Grain markets this morning are mostly lower as the complex continues to digest the July WASDE (out on Friday) and wetter weather forecasts.
“Where there is chance of gain, there is also chance of loss. Whenever one courts great happiness, one also risks malaise.” – Walker Percy (American philosopher)
July WASDE, Rains Start Summer Grain Markets Malaise
Grain markets this morning are mostly lower as the complex continues to digest the July WASDE (out on Friday) and wetter weather forecasts. Looking more broadly at the macroeconomic environment, trade and political tension between China and the rest of the world continues to build with most pundits agreeing that a new Cold War is starting.  However, this time around, the battle will be on technology (namely autonomy, biotech, and cyber) and China has a much stronger economy than Russia did. 
On that note, before the July WASDE was released, China booked its largest purchase of U.S. corn in a generation as 1.365 MMT of old and new crop corn was bought (or 53.74M bushels if converting metric tonnes into bushels).  This size of purchase nearly eclipsed the previous one-day purchase record of 1.45 MMT, back in December 1994 but China is clearly looking to make a statement that they’re serious about meeting Phase One trade deal targets. That said, President Trump said he’s not even considering trying to start negotiations for a Phase Two trade deal.  In fact, a healthy analysis from the Peterson Institute for International Economist shared last week in The Economist shows that China is nowhere near being even close to meeting said targets. 
July WASDE Adjusts to Smaller Crop Area
At a basic level, all the USDA did in their July WASDE was adjust production data to new acreage numbers, provided on June 30th. While U.S. corn area is technically up 3% from 2019, the USDA’s print of 92M acres nearly 2 weeks ago is down substantially from the March estimate of nearly 97M acres.  Further, soybean area came in at 83.8M, up 300,000 acres from the March Prospective Plantings report, and is about 10% higher year-over-year. Finally, total wheat area was lowered by about 400,000 acres from March to 44.3M acres, or about 2% below 2019/20.
With these foundational numbers in place (and the market having adjusted to it), and the reality that the USDA rarely changes their yield numbers in the July WASDE, it was hard to be bullish going into Friday’s WASDE report. Therein, even Friday’s large purchase by China couldn’t move the needle for the bulls, as it’s no secret that there’s a lot of 2019/20 corn still in farmers’ bins, and the 2020/21 crop is still going to be 15 billion bushels large!  Here’s a breakdown of all the major categories being watched by traders going into the July WASDE report.
While the smaller corn production number could easily be interpreted as bullish, the bigger macro picture and moisture is keeping pressure on any rallies. In fact, corn prices on the futures board in Chicago have dropped to their lowest level so far this month as supplies continue to look adequate to satisfy current demand expectations (especially considering the demand . Adding to the bearish woes is most grain-producing areas in North America getting some sort of moisture last week, as well as some more this week. Further, this puts a bit of a damper on Goldman Sachs’ recent hot weather-induced, bullish forecast, pegging 3-, 6-, and 12-month price outlooks at $3.40, $3.70, and $3.50 USD/bushel, respectively.
For soybean prices, I don’t believe the outlook is as bearish as corn as, with ending stocks lowered by nearly 200M bushels, any reduction in yields could certainly be viewed as bullish. Further, soybean crops aren’t really “made” at the same time of the growing season for corn, and given the good mix of heat and rain in most parts of the Midwest, I think the U.S. corn crop is going to be pretty big. Further, it’s much more likely that China buys more American soybeans than they do American corn going forward. That said, will the USDA’s estimate of China’s soybean imports for 2020/21 was unchanged in the July WASDE at 96 MMT, China’s own official estimate was raised by 3 MMT to 94 MMT. The increase was mainly attributed by Chinese statisticians to better crush margins.
A Bullish July WASDE for Wheat?
Comparably, wheat prices found a silver lining in the July WASDE, as U.S. production numbers came in below expectations, namely the American winter wheat harvest being the smallest in 3 years. Moreover, the aggregate 2020/21 wheat harvest in the U.S. will be about 5% smaller than last year, but total U.S. wheat exports were kept unchanged at 29.5 MMT.
We’ve seen some wheat production downgrades by some private firms in the Black Sea and Argentina, including the Rosario Grains Exchange in the latter, lowering its estimate to 18 – 19 MMT, a sharp reversal from the 21 – 22 MMT record harvest they were initially expecting. The downgrade is largely attributed to the dry May that crops were planted during. Similarly, Western Australia is feeling a bit a dry and yields coming in at the average will only be possible if they get some decent rains over the next month. That said, some rains are in the forecast, but farmers there report it’ll need to be more than the 10mm events in order to get the crops going. 
Overall, production issues in many parts of the world have largely been priced in. Specific to corn prices, that optimism I had a month ago has retreated as usual. More generally, while you might see some extreme conditions in your area, but this doesn’t match up with every single acre out there that’s been planted. Thus, unless a heat wave hits most of the North American crop for the rest of July, I don’t expect more weather premiums to creep into market. That said, there are still some solid opportunities to fill old crop contracts (i.e. $240 CAD/MT feed barley or $11/bushel canola). If you’ve got some old crop, it doesn’t look like it’s going to pay to hold on it much longer so get it Listed on the Combyne Marketplace today).
Due to a delay in getting the Breakfast Brief out today, there is no grain markets futures data included today but you can easily review them here at your convenience.
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