Weather starting to support markets

Wheat

The wheat markets saw plenty of fireworks during the Fourth of July Week. On July 5, September Minneapolis traded to a high of $8.68 then reversed to a low of $7.74 before closing 3 higher. The following day, September closed 50 cents lower in a sharp sell off. The big question now is, have we had a potential market top?

Typically in market tops, a 7 percent retracement from the high would say we reached a top. In July 5 trade, we topped at $8.68 then retreated to $7.74. Seven percent of $8.68 is 60 cents. Sixty cents from the $8.68 high is $8.08. We closed at $8.1975, so one could argue we have put in a potential top. This all happened in one very volatile session. But we have rallied $3 from the $5.50 range so maybe that's all? Markets can get overblown and a technical correction was certainly due.

Informa came out with crop estimates during July 6 trade which led to the sell off. They estimate 434 million bushels of spring wheat production. This number, if realized, would be very negative on market price. Earlier private estimates were ranging from 340 to 390 million bushels. With the potential for high crop abandonment, we think Informa is to the high side but the market traded that number for the remainder of the week. Only 37 percent of the spring wheat crop is rated good to excellent. This rating is 40 percent lower than 2002 when hard red spring wheat abandonment was 15.3 percent versus 2.5 percent for the 10 year average.

Current eight-to-14-day temperature forecasts are above normal with precipitation below normal in the heart of the spring wheat growing region. With this forecast there is significant risk for further crop declines.

Corn

Corn found some strength this week as weather is giving this market some life. Even after the U.S. Department of Agriculture raised corn acres on the June 30 report, the corn market switched quickly back to weather which is getting these funds that are heavy short a little nervous. There have been some favorable rains across parts of the Midwest recently, but hot dry weather is in the six-to-10-day forecast for the western to central Midwest with the eastern Corn Belt forecast for closer to normal temperatures and a better chance for rainfall. The eight-to-14-day forecast still shows a lot of heat and dryness for most of the Midwest.

The question is if this is a glass-half-full or a glass-half-empty type of forecast? So far much of the corn crop looks to be in decent shape, but rains are always needed this time of year. Much of the corn crop is behind schedule and needs the heat units, but that also pushes pollination a week or two later than normal into the heart of summer with many places in need of some good rains ahead of that. For the week ending July 6, September corn was up 9.5 cents and December corn was up 10.75 cents at $4.0275.

This is typically the time of year that crop conditions start to see some decline as weather starts to become more adverse. Because of the seasonality of a 1 percent increase in corn ratings, the Pro Ag yield model increased another bushel, but is still lower than USDA's expected yield of 170.7 bushels per acre. Informa came out with an updated estimate this week for this year's corn crop at 169.5 bushels per acre.

Ethanol production was at 1.014 million barrels per day. Weekly ethanol production decreased 0.10 percent from last week and up 3.05 percent from last year.

Corn use for ethanol was 106.47 million bushels, ahead of the 93.43 million bushels pace needed for USDA's estimates. Ethanol stocks were also lower.

The EPA also announced it will leave ethanol at 15 billion gallons. Crude prices continue to sneak lower and is pressuring ethanol prices.

Soybeans

Soybeans got off to a good start this week as we saw a favorable USDA acreage report and a hot and dry forecast for much of the Midwest is forecast to continue, especially in the western soybean growing states. The Dakota's make up 14 percent of total U.S. acreage, so the market isn't ignoring the potential problem that has developed over much of these typically spring wheat acres that got switched to beans this year. We are at three-month highs as worsening drought conditions in the western Midwest are keeping the trades attention.

Soybeans are also getting support from meal prices that have surged in China, and vegetable oil has also increased due to dry weather in Canada and Europe. Stepped up South American selling on rallies is trying to put pressure on this market. Soybeans got through the $10 psychological level in November and next resistance is now $10.20. Soybeans made it through the 100-day moving average, reached for first time in four months. For the week ending July 6, July soybeans were up 38.5 cents and November 2017 soybeans were up 45 cents.

Crop conditions for soybeans declined 2 points to 64 percent in the good to excellent category in this week's weekly crop progress report. Pro Ag's yield model improved very slightly this week, but is still lower than USDA's 48 bushels per acre. Informa estimates this year's soybean crop 47.9 bushels per acre, in line with the USDA.

Overall, moisture levels for soils are rated nearly equal to last year, but the crop ratings are much lower for nearly all crops due to a poor start to the year (cool and wet during planting). It remains to be seen what eventually becomes of this crop, but currently all crops appear to have mostly below normal yield potential. The season is only about half done, so there is a lot of weather left to be traded.

The June 30 report was bullish on soybeans, as USDA estimated U.S. soybean acreage at 89.51 million acres with the trade expecting 89.95. Quarterly stocks were slightly below the pre-report average estimate.

The USDA reported May U.S. crush came in at 157.3 million bushels (1.5 million bushels below expectations) and oil stocks were at 2.265 billion pounds, up 31 million pounds versus April and in line with market expectations of 2.257 billion pounds.

Canola

For the week ending July 6, November canola futures in Winnipeg were up $20.40 Canadian to $518.40 Canadian per metric ton. The Canadian dollar traded down .0004 at 0.7710. This brings the U.S. price to $18.13 per hundredweight.

• Velva, N.D., $18.64 per hundredweight, new crop $17.31.

• Enderlin, N.D., $19.17 per hundredweight, new crop $18.29.

• Hallock, Minn., $19.69 per hundredweight, new crop $17.48.

• Fargo, N.D., $19.90 per hundredweight, new crop $17.95.

Barley

Cash feed barley bids in Minneapolis were at $2.05, while malting barley received no quote. Berthold, N.D., bid is $2 and CHS Southwest New Salem, N.D., is $2.40.

Durum

Cash bids for milling quality durum are $7.50 in Berthold and at $8.00 in Dickinson, N.D.

Sunflower

Cash sunflower bids in Fargo were at $16.60, and October through November at $16.30. For the week ending July 6, soybean oil was 10 cents lower at $32.83 on the July contract.