The selloff that hit the grains to close out August has continued into September and is pushing the grains to major support lines. Corn and soybeans have been hit the hardest while wheat seemed to be along for the ride until Stats Canada released their July 31 Stocks report.
Wheat had been playing the follower role to corn and soybeans. The only supportive news in the wheat market is from Russia, as they continued to cut production estimates, lower export estimates, and increase their export tax on wheat. As a result, the U.S. was able to capture an export sale of 327,000 metric tons of wheat to Nigeria and a 72,000 metric ton sale of wheat to South Korea. On the bearish side, the Australian Bureau of Agricultural and Resource Economics and Sciences increased their production estimate for Australia’s wheat crop to 32.6 million metric tons versus 27.8 million metric tons in June. If realized, this will be the second largest wheat crop for Australia.
Stats Canada released tier July 31 stocks estimate on Sept. 8, and it was not friendly. All wheat stocks were estimated at 5.7 million metric tons versus expectations of 4.8 million metric tons and versus 5.5 million metric tons last year.
USDA’s Crop Progress report was also a little negative wheat, as, although it is showing a rapidly progressing spring wheat and durum harvest, it is also showing a quicker start to winter wheat planting. The base price for crop insurance is currently being set now and as of Sept. 7, the base price was estimated at $7.12 versus $4.90 last year. This will certainly result in a large increase in winter wheat acreage.
USDA is set to release their September Crop Production estimate on Friday morning. This report will likely be a nonevent for wheat as USDA will not want to steal their thunder from the Sept. 30 Small Grains Summary report. Friday’s report will at best show minor tweaks to demand.
Corn continues to be the weakest link due to soft export demand, slower ethanol production, and the expectations that USDA will increase planted and harvested acreage in Friday’s report. Let’s not forget improving weather conditions as most expect the recent rains in the Northern Plains and western Corn Belt have helped to stabilize the crop and stop further deterioration.
But the recent rains did not translate into a better crop rating for corn. The latest Crop Progress report was friendly corn as it continues to show a crop that is declining in ratings. As of Sept. 5, corn’s crop condition was estimated at 59% good/excellent, a drop of 1% from the previous week and 2% lower than expected by the trade. Again, the big surprise came in Illinois’s and Nebraska’s ratings, which both were cut 3%.
Traders are expecting USDA to increase both planted acres and yield for corn in their September Crop Production report. This has kept buyers away on the expectation that Friday’s report will be negative. The average trade estimate has corn yield at 175.8 bushels up 0.6 bushels from last month. Harvested acreage is estimated at 85.1 million versus 84.5 million last year. Production is estimated at 14.94 billion bushels vs 14.75 billion bushels last month. The adjustments are expected to push ending stocks to 1.38 billion bushels versus 1.24 billion bushels last month.
Soybeans remain in a back-and-forth trading fashion. Support continues to come from strong demand as China has been in consistently buying soybeans. But gains are being kept in check from improving weather conditions. Expectations that USDA will lower soybean acreage Friday is giving light support.
Early trade estimates for soybeans in Friday’s report are: 50.4 bushel yield, which is 0.4 bushels above USDA, giving us production of 4.377 billion bushels, 38 million bushels above USDA’s August estimate and ending stocks of 190 million bushels, which is 35 million bushels above last month.
Soybeans’ crop condition rating came in as expected showing no change from the previous week. But that doesn’t mean that the report did not have a few surprises. As was the case in corn, Illinois and Nebraska saw conditions decline with Illinois dropping 6% to 65% good/excellent while Nebraska dropped 2% to 67% good/excellent.
Reports toward the end of August had China cancelling numerous Black Sea barley purchases. This troubled the market. Was it is a sign that China does not need the feed, or does it mean China is looking at having a better-than-expected corn crop?
The recent pullback has left the grains in a vulnerable spot. Most are oversold and in need of a correction. To top that off, most are sitting at the low end of their trading ranges. If the report on Friday is negative, the grains have nowhere to go, unless the report is bearish enough to push the grains to the next level down. But that would also result in prices becoming attractive and could result in an increase in export demand.
Export concerns continue to pile up as well. It appears that there was more damage done by Hurricane Ida than first expected. On the energy side, officials are saying Ida resulted in the largest U.S. oil production loss in two decades. The US Department of Energy and private sources are estimating 80% of the Gulf oil production remains offline as of Sept. 7. On a positive note, the Coast Guard reopened the lower Mississippi River over the weekend, but the physical loading facilities remain closed. A few have started to open to load vessels like the Louis Dreyfus facility near Baton Rouge, but lack of power has kept about 12 other facilities closed.
The disruption in shipping has resulted in some export business to be rolled from September to October and for some business to be switched to be loaded out of the Pacific Northwest. Last week’s export shipments pace showed just how little activity was able to be accomplished due to Ida. For the week ending Sept. 2, there was only 276,000 metric tons of corn shipped out of U.S. ports, which was a marketing year low. The Gulf only accounted for 85,000 metric tons of that total. For soybeans, 68,000 metric tons were shipped out of US ports, with none being shipped out of the Gulf or the Pacific Northwest.
On the world stage Brazil is reporting their second corn crop harvest activity as of Sept. 3 at 94% completed versus 98% average. AgRural is estimating Brazil’s corn crop at 81.9 million metric tons versus 82.2 million metric tons in June and versus CONAB’s estimate of 86.7 million metric tons and USDA’s 87 million metric tons.
The six-to-10-day forecast is calling for above normal temps and below normal precip through the middle of September. At this point that forecast is negative as it will continue to push the crop to maturity and eliminates the risk of frost damage.
Technical selling continues to dominate the cattle market. Fundamentals are not bad enough for the cattle market to pull back to test the bottom end of their trading range. The cash trade continues to be disappointing, not because of the price being paid but due to the number of cattle being moved. It was also very disappointing that cattle did not respond to the breaking news that China halted beef imports from Brazil due to the discovery of two atypical cases of bovine spongiform encephalopathy. Brazil supplies China and Hong Kong with 50% of their beef demands. The trade is under the assumption that since the cases were atypical China would not keep the ban in place more than two weeks (which was the case the last time Brazil had a case of the disease discovered).
The fundamental picture remain friendly cattle as slaughter weights are below a year ago levels and demand remains strong. The only concerns are the lower boxed beef prices, which is a function of domestic demand. Another concern is tied to exports. With the Gulf closed for export business in the short term, will that slow down beef export demand?
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