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Market ignores USDA reports to cap June month of sliding values

The first five months of the year saw the grains push to levels not seen in decades, but the month of June pulled most of those gains out of the marketplace, and by mid-year, most of the markets were either unchanged or slightly lower for the year so far. What was a surprise was how the market handled the U.S. Department of Agriculture's June 30 reports, as the market virtually ignored them.

Wheat with heads against a blue sky
A field of wheat near Hillsboro, North Dakota, on July 4, 2022.
Jeff Beach / Agweek
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Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

It’s hard to believe, but half of 2022 is in the record books. The first five months of the year saw the grains push to levels not seen in decades, but the month of June pulled most of those gains out of the marketplace, and by mid-year, most of the markets were either unchanged or slightly lower for the year so far.

For the first six months, Minneapolis wheat was 4% lower, Chicago wheat was off 5%, and Kansas City wheat was 4% lower. Corn was off 5% and soybeans were off 1%. Live cattle were unchanged and feeder cattle posted a 2% increase.

As stated, June was not a good month for the grains. Minneapolis wheat lost over $2.50, Chicago wheat lost close to $2, and Kansas City wheat gave back $2.20 of its gains. Corn put in a lower performance with the July contract, losing only 10 cents, while December posted 95 cent losses. Soybeans also saw selling pressure, but not to the same degree, as July only gave back 8 cents while November retreated 50 cents.

The June retreat was mostly due to improving growing conditions. The cold wet spring finally gave way to warm drier conditions which helped to get the crop planted in the northern Plains while warm wet conditions helped to stabilize the corn and soybean crop in the central Corn Belt. The eastern Corn Belt continues to be an issue.

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What was a surprise was how the market handled the U.S. Department of Agriculture's June 30 reports, as the market virtually ignored them. It is rare that the trade doesn’t at least trade the report on its release, but it just seemed like the market was fixated on other factors and the report was not one of them. Maybe the fact that USDA said at the start of the report that there was over 4 million acres of corn and over 15 million acres of soybean unplanted at the time of the report was being compiled that made traders disinterested. Or maybe it was the statement that due to cold wet spring not all of the planting was done in the Nnorthern Plains, so USDA will resurvey producers in North Dakota, South Dakota, and Minnesota and come with any changes in the August Crop Production report.

Whatever the reason, the grains seemed to be in a selling mode with most the June 30 selling tied to recession talk as the Federal Reserve is trying their best to let consumers know they are likely increasing interest rates another 0.75% in their next meeting. The increased concerns of the country going into a recession has the stock market in a frenzy. The first six months of 2022 saw the S&P 500 plummet over 20% losing roughly $8.2 trillion in value.

USDA’s June Quarterly Grains Stocks estimate came in almost exactly as expected. The average trade estimate for the numbers of the report were all within 3 million to 6 million bushels of actual number, which resulted in the stocks estimate being virtually ignored as it was as expected.

There were quite a few surprises in the Acreage report, but again, with the resurveying of North Dakota, South Dakota, and Minnesota taking place in July, traders did not seem too worried about the Acreage estimate.

Spring wheat acreage came in at 11.11 million, 270,000 acres above expectations, 90,000 acres lower than March, and 310,000 acres lower than the previous year. Of the major states, North Dakota acres increased 200,000 from the March Intentions report while Montana declined 300,000 and South Dakota declined by 290,000 acres.

Corn acreage came in at 89.92 million, which was 60,000 above expectations, 430,000 above the March Intentions, but 3.44 million below last year. Of the top ten acreage states versus the March Intentions, Iowa increased acreage 100,000, Minnesota increased acreage 500,000, South Dakota dropped 300,000, Wisconsin added 300,000, and North Dakota dropped 600,000. When compared to last year, all of the major Corn Belt states saw lower corn acreage with most dropping between 100,000 to 300,000 acres. North Dakota is expected to see corn acreage decline 1.1 million from last year.

The soybean acreage estimate was the most interesting. Acreage was estimated at 88.33 million, 2.12 million below expectations, 2.63 million below March, and only 1.13 million above last year. Again, the state with the biggest change from the March intentions was North Dakota, showing a 1.1 million acre decline from March and 1.35 million below last year. Other large state adjustments came in Illinois (200,000 above March and 600,000 above last year), Iowa (100,000 less than March but 200,000 above last year), Minnesota (500,000 below March and 130,000 below last year), Missouri (200,000 less than March but 200,000 above last year) and South Dakota (200,000 below March but 50,000 above last year).

Technically the grains have seen a massive retracement, putting all the grains in an oversold market condition. But it is going to be hard for the grains to see much change in the short term. Weather forecast continues to be negative as most long-term forecasts are calling for warm wet conditions.

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The massive exodus from the grains resulted in a decline in open interest, as traders were liquidating positions and taking their money out of the market. The selloff was enough to push many contracts below psychological support lines (Minneapolis wheat below $10, corn below $6.50, and soybeans below $14).

The grains were in need of the retracement, but now the cut seems to be a little deeper than needed. The market always overdoes its performance as the grains rallied higher than needed to ration supply (which by looking at the U.S. export sales report, that task has been achieved). So that means the selloff has to be deeper than expected.

With the market now turning its attention to weather, the recent hot and dry conditions in the Corn Belt are expected to give way to cooler wetter conditions as the next five days are expected to have rain cover 75% of the Corn Belt. So far, the states of concern are Indiana, Ohio, Missouri, Tennessee, and Kentucky. Conditions declined sharply in those states last week. This week will be important as rain is needed in much of the eastern Corn Belt and northern Delta states.

The grains came back from the holiday break under extreme pressure with most of the selling tied to economic concerns and recession talk. A sharply higher U.S. dollar added to the selling pressure on July 5. In review, the heavy selling on Tuesday had nothing to do about fundamentals — it was all about money flow. Not that it matters, as the grains took a beating, but it does help to know that the selloff had nothing to do with a change in the fundamentals.

The Stats Canada acreage report increased wheat acreage 9% from the previous year (25.4 million versus 23.4 million last year). Spring wheat acreage is expected to increase 10% to 18.2 million from 16.5 million. Canola acreage is expected to decline 5% to 21.4 million versus 22.5 million last year.

The Crop Progress report was expected to show corn and soybean ratings decline, but the drop was more than expected. Corn’s crop condition rating dropped 3% to 64% good/excellent, 1% more than expected by the trade. But again, it was the states that declined that was interesting. The eastern Corn Belt continues to be the area of concern as Illinois’ corn crop declined 5% last week, Indiana’s crop dropped 11% (for the second week in a row), and Iowa dropped 3%. South Dakota’s corn crop was unchanged while Minnesota’s improved by 4% and North Dakota’s improved 7%.

Soybeans were not much different. The crop in general dropped 2%, which was 1% more than expected. And like corn, it was the eastern Belt that took the biggest hit. Illinois’ crop dropped 4%, Indiana’s dropped 11%, Iowa declined by 3% and South Dakota declined 3%. The states that saw improvements were North Dakota up 1% and Minnesota which improved by 7%.

Winter wheat harvest continues to lag behind average pace. 54% of the winter wheat crop is in the bin versus expectations of 57%. Spring wheat conditions were also much better than expected, jumping 7% to 66% good/excellent. North Dakota’s crop improved 7% while Minnesota’s crop saw a dramatic 13% improvement from last week.

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Cattle pushed higher in June and have extended those gains into July. Support continues to come from tight supplies and strong cash bids. Gains continue to be kept in check from economic concerns as consumers continue to be hampered by high energy and increasing interest costs.

“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”

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