July 26 – Selloff Ends with Money Manager Buying

On Wednesday, corn prices and soybean prices pushed higher after Tuesday’s selloff.

It was the first winning session for the two commodities of the week. While a rainy forecast fueled a downturn on Monday and Tuesday, money managers increased their long positions as concerns about growing conditions and yield expectations remained in focus looking toward August. Rains was moving across the central and northern Midwest. Hot temperatures are still in focus.

Meanwhile, chatter on low wheat yields pushed wheat futures higher in Chicago, Kansas City, and Minneapolis.

Crop prices were supported by a slight downturn in the U.S. dollar. This afternoon, the Federal Reserve held interest rates in place and gave few clues into the timing of the next rate hike. Though many investors anticipate that the central bank will hike rates at least one more time in 2017, concerns about a lack of inflation have weighed on expectations. Markets are more interested now in the Fed’s plans to unwind its massive $4.5 trillion balance sheet while avoiding market turmoil.

Where will Corn Prices Go Next?

While there is now more rain in the forecast, the damage to the crop has been evident. The USDA reported on Monday another downturn in crops rated good-to-excellent and corn silking is behind schedule compared to 2016. Though the USDA didn’t reduce yield expectations in its most recent WASDE report, the consensus is that bushels per acre will fall well below current expectations.

We’ve seen estimates between 164 bushels per acre to 168 bushels per acre. The one that caught my eye Tuesday came from the eye in the sky at Planatyics. The satelilite imagery firm has just put out an estimate of 165.3 bushels, down from its previous forecast of 166.6.

In Chicago, the September corn futures contract gained four cents to finish just shy of $3.73 per bushel. New-crop, December contracts added 3.75 cents and closed at $3.86.

Markets continue to keep an eye on the weather as harvest season begins in Texas and other regions in the south. In addition, we’ve looking toward tomorrow’s update on export sales. According to analysts, the consensus expects old-crop corn exports to com in between 200,000 and 500,000 metric tonnes. New crop exports are forecast between 200,000 and 400,000, according to BRUG. [1]

On Tuesday morning, the Energy Information Administration reported that weekly production of ethanol fell by 14,000 barrels per day for the week ending July 21. Current production sits at 1.012 million barrels per day. Meanwhile, ethanol stocks declined more than 600,000 barrels this week to hit roughly 21.5 million barrels.

Soybean Prices Press Higher

November soybeans added 7.5 cents to finish the day at $10.00 per bushel.

The gains weren’t surprising, given yesterday’s much larger selloff. Weather may be driving the headlines, but everyone is bright enough to know that they cannot discount Monday’s downturn in crop conditions.

Forecasts have called for cooler temperatures in the weeks ahead. But the next six weeks are critical for the crop. Dr. Michael Cordonnier doesn’t expect things to get better. He has cut his soybean yield estimate down another 2% to 46.5 bushels per acre, according to the Brugler Report. [2]

On a relatively light day of news, there was a bit of a surprise on the amount of soybeans crushed in Argentina. The June crush figure came in at 3.9 million metric tonnes. That figure is down 5% from June 2016 and down 15% from May 2017.

Also of note, China may be purchasing a significant amount of soy, but a lot of it is ending up in storage. The nation’s reserves are sitting at 1.4 million metric tonnes. Assuming that the data is accurate, this is a 6.4% uptick from last month. Meanwhile, it’s almost a 15% jump from this time last year.

Wheat Prices Tick Higher as Crop Tour Begins

Crop tour findings have confirmed what has largely been expected: Drought has caused significant damage to wheat crops in the northern Plains. Spring wheat conditions fell again Monday in the USDA’s crop report. While rains are expected, the damage has been done.

That said, the spring wheat crop tour has revealed that the crop hasn’t been hit as badly as expected. Average yield is pegged at roughly 37.9 bushels per acre.

Considering all of this, in Chicago, the September SRW Contract added 3.75 cents to finish just below $4.78. In Kansas City, the September HRW contract added 2.75 cents to hit $4.75. The September spring wheat contract added 12.5 cents to finish at $7.30.

The recent downturn in the U.S. dollar was expected to be a boon for agricultural producers. However, the world is awash in grain. In the grain markets, no one is worried about finding protein between 9.5% and 10.5%. The premium remains for high quality protein, and – as I noted last week – buyers are eager to work with producers who have it available.

Norm Ruhoff reported today that the U.S. spring wheat crop condition index hit its “second lowest [level] only to the 1988 crop for this time of year since 1986.” [3]

Looking abroad, Egypt has continued its buying spree. Yesterday, GASC announced it had purchased 420,000 metric tonnes, with the bulk coming from Russia. Ukraine and Romania also offered a cargo load in the deal. The former has already exported 1.8 million metric tonnes of grain so far in the 2017/2018 year, according to its Agricultural Minister.

Egypt has about six months of supply right now, according to its ministry estimates. That figure is about 4.6 million metric tonnes.

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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