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Grains chop as weather moderates

Wheat markets spent much of the week chopping sideways, starting out strong but struggling through the week and finally finishing with some strength on Friday. While there are plenty of fundamental factors pouring into the grain markets, the largest influence is still the weather and the continuing deterioration of the corn and soybean crops here in the US and in the Eastern Europe/Black Sea regions.

Scattered rains and lower temps were the story this week in the US Midwest, offering some relief to a few parched fields with most of the improvement coming in the north and eastern Midwest. In the western regions, heat and dryness continued, further stressing what is left of the corn crop and taking a more significant toll on the soybeans.

Average corn yields are still all over the map, ranging from 115 – 134 bu/acre, with production estimates plummeting to 9.6 – 11.2 billion bushels. Soybean yields are sliding as well, with the range generally from 34 – 38 bu/acre, and production ranging from 2.6 – 2.8 billion bushels. 

Informa released their latest estimates Friday morning, putting out two for corn – one for themselves at 131 bu/acre, and one for what they think USDA will say at 120.7 bu/acre for corn. They expect that USDA will cut corn yields too much in response to negative grower surveys. 

Soybean yields are quickly coming down and forecasted weekend rains will be very important to maintaining some hope for the western Midwest as after this weekend, it looks like hot and dry weather will come back for a week or so. And as we head into the final days of pollination for soybeans, the next week (and possibly the week after) will be highly important to final yields.

For wheat, we see continued influence from the row crops but it is emerging from their shadows and beginning to also trade its own increasingly bullish fundamentals. Russia is a hot topic as their government is finally acknowledging the sharply reduced production even while insisting that exports will stay strong. Total wheat production estimates for Russia are hovering around 46-50 MMT with exports between 11-15 MMT. 

If history is any indicator, they will export what they can as fast as they can; and when they run out of wheat near the terminals, they will be largely done with their export program for the year. This year that will likely happen relatively early, and they will have much less influence on world price. The trade appears to be betting on some kind of government imposed export restriction to be announced soon. 

It is worth noting, too, that more hot and dry weather in Eastern Europe is lowering production, and rains are again delaying harvest in northern Europe, with more talk of quality issues as a result.  Here in the US, spring wheat harvest is well under way and we’re seeing some delays as well. At this point, it is not an issue; however, longer range forecasts call for above normal rains across the northern plains over the next couple of weeks, which could become a problem if they verify.

While prices are responding to the bullish inputs, they’re also being held in check by the widespread demand destruction occurring. Corn exports have fallen off a cliff and while wheat feeding is increasing, it’s not all US wheat. This week, it was reported that Canadian feed wheat was headed to Texas cattle feeders and Brazilian corn was headed to the southeast US. 

High wheat crop insurance rates and recent rains across the southern Midwest will likely encourage soft red winter wheat plantings – which would likely increase double-crop soybean plantings as well early next summer. Hard red winter wheat plantings in the plains states will likely be huge regardless of moisture conditions. 

This time of year attention begins to focus on the Southern Hemisphere, where wheat plantings in Argentina are close to wrapping up. There are some dry pockets in Argentina’s main wheat growing state of Buenos Aires but most other regions are looking good so far. Australia is also looking at very dry conditions in the west and south, with most eastern areas in good shape. Both countries have reduced plantings and expect lower production this year. The El Nino weather pattern appears to be developing rapidly, which normally means drier conditions for Australia and normal to above normal precip for Argentina.

It is worth noting that India’s monsoon continues to be about 20% below normal, creating significant concern about overall grain production – at the same time they’re finally releasing wheat for export. Oilseed production is already expected to be down and the dry conditions have traders suggesting that India will remove grain and oilseed import restrictions and re-impose export restrictions, which would likely give another, albeit small, boost to the wheat market.

Finally, USDA will release their August supply/demand report next Friday with huge anticipation. There is some speculation that they could sharply lower corn yields to pave the way for justifying an adjustment of the ethanol mandates. While sharply lower yields would normally be bullish, a reduction of the ethanol mandate would likely define the top in the corn market. 

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