July 30, 2014

Crop Conditions Fall From Highs, Remain Strong

USDA released its weekly Crop Progress report yesterday afternoon with national ratings for both corn and soybeans falling off of recent highs.  Still, overall conditions remain the best in years.

For the week ending July 27th, U.S. corn conditions were rated 75% good excellent, down 1% from the week before as rains were minimal in growing areas.  The western cornbelt saw the most prevalent declines with North Dakota, South Dakota, Nebraska and Kansas all falling.  Heat early in the week was also attributed for part of the decline  The result in other states was mixed, although Kentucky was the most notable decline at 9%. Still, U.S. corn conditions remained the highest for this date since 2004. Accordingly, private yield estimates from various firms have continued to creep higher.  The crop was also reported at 78% silked, ahead of the 75% average.

As for soybeans, conditions declined slightly more, with ratings down 2% on the week to 71% good to excellent.  Again, the bulk of declines were located in the western cornbelt were soils were drier although losses were slightly higher than in corn.  Of the major production states, Minnesota and Iowa were unchanged while Illinois was up 1% and Indiana was down 1%.  Again, Kentucky was the hardest hit, down 11%.  All that said, weather forecast are basically non threatening in the coming week with temperatures average to below although rains remain sparse at least over the next few days.  With the crop 38% setting pods, soybeans conditions were the best since 1997.

As for wheat, conditions were unchanged for spring wheat and in line with the five year average for this date.  The hard red spring crop is nearly complete in terms of heading progress with weather cool and basically dry, although the western plains will see more rain than the east. Winter wheat harvest is moving into South Dakota and reported at 83% complete compared to 80% on average.  South Dakota remains behind at 27% complete compared to 55% on average.  There have been some limited reports of scab in the state, but overall the outlook remains favorable.


Appeals Court Upholds USDA’s Authority To Implement COOL

The U.S. Court of Appeals for the District of Columbia has upheld USDA’s authority to issue rules implementing Country of Origin Labeling for meat and poultry products. R-CALF CEO Bill Bullard is pleased with the 8 to 3 ruling and says it’s unlikely the case will be appealed to the U.S. Supreme Court

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Bullard says if the WTO rules against U.S. COOL – then a decision will need to be made to either follow U.S. Constitutional law or follow an unelected and appointed international tribunal.  National Cattlemen’s Beef Association Vice President of Government Affairs Colin Woodall is disappointed with the En Banc Court ruling. He says all legal remedies are now done

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Today’s ruling in front of all judges residing in the appeals court district upholds consumers’ right to know where their meat is born, raised and slaughtered.




Weekly Market Analysis with Miller Risk Management

Grain markets were volatile this week, although slightly more positive than we’ve seen since the beginning of July.  Soybeans, oddly, appeared to lead the way with some significant technical accomplishments mid week.  Corn and wheat were still very lackluster but managed the most sideways pattern we’ve seen in sometime.

Major features in the week’s trade were huge export numbers for both corn and soybeans, extended weather patterns that, while not threatening weren’t ideal, and the continuing evolution of global political events most specifically, in the Black Sea.

In terms of weather forecasts, trends this week were basically beneficial with sufficient rains.  There was some early week heat but that dissipated fairly quickly and most areas probably got a boost from the extra heat.  By week’s end the bulk of the heat had faded to more average levels and is expected to remain there for the weekend.  As we enter next week most of the cornbelt will be expect average to even cool temperatures with Friday morning’s forecast showing changes of record cool for this time of year.  Rainfall will remain the biggest stress with some areas beginning to dry.  In all reality, though, the cool temps will keep the dryness from becoming overwhelming at least for the next week.  Traders will be watching in case this lack of rain becomes a more extended problem.  Any stress that is present will be a bigger issue for soybean reproduction as the U.S. enters pod-additionally any significant stress should be limited to the western cornbelt, specifically eastern Nebraska and western Iowa


Soybean markets had the most interesting week technically.  The week started out with modest strength only to collapse late in Monday’s session actually violating the previous support level that had been set up around $10.65. It should be noted, however, that according to time and sales data, the bulk of that pressure stemmed from a massive amount of contracts that sold in the quarter second (yes, you read that right) following the breach indicating a flush of pre-placed sell stops.  In any event, as concerning as that was, the market was able to shake it off and moved back above the $10.65 area in the next day.

The real spark came on Thursday morning when weekly export sales were released.  While the daily reporting system had been active the week before with sales of new crop soybeans to several destinations, no one was expecting the huge number that came out of 2.4 mmt.  That was nearly twice the high end of estimates which had ran from 1.2-1.4 mmt, which in itself was aggressive.  Now one week of extremely high exports will not make the difference on the balance sheet; but it did skew things technically.  The ensuing reaction sent prices up more than 20 cents for a brief period of time and also allowed them to fill/close above a previous downside gap that will now serve as support.  In addition to the technical implications, the big sales number will also highlight the $10.65 area in traders minds as one of increasing importance as it is where we saw buying interest explode following a bearish report.

Now none of this should be read outright bullishly.  There are still far too many challenges for the balance sheet.  However, this week’s strength does indicate we may be headed for a pattern of price consolidation following the recent extreme losses.  It also means that traders, however tentatively may be acknowledging some sort of production risk as we enter August with some limited dry areas.  Long term this most likely isn’t going to be an issue unless we have a few additional items happen (i.e. more extended dryness than currently shown, some major heat move in, or an early frost) but there is the acknowledgement of risk and perception is reality.  We would have to suggest at around 85 million acres and a balance sheet that shows carryout nearly tripling from previous years, the production problem is going to have to be major in scope.



Corn market didn’t have a spectacular week by any means, although it was less detrimental than the past few if you can view that as a positive. The market is still struggling with the implications of a record corn crop, reinforced by the continuation of non-threatening weather and private yield estimates that continue to climb.  Allendale released their estimates on Thursday at 174.1 bushel an acre, which is the highest we’ve seen so far in terms of published estimates.  T-Storm’s yield estimates (which are performed in conjunction with University of Illinois) are not anywhere near that high, but they have edged higher and are above USDA’s current projections).  Chinese demand also appears to be somewhat of an ongoing problem due to the multitude of issues this year with biotech traits and the simple fact that Chinese corn production appears to be more than sufficient to meet their internal demand, at least at this time.  That last issue was not a major factor, but it was reinforced on the market Thursday when the Chinese government issued new rules that would effectively crack down even harder on DDG shipments coming into the country if they originated from the U.S.

As for exports, like soybeans, new crop corn saw a huge boost in buying interest last week with reported sales on Thursday also twice the high end of expectations (1.2 mmt versus expectations of 400k-600k mt).  Unfortunately, the selling pressure was still too much to overcome, so while there may be some fundamental recognition that this price level sparks buying interest, there’s no technical recognition of it and it was appear we simply need to see more of it to make an impact.

There have been a lot of questions as to when the bleeding may stop, so to speak.  The quick answer is, “it will, eventually” the longer, more helpful answer is that we probably still have work to do.  Comparatively, corn remains far underpriced compared to soybeans, a discount which is not justified by their balance sheets.  However, corn production would be more “set” having already pollinated while soybeans still have more production risk.  The market is still also adjusting to having a comfortable, if more likely burdensome carryout in the coming year, and psychologically that’s a shift for traders coming off of two tighter balance sheet years.  Two years that have been talked about as being comparable in terms of crop conditions and record yields are 2004 and 2010.  Both those years set bottoms at/during harvest with longer term analysis showing that bottoms on large crop years tend to come during harvest (an article discussing this more in-depth can be found at the farmdoc daily website).


Wheat prices attracted very little attention this week and floated somewhat meaninglessly in a narrow range at the bottom of recent prices.  There were a few moderate attempts to push higher, but they were quickly beaten back at around the 9 day moving average.  The spat of early week pressure as soybeans fell apart Monday pushed prices to a new low in some contract months (for Chi, KC and Mnpls) by a quarter to a half cent but prices rebounded quickly.  That said, the levels have been tested repeatedly and from a technical standpoint we will need to reject those prices fairly quickly.  Chi, and its more heavy fund-driven presence, continue to set the tone for the rest of the market while the advancement of winter wheat harvest has removed nearly all the premium that KC held over Mnpls.  (Remember a “normal” market sees around a 40 cent premium of Mnpls to KC, not the other way around like we saw much of the spring).

Wheat, perhaps more than the other markets remains torn.  Globally, there is more than enough wheat to go around, and in fact, areas of Russia, Romania, and Ukraine continue to see a crop in the field that looks ideal.  On an export standpoint, their prices are the lowest around and not by a little; by a lot.  Early week prices out of the Black Sea were reported at $5.32/bu equivalent, with most of their production being hard wheat.  That’s a big price gap for the market to fill.  Now, that’s not to suggest that U.S. prices will fall to that level, but we give you that news simply to underscore what kind of competition prices are up against.  As bearish as that is, the U.S. itself is actually at one of its tighter balance sheet levels and at a time, seasonally, when the wrapping up of winter wheat harvest allows prices to move back higher.  There are a lot of things going on right now, but the bottom line is, there are simply more bearish items to talk right now and even when they disappear, the lack of bullish items is leaving wheat at the mercy of corn.  We can go higher, but there needs to be cooperation from somewhere else.  One note on Friday’s action: this was one of the first days were wheat was able to break away to the higher side without any sort of cooperation from news or another grain.  That is, it acted impulsively to the upside for no apparent reason.  This should be watched again next week if for no other reason than seasonal tendencies.  Still, I would not envision a large move at this time.

Miller Risk Management is a subsidiary of Clayton Pope Commodities, LLC of Champaign, IL.  If you have any questions on the above comments, please contact Katie at 701-730-3352

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