All of the U.S. corn is now planted and weather is the main focus of the market until we are past the key yield development timeframe, which will occur later than normal due to the slow planting and emergence pace, likely leaving July 15 through July 31 when corn is most sensitive to weather.
Our summer month weather premium high has already been achieved by the market. The USDA forecasting 2009 planted acres at 87.0 million, the second largest planted acreage since 1946, only behind 2007.
Trendline yields are not a requirement, but with crop ratings as high as they are, trendline plus yields are almost guaranteed. How low prices go are dependent on the commodity funds. Funds are now net long 85,000 contracts, indicating they have lots of liquidating yet to do if they are to get out of all net long positions.
Typically, funds exit longs during the third quarter of the year as the market trades lower into harvest, before funds buy into fresh longs in the last quarter of the year in hopes of a post-harvest rally. A threat of frost could force a short-covering rally, so be quick to change your marketing strategy if adverse weather threatens the Midwest.
The key pod-setting stage looks to begin about July 15 and last until Aug. 5 when the biggest gains in yields estimates can surface with timely rain, or biggest upside gains in futures will occur if heat and dryness occurs.
Highs are usually in by July’s end, but highs have likely occurred in early June unless threatening develops during the pod-setting stage that will reduce yields and drive prices higher. With volatility extremely high, this is a high-risk weather market.
Rain events that occur in late July and the first week of August should be sold as this will help the development of the crop. The USDA recently forecasted seeded acres at 77.5 million, the largest seeded crop in history. It is interesting to note that November soybeans have only closed above $7 on Nov. 1 in five of the last 23 years, however this year’s price of November soybeans is well above that and near an all-time high for November soybeans.
Funds are still net long over 104,000 contracts, indicating they could liquidate a lot of positions if they get out of all net long positions. This will typically occur after the pod-setting stage is completed.
The spring wheat looks to fully develop the head on all acres planted by the middle of July. Weather and its impact on yields and quality will be critical until about Aug. 5, with harvest beginning the last half of August. U.S. millers buy the spring wheat for domestic use, while the winter crop goes primarily to the export market. Problems in the key spring wheat states of Minnesota, North and South Dakota, Idaho, and Washington could bring on buying by milling interests, as they will need to gain control of the wheat crop.
If Canadian wheat prairies have weather problems, U.S. millers will also have to become aggressive buyers as there is no other close port for U.S. millers to turn to. If the hard spring wheat crop comes under stress, look for prices to move higher to ration the crop.
Demand for wheat should improve during July and into August as winter wheat harvest lows have formed and our foreign customers will want to buy the higher quality wheat that is currently being harvested.
Crop problems in China could see China become a major importer of U.S. wheat, which would be bullish for wheat values. Seasonally, wheat forms a low and rallies into September as demand improves and by September, the winter wheat producers will begin to seed their winter wheat crop after soybeans are harvested.
Corn closed the week $.06 lower. The weekly export sales report showed net sales of 699,700 metric tons were down 7 percent from the previous week and 17 percent from the prior four-week average.
Increases reported for Japan (281,400 MT, including 130,000 MT switched from unknown destinations), Mexico (200,400 MT), Colombia (123,600 MT), South Korea (116,600 MT), Saudi Arabia (112,600 MT, including 108,000 MT switched from unknown destinations), Iran (60,000 MT, switched from Egypt), and Cuba (50,400 MT), were partially offset by decreases for unknown destinations (380,800 MT), Egypt (120,000 MT) and Guatemala (11,200 MT).
For the marketing year, the U.S. has now exported 1.8 billion bushels of corn compared to 2.39 bb last year. The U.S. needs to export 0.3 million bushels each week to reach the USDA forecast of 1.8 bb.
As of July 12, the 2009 crop was rated at 71 percent good to excellent versus 64 percent a year ago. This is the second highest crop rating in the last nine years. Iowa was rated 79 percent g/e, Minnesota was rated 82 percent g/e with Nebraska rated 84 percent g/e. Illinois was rated 60 percent g/e and Indiana was rated 62 percent g/e.
Soybeans closed the week $.35 1/4 lower. The weekly export sales report showed net sales of 134,200 MT were down 53 percent from the previous week and 18 percent from the prior 4-week average. Increases reported for China (111,200 MT, including 55,000 MT switched from unknown destinations and decreases of 31,200 MT), Japan (41,400 MT), Mexico (13,200 MT), South Korea (9,000 MT), and Ireland (6,000 MT), were partially offset by decreases for unknown destinations (55,400 MT).
Net sales of 550,500 MT for 2009/10 delivery were primarily for China (525,000 MT), with lesser amounts for Italy (25,000 MT). For the marketing year, the U.S. has now exported 1.266 bb of soybeans compared to 1.131 bb last year. The U.S. now has to export an average of 1 million bushels each week to meet the USDA forecast of 1.260 bb.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.
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