Investors have turned against three of the largest U.S. crops, betting that timely rainfall will further swell grain supplies and exacerbate price drops.
Hedge funds and other money managers are now holding a record wager on further declines for wheat, have increased their bearish outlooks on corn and dumped bets on a soybean rally for a seventh straight week.
A combined measure on the big three U.S. crops turned negative last week for the first time in three months. The combined position across the three crops turned net-short to 74,033 contracts in the week ended July 26, according to Commodity Futures Trading Commission data published three days later.
That compared with a net-long holding of 7,724 a week earlier and is the first bearish outlook since mid-April. The Bloomberg Grains Sub-index is down 6 percent in 2016.
Mosaic forecast a potash market revival even as it unveiled an unexpected drop into the red for the first time in at least six years, hurt by a “challenging environment” which has forced it to mothball mining capacity. The U.S.-based group unveiled a net loss of $10.2 million for the April-to-June quarter, compared with earnings of $391 million a year before, and equivalent to $0.03 per share.
The loss reflected the impact of charges including $24m relating to the abandonment in June of the Prince Rupert potash export terminal joint venture in British Colombia, Canada and a further $47 million in asset write-offs in phosphates, of which Mosaic is the world’s top producer.
Corn closed the week 9 cents lower.
Last week, private exporters reported sale of 290,000 metric tons of corn to an unknown destination.
Weekly export sales of corn showed a total of 48.3 mb (1.227 million metric tons) with 13 mb (331,100 mt) for the 2015-2016 marketing year.
This put total old- crop sales at 1.9 billion bushels, 2 percent ahead of USDA’s July demand projection of 1.9 bb.
NASS reported corn ratings the best in the last 12 years at 76 percent good-to-excellent, unchanged from the previous week.
This is well ahead of last year’s 70 percent rating. Due to the high crop ratings, look for USDA to increase yields in future reports and increase ending stocks as well.
In fact, only four times in history has the crop been rated this high and each year yields have be 5.4 percent to 12.9 percent above trend. With the increase in production, supply
will outpace demand and ending stocks will swell.
Harvest lows will be determined by how large will be the resulting ending stocks .
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.
Strategy and outlook: Producers should maintain hedges until harvest lows are scored.
Soybeans closed the week 26.25 cents lower.
Last week, private exporters reported sales of 647,200 mt of soybeans to an unknown destination and 1.44 mmt of soybeans to China.
Weekly export sales of soybeans showed a total of 61.4 mb (1.67 mmt) with 19.9 mb (542,200 mt) for the 2015-2016 marketing year.
Total old-crop sales remain at 1.926 bb, 7 percent above USDA’s July demand projection of 1.795 bb.
U.S. soybean crop conditions improved by 1 percent to 72 percent g/e, above expectations of 70 percent, and well above the 63 percent rating from last year.
This is the third highest soybean rating in the last 23 years. It is still too early to justify an increase in soybean yields, but trendline yields seem likely.
Production will match the demand pace, leaving ending stocks near unchanged. By Aug. 20 to Aug. 30, soybeans will have completely filled the pod, and seasonal highs will be in.
It is in this time frame that we will either produce a 3.9 billion bushel crop, or a 2.9 billion bushel crop.
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.
Strategy and outlook: Producers should have made cash sales and used options to manage price risk and summer volatility.
This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.
Brian Hoops can be reached at (605) 660-1155.
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