July was a bullish month for corn prices as corn closed 33 1/4 cents higher during the month. Crop ratings reveal the second highest rated crop in the last 15 years, leaving the trade to believe a monster crop will be harvested this fall.
Crop ratings historically decline in August under warmer and drier conditions. In August, watch the weather forecasts closely. If weather would turn hot and dry in the final kernel-filling stage, we would have one final rally this summer.
Weather must turn adverse before August 25 as after this date, our key yield development time will be over. On the flip side, an early frost during the kernel filling stage would also send prices higher as a killing frost could potentially hurt yields.
The commodity funds have a net long of over 190,000 contracts and unless weather does turn adverse prior to Aug. 25, expect the funds to trim net long positions as the market prepares for harvest this fall. Typical rallies in late summer are 30 to 50 cents, which would be an excellent opportunity to make additional catch up sales if given the opportunity on production that can not be stored at harvest.
Seasonals show a small rally during the August timeframe, before turning lower as harvest begins in September. Look for commercial and end user interests to become buyers during the early stages of harvest as they will try to buy when the basis levels are largest.
There has been an increase in the amount of producer-selling during the July rally so end users will already have inventory accumulated, leaving prices to follow the lead of harvest data.
July was a very bullish month for soybeans as they closed the month $1.02 1/2 higher. Excessive rains during the month of July helped to fuel a rally along with the excellent demand for U.S. new crop soybeans, led by number one world soybean consumer, China.
However, August is the key yield development month for soybeans, not July. For new crop soybean pricing, ignore demand signals as weather and its impact on the developing crop remains 95 percent of our pricing influence. From Aug. 20 to Aug. 30 soybeans will have completely filled the pod, and seasonal highs will be in.
It’s in this time frame that we will either produce a 3.5 billion bushel crop or a 2.5 billion bushel crop. Beans need moisture in the pod setting stage to achieve normal yields and forecasts into early August are for cool and wet conditions.
However, hot and dry conditions will force moisture to the root system, leaving the bean in the pod to develop small. The soyoil content is what suffers most, leaving bean oil undervalued if hot and dry conditions set in across the Midwest.
Hot and dry conditions are currently forecast for soybeans in the Southeastern U.S. Seasonally, soybeans post lows in the month of August in the first half of the month and rally into Labor Day where the highs will be formed before harvest pressure weighs on the market.
Corn closed the week $.21 1/2 higher. Last week, corn closed sharply higher, following the strength in wheat and soybeans. In most of the key growing areas in the United States, weather conditions are nearly ideal and most producers indicate a huge crop will be harvested with good growing weather into harvest. This should limit the remaining upside potential for prices.
Last week’s crop progress report showed national good to excellent ratings were 72 percent, unchanged compared to a week ago. Iowa is rated 70 percent g/e, Nebraska 85 percent g/e, Minnesota 89 percent g/e, Illinois 65 percent g/e and Indiana at 62 percent g/e. 9 percent of the crop is rated either poor or very poor. Last year’s ratings were 70 percent g/e and 8 percent p/vp.
Strategy and outlook: Hedgers have sold a portion of the 2010 crop when December futures traded above $4.50. The next sales objectives for corn producers has been met when corn traded between $3.80 and $4.00. Producers should have bought new crop put option protection at this level.
Soybeans closed the week $.35 1/2 higher from last week. Last week, the USDA reported several private soybean sales. USDA reported a 115,500-metric ton sale to China, a 175,000-MT sale to China, a 110,000-MT sale to South Korea and a 175,500-NT sale to an unknown destination.
Census June soybean oil stocks were reported at 3.555 billion pounds, marginally higher than the preliminary estimate of 3.547 billion last week, and reflected a new all-time high level for the month of June, surpassing the previous June record of 3.550 billion in 2007. In fact, June stocks at 3.555 billion pounds are just barely below all-time record high stocks of 3.558 billion pounds in March 2007.
The USDA reported crop ratings of 67 percent g/e, unchanged from last week. Iowa is rated 71 percent g/e, Illinois at 63 percent g/e, Indiana 64 percent g/e, Minnesota 85 percent g/e and Nebraska at 81 percent g/e. 10 percent of the crop is rated poor to very poor.
Last year, 67 percent of the crop was rated g/e and 8 percent was rated p/vp.
Strategy and outlook: Producers have sold 2010 crop when November futures traded above $10.30 and at the $9.87 level.
The next sales objectives for producers have been met when November traded between $9.45 to $9.62.
Producers should have purchased new crop put option protection at this level.
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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