July 27 – Grain Prices Rally on Quality and Yield Concerns

Corn prices and soybean prices pushed higher as traders went dumpster diving for value. Speculators are clearly expecting that the USDA will lower their yield estimates heading into August after the markets digested a new forecast from the International Grains Council.

Wheat prices: The story was more about the deterioration of crop conditions, significant drought, and expectations for more dry weather. Here’s a recap of what happened on the trading floor here in Chicago, and what to expect heading into the weekend.

Corn Prices Still Weak this Week

While the September and December corn futures contracts traded slightly higher, they remain down for the week. Traders seemed a bit surprised by the large pop in new crop exports, which basically doubled last week’s figure.

The September corn futures contract added 1.75 cents to finish just north of $3.74. Meanwhile, the December futures contract added 1.75 cents to finish the day just below $3.88

Moderate drought conditions have extended across the Corn Belt, according to Drought Monitor. The watchdog says that moderate drought increased by 12 points in Iowa over the last week to hit 34%. [1] Overall, national drought levels hit nearly 11%, the highest levels since late March.

We’re still combing through the International Grain Council’s production forecast. The agency slashed the international production forecast by about 11 million tonnes compared to expectations last month. Total forecast is set at 2.038 million tonnes. Blame the drought conditions and hot, dry weather battering the United States, Canada, France, and Australia.

Of that total amount, the council said that we can expect a downturn of about five million tonnes of corn from its previous forecast. The downturn from 1.025 million to 1.02 million tonnes is primarily driven by weather analysis.

That said, the agency hiked its 2016-17 forecast for corn production in Argentina and Brazil. This isn’t surprising, given the news that South American farmer have been struggling to find locations to store their grains in recent week.

Soybeans Not Immune

The IGC also bumped its forecast for soybeans in South America, but traders in Chicago are mainly paying attention to crop conditions from Ohio to the Plains. The USDA didn’t adjust yield forecasts earlier this month. But some producers are chattering about claiming insurance and abandoning their crops.

August flowering is approaching, and we will probably see a bit more deterioration in crop conditions come Monday’s progress report. One of the things that .

The August soybean futures contract added six cents to finished just below $9.95 per bushel. November contracts added a little more than seven cents to finish trading at $10.075.

Weekly exports of soybeans came in on the higher end of analysts’ expected range. All told, the U.S. exported roughly 835,200 metric tonnes last week.

Wheat Gains as Drought Problems Worsen

The IGC cut its global wheat production forecast from 735 million tonnes to 732 million tonnes. July weather took the blame. But – again – the focus has been on domestic reports on crop conditions and upcoming weather forecasts.

This morning, we learned that the Spring Wheat tour offered some pretty bleak expectations on production in the central Dakotas. Farmers are abandoning hope in some regions, baling up crop in others. There are some fields where 10 bushels per acre would be considered a good thing.

In Chicago, prices moved higher. The September wheat futures contract added two cents and finished the day just below $4.80.

With the tour moving west, we might not see much improvement. The western portion of the state has seen the worst drought conditions. The latest Drought Monitor indicates “exceptional” drought conditions in Montana, North Dakota, and South Dakota.

In western counties of North Dakota, and parts of Montana, we’re seeing wild fires doing considerable damage to crop on top of sweltering conditions. North Dakota Governor Doug Burgum has declared a drought disaster for pretty much the entire state.

The governor recently waived any fees for commercial operators who were transporting water, feed, and other supplies to the eastern portion of the state. For the year, North Dakota has only experience about 45% of its average rainfall through the end of July.

There has been chatter about the possibility that some rain has helped reduce stress in the region. But at the end of the day, even if we see an uptick in yields, the focus remains on quality. We’ve seen lowered expectations for Canadian wheat production in the last 24 hours. [2]

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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