Market bulls need to be fed every day
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Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.
The second week of August brought strength back to the grains, helping wheat, corn, and soybeans recover all of the previous week’s losses and then some. Most of the strength was due to flip flopping weather forecasts with light support coming from position squaring ahead of the Aug. 12 USDA Crop Production report.
The most encouraging aspect to the week was the return of exports as China, Mexico, and an unknown destination were in and bought corn and soybeans. A sharply lower U.S. dollar added support.
The big news of the week came in the Consumer Price Index, which is the gauge for inflation. The number came in at 8.5% versus expectations of 8.7% and 9.1% last month. This was bullish for commodity markets as it pushed the stock market higher and the dollar lower. It also has most traders thinking the Fed will only look at increasing interest rates 0.5% instead of 0.75% at their next meeting.
USDA’s August Crop Production report brought mixed news to the grains. The report was friendly to bullish wheat and corn but negative soybeans.
USDA made little adjustment to the old crop wheat numbers. No changes were made to the 2021 supply. On the demand side USDA increased food demand 10 million bushels, decreased feed demand 6 million bushels, and decreased exports 4 million bushels. The adjustments resulted in no change to old crop ending stocks.
For new crop 2022, USDA reduced planted and harvested acreage 100,000 acres (due to less durum acres in North Dakota) but increased yield 0.2 bushels. This resulted in production increasing 2 million bushels to 1.783 billion bushels, 8 million bushels less than expected by the trade. On the demand side, USDA increased food demand 6 million bushels and increased exports 25 million bushels. The net result was a 29 million bushel decline in stocks, now estimated at 610 million bushels, 40 million bushels less than expected. The national average price dropped $1.25 to $9.25.
On the world stage, old crop stocks were estimated at 276.4 million metric tons, 3.5 million metric tons below expectations and 3.7 million metric tons below last month. World new crop stocks were estimated at 267.3 million metric tons, 500,000 metric tons below expectations and 200,000 metric tons below last month.
For old crop corn USDA left the supply side unchanged but increased food demand 5 million bushels and decreased ethanol 25 million bushels. The net change was a 20 million bushel increase in corn ending stocks, now estimated at 1.53 billion bushels, 24 million bushels above expectations.
For 2022, USDA trimmed planted and harvested acreage 100,000 acres. Harvested acreage was estimated at 81.8 million acres, 42,000 acres less than expected and 140,000 below last month. Yield was trimmed 1.6 bushels to 175.4 bushels, 0.4 bushels lower than expected. The net change put production at 14.359 billion bushels, 146 million bushels lower than last month and 30 million bushels below expectations.
On the demand side, USDA lowered feed demand 25 million bushels, increased food demand 5 million bushels, and lowered exports 25 million bushels. The net change put ending stocks at 1.388 billion bushels, 82 million bushels below last month and 7 million bushels below expectations.
On the world stage, old crop corn stocks were estimated at 311.8 million metric tons, 500,000 metric tons less than expected and 500,000 metric tons less than last month. New crop world corn stocks were estimated at 306.7 million metric tons, 3.1 million metric tons below expectations and 6.2 million metric tons below last month. The European Union's crop declined 8 million metric tons while Ukraine’s increased 5 million metric tons.
For old crop soybeans, USDA trimmed exports 10 million bushels and reduced seed demand 1 million bushels. Ending stocks increased 10 million bushels to 225 million bushels, which was expected by the trade. The national average price for soybeans dropped 5 cents to $13.30.
For new crop, USDA lower both planted and harvested acreage 300,000 acres (North Dakota’s acreage was cut 200,000 and South Dakota’s acreage was trimmed 100,000). Harvested acreage was estimated at 87.2 million, 311,000 below last month and 518,000 below expectations. Soybeans yield increased 0.4 bushels to 51.9 bushels, 0.9 bushels above expectations.
This pushed production to 4.531 billion bushels, which if realized would be a new all-time high, 26 million bushels above last month and 52 million bushels above expectations.
On the demand side, USDA increased exports 20 million bushels and residual 1 million bushels. Ending stocks were estimated at 245 million bushels, 15 million bushels above last month and 17 million bushels above expectations. The national average price dropped 5 cents to $14.35.
Old crop world soybean stocks were estimated at 89.7 million metric tons, 900,000 metric tons above expectations and 1 million metric tons above last month. New crop world stocks were estimated at 101.4 million metric tons, 2 million metric tons above expectations and 1.8 million metric tons above last month.
The third week of August brought in heavy selling pressure as the grains turned sharply lower due to another flip flop in the weather forecast.
By looking at the previous week’s performance and the Aug. 12 report, one would not have expected to see such a dramatic turn in the grains. The August report reminded us supplies are tight and a trend line yield is important to maintain comfortable ending stocks levels.
Weather remains the main influencer in the grains but it is starting to lose its power as the end of the growing season fast approaches. The U.S. is starting to see cooler temps and more rain events. The short-term forecast continues to call for rain for much of the western Corn Belt. Temps are also expected to moderate. The only region that is expected to continue to see threatening weather is the northern Plains (primarily North Dakota) as above normal temps and below normal precip will dominate the region. The 6 to 10 and 8 to 14 day forecasts are calling for improving conditions for the Corn Belt. At this point, the second half of August looks to be ideal weather for much of the Corn Belt.
Reports of economic concerns in China added pressure to the grains this week. In a surprising move, China lowered their interest rate in an attempt to help stimulate their economy which has been hurt by consistent covid shutdowns due to China’s zero tolerance on covid. The concern is that China will further slowdown their importing of U.S. ag products due to slow demand. This comes as the U.S. is on the heels of harvesting a record soybean crop, according to USDA’s data.
The Aug. 15 Crop Progress report was a non-event as conditions were as expected. The crop development continues to lag expectations though. As of August 14, 94% of the nation’s corn was silking. For soybeans, 74% of the nation’s crop was setting pods. Winter wheat harvest continues to drag on as harvest progress is only estimated at 90% complete (2% lower than expected). Spring wheat harvest is also trailing expectations at 16% complete (6% behind expectations).
Corn’s crop condition rating came in at 57% good/excellent, down 1% from the previous week and 1% better than expected. Again, it was the east improving while the west declined. The big changes were in Iowa, which dropped 7%, Missouri down 5%, Nebraska down 3%, North Dakota down 3%, and South Dakota down 9% (for the third week in a row). Minnesota did see a 4% improvement.
Soybean conditions only dropped 1% to 58% good/excellent (as expected). But again, it was east improving while west declined. The biggest declines were in Iowa, which dropped 8%, Missouri down 3%, Nebraska down 6%, and South Dakota down 5%. Improvements were seen in Indiana which gained 3%, Minnesota up 4%, North Dakota up 2%, and Ohio up 3%.
Spring wheat conditions were left unchanged at 64% good/excellent, 1% better than expected. The improving states were Idaho up 7%, Minnesota up 6%, and Montana up 1%. North Dakota’s crop did decline 2% while the other two states (South Dakota and Washington) saw unchanged conditions.
Cattle closed out the second week of August mixed with live cattle firm while feeder cattle were steady. A stronger than expected cash trade helped to support the live cattle while feeder cattle gains were limited by the stronger grains.
The third week of August had cattle starting the week on the defense but brushing off the early selling pressure to post solid gains by midweek. Expectations for tight supplies of cattle in Q4 of 2022 and Q1 of 2023 helped to support the live cattle while feeder cattle were supported by strong cash activity. Position squaring was also noted ahead of the August COF report, scheduled for release on Friday Aug.19, after the deadline for this column.
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