Corn prices jumped higher as concerns about weather prompted more traders to cover short positions. Soybeans and wheat futures also jumped higher. Here’s what you need to know about the USDA’s weekly crop report and events happening on U.S. trading floors.
Corn Quality Falls Again
Dry weather across the corn belt will remain the focus of traders this week.
Corn prices continued to climb, with all Chicago futures contracts finishing the day up on the day. On Monday, the July 2017 corn contract added a little more than nine cents to finish the day at $3.916 per bushel. September corn futures contracts ended the day at $4.02
December CME corn futures finished at $4.146 per bushel.
A significant dry spell across western portions of the Midwest has many worried about crop quality at a time that corn has begun pollination.
We also saw a lot of traders and funds in the corn market covering short positions ahead of Monday’s weekly crop report from the USDA. Markets largely anticipated that the USDA would lower rating figures for corn, soy, and spring wheat crops.
Were these smart calls on their part?
The USDA reported corn conditions this afternoon across 18 states that comprised 92% of the 2016 corn acreage.
According to Monday’s crop progress report, the quality of corn rated good-to-excellent for the week ending July 9 hit 65%.
This is down from 68% last week and 76% during this same period last year. You can anticipate another strong day for corn prices on Tuesday.
Soybean Futures Rally, Ratings Fall
It was another strong day for soybean prices, with prices hitting a four-month high.
The July, August and September soybean futures contracts all added at least 23.6 cents on the day.
The weather has driven more short-sellers to unwind those positions. According to the CFTC, net-short positions hit their lowest levels since May 23.
Soybean futures weren’t just rising because of weather events here in the United States.
Its competition is facing a similar challenge on the global front. Global canola and palm seed production are under pressure as well. Canola contracts on the ICE pushed higher thanks to a tightened supply. November contracts increased 7.7 cents to hit $5.25 CAD.
But it’s not sure whether soy is following canola prices higher… or vice versa.
Crop concerns in Western Canada are causing many of the same crop concerns we’re witnessing in the Northern Plains and Midwest.
But what goes up, could come down fast.
Selling into strength right now (or hedging for remaining upside) only offers a window of about a month. We’ll start to see new oilseeds from South America and the U.S. begin to hit the market.
As we’ve noted, there are so many soybeans in Brazil that farmers are struggling to find storage space. Meanwhile, on the global demand front, concerns about China’s exports are warranted as the nation struggles to unload product at their key ports along the Pacific Ocean.
The quality of the U.S. soybean crop also declined last week. Soybean crops rated good-to-excellent fell to 62% for the week ending July 9. T
This figure if off from the 64% G-E rating last week. During this period in 2016, soybeans rated good-to-excellent sat at 71%.
With soybean prices heading higher, it’s an ideal time to start posting your grains on FarmLead.
What About Wheat Prices?
The relentless heat and concerns about grain quality had wheat prices ticking even higher.
Predictions for some wet relief across the Northern Plains never quite materialized overnight. Rain calculations from Sunday night hardly shifted sentiment, while additional speculators are piling back into the market.
On Monday afternoon, the USDA reported that spring wheat conditions continue to deteriorate. Spring wheat crop rated good-to-excellent registered at 35%.
This figure is off from the 37% rating last week and the 70% G-E figure during this period in 2017.
In Chicago, wheat futures jumped nearly 3% before the USDA progress report. The July, September, and December Chicago SRW wheat futures contracts all added more than 15.6 cents on the day. May 2018 SRW wheat contracts topped out on the day at $6.00.
Concerns about crops in Australia and Eastern Europe are also pushing prices higher. Black Sea wheat prices for July-August delivery have risen steadily over the last week. Meanwhile, in Australia, ongoing drought conditions forced the National Australia Bank to issue a weak report last week on the state of its wheat crop. According to the NAB, the harvest could fall more than 40% from last year’s record high output. 
The bulls are now in charge of the board for Soft Red Winter Wheat. For the first time since this time in 2015 did we see funds buying more than selling.
At the Minneapolis Grain Exchange (MGEX), we saw another pop in the September futures contract for spring wheat. MNU7 added 30.6 cents to hit $7.974 per bushel. That figure represented about a 3.8% uptick. Hot weather traveling across the northern plains fueled increased expectations for lower crop quality and supply availability.
Speculation Running Wild?
One of the things that we want to point out is the recent surge in ETFs tied to the ag sector.
Take it from me. I’ve spent a lot of time working in the financial journalism business, and it always gives me pause when I start to see recommendations into single-commodity ETFs during a price rally.
I have seen several speculative recommendations of the Teucrium Wheat Fund (NYSEArca: WEAT) in the last week. The ETF is up 19.59% over the last month, while it gained 2.6% over the last five trading sessions. On Monday, WEAT added 3.4%.
Honestly, the recommendation for this ETF is not based on short-term price movements or broader understanding of agricultural economics. They have been based on arguments that sound like: “the world population is growing, and the world population needs more bread. More bread means more wheat demand…”
These are weak arguments designed to generate clicks.
Once websites and newsletters begin recommending that investors start pouring money into these funds, it’s a fair warning sign that speculators are moving in full force and that we’re getting closer and closer to a top.