GRABANSKI: Analysts forecast above-trend line yields
WheatThe wheat market has encountered all bearish news since its recent short-term highs in early June. A record U.S. winter wheat crop and record yields in Russia and Australia have pressured this market. In the past few weeks we have had some p...
The wheat market has encountered all bearish news since its recent short-term highs in early June. A record U.S. winter wheat crop and record yields in Russia and Australia have pressured this market. In the past few weeks we have had some positive news that might have halted market declines at eight-year lows.
France revised wheat crop yield estimates lower to 28.2 million metric tons, down from 40 million metric tons in 2015. Excessive rains have been the blame for poor yields and heavy disease pressure. This is a disaster crop and could be the lowest yield in 40 years. Additionally, the northern wheat tour calls for average and not bin-busting yields. Spring wheat yield estimates averaged 45.7 bushels per acre with durum averages of 45.4 bushels per acre.
Weekly export inspections of 24.3 million bushels were above the 11.8 million bushels for the same week a year ago. Inspections for this marketing year total 319.8 million bushels and are up 38 percent from the previous year. This is above the U.S. Department of Agriculture’s projected demand increase of 19 percent and is considered bullish. Weekly export sales for all wheat totaled 13.6 million bushels, with 12.9 million bushels for the 2016 to ’17 marketing year. Lower prices have spurred export sales.
The rise or decline of the U.S. dollar will be a factor in the coming months as U.S., Australian and Black Sea ports will be competing for buyers who are fully aware of a global glut of wheat. The Black Sea region has been winning with favorable freight rates into Egypt and western Europe with the disaster crop. Freight rates from these destinations to Egypt are very competitive, estimated at $8.00 per metric ton. Australia experienced an unprecedented buildup of stocks on its eastern ports because of high production and lower exports because of the lower Black Sea region prices.
Australian prices are around $22.45 above Black Sea prices.
The Kansas City and Chicago wheat spread has Kansas City returning as a premium to Chicago. Kansas City had been trading as much as 30 cents lower than Chicago as a result of lower soft red harvests in 2014 and 2015.
Kansas City is slightly above and trending higher to Chicago as the market is signaling the need to place protein premium in the market. This is a healthy signal for protein to be rewarded compared to discounted relative to the value of feed wheat.
A number of central plains states have triggered loan deficiency payments on hard red winter wheat. Analysis indicates 6- to 13-cent LDP ranges in Kansas, Nebraska, Missouri, Iowa and Texas in the past three weeks. The northern tier states of North Dakota, Minnesota and Montana have been within 1 to 14 cents of triggering LDP payments during the same time period. South Dakota triggered an LDP of 3 cents early in the week, but disappeared to zero late.
The August 1 crop progress report pegged winter wheat harvest at 89 percent complete compared to 91 percent last year and 86 percent average. Spring wheat harvest is rated at 10 percent complete compared to 9 percent for the five-year average. Spring wheat conditions are rated 68 percent good to excellent (unchanged from last week) and 8 percent poor to very poor (unchanged). Last year was 70 percent good to excellent and 7 percent poor to very poor.
For the week ending August 4, September contracts for Minneapolis wheat were down 2.5 cents at $4.86, down 4.5 cents at $4.03 for Chicago wheat, and down 4 cents at $4.05 for Kansas City wheat.
Weather continues to cooperate for crop maturity, and that doesn’t look to change much the next couple of weeks. With the next USDA report coming out August 12, look for trade to build in a larger yield estimate and a larger ending stock number into prices ahead of this report.
Good demand, lower Brazilian production estimates and weather troubles with Ukraine’s corn crop will try to offer support, as much as it can with 15 billion bushels corn production estimates weighing over our heads. Dr. Cordonnier, a South American crop consultant, lowered his Brazilian corn estimate by 3 million metric tons to 66 million metric tons. This relates to CONAB’s estimate of 69.2 million metric tons and the USDA number of 70 million metric tons.
As of the August 4 close, September corn was down 13.75 cents and December corn was down 11.75 cents.
Corn crop conditions did not help prices again, as they came in with the same good conditions as they have been the past couple weeks. We are looking at the untested support of $3.18 set back in September 2014 as the next support line for corn prices.
Even with more hot weather in the extended forecast, they are keeping moisture in the forecast. The trade might wait for this hot weather to actually happen, as the earlier scares in the extended forecasts this year have not really came to fruition. The August 5 CFTC data showed noncommercial net longs in corn at 72,000 as of July 26, down 58,600 from the previous week.
The August 1 crop report has corn silking at 91 percent, compared to 85 percent average and 79 percent the previous week. Corn conditions did not change. Corn was 76 percent good to excellent, 18 percent fair and 6 percent poor to very poor. This compares to 70 percent good to excellent last year and 9 percent poor to very poor.
Ethanol production for the week ending July 29 averaged 1.004 million barrels per day. This is up 0.6 percent compared to the previous week and up 4.47 percent compared to last year. Stocks as of July 29 were 20.603 million barrels. This is up 1.04 percent compared to the previous week and up 7.09 percent compared to last year. Corn used in last week’s production is estimated at 105.42 million bushels. Corn use needs to average 78.495 million bushels per week to meet this crop year’s USDA estimate of 5.225 billion bushels.
USDA did show another week of export inspections that were above last year’s pace. Export inspections came in at 45 million bushels. Inspections for 2015 to ’16 total 1.583 billion bushels, down 2 percent from a year ago and below USDA’s projected demand increase of 2 percent. Weekly export sales of corn showed a total of 48.3 million bushels with 13 million bushels for the 2015 to ’16 marketing year. This put total old-crop sales at 1.93 billion bushels, 2 percent ahead of USDA’s July demand projection of 1.9 billion bushels.
Soybeans started off last week on the defensive. The weather maps turned less threatening compared to the previous week. They are keeping heat in the 8 to 14 day models, but put more moisture in the Corn Belt, too. This is making it difficult for traders to get comfortable to lean back to the bullish side.
The August 5 CFTC data showed net longs in soybeans fell 20,675 to 181,471 as of July 26. Soybeans tried to fight back in the middle of the week, but August soybeans found resistance at the $10 mark, and fell back below $9.90 for a couple days in a row. As of the August 4 close, August soybeans were down 41.25 cents and November soybeans were down 51 cents.
Despite nice exports lately, the market is still trading supply, as the 2016 U.S. soy yield estimates continue to grow. Solid crop conditions continue to plague prices, as the yield potential continues to be strong as we get later in the year. If crop conditions continue to stay strong for soybeans, we are looking at $9.20 as next support and then the psychological barrier of $9.
The August 5 crop progress reported a 1 percent increase in good to excellent conditions. Soybeans were 72 percent good to excellent, (up 1 percent week over week, up 9 percent year over year), 21 percent fair and 7 percent poor to very poor (unchanged week over week, down 4 percent year over year). Blooming was 85 percent complete, compared to 79 percent average and setting pods was at 54 percent, compared to 44 percent average.
Demand is picking up for U.S. soybeans, a factor that could keep support above this spring’s lows. USDA announced soybean sales for five straight days, with China being the main buyer and other sales to unknown.
It was a good week for export sales for soybeans. Weekly export inspections were 24.7 million bushels (ending July 28), putting the market year total at 1.714 billion bushels. The marketing year total is running 5 percent behind last year’s pace and behind USDA’s projected demand decrease of 3 percent. Weekly export sales of soybeans showed a total of 61.4 million bushels with 19.9 million bushels for the 2015 to ’16 marketing year. Old-crop sales remain at 1.926 billion bushels, 7 percent above USDA’s July demand projection of 1.795 billion bushels.
Canola November futures in Winnipeg, Manitoba, traded down $6.73 (Canadian) to $446.90 per metric ton (Canadian). The Canadian dollar traded up .0011 to 0.7680. This brings the U.S. price to $15.57 per hundredweight.
Cash bids in Velva, N.D., were $15.38 per hundredweight for August and $14.68 for September. Enderlin, N.D., bids were $15.38 for August and $15.21 for September. Hallock, Minn., bid $15.50 for August and $14.68 for September. Fargo, N.D., bids were $15.85 for August and $15.05 for October and November.
Cash feed barley bids in Minneapolis were $2.20, while malting barley received no quote. Berthold, N.D., showed bids of $2 and CHS Southwest bid $2.50 in New Salem, N.D.
As of July 31, U.S. Barley conditions were 72 percent good to excellent (down 1 percent week over week, up 4 percent year over year) and 4 percent poor to very poor (unchanged week over week, down 2 percent year over year). Barley harvested for the five major producing states is 11 percent compared to 8 percent for the five-year average.
Cash bids for milling quality durum are $5.75 in Berthold, N.D., and at $5.35 in Dickinson, N.D. The Wheat Quality Tour estimates durum yields at 45.4 bushels per acre for 2016. This is substantially better than the 34.6 bushels per acre estimated last year.
Cash sunflower bids in Fargo, N.D., were at $17.20 for August and $17.70 October to December.
For the week ending August 4, soybean oil traded 89 cents higher to $30.64 on the August contract.