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Markets see a change in weather pressure, more concerns from inflation

Even though weather continues to be the biggest influencer on the grains, July 13 Consumer Price Index announcement caused a bit of a stir. The report put inflations at 9.1% versus expectations of 8.8%. The significance of inflation at 9.1%, the highest in over 41 years, is that it will give the Federal Reserve the ammo it needs to increase interest rates another 0.75% or possibly 1%, which would send the market into a tailspin.

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Wheat traded with losses in every session for the second week of July with selling pressure due to reports of a deal being made between Russia, Ukraine, Turkey, and the UN to resume grain exports out of Ukraine.
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Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

I am writing this week’s article while sitting in a hotel in Chicago. From this vantage point I can understand why the grains are taking a hit. Although it is hot, the crop does not appear to be under much stress in the northern Illinois region. This area does appear to be the garden spot of the country this year. But that is not the case across the entire Corn Belt or northern Plains.

The grains put in a poor performance the third week of July. Wheat, primarily winter wheat, put in the worst performance with both Chicago and Kansas City giving up over $1 while Minneapolis was slipped 83 cents.

Wheat traded with losses in every session for the second week of July with selling pressure due to reports of a deal being made between Russia, Ukraine, Turkey, and the UN to resume grain exports out of Ukraine. We have said it before, it seems odd that Ukraine would be in favor of letting Russia assist in the implementation of resuming exports out of Ukraine. Especially with reports of wheat fields being set on fire before they can be harvested.

Corn and soybeans also posted losses for the second week of July. Corn posted 20 to 30 cent losses while soybeans were 47 cents to 55 cents lower. Corn and soybeans took a hit early in the week from an unimpressive USDA Crop Production report. Additional selling was tied to pressure from improving weather forecasts, which are showing rain in the eight-to-14-day forecasts.

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Even though weather continues to be the biggest influencer on the grains, July 13 Consumer Price Index announcement caused a bit of a stir. The report put inflations at 9.1% versus expectations of 8.8%. The significance of inflation at 9.1%, the highest in over 41 years, is that it will give the Federal Reserve the ammo it needs to increase interest rates another 0.75% or possibly 1%, which would send the market into a tailspin.

Corn saw pressure from reports that China will soon be signing an agreement with Brazil that will allow for Brazil corn to be imported into China. Wheat was also pressured by reports of production increases for Russia. But losses were trimmed July 13 by a much better than expected export sales estimate for wheat, which came in at the highest single week sales estimate in over 10 years.

The July 20 Drought Monitor confirmed why corn’s crop condition rating stabilized last week. The Drought Monitor map showed a decent reduction in area affected by drought in Illinois and Indiana, which are now rated with 52% of Illinois in some stage of drought while Indiana has 79% of the state in some stage of drought.

Last week’s export sales estimate was not pretty for soybeans. It marked the third week in a row for negative soybean sales. The slowdown in demand in China and reports of another lock down is resulting in a sharp decline in exports (which the strong U.S. dollar is not helping).

The third week of July started with the grains gapping higher in the opening of the overnight session and closing with solid double-digit gains. The weather roller coaster continues to be the main driver in the grains. The grains opened higher on forecasts calling for excessive heat to continue to much of the Plains and Corn Belt states through the rest of July. But better than expected rains in Ohio and Indiana pulled the grains off session highs going into the close. The realization that the rains were localized and not all regions picked up good rains over the weekend helped the grains push back toward the highs of the day on the close.

Ukraine officials are reporting wheat harvest at 10% complete with yields down 36% from the previous year. Reports have the Russian occupied region of Crimea shipping 50 times the volume of product as normal for this time of year. It is probable this is where the Ukraine stolen grain is being shipped.

The grains put in a strong performance July 18 with most of the support coming from weather forecasts continuing to call for much above normal temps and much below normal precip for the remainder of July for the Plans and Corn Belt. But the weather models are starting to disagree a bit on the amount of moisture in the long term. The U.S. model continues to call for hot and dry while the European model has put a little more rain in the eight-to-14-day forecast.

The July 18 Crop Progress report was slightly negative as well. The grains continue to move slowly ahead in crop development and conditions continue to appear to be maintaining. As of July 17, 37%, of the nation’s corn was in silk vesus 48% average. This is negative as it appears that less than 50% of the nation’s corn might be pollinating during the intense heat. Corn’s crop rating was left unchanged at 64% good/excellent, which was 1% above expectations. It seems odd that corn conditions were left unchanged when looking at the individual states. Illinois improved by 4%, Indiana was down 2%, Iowa was unchanged, Minnesota improved 2%, Nebraska improved 1%, North Dakota declined 4%, Ohio improved 3%, and South Dakota declined 6%. The western Corn Belt is showing stress from the hot and dry conditions.

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Soybeans were 48% in bloom versus 55% average. Fourteen percent of U.S. soybeans were setting pods versus 19% average. Soybean’s crop condition rating dropped 1% to 61% good/excellent, 1% lower than expected. And like corn, it seems odd that soybeans only dropped 1% when looking at the states. Illinois dropped 1%, Indiana declined 3%, Iowa declined 1% as did Minnesota, and South Dakota. Nebraska was down 2% and North Dakota declined 6%. Again, the western Corn Belt is showing stress from adverse weather.

But that did not impact the wheat. Winter wheat harvest continues to lag behind average and expectations. As of Sunday 70%, was in the bin versus 71% average and versus expectations of 75%. Only 68% of the nation’s spring wheat crop is headed versus 90% average. But spring wheat conditions continue to move higher. Conditions improved 1% last week which was 1% above expectations. Only Idaho and North Dakota saw declining conditions with Idaho down 3% and North Dakota down 2%. Montana had the largest improvement, up 6%.

Cattle put in a solid performance the second week of July and that strength spilled over to the third week. Strength continues to come from hot and dry forecasts which have slowed down cattle movement, but even more importantly the heat has lowered slaughter weights. Position squaring ahead of the July 22 Cattle on Feed report, Semi-annual Cattle Inventory report, and Cold Storage estimate. The cattle reports, which came out after deadline, were expected to be friendly.

August options will expire on Friday, July 22. The Federal Reserve will meet July 26 and 27 with July 27 being rate increase day.

“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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Weather will continue to be the market focus, at least until the end of August, as ideal conditions will be needed for the soybean crop to reach its potential, Randy Martinson of Martinson Ag Risk Management told Don Wick of Red River Farm Network on the Agweek Market Wrap.
The U.S. soybean harvest, already forecast as the biggest ever, will top previous expectations as prospects in major producing states like Illinois, Indiana and Ohio make up for shortfalls west of the Mississippi River, the government said on Friday.
Volatility is alive and well in the commodities. Technically the grains dropped to a very strong support level. If they break the support lines, we could be seeing an interesting August.
The first week of August started out low for the markets but rebounded by Friday, Randy Martinson of Martinson Ag Risk Management and Carah Hart of Red River Farm Network discussed on this week's Agweek Market Wrap. They talked changing weather forecasts, Ukraine grain shipments, U.S. export sales, yield potentials and more.