Now that the July supply and demand report is out, the soybeans and corn markets should put focus on the weather. Basically, the U.S. Department of Agriculture did not have any surprises in their soybean numbers as traders anticipated a decline of at least one-half bushel in yield. In 1993, USDA lowered yields for soybeans one bushel to the acre from the June estimate to the July estimate.
In June, the yield estimate was at 42.1 bushels per acre. Looking at the current crop condition ratings, the June estimate appeared high. USDA lowered the yield down to 41.5 bushels. Carry-outs continued to decline for the new crop, to 140 million bushels and that was in line with the expectations. Futures opened strong on July 11, but, could not maintain the strength and fell hard.
However, midday forecasts were indicating the potential for building a ridge of heat and moving into the heart of corn and soybeans two weeks out. This was enough to send the shorts running in front of a forecast of heat for the weekend. While research tends to indicate that higher highs still may be in store for soybeans during August and possibly the first half of September, the percentage of odds isn't as good as the expectation of new all time highs for the July contract was.
Therefore, I tend to be open-minded with this market for future expectation. However, weather will be a key driving force for both corn and soybeans. Argentine farmers ended the week with frustration and promises of more strikes. This rhetoric continues to breed instability in the export sector for Argentine commodities. The Brazilian farmer has been more aggressive this year to forward cash sales than last year and this is positive for U.S. exports of through late summer. A pickup of Argentine soy exports during late summer and early fall could spell trouble for prices at a seasonal soft time for U.S. producers.
Hopefully, having all cash sold for new crop (via into 2009 contracts) done by the third week of September. In other words, not carrying any new crop over without a forward contract attached. I suspect a reader's first thought would be taxes and not liking to have commodities to sell next year. Next year might not pay as well as this year by harvest.
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In early 2008, China's corn exports fell 96 percent to 150,000 metric tons. During the same period, imports of soybeans increased 24.4 percent. During December 2007, the Chinese government canceled the export tax rebate for grain products. Then in January, the government levied new export duties for grain products ranging from 5 percent to 25 percent. It is thought that under the current policy, China's grain supplies may be in good supply in the midterm, but the country will need to import non-grain crops, especially oil-bearing crops such as soybeans and palm. China's agricultural trade deficit stood at $7.57 billion for the first five months of this year, up 14.3 times from the same period a year ago.
Major corn and soybean producing provinces Jilin, and Heilongjang may have to deal with a major locust problem this season. Locusts are 70 for every 1.2 square yard in Inner Mongolia. The winds tend to move across Jilin and Heilongjiang towards Beijing. The last time China experienced such a problem was in 2002 when locust were 5000 per 1.2 square yard.
Soybeans remain fundamentally bullish. But if the weather remains favorable, prices could stall for now. August is bean month. Corn fell victim to more than a $1 break the?week ending July 11 and that seems to be enough to usher in a short covering rally for now.
