Traders have trouble focusing on anything but weather
Even major government reports, history-setting export sales and a pandemic can't seem to grab traders' attention.
The grains seem to have a one-track mind. This time of year, traders historically only watch one thing, weather. It seems odd that a major government report, history-setting export sales, or even a pandemic cannot grab traders’ attentions.
The laser focus started on report day. On Friday, July 10, the U.S. Department of Agriculture released the July Crop Production report. This report took the numbers from the June 30 Quarterly Grain Stocks estimate to help true up old crop demand. The June 30 Planted Acreage estimate numbers were also seen in table form for the first time.
The report was a little friendly to all three of the major grain markets. But after about five minutes, traders appeared to be bored with the report estimates and moved back to trade weather.
The report was slightly negative old crop wheat, but friendly for new crop as both production and stocks were lower than expected. World numbers were friendly as well. For old crop, feed and residual use was cut 61 million bushels to add 61 million bushels to new crop beginning stocks. For new crop, all wheat production was decreased 53 million bushels from last month to 1.824 billion bushels (24 million bushels less than the trade expected) and feed and residual was cut 10 million bushels. North Dakota spring wheat production was cut 28 million bushels due to a 5 bushel drop in yield. That brought new crop ending stocks to 942 million bushels, 17 million bushels more than last month but 12 million bushels lower than the trade expected. Old crop national average price was lowered by 2 cents to $4.58 and new crop was left unchanged at $4.60.
For world wheat numbers, old crop ending stocks were increased by 1.3 million metric tons to 297.1 million metric tons, right in line with trade estimates. For new crop, USDA decreased Russia’s production by 500,000 metric tons and the European Union’s production by 500,000 metric tons. That brought new crop world ending stocks to 314.8 million metric tons, 1.3 million metric tons lower than last month and 1.1 million metric tons lower than the trade expected.
The July Crop Production report was friendly to bullish corn on all accounts with lower production and lower ending stocks. For old crop, feed and residual was cut 100 million bushels, ethanol was cut 50 million bushels, and food usage was increased 5 million bushels to increase ending stocks by 145 million bushels to 2.248 billion bushels (39 million bushels less than the trade expected). For new crop corn, harvested acreage was cut by 5.6 million acres and yield was left unchanged at 178.5 bushel/acre. That put production at 15 billion bushels, 995 million bushels less than last month and 65 million bushels less than the trade expected. Also, for new crop, feed and residual was cut 200 million bushels and food usage was increased 25 million bushels. That lowered new crop ending stocks by 675 million bushels to 2.648 billion bushels (67 million bushels less than the trade expected). The national average price for old crop was left unchanged at $3.60 and the new crop price was increased by 15 cents to $3.35.
Corn’s world estimates had old crop production for Brazil and Argentina left unchanged and world ending stocks lowered by 900,000 metric tons to 312 million metric tons. Brazil’s and Argentina’s production was also left unchanged for new crop production. World new crop ending stocks came in at 315 million metric tons, 22.9 million metric tons lower than last month and 9.5 million metric tons lower than the trade expected.
For soybeans, the report was not as attractive, coming in negative for old crop and neutral for new crop but world numbers were friendly. For old crop, crush was increased by 15 million bushels and residual was cut 50 million bushels (a sign that previous year’s production estimates were incorrect). That put ending stocks at 620 million bushels, 35 million bushels more than last month and 32 million bushels more than the trade expected. For new crop, harvested acreage was increased by 200,000 acres and yield was left unchanged at 49.8 bushel/acre to put production at 4.135 billion bushels, 10 million bushels higher than last month but 22 million bushels lower than the trade expected.
New crop crush was also increased by 15 million bushels which brought new crop ending stocks to 425 million bushels, 30 million bushels more than last month and right in line with trade estimates. The national average price was increased 5 cents to $8.55 for old crop and increased by 30 cents to $8.50 for new crop.
For world soybeans numbers, old crop ending stocks were at 99.7 million metric tons, 500,000 metric tons more than last month but in line with trade estimates. For new crop, Brazil’s production was increased by 2 million metric tons to 126 million metric tons while Argentina was left unchanged at 50 million metric tons. World new crop ending stocks came in at 95.1 million metric tons, 1.2 million metric tons less than last month and 2.6 million metric tons lower than the trade expected.
Before the ink from the reports was dry, traders were already switching their attentions back to weather. The weather forecast for the weekend was calling for good soaking rains for much of the western and central Corn Belt, which would offset any issues that might arise from above normal temperatures. That forecast held as good rains did fall and temperatures did moderate, for the time being. Weather continued to be non-threatening for the week of July 13, but toward the end of that week, forecasts started to show trouble on the horizon. With the grains at minor support levels due to the retracement July 10, 13 and 14, traders felt it time to replace some of the removed weather premium.
The Crop Production report was not the only friendly news for the grains. Wheat continues to have world production concerns. All of the major exporting countries are reporting at least some issues. In Russia, France and Argentina, traders are concerned about dry conditions and lower production estimates. Canada and the U.S. Northern Plains are seeing wet conditions. We have even seen U.S. wheat exports pick up. China was in and bought 190,000 metric tons of spring wheat and 130,000 metric tons of hard red winter wheat.
The July 13 Crop Progress report was the first of the supportive news for corn. The fact that almost every major corn producing states showed declining conditions shows that this crop is not fairing as well as hoped. But the big news came in the form of exports. The massive amount of exports announced over the past week should have helped add strength to the market, but once again traders kept their focus on weather. Early in the week, there was confirmation China bought 1.365 million metric tons of U.S. corn, 765,000 metric tons old crop and 600,000 metric tons new crop. Later in the week, China returned to the U.S. and bought the fourth largest amount of corn from the U.S. in history, 1.762 million metric tons (or 69 million bushels). That brought the week’s corn export sales to China to 123 million bushels. But they were not done there and the week ended with a sale of 132,000 metric tons of corn.
Last week’s ethanol production estimate showed another week of higher production, now at 12 consecutive weeks of higher production. Last week’s production was estimated at 931,000 barrels per day, an increase of 17,000 barrels from the previous week. Stocks were estimated at 20.61 million, down 12,000 barrels from the previous week.
Soybeans have been the market with the least friendly news this week, other than a few export sales. Trade tensions continue to escalate between the U.S. and China as President Donald Trump said the relationship has been “severely damaged” and a phase two deal is unlikely. In addition, the U.S. was preparing to place sanctions on China due to the developments in Hong Kong as well questioning China’s claim to the South China Sea. But in the face of all that tension, China has been an aggressive buyer of both corn and soybeans this past week.
In other soybean news, USDA’s ag attaché in Brazil expects Brazil’s soybean acreage to increase from 91.2 million acres this year to 95.1 million acres next year, an increase of 3.9 million versus USDA’s estimate of 3.4-million-acre increase. China’s June soybean imports hit an all-time monthly record of 11.16 million metric tons with most of those beans coming from Brazil while China’s marketing year import total so far is 69 million metric tons, up 12.8 million metric tons from last year at this time. The National Oilseed Processors Association crush report for June was bullish, putting crush at 167.3 million bushels, a record high for June and 5.1 million bushels more than the trade expected.
Cattle put in a strong performance this past week, with strength coming from a better than expected cash trade with bids as much as $1 higher than earlier in the week. Slaughter runs are back to normal levels, but slaughter weights are still higher than last year’s levels. The average carcass weight was reported at 875 pounds, up 4% from a year ago, but most expect the heavy weight cattle will flow through fast now that plants are running at normal capacity. Optimism in the beef complex is coming from encouraging talk of a soon to be available vaccine. This has many traders expecting to see a ramp up in demand if the vaccine is successful as it will help to get restaurants open. Drought concerns are starting to enter the market. Pasture and range conditions dropped 5% to 36% good/excellent, 34% fair, and 30% poor/very poor.
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