Cash Grain Review: Prices deteriorate, despite crop cecline
Mixed basis values were accompanied by broad losses in grain futures -- losses which ultimately totaled some 34-39 cents per bushel for wheat, more than 10 cents for soybeans, and nearly 5 cents for cash-contracts of corn.
"Even after plugging in [Russian] drought problems, we are still left with burdensome [wheat] stocks in the U.S. and higher-than-normal stocks worldwide. What is bullish about this?" said Allendale analyst Paul Georgy rhetorically.
Export basis for several classes of U.S. cash grain also sank Monday, falling below the surface of Friday's close by as much as 2 cents for soybeans, 5 cents for corn and 10 cents a bushel for soft red winter wheat.
Corn, "basis is falling off a cliff, thanks to a steady flow of old-crop, rising transportation costs and all that speculative buying," in CBOT corn futures, said Farm Futures analyst Bryce Knorr.
The erosion in cash grain prices occurred despite general expectations for a decline in weekly USDA crop condition ratings, which are due for publication later Monday.
"We should see especially soybean ratings in Michigan and Indiana turn lower in this afternoon's ratings," said Freese-Notis Weather. "The northern Delta also saw very little rain over the weekend, and thus is another candidate for lower crop ratings this afternoon."
In addition, the Stewart-Peterson Group said that the corn "trade expects crop ratings to be reduced this afternoon from 66% good-to-excellent to 65%."
Farmgate corn and soybean prices entered the session at 8-11 month highs. Domestic cash basis strengthened by 2 1/4 cents for corn/spring wheat and 3 cents for hard red winter wheat Friday, but declined by 2 1/2 cents for soybeans and 1/4 cent for soft red winter wheat.
Basis is the differential between local cash grain prices and benchmark futures contracts. Basis can be a premium or discount to futures, depending on a host of local supply/demand factors, such as levels of production/consumption in a given area, the cost of grain transportation, the availability of storage, and variations in grain quality. Generally, freight costs and storage capacity have the greatest impact on cash basis trends.
US CROP WEATHER
Beneficial showers are expanding across the southern half of the Great Plains, following an extended period of hot, mostly dry weather.
"On the northern Plains, cool but dry weather is promoting winter/spring wheat harvest activities," said USDA meteorologist Brad Rippey. "In the Corn Belt, warm, dry weather is promoting rapid corn and soybean development."
Hot weather was advancing small grains harvest in the Pacific Northwest, but also maintaining stress on immature summer crops across the lower Mississippi River Valley.
"Tropical Depression Five will have an opportunity to strengthen and may become a tropical storm before making landfall in a day or two along the central Gulf Coast," warned Rippey. "Meanwhile, a cold front will arrive in the Mid-Atlantic States, helping to focus showers and thunderstorms."
The interaction between that cold front and tropical moisture spewed northward by the Gulf storm will perpetuate unsettled, showery conditions for much of the week from the central Gulf Coast into the Mid-Atlantic region.
"Rainfall will return to the Midwest by week's end, while showers will gradually subside across the central/southern Plains," added Rippey.
The National Weather Service 6- to 10-day outlook for August 21-25 calls for below-normal rainfall nearly nationwide. Wetter-than-normal conditions will be confined to the north-central U.S. and parts of the Southeast.
-By Gary Wulf; Dow Jones Newswires; Gary.Wulf@dowjones.com
(END) Dow Jones Newswires
August 16, 2010 15:10 ET (19:10 GMT)