Ray Grabanski column: Markets retreat on favorable weather
Wheat The wheat market slipped slightly last week. If the wheat was to trade on its own news, wheat probably would have been higher for the week, but when you look at the outcome in corn (off 35 cents for the week) and soybeans (off 74 cents for ...
The wheat market slipped slightly last week. If the wheat was to trade on its own news, wheat probably would have been higher for the week, but when you look at the outcome in corn (off 35 cents for the week) and soybeans (off 74 cents for the week), one can under stand why the market drifted. For the week, Chicago September dropped 2 cents, Kansas City September dropped 4 cents, and Minneapolis September declined 10 cents.
The wheat market struggled early in the week because of sharp losses in the other grains, but tried to rally higher late in the week. Wheat started higher on export news July 19 and 20, but the market lost all of its gains through out the session and finished with moderate losses both sessions. Last week's list of buyers of wheat was impressive. Egypt was back in again and confirmed an 115,000 metric-ton purchase. Bangladesh also purchased 106,000 metric tons of wheat. Another buyer was Morocco, as it was looking to buy 243,000 metric tons. Rumors also had Brazil and Spain in buying wheat from the United States. It stands to good reason that the U.S. would be garnishing all this wheat business. The U.S. is one of the only countries left with wheat in the bins, and with the U.S. dollar so low, other countries are having a tough time matching bids. Just to compare, the Canadian dollar is at 30-year highs to the U.S. dollar. Another concern is that other major exporting countries are having some sort of production concern.
Producers looking at delivery wheat at harvest time off the combine should be looking at locking in basis levels now. It appears that the Northern Plains region should have a pretty large crop coming in, and basis levels are sure to widen once we start harvesting. If you are planning on holding wheat in the bins, be prepared to hold until April and May. Elevators will loss interest in wheat when soybean and corn harvest gets closer.
USDA export inspections report estimated wheat shipments at 13.8 million bushels. This brings the year-to-date shipments pace for wheat to 94.4 million bushels compared with 90.9 million bushels last year at this time. USDA's export sales report showed a higher-than- expected export sales pace. Wheat sales were estimated at 28.2 million bushels. This brings the total wheat sales to date to 308.4 million bushels compared with last year's 214.4 million bushels.
CornThe corn market lost big ground early in the week, dropping 20 cents July 16 and then following up July 17 to decline another 15 cents. Then the market virtually did nothing for the rest of the week. December corn declined 35 cents. The December contract did trade down to and even through the long-term support line of $3.31, but has been unable to close below that level. Traders have been reluctant to trade down below that level. There still is a chance production estimates could change.
The big hit in corn was because of a change in the weather forecast. Two weeks ago, traders went into the weekend looking for forecast July 15 to verify the start of the high-pressure ridge, but instead, the July 15 forecast showed a warm and wet forecast. Almost ideal for the corn crop that was in the pollinating stages. But for most of the week, the rains were centered on the eastern regions of Iowa and northern Illinois, leaving out most of the remaining Corn Belt region. But that changed July 18 and 19 as good rains fell in parts of the far-reaching western regions of the Corn Belt. The only region left with concerns now is southern Minnesota. To top off the rain events, temperatures moderated greatly and cooled off toward the end of the week. Heat is expected to hit the Corn Belt July 23 and 24, but if this system does not develop, corn will be far enough along in crop development that weather will start to become less of an issue. By July 23, 75 percent of the nation's corn should be silking and with only 25 percent left to silk.
Producers who are going to need to deliver corn to the elevator off of the combine at harvest consider locking in the basis level in the near term. With the size of the crop projected to be harvest this fall, elevators will be stuffing corn in any place they can find. Basis levels will widen as the harvest proceeds ahead and corn starts to get put in piles. Once the corn piles are cleaned up, corn basis levels will improve dramatically, but that might not be until March and April.
USDA export inspections report estimated l corn shipments at 38.6 million bushels. This brings the year-to-date total corn shipments to 1.78 billion bushels compared with 1.73 billion bushels for last year at this time. USDA estimated corn sales for at 26.4 million bushels.
Corn markets in a completely different scenario from what we faced at the beginning of the year. At that time, all anyone knew for sure was that the ethanol industry was growing at a runaway pace and the U.S. needed to produce a vastly larger amount of corn to meet exports, feed and industrial demand. Fast forward six months and it looks like we have solved that problem. With so much uncertainty removed from the market, there really isn't any reason to sustain a large premium. Also, we are moving rapidly through pollination, and after that, the main danger to yield potential will be gone.
SoybeansThe soybean market dropped an impressive 74 cents last week with most of the losses coming July 16 and 17. Soybeans dropped 50 cents July 16 and followed that up with another 40-cent decline July 17. The July 16 losses were because of a change in the weather forecast. Forecasts were calling for the week to be hot and dry for the Corn Belt, but that forecast was updated to be cool and wet. That brought the sellers out and they pressured the market hard. In reaction to the increased volatility, the Chicago Board of Trade increased soybean margins requirements by as a third, and that brought in a vast amount of selling from traders who could not come up with the extra cash to make the margin calls. The rest of the week brought cooler heads to the market as traders started to watch weather forecasts of the next week. The forecast is calling for heat to move into the western Corn Belt early this week, and slowly spread across the rest of the Corn Belt July 24. If these temperatures occur, there will be damage down to the soybeans but as time passes, there will be little chance to hurt corn. So the soybeans remain the most vulnerable to this weather forecast. The forecast left the heat unchanged, but the chance of moisture was increased, but again only for the regions that received the largest amounts of rain last week.
Producers should only look at delivering soybeans at harvest if they have no other choices. The thought that many producers are going to be taking as many beans to town off of the combine as possible so that they can store corn in the bins at home should keep the basis level for soybeans wide. Producers should be looking at storing beans at home and waiting until March-April to deliver the beans. If stocks are really going to decline from 500 million bushels to 240 million bushel this year, one would expect basis levels to tighten up as end users will have to give the producer a reason to pull the beans out of the bins.
USDA export inspections report estimated export shipments for soybeans at 10.3 million bushels. This brings the year-to-date export shipments pace for soybeans to 1.04 billion bushel compared with 852 million bushels for this time last year. USDA's export sales report estimated soybean sales at 6.7 million bushels, which brings the year-to-date total export sales pace for soybeans to 1.1 billion bushels compared with 930 million bushels last year at this time.
The last time we saw prices this high was July 2004, and it is rather ironic that soybeans have become the Cinderella story. Up until the past few weeks, soybeans have been on the poor end of the corn-soybean ratio, with corn by far the most profitable crop. The realization that the "low" price had lost nearly 3 million acres had traders almost tripping over themselves in an effort to buy. But isn't this what the market has long been telling us? There was a definite issue to solve with corn this spring and it appears we've done it. We are just now realizing the cost of that. Rallies now will reward those who planted soybeans, but they also will attract further acres in South America for next January. As for 2008, there still is some upside potential. Of course, it will depend on how this years crop fairs, but what is clear is that the U.S. can't have another drop in stocks of the size we did this year.
BarleyUSDA reported barley export sales pace at 1,300 metric tons with the entire amount going to Canada. The U.S. barley crop was 95 percent headed as of July 15. This compares with 84 percent the previous week and 84 percent for the five-year average. The same report estimated the barley crop ratings at 71 percent good to excellent, 18 percent fair and 11 percent poor to very poor. This was unchanged. USDA reported no barley shipments. To date, 572,000 bushels of barley has been shipped out of U.S. ports, compared with 121,000 bushels last year. Cash feed barley bids in Minneapolis remain at $3.20, while malting barley bids remain at $4.50.
DurumUSDA reported durum export sales of 1 million bushels. This brings the durum export sales pace to 10.9 million bushels for the year compared with 13.7 million bushels for last year at this time. Minneapolis cash durum bids remain steady at $7.40.
Dry beansAs of July 15, North Dakota's dry bean crop had 10 percent of the crop setting pods compared with 4 percent the previous week and 9 percent for the five-year average. North Dakota's dry bean crop declined 4 percent to 64 percent good to excellent, 27 percent fair and 9 percent poor to very poor. Minnesota's dry bean crop is 61 percent good to excellent, 31 percent fair and 8 percent poor to very poor.
CanolaThe Winnipeg canola contract ended the week higher with most of the strength coming from weather forecast concerns. Weather forecasts are calling for temperatures in the Northern Plains to soar. If temperatures get to be as high as weather forecasts are predicting, then we could see some crop damage. Light support also was because of reports that the EU canola crop is smaller than expected. A slight decline in the Canadian dollar also helped to encourage export demand. Gains were kept in check by the weaker U.S. soybeans complex. As of July 15, 13 percent of North Dakota's canola crop was turning compared with 3 percent the previous week and 10 percent for the five-year average. North Dakota's canola crop was 86 percent good to excellent, 13 percent fair and 1 percent poor to very poor, a decline of 1 percent. Minnesota's canola crop is 88 percent good to excellent, 9 percent fair and 3 percent poor to very poor.