Crop Progress and Weather Remain on the Side of the Bulls
A mixed start is expected this am, 2-4 down in wheat, steady corn and 3-5 up in beans, similar to overnight moves. The Dalian, China grain futures market was lower today. Crude oil is currently lower while the $ is slightly lower at this early hour also, all of which is negative for our grain market.
The weekly crop ratings yesterday afternoon showed winter wheat in 47% good to excellent condition, unchanged from the previous week. Corn was 57% good to excellent vs 60% the previous week and beans were 56% vs 57% last week. Neither corn nor beans declined as much as the trade had expected, roughly 5% in corn and 2-3% in beans. Spring wheat improved its good to excellent condition, now 67% vs 63% before. Winter wheat harvested reached 19% vs 16% average. Bean planting is now 84% done against 94% average with emergence 71% vs 86% average.
The Iowa state report in yesterday's weekly crop progress report shows 9% of the corn acreage and 8% of the bean acreage are flooded and need replanting. This equals 1.2 millon acres of Iowa corn fields and 784,000 acres of Iowa bean fields. Of course, it is too late to replant corn. Beans can still be replanted but at the risk of much lower than normal yields, a risk that some farmers will take due to the very high prices being offered by the bean market, near all time highs currently.
ABARE, the Australian Bureau of Agriculture and Resource Economics, cut its wheat production guess from 25.95 million tonnes in March to 23.68 million tonnes today, a drop of 8.8%. This was blamed on dry weather over the last month or more. Scattered, light rain is forecast in eastern Australian wheat areas the next few days, which will be very welcome but more rain will still be needed soon in both eastern and western wheat areas or further production cuts will result.
Much needed rain is forecast in the dry Argentine wheat belt the next few days with light to moderate amounts expected.
More rain will be needed here also to ensure a good wheat crop. The US midwest was mostly dry yesterday. More of the same is forecast the next two days before scattered showers move into the belt Thursday with dry weather returning starting Friday. The 6-10 day calls for wet weather in the western half of the belt with below normal rain expected in the eastern half of the belt. The southwest winter wheat belt will see unwelcome harvest delaying rain in the eastern half of the belt the next several days following up to 1.5" over the last 24 hours. By Thursday, additional amounts of up to 2" could fall. The 6-10 day calls for above normal rain in the east with below normal rain in the western part of the belt.
Deputy Agriculture Secretary Conner said the government could intervene to stop extreme tightening in corn supplies and ever higher spiraling corn prices but he wouldn't say what measures might be taken. Some think dropping the 51 cent a gallon ethanol tax credit might be one measure the government would use. Whatever might be done, it would be bearish for corn prices and likely pull bean and wheat prices lower too. Most traders don't think any government intervention is likely now but if corn prices reach $9-10 bushel or higher then government action becomes more probable. Much higher grain prices will only be seen if the weather is unfavorable over coming weeks and months, especially during corn's most critical month, July, and during August for beans.
Finally, the Iowa Farm Bureau Federation estimates 1.3 million acres of corn and 2 million acres of beans have been lost this season due to flooding. Their corn estimate is similar to the weekly Iowa state report mentioned earlier but their bean acreage guess is much higher. It will be very interesting to see what acreage numbers the USDA put out in their huge June 30 acreage report, which could move the market very sharply that day. Will the USDA adjust this report to reflect all the damage done since early in the month when the numbers were compiled? As far as near term direction is concerned, I think it will take more weather problems to push prices higher from here but I would still give the bulls the benefit of the doubt and stick with the long side for now. ---Vic Lespinasse
