It’s starting to sound like a broken record, but the market continues to keep its focus on weather forecasts and U.S. Department of Agriculture reports. And with the month of August being one of the most important weather months for crop development, it stands to reason traders are watching both very closely.
Weather forecasts for the first two weeks of August have flip-flopped more than a politician. To start the month forecasts were calling for August to be hot and dry for the entire continental U.S., but in true fashion, forecasts change and all of a sudden some of the driest regions were expected to see rain. But as has been the case all growing season, rains were lighter than expected in most regions, while some others received generous rains. The haves and have nots were evident in the Aug. 9 Crop Progress report.
The average trade estimate for the Crop Progress had spring wheat conditions remaining unchanged while estimates were looking for corn and soybeans ratings to improve by 1% each. Instead, corn’s crop condition rating improved 1% more than expected by the trade. The biggest surprise in the crop ratings estimate was Illinois improving 11% (excellent dropped 18% while good improved by 29%). That is not a misprint. That does seem odd when Indiana dropped 2%, Iowa dropped 1% and Ohio was unchanged. Missouri did improve by 6% though so there was another state seeing solid improvement. So once again, the central and eastern Corn Belt had improving conditions while the western Corn Belt and Northern Plains declined. North Dakota’s crop did drop 1% to 17% good/excellent, South Dakota dropped 2% to 30% good/excellent, and Minnesota was unchanged at 36% good/excellent.
Soybean’s crop ratings held a few surprises as well. Once again, Illinois saw an 11% improvement while Missouri was up 3%. The other big increase came in North Carolina which improved 5%. All of the other major producing states saw unchanged to lower ratings. Indiana was down 2%, Iowa dropped 1%, and Nebraska dropped 4%. Minnesota was unchanged at 34% good/excellent, North Dakota dropped 4% to 13% good/excellent, and South Dakota dropped 3% to 27% good/excellent.
Spring wheat harvest was more advanced than expected, with 38% of the crop in the bin. With the faster than expected harvest progress and more of the poorer looking wheat harvested, the crop did see a slightly better crop rating that expected. Spring wheat conditions did improve 1% to 11% good/excellent, which is the worst condition rating for spring wheat since 1988. The biggest improvement continued to come from Idaho and Montana, while North Dakota, South Dakota, and Washington declined. Spring wheat basis levels have been strong due to the smaller than expected supply. That along with the inverted futures market, has the spring wheat market looking attractive to sell off the combine.
The other major focus of the trade this week was on the World Agricultural Supply and Demand Estimate report, which came out after deadline on Thursday, Aug. 12. The information for the report was based on 20,000 farmer surveys and satellite imagery. Expectations were that USDA would not make any changes to corn’s demand structure especially with the issues Brazil is experiencing. Feed demand might see a small increase as corn starts to work its way back into the feed ration. But it was expected that USDA would lower U.S. soybean crush, due to last five months of below expectations crush demand. Wheat ending stocks were expected to decrease domestically. Production was expected to be lower on the world stage, with still higher ending stocks.
The thought that corn will not make USDA export projections is starting to become a little more of a reality than a concern. The export shipments pace for last week was sharply below expectations and well below the pace needed to make USDA’s projections. To top that off, the U.S. only shipped 138,000 metric tons of corn to China last week. That leaves 2.4 million metric tons of sold corn on the books that still need to get shipped to China in the next three weeks. It is likely we are going to see a few more cancellations.
The same scenario played out in the soybeans. Shipments were disappointing, but not as much for soybeans as corn. The poor shipments pace was somewhat offset by strong export sales. For the past five days, prior to Aug. 12, there has been a flash export sale of soybeans, either to unknown or China.
Wheat traded in a sloppy fashion this week with harvest pressure hitting the Minneapolis market. Losses were kept in check from increasing world wheat prices due to production concerns. That was enough to push Paris milling wheat to a new contract high on Tuesday, Aug. 10. The winter wheat contracts were under pressure due to expectations of higher U.S. acreage in 2022. New crop July 2022 Chicago and Kansas City are attracting acreage due to both contracts hitting new contract highs.
Corn is in a tug of war between potential production and demand. Pressure has been spilling over from the lower crude oil market. Crude is under pressure from increased supply as well as from concerns the up-trending cases of COVID-19 will result in decreased demand. The better-than-expected crop rating also added a bit of confusion to the market due to a huge 11% increase in the Illinois crop rating. Corn saw their first flash export sales in months as reports had Mexico in buying 182,880 metric tons of corn.
But the friendly export news quickly had a wet blanket tossed on top of it from another disappointing ethanol production estimate. Ethanol production was estimated at a disappointing 989,000 barrels which was down 27,000 barrels from the previous week and a 13-week low. Stocks were estimated at 22.28 million, a drop of 373,000 barrels from the previous week.
Soybeans were able to see support from a couple different areas this week. Not only have exports started to pick up but the much tighter than expected palm oil stocks estimate helped push the entire vegetable oil market higher. Palm oil stocks came in at 1.4 million metric tons versus the average estimate of 1.6 million metric tons.
Look for the August report and weather forecasts to continue to be the main drivers in the grain market for the next few weeks.
Cattle have put in another quiet week. The stock market has put in a strong performance, which is usually supportive to cattle. But the sharply lower lean hog market and demand concerns due to the surge in Delta variant COVID-19 cases has beef demand in jeopardy.
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