to a flip-flopping weather forecast well as from harvest pressure (spring wheat) and slow demand.
Weather continues to be the main driver of the grains. Weather forecasts for the last week of July were calling for hot and dry conditions to dominate the Northern Plains and Corn Belt. But in true fashion, those forecasts flipped a few times by the time the calendar flipped over to August. At the time of this writing (Wednesday, Aug. 5) short term weather forecasts are calling for rain over the next five days for southern Minnesota, northern Iowa and Wisconsin. There was even some rain in the forecast for North Dakota. If realized, it would be enough to buy the corn and soybeans more time. But without the rain, it is likely the corn in the Northern Plains and western Corn Belt will see significant tip back, not to mention poor pod filling for the soybeans.
Long-term forecasts are still calling for heat to return, with the six-to-10-day forecast looking for the entire continental U.S. to see above to much above normal temps, with most of the heat setting up over the central Corn Belt. Precip is expected to be below to much below normal for the Plains, western and central Corn Belt. The eastern Corn Belt is expected to see above normal precip. This forecast is valid Aug. 10 to 14. The eight-to-14-day forecast is expected to be warmer and drier than the six-to-10 day. If realized this looks to be the high-pressure ridge that has been talked about but has not materialized.
What was most interesting about the Aug. 2 session was that it was led by the winter wheat contracts. Winter wheat was supported by another estimated drop in Russia’s wheat production estimate, as well as from expectations that Canada’s production will be well below average. The market is also expected to see another sizable rating drop in the U.S. spring wheat crop.
But a lackluster Crop Progress report seemed to throw a wet blanket on the weather forecasts. It’s not that the Crop Progress was not friendly or that it didn’t confirm some thoughts. The report came in close to expectations, which likely has most of the numbers already dialed in.
Corn’s crop condition rating was estimated at 62% good/excellent, 2% below the previous week and 1% below expectations. The eastern Corn Belt saw solid improvements from last week (Illinois was unchanged, but Indiana was up 3% and Ohio was up 4%). It appears the warmer, drier weather did help the east. But the western Corn Belt and Northern Plains suffered under dry conditions. Declines were seen in Iowa (-3%), Minnesota (-2%), Nebraska (-5%), and North Dakota (-3%). Surprisingly, South Dakota did pick up a shower and their crop improved 2%. North Dakota’s crop is rated 18% good, with nothing in the excellent category.
The soybean crop rating followed the path set by the corn market. The crop rating was estimated at 60% good/excellent which was a 2% improvement from last week. And as was the case in corn, the eastern and central Corn Belt saw improvements while the western Corn Belt and Northern Plains did not. Illinois saw improvements of 3% while Indiana improved 4% and Ohio 6%. Iowa and North Dakota (17% good/excellent) did not see any changes for the week, but Minnesota dropped 2% (34% good/excellent) and South Dakota improved 4% to 30% good/excellent.
Winter wheat harvest continues to forge ahead with 91% of the crop now in the bin. Spring wheat harvest is just getting under way. As of Aug. 1, 17% of the spring wheat crop was harvested versus 3% a week prior and 8% average.
As expected, spring wheat conditions improved, but not by as much as the trade thought. Conditions improved 1% to 10% good/excellent, 2% less than expected by the trade. It stands to reason that conditions should improve as the worst wheat should be combined first. Harvest results continue to come in reporting yields all over the board but excellent quality.
The state breakdown in spring wheat ratings has Idaho up 2% to 29% good/excellent, Minnesota up 3% to 12% good, Montana down 1% to 3% good, North Dakota up 1% to 12% good/excellent, South Dakota up 2% to 7% good, and Washington unchanged at 0% good/excellent.
Pasture and range conditions also dropped 2% to 32% good/excellent. Topsoil moisture conditions dropped a significant 4% to 52% surplus to adequate while subsoil moisture conditions dropped 4% to 53% surplus to adequate.
The past couple of weeks Minneapolis has taken a back seat as far as the wheat exchanges are concerned and Kansas City has taken the lead. Part of the reason Minneapolis has turned lackluster is due to harvest progress. Spring wheat production is likely going to be cut by 40% to 50% from last year, but the fact that new crop supplies are becoming available is enough to pressure. Losses will be limited, as once Minneapolis trades to support it should be able bounce back and test recent highs.
Traders are not only watching the U.S. spring wheat production estimates but also are paying close attention to Canada, the European Union, and Russia (all being major exporting countries). Russian officials have once again lowered their estimates for their wheat production. Production is now estimated at 81 million metric tons versus 85 million metric tons last month with the reduction due to drought. Slow harvest progress is plaguing the European Union. Canada’s 10-day weather forecast is calling for wetter conditions, which if realized could help improve the wheat crop.
Although spring wheat is off of its highs, producers should consider selling their wheat off the combine into the strong basis levels and inverted market. If you want ownership, look to buy deferred contracts.
Corn has taken a back seat and has been more of a follower lately than a leader. The lackluster trading in corn is due to expectations that most of the corn crop has made it through pollination without many issues. What is interesting is that corn has not been able to cash in on Brazil’s corn production issues. Reports out of Parana have their corn yield at 50% of normal. As of July 30, Brazil’s second corn crop was 47% harvested versus 63% average. Corn export demand is expected to increase later this fall, as it is unlikely that Brazil will have much corn that will be exportable.
Last week’s ethanol production estimate came in at 1.013 million barrels, 1,000 barrels lower than the previous week. Stocks were estimated at 22.65 million, 84,000 barrels lower than the previous week.
Traders seem to be waiting on the sidelines for some news to help give them the confidence to pick a side. The eastern Corn Belt continues to see good growing conditions while the western Corn Belt and Northern Plains see adverse conditions.
The next two to three weeks are going to be very important for the soybean crop. The soybean crop is lost or made in the month of August. As we have stated above, short-term weather looks good for crop development, but the extended forecast does not.
But soybeans are also dealing with another issue: demand. Not only have soybean exports come to a halt, but crush has also started to see a significant slow down compared to how the year started. USDA reported June crush at 162 million bushels, just shy of the average trade estimate of 162.1 million bushels but far below last June’s 177 million bushels.
Canola has come under a massive amount of selling pressure over the past couple weeks. But it is not due to an improving crop; it’s more due to slow demand. Saskatchewan’s canola rating dropped 4% in the past two weeks to 14% good/excellent and Alberta’s dropped 16% to just 17% good/excellent.
The cattle market has made a good recovery with most contracts trading back at the upper end of their recent trading range. Boxed beef prices have been steadily increasing, which is a sign of improving domestic demand. There are some concerns that the COVID-19 Delta variant could put a damper on the recovery, especially if shutdowns are ordered again. But hopefully the expectation of tighter beef supplies in the future will help keep beef price in line.