Corn prices. Uncertainty about the bond market impact from a Greece financial meltdown, along with a Chinese stock market in freefall, atop interpretation of USDA’s reports, all brought a wide variety of dynamics into play in the market last week. Traders also reconciled weather reports that indicated heat would prevail in the foreseeable future, versus the recent past that brought floods to vast acreage and lowered the yield outlook. Bullish traders believe yields will drop toward 163 bu. and prices need to trend higher to reflect a tighter supply-demand outlook. The weather over the next several weeks will hold the key. But higher prices are a magnet for cheaper Brazilian corn and some 2 mil. bu. of Brazilian corn is enroute to the US east coast. Lower yield estimates are pulling the carryout back toward 1.3 bil., a level which would push prices to a level that would begin demand destruction due to the abundant global supply of corn at much lower prices. With continued rainfall in the eastern Cornbelt and higher temperatures that threaten to cook ponded corn, the market is consumed in a debate about the yield estimate. Higher average prices were projected by Chris Hurt at the Purdue Workshop, at $4.35 to $4.40. The latter had been the high water mark in July 2014, until Dec futures pushed above that on Friday. Export shipments were 33 mil. bu. and new sales were 23 mil. bu. Shipments are 4% behind the needed pace to reach USDA’s projection of 1.825 bil. bu. However, new sales are on pace to exceed that target. Ethanol has used 4.43 bil. bu. of corn, which is 3% above the pace of last year, with the recent weekly total at nearly 105 mil. bu. to produce 987,000 bbls per day. Stocks rose to 19.8 mil. bbls, compared to 18.3 mil. in July 2014. Margins are currently 19¢ per gal. versus 92¢ a year ago. Market dynamics also include soybeans, which do not have the bullish octane corn does. Two weeks ago, the corn-soy ratio was 2.57, but it is now under 2.3, and approaching 2.0.
1) Jul 15 corn closed at $4.2725, up 6¢ for the day, and up 7.5¢ for the week.
2) Sept 15 corn closed at $4.3425, up 6¢ for the day, and up 6.25¢ for the week.
Soybean prices. The Chinese stock market collapse has more of an impact on soybeans as that country’s economy becomes volatile and affects the dietary protein for which US soybeans have been a feed ingredient. The Chinese stock market adds risk to soybean values, and China has been reselling cargoes from Brazil instead of taking delivery. Currently, new crop orders for US soybeans are only 51% of what they were a year ago at this time. While that is not totally a result of China, China buys more US beans than all other customers combined. The China dynamic was at play in the last week, first with bearish news then with bullish news, but all contributing volatility. Soybean prices will be tested by last week’s high of $10.40. But Nov bean prices will average $10.60-$10.70 predicts Purdue’s Chris Hurt, and many traders may agree that sub-$10 beans are questionable based on uncertain acres and yield at this point. But does that serve as a magnet for Brazilian beans which are selling for $9.40 in the interior and $10.23 at the port? Acreage remains a significant question for soybean traders, and yield will be added as unfriendly environmental conditions jeopardize flooded beans in the eastern Cornbelt. The trade has focused on those issues within the context of tighter old crop stocks. The key is how much rain will continue to flood fields. Export shipments were 7.3 mi. bu., at 2% above the rate forecast by USDA for the 2014 crop. New sales were only 1.5 mil. bu., but are still more than needed to exceed the USDA target. Old crop sales were modest, staying at 4-year lows as China has booked less than 90 mill. bu. of the 2015 crop so far. South American dynamics include a planned 10-day strike by health workers in Argentina that will halt all grain exports; and a report that Brazilian farmers have sold 16% of their next soybean crop, compared to only 3% a year ago, fearing lower prices.
1) Jul 15 beans closed at $10.435, up 5.75¢ for the day, down 2.25¢ for the week.
2) Aug 15 beans closed at $10.3825, up 5.75¢ for the day, down 6.25¢ for the week.
Wheat prices. A shift away from rain to drier weather will help the wheat harvest in the Great Plains and in the Ohio Valley, but that was considered bearish news for the wheat market and prices for deferred contracts sagged. Export shipments rose to 13.6 mil. bu. but are well behind the pace projected by USDA. New sales were also lackluster at 12.7 mil. bu. and 6 mil. bu. below what is needed to export the projected volume for the new crop year. Exporters typically sell 27% of final wheat shipments by this point in year; last year 35%; this year they’ve sold 25% of USDA’s target. Argentina may not be much of a competitor, with acreage down 20% from last year and the smallest wheat crop in 100 years projected for that nation. Planting is delayed there due to rain and political uncertainty that impacted farmer decisions on what crops would be profitable.
1) Jul 15 wheat closed at $5.815, down 9.25¢ for the day, up 2.25¢ for the week.
2) Sept 15 wheat closed at $5.76, down 2¢ for the day, down 14.5¢ for the week.
Marketing. “The market will struggle for the rest of the summer to get a firm grasp on just how much this crop has been hurt.”
–marketing specialist Matt Bennett.
Corn — cash and basis. Producers who are still holding onto cash corn should look at this rally as a welcome gift. On the river at St. Louis, basis improved to 13¢ over. Basis has held together quite well. While producers have sold a fair amount of corn on this rally, they still need to move corn before harvest. Basis will likely be steady to softer moving forward. Given the yields in 2014, it might be wise to put today’s price into a profitability spreadsheet for last year’s crop. The profit level is impressive, and should be taken advantage of.
Corn — futures. While there was disappointment in the USDA not dropping 2015 corn yield projections, traders realized how tight the balance sheet could get for new corn. In addition, rain Friday was another reminder that some producers have had more than enough rain to significantly impact production. With demand remaining steady and supply a concern, the market is exciting once again. That will be the case until the size of the crop is known.
Corn — new crop. While producers have been slow to sell fall corn, recently many bushels have started to be priced. A producer who receives a 70¢+ rally in the corn market should be ready and willing to protect that higher price. If it takes a nosedive, a producer would be sick if he hadn’t locked in some of it. Consider scale-up selling, and look for the corn market to continue its ascent. As bad as some areas have been hurt, it’s going to take a ton of 250 bushel corn out west to make up for it.
Beans — cash and basis. Basis on the river softened a shade, moving to 32¢ over July futures. The basis is still strong, but has softened in some places. Expect the basis to remain solid. Producers have made a good decision holding onto old beans. Consider marketing some with this strong rally though. When considering how much we’ve gained back in the bean market, it would seem we’d all be better off focusing more heavily on new bean prices and accepting the price this rally affords. We can all rest assured we’re more profitable after $1+ rally.
Beans — futures. How does a producer weigh tight US stocks with ample world stocks in his marketing plan? World stocks are quite adequate, and there always remains the possibility we could have–what is perceived as– a crop failure in the US and see bean prices drift lower. We must keep this in mind when the market rallies. Taking advantage of strong prices on the way up is good business, staying disciplined in a volatile market isn’t easy, but doing so could mean big rewards.
Beans—new crop. Beans had a tough time rallying along with corn this week, while many traders were surprised at the lack of interest. Moving forward, it would appear crop ratings would have a tough time improving. Calculating how many acres are completely lost compared to those damaged will be interesting; not to mention how many acres are ravaged by disease. Again, consider having your agronomist look at your beans if you could save 3-4 bu. that are worth over $10, it might make some money to know what you can do.
The “tractor seat bounce” for the corn basis has hit bottom. Cash offers have diminished with the rally in corn. Cash bids continue strong in beans, but will weaken as the new crop nears. Processors have rolled their bean bids to August and corn bids to September. It is still not too late to lock in a good basis contract on soybeans which pays 80-90% of the value with immediate delivery, and you close the contract when futures match your marketing plan. Beware of any deadline to do that. You might want to focus on your local cash market because despite all of the rain and damaged cropland, foreign buyers are not increasing their purchases, since global grain stocks are plentiful and cheaper.
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