Opportunity knocks-Ray Grabananski
Grain prices have rallied back after the break from the June 30 report. That data showed more corn acreage and stocks were higher than expected, with prices at the levels they were at before the report.
This is surprising, as the crop condition numbers indicate an improving corn and soybean yield potential as the warm weather has pushed crop forward and dried out previously soggy areas around the country.
In fact, while USDA projections are indicating a crop yield potential of 158.7 bu/acre corn and 43.4 bu/acre soybeans, current yield models are above these numbers at 160.3 bu/acre corn and 43.9 bu/acre soybeans, with yields expanding at the current time. This is not a situation that is bullish for commodities, and one has to wonder just how long prices can hold the recent rally.
Weather is simply becoming more cooperative with grain production, with warmer temps allowing crops to 'catch up' to normal progress levels, reducing the frost risk later this season. Also, the warming temps are allowing soils to dry out and crops to rapidly grow in this early July time frame. Crops are finally starting to look better after suffering through a very wet spring and early summer. As crop conditions improve, it's hard to imagine prices rising when they've already reduced demand to a point in the third quarter.
Much hope has seemed to have been placed on further corn sales to China, with USDA hiking Chinese corn imports 1.5 mmt (about 55 mb) in the last report. But is that well placed optimism? With corn yield potential expanding at 1 bu/acre the past 2 weeks (or 90 mb per week), can an improved export outlook offset the impact of improving crop yield potential? With weather cooperating at the time, it's hard to imagine any demand hike expectations to offset the growing conditions.
Probably more concerning for grains is the expanding soybean yield potential, with soybeans mostly planted on time and capable of handling wet field conditions better than corn. Soybean yield potential expanded a half bushel/acre last week, a rapid expansion in the yield potential of soybeans. That means another 35 mb production from just one week of favorable weather, and it's tough to find any expansion in demand that meets that level of hike per week.
Can prices do anything but go down when yield potential is expanding during summer? While there is some optimism due to warm temperatures forecast the coming two weeks, one could make the argument that for now, warm weather is bearish as it pushes the crop towards maturity in what has been a late planted crop in 2011. Are warm temps now bullish?