RAY GRABANSKI COLUMN: Improving conditions pressure markets
Wheat The U.S. Department of Agriculture had no surprises for the wheat market today, as the July crop production estimate came out just as expected. USDA did increase the wheat ending stocks estimate 50 million bushels to 537 million bushels, bu...
The U.S. Department of Agriculture had no surprises for the wheat market today, as the July crop production estimate came out just as expected. USDA did increase the wheat ending stocks estimate 50 million bushels to 537 million bushels, but that was right in line with estimates. The changes were a result of USDA increasing old crop carry out by 52 million bushels, increasing production by 29 million bushels (yield increased .3 bushels to 43.5 bushels per acre), and by increasing feed demand by 30 million bushels.
Wheat started out the week sharply lower on spillover pressure and weak outside markets. Wheat followed the other grains, falling sharply lower on spillover from corn and bearish fundamental news. With the winter wheat crop and spring wheat advancing nicely there is little to support wheat. In addition, the trend of long liquidation in the outside markets added to price pressure. Also crude oil and metals were lower and the U.S. dollar stronger.
On July 8, wheat finished the day mixed to slightly bullish, rebounding after heavy losses early on. Wheat opened lower but was able to climb back on the idea that losses had been overdone and due for a bounce. This in addition to some short covering and technical buying was able to push wheat near positive for the day. Also wheat and corn markets are linked due to both being used for feed. But with corn significantly higher, there has been some price strength transferring to wheat. We may also begin to see some price support stemming from concerns about drought in the Northern Plains.
On July 9, wheat started out lower from the overnight and continued lower for the day due to spillover pressure from neighboring corn. Also the winter wheat harvest continues to progress adding to price pressure as new supplies are meeting current demand. Not helping the situation is a lighter than usual trading volume. However, limiting downside movement is a weaker U.S. dollar. Also traders are positioning ahead of July 11's USDA reports, which are expected to be bearish for wheat.
On July 10, wheat futures were mixed to lower with expectations that USDA reports will be bearish for wheat. The progressing winter wheat harvest is expected to push USDA to increase expectations for wheat production and ending stocks. This has kept trade light, but essentially lower as there is a lack of buying interest till the reports are released.
In their weekly crop condition and progress report USDA estimated winter wheat harvest progress at 52 percent complete compared to 36 percent for last week and 61 percent for the five year average. Spring wheat is currently 58 percent headed compared to 28 percent for last week and compared to 70 percent for the five year average. Spring wheat's crop condition ratings saw a 5 percent decrease in the good to excellent and are now to be estimated at 69 percent good to excellent, 24 percent fair, and 7v poor to very poor.
On July 7, corn was a limit lower correcting after this weekend's favorable weather and with pressure from outside markets. The first week of July, the market rose on expectations of poor weather over the weekend, and as a result the market fell sharply lower with traders taking profits. Additional pressure today came from bearish outside markets. A stronger US dollar and lower crude oil, gold and silver all contributed to the pressure. Informa economics projected corn production would be 12.2 billion bushels with a yield of 152 bushels per acre. In June, USDA projected corn production to be at 11.735 billion bushels, and yields to be averaging 148.9 bushels per acre.
July 8, the market remained sharply lower but was able to recover late in the session as the market hits support lines and was able to bounce on technical buying. Moving toward midday corn was able to rebound off lows with the idea that the losses were overdone and with a boost from technical buying. Favorable weather conditions and the Informa projections added to the bearish trend in the market.
By midweek, corn had continued sharply lower on bearish weather conditions and improving crop outlook. Adding to this pressure is some technical weakness and traders beginning to square positions ahead of July 11's USDA reports, which is expected to be bearish for corn.
July 10 corn was moderately lower with traders consolidating ahead of USDA reports. Pre-report estimates look bearish for corn, with expectations that the government will increase ending stocks for both 2007 to '08 and 2008 to '09 marketing year. Also weather conditions look favorable, which is only adding to price pressure.
July 7 soybeans were a limit lower with this weekend's favorable weather and profit taking pressuring prices. Sharp gains in the first week of July on the expectation of poor weather conditions led to traders to now take profits with the weekend seeing excellent growing conditions. Also the trend of long liquidation in the outside markets added to the pressure with a stronger dollar and lower crude oil and metals. With a concern over crop conditions supporting prices since June this, in addition to a lack of other fresh supportive news, allowed prices to remain lower for the day.
July 8 soybeans finished sharply lower because of weather conditions and weakness in crude oil. Soybeans opened sharply lower continuing the speculative liquidation trend from Monday. This in addition to broad based commodity weakness and improved crop conditions pushed soybeans near a limit lower early in the day. However, soybeans bullish underlying fundamentals and tight stocks prevented soybeans from staying down for too long. By midday soybeans were still sharply lower but were able to climb significantly.
On July 9, the market was able to retain sharp gains on bullish fundamentals and with spillover support from outside markets. Soybeans saw sharp gains due to positioning ahead of July 11's USDA reports, which are expected to be bullish for soybeans. Preliminary estimates speculate that both ending stocks and carry-out will be lowered versus June's USDA reports. July 11's report confirmed it, but it had little market impact Friday because it was so widely anticipated by the market. Also the market is keeping an eye on Argentina, which could be moving toward another round of farmer's strikes.
In their July crop production report, USDA made some minor adjustment to barley's numbers. Barley's yield was cut 5.7 bushels per acre, thus putting the 2008 production at 218 million bushels (a decline of 17 million bushels from last month). This was somewhat offset by an increase in beginning stocks (USDA increased 2007 to '08 carry-out to 68 million bushels). This resulted in the 2008 to '09 ending stocks estimate to drop 8 million to 71 million bushels. USDA estimated no barley shipments or exports for last week. So far to date 952,000 bushels of barley have been shipped out of US ports compared to 638,000 bushels for last year at this time. As of July 6, 58 percent of the nation's barley has headed compared to 29 percent for last week and 66 percent for the five year average. The barley crop condition rating declined 2 percent to now be rated at 69 percent good to excellent, 26 percent fair and 5 percent poor to very poor.
USDA increased old crop 2007 to '08 durum stocks by 4 million bushels. The adjustment was made by decreasing imports by 3 million bushels and decreasing use of 7 MB.USDA reported no durum shipments or exports for last week. This year's durum outlook has ending stocks at 14 MB (production is estimated at 90 million bushels while use is estimated at 124 million bushels). North Dakota's durum crop has 36 percent of the states durum crop has headed compared to 35 percent for last week and 36 percent for the five year average. Eleven percent of the crop is in the milk stage compared to 2 percent last week and 8 percent for the five year average. North Dakota's durum crop is rated as 51 percent good to excellent, 39 percent fair, and 10 percent poor to very poor, a decline of 16 percent for the week. Hot and dry weather in the western regions of North Dakota has resulted in the crop to decline.
Canola futures on the Winnipeg exchange played a follower to the U.S. soybean complex and also to the U.S. energy markets. This resulted in the canola futures market to be down hard on Monday but post small gains for the rest of the week. Gains were once again kept in check by favorable growing conditions. As of July 6, North Dakota's canola crop was 60 percent in bloom compared to 26 percent for last week and 76 percent for the five year average. North Dakota's canola crop is rated at 63 percent good to excellent, 29 percent fair, and 8 percent poor to very poor, a decrease of 3 percent from last week. Minnesota's canola crop ratings is estimated at 55 percent good to excellent, 45 percent fair, and zero percent poor to very poor, a decline of 4 percent from last week.
Thursday's sunflower cash bids in Fargo were at $29.70 for old crop and $28.10 for new crop. The direction of this week's cash sunflower bids could be tied directly to the direction of the soybean oil market. As of July 6, 1 percent of North Dakota's sunflower crop was blooming compared to zero for last week and 1 percent for the five year average. North Dakota's sunflower crop condition rating is at 63 percent good to excellent, 34 percent fair, and 3 percent poor to very poor. Sunflower cash bids in Fargo dropped hard July 11, declining 80 cents to end the day at $29.80 for old crop and $28.20 for new crop.
The information contained, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable. The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that soles will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.