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Serving: United States

3 clues to future grain price movement

Getty Images 7-22-21 china flooding.jpg
Flooding in 2021.
Here are 3 watch list items to keep an eye on in the coming weeks.

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‚Äôs 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]

 

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation

             

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