Grain markets are in the green this morning with Chicago wheat prices leading the charge as the complex gets back to focusing on weather.
“We tend to pay attention to that which is the most current on our radar screen.” – Warren Rudman (late American senator)
July 15 – Volatile Wheat Prices Flying Under the Radar
Grain markets are in the green this morning with Chicago wheat prices leading the charge as the complex gets back to focusing on weather. This follow-on buying activity comes after last week’s mostly neutral July WASDE report, but also some hot weather in parts of the American Corn Belt, which has supported soybeans most.  As I said last Monday’s FarmLead Breakfast Brief, weather will be the real driver of grain markets until the middle of August (by then, we should have a pretty good idea of where production potential sits).
What’s Next for Corn Prices?
In the next WASDE report, out on Monday, August 12th, we know we’ll get an updated seeded acreage number from the USDA (they promised us updates from the June acreage report!) and it’s likely we’ll get an update on average yields too, given how late the crop is, especially for corn. On that note, Friday’s CFTC data showed us that fund managers continue to get longer for corn prices (now sitting at 174,320 contracts long), while getting a bit shorter on soybeans (now 45,750 net short positions).
There are some who think that corn prices, like they did in 1993, are only getting started on their bullish rise. Thanks to satellite imagery, it looks like the U.S. corn crop is about 2 – 4 weeks behind in a lot of places.  That in mind, there is already some talking pundits who think light test weight and high moisture – especially in the U.S. northern states – will be an issue this year. The flipside of this is the demand rationing that could take place with higher corn prices. A month ago, given the huge delay in Plant 2019 for corn, I posited that if corn prices rallied higher from their then-five-year highs, substitution effects would start to take hold, especially for livestock producers as they would look to more affordable wheat prices.
To back me up, Darin Newsome of Darin Newsom Analysis commented on the U.S. Farm report last week that, “the worst thing that ever happened to the U.S. corn market was when we went to $8 corn. We just shut down demand completely, and it took us a while to get it back.”  For comparison to 2012’s drought year, corn prices were sitting around $5 USD/bushel but within two months, they were at $8. While DTN’s forecast says that it’s supposed to be hot this week in a few places in the Corn Belt and soil moisture will be used up, it’s far from a drought!  Sidenote: I’m in Champaign, IL this week speaking at the Illinois Soybean Association’s TechConnect event… I’ll let you know exactly how hot it gets!
The soybean market probably wouldn’t have a short position from fund managers if not for the trade war with China. Further, while some hot weather has helped soybean prices climb a bit, the trading range is expected to continue as global trade lanes shift with said trade war. More specifically, the USDA said in a report last month that the soybean tradeflows from Brazil to China are only expected to increase, with the former’s total exports topping 96M by 2028, up from 
Wheat Prices Forecast is Mostly Ho-Hum
Wheat prices are higher this morning as, despite decent progress for this year’s winter wheat harvest in the U.S. Southern Plains, quality is expected to be a bit variable. Kansas, which saw a lot of rain in June, will likely have lower protein, while Oklahoma missed a lot of the moisture and so protein should be average (cue the blending opportunities!). Despite the variable quality, the USDA is expecting average cash wheat prices in 2019/20 to be around $5.10 USD/bushel, slightly below 2018/19’s average of $5.20
For Western Canadian farmers, the forecast for 2019/20 wheat prices is looking a bit like what we got last year as well.  Based on the drought concerns in Australia and good demand into Asia, Canadian wheat is expected to continue to enjoy strong export volumes, with 2019/20 shipments expected to match that of 2018/19’s record of 19 MMT. This, however, will be depending on China continuing to buy Canadian wheat.
If you were thinking about locking in some new crop wheat prices, you a bit late to the game now. I’m looking specifically at October movement now, since you should only really be trying to fill contracts in September, not necessarily make new contracts. That said, while the best basis for Western Canadian wheat prices was on June 3rd (also coincided with the highs of wheat prices on the futures board). For CPS wheat prices though, the best basis was also the day of the best cash price (by now, you’re probably looking at the chart below and wondering if you should be growing CPS wheat instead of HRS wheat).
Looking beyond wheat prices, the UN’s FAO arm says that most crop prices are expected to be stagnant in 2019/20 as the world’s farmers are getting better at making sure there’s enough supply available.  The FAO says that oilseed prices are tracking on the lower end of the optimism spectrum, as global demand is slowing down, but mainly because of China’s African Swine Fever issues resulting in fewer pigs to feed.
Overall, there are certainly some production areas to keep an eye on, but with global trade issues persisting and a healthy amount of supplies available worldwide, the upside does appear a bit limited. That being said, we’re likely to see the usual rallies from the September harvest lows, but corn prices are likely going to be the major determining factor in terms of where the likes of wheat prices and other crop values go.
Due to some travel this morning, futures grain prices are not included in today’s FarmLead Breakfast Brief but you can view them here at your convenience.
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