Wheat
Wheat markets skyrocketed early last, locking limit higher for two days in a row. The move continued to push futures to all-time highs, with December Chicago finally topping out at $8.49 early Sept. 6. The early rally was largely technical, but dry weather forecasts for Australia and rumors regarding slower Russian exports also encouraged buying. After the brief push Sept. 6, prices fell into negative territory. This should concern producers who still are holding unpriced wheat, as charts are looking more like a blow off top formation. Not only are the chart patterns concerning, but some of the less obvious indicators have turned markedly bearish. The most telling of these is that despite the huge run, open interest in wheat markets has been steady to declining. That means a tremendous amount of buying is stemming from short covering rather than fresh interest, leaving few new entrants to keep prices high. While world supplies are short, prices likely will start to decline.
USDA released what is likely its last crop progress report for the 2007 crop. As of Sept. 2, harvest was 96 percent complete, well ahead of the 80 percent average. There are few implications of this other than uncertainty surrounding yields and quality is gone.
Price rallies also have started to affect exports, as last week's numbers were scaled down. Inspections totaled 33.24 million bushels, near the middle of expectations. More notable, however, was the export sales numbers, which fell below expectations for the first time in weeks. For the week ending Aug. 30, USDA reported 26.4 million bushels compared with expectations of 25 million to 44 million bushels. This is the lowest total since July 5, although we are well ahead of what we need to meet USDA projections.
The declining open interest, extreme bullishness of participants and slowing exports all point to the market having done its job. While we do not doubt that supportive news will pop up, it is fairly typical of a bull market to peak before the full effect hits the cash side.
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CornCorn futures began the week bullish, supported entirely by huge momentum from the neighboring wheat market. This support cooled by midweek, as increasing yield estimates and approaching harvest created caution. In fact, Sept. 5 corn failed to react to limit higher wheat. This should be a huge warning sign, as it is poor, indeed that markets would allow for an even further spread than already is present. Private yield estimates released last week indicate some huge increases in potential, with some as high as 155 bushels per acre. Supplies this large would mean that carry-out could top
2 billion bushels, also meaning some traders could feel the need for additional acres is minimal. Also, harvest should be ramping up in the most southern areas, and rumor has it that storage is a concern. Because of this, we expect prices to struggle during the next few months.
USDA released the weekly crop progress and condition data for the week ending Sept. 2. The crop has remained ahead of the five-year average, with crop conditions remaining steady. At this point, 96 percent of corn is in the dough stage, up 5 percent from the previous week and 4 percent ahead of the average. The percentage dented is at 79 percent percent, up 16 percent from the previous week. Conditions remained steady with 59 percent of the crop rated good to excellent, 25 percent fair and 16 percent poor to very poor.
USDA inspection numbers were neutral with 35.6 million bushels of export inspections in the past week. This was 1 billion bushels below the previous week. The 2007 marketing year came to a close with inspections 57 million bushels below USDA's projection. USDA's export sales report showed that export sales were on the high end of expectations with 43.9 million bushels.
It is easy to remember last year and the unexpected rally at harvest. While it is not impossible that it could happen again, there are signs that things are different. First and foremost is the inability of corn to capitalize on all-time highs in wheat. If trade were concerned about supplies, it would not allow a competing grain to become 2.5 times higher in price. Second, the larger-than-expected acres gives us a cushion for supply, the opposite of last year. Everything could change if the U.S. enters a truly inflationary environment. Dropping dollar values along with recent credit concerns could set the fed up to introduce some various new policies that will essentially cheapen U.S. products on the world market. We would not expect this to be of importance until after some of this year's production is in the pipeline.
SoybeansSoybean futures had a volatile week with spillover from wheat bringing highs Sept. 4. From there, it proved tough going, with little fundamental support and harvest approaching. The volatility has been strongly linked to wheat, causing a huge divergence of cash and futures. Once wheat began to quiet, traders set themselves to profit taking, and by Sept. 5, the market seemed to lack much of the previous support. Private crop yield estimates, which show the 2007 crop above USDA's projection. While it is not likely that this year will produce a record crop, we should see one of the better years. This is calming supply fears, which in the past have been able to provide the market with price support. Lower prices are likely to remain through harvest, but don't count this market out. There could be a rally this winter.
USDA's crop progress report was released Sept. 4 and once again was bearish. Soybeans progress increased to 14 percent dropping leaves, which is 3 percent ahead of average and 8 percent above the previous week. Crop conditions were mixed with a slight increase in soybeans rated good to excellent at 56 percent, fair dropped slightly to 27 percent and poor to very poor remained steady at 17 percent.
USDA export inspection numbers were neutral at
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12 million bushels, this was within its projection of 8 million to 13 million bushels. The 2007 marketing year came to a close and soybean export inspection numbers came in right in line with USDA's forecast. USDA export sales report was neutral for 20.8 million bushels, with the majority going to China.
The soybean outlook has paled fundamentally in the past two weeks, with improving weather allowing a nice finish to the crop. Cooling temperatures and rains are allowing a good finish for the majority of the Corn Belt, meaning worries surrounding an absolute shortage of soybeans no longer are justified. If our yield estimates come to fruition, we would be looking at ending stocks of 280 million bushels, up roughly 60 million bushels from USDA's August estimates. This will be enough for 2007, although we cannot lose any more production in 2008. The other aspect that has remained in the background is inflation, and this is one factor that could throw a wrench into the whole works. The recent "credit crunch" has cause the fed to take a somewhat inflationary stance when it comes to monetary policy, meaning that real prices are declining despite futures increase. This, more than any other feature, should be watched, as it probably is the best chance for a price rally.
BarleyBarley producers are wrapping up an early harvest,
with USDA estimating harvest is 96 percent complete. This is well ahead of the five-year average of 83 percent. While acres of barley were higher this year because of rallying feed prices during harvest, there is some disappointment over yields in areas of North Dakota, particularly into the middle to eastern parts of the state. Quality is a concern with wet harvest weather. We expect a tremendous amount of feed grade barley will struggle to compete with a tremendous corn crop. Producers holding malt grade or borderline malt grade are advised to hold on, as premiums should rise sharply.
DurumDurum harvest in North Dakota finally is wrapping up. Early plantings have kept us ahead of schedule as far as a pure timeframe, but the touch-and-go pace has taken its toll on quality. Many locations are reporting low test weights, so producers with average to good-quality durum should command a premium in the market place. As of Sept. 3, USDA is reporting North Dakota harvest at 81 percent complete, well ahead of 59 percent on average.
Dry beansDry bean news, as always, is somewhat limited, but we remain bullish. The tremendous loss of acres because of both competing crops and drowned out (especially navy bean acres) means that producers should be able to secure a high price on uncontracted production. Of the major states, North Dakota production appears the best, with 66 percent of the crop rated good to excellent, 25 percent fair and 9 percent poor to very poor. Development is normal to behind, with 47 percent dropping leaves (45 percent average), but only 9 percent cut (17 percent average). Hot, dry weather the past few days should aid in dry down. Minnesota is rated 59 percent good to excellent and 30 percent fair, with harvest ahead of average at 13 percent complete (6 percent on average). Michigan continues to struggle with dry weather through the summer, with 21 percent rated good to excellent and 60 percent fair. Maturity is behind with 14 percent dropping leaves in comparison to 28 percent on average.
Minor oilseedsWhile fundamentals for oilseeds have tempered somewhat the past few weeks, prices remain strong. The rally in wheat has pushed all grains where they otherwise might not have gone, giving good opportunities for those who need to make catch up sales. Also, the oilseed markets also have come alive from the realization that South America has to expand acreage significantly to replace lost U.S. acres to corn. South America will start planting soybeans shortly, so markets are spiking some to try and attract acres. That also is helping oils, but particularly sunflower markets. Canola producers in particular should be concerned with this, as canola acres were much higher than previous years. However, basis levels are a problem in many locations, so any contract that could be made for a delivery this winter would be preferable. Sunflower producers are in a similar funk, as cash prices are about half of bean oil prices (currently trading at $36 to $37 per hundredweight). That relationship should be stronger, but then cash prices are not keeping up with futures markets. If a producer needs to sweep out his bins before harvest, now probably is the time to do it as sunflower basis falls as get into harvest.
As for progress, all crops are coming along nicely. North Dakota canola is 88 percent harvested, well ahead of the 58 percent average. Minnesota is similar, although later planting there meant harvest is closer to average (79 percent harvested vs. 65 percent average). Sunflower development for North Dakota is ahead with 46 percent of bracts turning yellow compared with 33 percent on average. The crop is rated 78 percent good to excellent.
