As the month of July wraps up, corn and soybean futures seem to be content to sit and trade in a holding pattern for prices.
Fundamentally, grains continue to be well supported by current fundamentals of tighter old crop supplies, which is supportive for price. Yet, without any additional fresh news, prices have little incentive to trade higher than current trading ranges allow. Here are three watch list items to keep an eye on in the coming weeks. Any hiccup in U.S. or global production will produce the news needed to propel a bigger price move.
Crop Progress Ratings
Weekly data released by the USDA on Monday afternoons shows the condition of the primary U.S. grain and oilseed commodities. This information helps to form correlation with potential yield and condition of the crop overall. The report nicely breaks down current state by state data, and categorizes crops as excellent, good, fair, poor, and very poor. The information also compares the current crops against the year prior. As of the most recent report, the current U.S. corn crop is rated as 65 percent good to excellent, down from 69 percent last year.
The current U.S. soybean crop is rated as 60 percent good to excellent which is down from 69 percent last year. Interesting to note is how the drought in the northern Plains has affected the condition of the soybean crop. The South Dakota soybean crop is 23 percent poor to very poor. The North Dakota crop is 41 percent poor to very poor, and Minnesota, is 17 percent poor to very poor. It is important to remember that the majority of the soybeans in North Dakota are exported to China via the Pacific North West.
U.S. Midwest weather
Regarding soybeans, the current ending stocks forecast for 2021/22 is 155 million bushels, with a stocks/usage ratio of 3.5%. The USDA is currently using a national yield projection of 50.8pba. If yield comes in the same as last year at 50.2 bushels per acre, ending stocks would project down to 103 million bushels, with a stocks/usage ratio of 2.3%. If yield is estimated to be less than 50 bushels per acre, that would be a reason to justify November futures trading through $14.50 resistance, with an upward potential price target of $16.00 futures.
When looking at corn, the USDA is currently using a record potential national yield of 179.5 bpa. The previous record was 176.6. If we assume the previous record high yield of 176.6 bushels per acre, ending stocks would drop to 1.197 billion bushels with an 8.1% stocks/usage.
The line in the sand for corn is 175 bpa. If yield is perceived to be less than that, then that would justify price action for the December futures contract to trade above $6.00.
The next USDA report on Thursday, August 12 will provide the next chance of official yield change.
Flooding in China
Similar to last year, China is receiving record rainfall amounts this summer. Now, another typhoon is scheduled to make landfall soon with remnant rain again penetrating the already saturated Henan region.
Henan province is the country’s top wheat grower, accounting for nearly 30% of output. The main wheat crop is already harvested, but recent rains have affected its quality, which may lead to higher imports. This province of China is known for hog production and is the second-largest hog producer. The flooding is spurring fears that fresh cases of African swine fever might occur. This province also accounts for nearly 10% of total corn production.
Trade is waiting for valid confirmation of crop size in the United States. Until those numbers start to emerge, expect prices to continue to hold in a sideways trade pattern. But do remember, the longer a market trades in a consolidation pattern, the bigger and more aggressive the price breakout move will be down the road.
Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm and [email protected]
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