Ray Grabanski column: Acreage report shocks market
Wheat Last week was a big news week for wheat despite a slow start June 25. The previous week's grain markets finished on a sour note, with many questioning how that would translate into last week's trade. That question was answered June 26, when...
Last week was a big news week for wheat despite a slow start June 25. The previous week's grain markets finished on a sour note, with many questioning how that would translate into last week's trade. That question was answered June 26, when Statistics Canada released its planted acreage report. It was the first of two surprises (particularly for spring wheat) as the Canadian government estimated spring wheat acres at 14.8 million acres, down 3.2 million acres from the five-year average and the lowest acres in several years.
Additionally, weather forecasts for winter wheat had significant amount of precipitation and localized flooding moving into Texas and Oklahoma. Harvest delays in those areas are concerns, and this last bout of weather likely will put an effective end to harvest. Any residual grain is likely to grade as feed. Kansas, however, saw nearly perfect harvest weather and should show strong progress by July 2. The Canadian report and the weather provided for strong trade June 26 before markets consolidated the move in the next few days.
It was back to the races June 29, with USDA releasing quarterly grain stock and final planted acreage reports. Those reports were neutral to friendly to wheat as a whole, however, the spring wheat markets received a boost from lower than expected planted acres. Total wheat acres were estimated at 60.5 million (expectations of 60.35 million) with spring wheat acres estimated at 13.14 million acres (expectations of 13.83 million). This should go a long way to fixing the abnormally tight spreads between Chicago, Kansas City and Minneapolis.
USDA released weekly crop condition data for the week ending June 24. Conditions for hard red spring wheat and hard red winter wheat fell, although hard red spring wheat remains in excellent shape. The hard red winter wheat harvest is 22 percent complete, behind the five-year average of 36 percent. Conditions were 48 percent good to excellent, 27 percent fair and 25 percent poor to very poor, down 2 percent from the previous week. Hard red spring wheat is 33 percent headed, well above the five-year average of 27 percent. Conditions fell 6 percent, leaving ratings at 79 percent good to excellent, 12 percent fair and 6 percent poor to very poor.
Export sales were decent with both inspections and sales coming in even or better than trade expectations. For the week ending June 21, USDA reported 16 million bushels inspected for shipment, within trade expectations for 12 million to 18 million bushels. Sales were more impressive with sales of 622,000 metric ton, well above expectations for 100,000 to 450,000. While it still is early in the marketing year, the first few weeks are well ahead of last year at this time.
Wheat is the one grain that has not put in a possible top. Last week's action reversed that news in soybeans, but not for corn. The run to new highs is going to attract further speculative attention, and with prices in near-uncharted territory, it's hard to say when this will end. Fundamentals have not meant a lot this year, but hard red spring wheat (even on shorter acres) appears to be the best crop in years in many areas. Exports so far are decent, but again, nothing to support all-time highs. In actuality, exports are likely to be our first clue. If world wheat supplies are as short as USDA is projecting (and the loss of Canadian acres removes about 60 million bushels more), we should see other countries show increased buying interest, regardless of price. We project this market is near a top. Even if we are wrong, it is hard to say that selling wheat at 10-year highs is a mistake.
CornCorn futures close sharply lower on the week with both technicals and fundamentals turning more bearish than we have seen on a long time. Early week trade was pressured by follow through sales to the previous week's downside reversal, with further sales sparked by improving weather conditions. These two factors were enough to push prices down to major support levels of $3.60, nearly 60 cents lower than the peak a few weeks ago. The real nail in the coffin came with USDA final acreage reports released June 29. While traders were looking for a strong increase in acres because of high prices and good planting weather through early May, USDA gave estimates of 92.8 million acres, an increase of 2.4 million acres from March. This also is 2.3 million acres higher than average trade expectations. Grain stock numbers were slightly bearish as well (3.53 billion bushels vs. expectations of 3.46 billion bushels), but that fact was largely overshadowed by the acreage increase.
Exports were basically neutral, with inspections for slightly bearish and sales numbers on the high side of expectations. USDA reported inspections of 29.1 million bushels, below expectations for 34 million to 40 million bushels. This also is a decrease of 11 million bushels from the previous week. Sales were 988,900 million bushels, near the high end of trade expectations. Year-to-date totals are 1 percent ahead of last year.
The acreage report is going to be a huge obstacle for this market. The added acres leave the U.S. with the highest number in 63 years, and the crop is in excellent condition. Even with a yield loss, it now looks as though we will have more than sufficient production to meet demand, making even possible "drought" situations look much less daunting. The fact that we already were at support levels and facing 60-cent-plus losses was bearish enough, but this could prove to be more than the market can handle. Look for heavy pressure in the next week to two as traders react to this shift in fundamentals.
SoybeansSoybean futures spent the early part of the week slowly recovering from their recent losses. News was not overwhelming at that point, and trader focused on correcting prices and consolidating losses ahead of this year's final acreage report. Weather trends offered no further direction, with ECB seeing moderate precipation and temperatures. Actually, from a weather standpoint, much of the stress on the crop has been relieved and we would look for an improvement in conditions for the July 2 report. The big news, however, was at the end of the week with USDA releasing final acreage numbers. Producers couldn't have asked for a more friendly report, as USDA decreased planted soybean acres by an astounding 3 million acres. Much of this came from corn (lost 2.4 million) and reflects the historically narrow price ratio we have seen between the two crops. This change in fundamentals offers support, and we look for further rallies in coming weeks.
Export numbers were mixed, although inspections were better than sales for a change. Export inspections for the week ending June 21 were friendly and well above trade expectations. USDA reported 15.5 million bushels against expectations for 5 million to 9 million bushels. This also is 9.5 million bushels higher than the previous week. Export sales totaled 248,000 metric tons, in the middle of expectations for 100,000 to 450,000 metrics ton. Sales were somewhat disappointing, as this represents a drop of more than 30 percent from the previous week. Nonetheless, soybean exports are on pace to meet or exceed current USDA projections.
It is hard to find a friendlier report than USDA's June 30 release. At a trendline yield, this equates to about a 128 million-bushel production loss. Carry-out estimates for this year already were down nearly 50 percent from 2006, and this loss makes supplies even tighter. The U.S. is not in shortage situation, but it does make production from this year that much more vital. We look for sharp rallies in the coming weeks. Producers should expect volatility because of weather patterns. Yield does not appear to be a concern, but the real production is largely determined in August at pod fill.
BarleyBarley conditions and progress remained impressive. As of June 24, the crop is 34 percent headed compared with 23 percent on average. By state, progress was Idaho, 30 percent headed vs. an average of 30 percent; Minnesota, 59 percent headed vs. 31 percent average; Montana, 29 percent headed vs. 15 percent average; North Dakota, 30 percent headed vs. 18 percent average; and Washington, 76 percent headed vs. 64 percent headed. Condition ratings fell nearly 5 percent however, with ratings now at 76 percent good to excellent, 17 percent fair and 7 percent poor to very poor. Montana was the biggest factor with conditions at 65 percent good to excellent, 19 percent fair and 16 percent poor to very poor. Feedgrains have shown potential topping action and we advise producers to make necessary catch up sales. Statistics Canada acreage numbers reflected a 1.8 million-acre increase in barley acres over 2006. Total Canadian acres are just below the five-year average.
DurumUSDA released crop progress and conditions for the week ending June 24. As we have seen in North Dakota all year, the durum crop is off to an incredible start with wheat prices the highest in years. As of June 24, progress in North Dakota is reported at 25 percent boot stage vs. average progress of 19 percent boot. Conditions are nearly unbelievable at 90 percent good to excellent and 10 percent fair. Weather should aid this as wet areas should see drying and other areas will receive moderate moisture. Statistics Canada reports reflected a huge shift to durum, likely attracted by high prices. Acres increased by 4.8 million acres, although major producers in Saskatchewan and Alberta remained below the five-year average. USDA reports followed suit, with durum acres up significantly from last year. Between the good conditions and higher acres, it will be difficult for durum to maintain a strong premium.
Minor oilseedsOilseed outlooks improved considerably the last half of the week, with USDA releasing final planted acreage reports. The report reflected a shockingly lower soybean acreage number, increasing the need for other oilseeds to pick up the slack. This will be particularly true if crush pace remains strong. U.S. canola acres totaled
1.1 million, up just fewer than 200,000 from last year. Flax was down sharply at 465,000 (nearly half), with sunflower acres down 100,000 from previous years. Statistics Canada acreage reports, however, reflected a huge move toward minor oils, with Canola acres at a record 14.5 million acres, up 17.5 percent from last year. The switch was because of both high prices and wet conditions that prevented planting of other crops. Flax acres fell nearly 34 percent, down to 1.3 million acres.
USDA released its weekly crop progress reports, and the past week was beneficial as the Great Plains and western Corn Belt areas got some drying weather, while more typical drought areas receive moisture. As of June 24, sunflowers were nearly planted, with the four major states reporting 92 percent complete against average progress for 95 percent. Progress was 97 percent vs. average of 85 percent; Kansas, 84 percent planted vs. 84 percent average; North Dakota, 99 percent planted vs. 99 percent average; and South Dakota, 80 percent planted vs. 92 percent average. Canola progress was reported at 91 percent rosette in North Dakota, well ahead of the 73 percent average, with conditions at 87 percent good to excellent, 12 percent fair and 1 percent poor.