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Tim Hannagan: Seasonals are winning

Thursday’s weekly export sales report came out as big on the demand side as expected. Wheat sales were 1.412 million metric tons, a new marketing year high since June 1st, the beginning of wheat’s marketing year. This was 63% over our strengthening four -week average. Biggest buyer was number one world wheat importer Egypt, in for  594,000 metric tons. Well, Egypt who snubbed the U.S. last year for Russian wheat, has become our good trading buddy again as Russia has suspended exports. 

Corn sales for old and new crop year combined, beginning September 1st, were 2.887 million metric tons, up 35% from the week prior and 22% over our four- week average. Key U.S. buyers were out of Asia, in for 800,000 metric tons of the total. Corn demand will see soft spots but demand will continue to grow into next spring on feedlot expansions in key Asian countries and further continuation of ethanol expansion. 

Soybean sales were 2.230 million metric tons, with China in for 1.274 of the total. There was no surprises here. But, August sales are setting us up for a lower ending stocks number on our September U.S.D.A. monthly crop report. We’re also setting our self up for huge demand. As harvest reaches the midpoint, ethanol producers, feeders and importers aggressively buy on anticipation of record demand for all grains into 2011. 

This week was a tug-a-war between the bulls and the bears. The bulls bought the breaks on weather concerns in Europe and exploding demand was present daily while bears say the summer growing season is over and seasonals say lower prices ahead as harvest begins in September. The wild card remains weather conditions in Russia. Should the drought continue into the end of September, their winter wheat planting will be cut 25 to 50%. Wheat will make new highs as well as corn and beans in tow. 

Should timely rains arrive, allowing the winter seeding to complete, the year’s grain highs of two weeks ago will hold thru September. The big news in corn this week was talk from Russian corn consumers that they intend to enter the world market soon to buy feed grains. The Russian drought and its impact in wheat on the world market has been widely noted, but their short-fall in corn and bean production looks to have livestock feeders entering to buy corn and beans for the soymeal, an important feed ingredient. 

As the U.S. harvest begins next month, the Russians may be coming to dinner. Also, the Chinese production problems have led to a dramatic drawdown on grain reserves, at a time when a mandate to build a strategic grain reserve was in motion. China was in for 58,000 metric tons of our total grain sales last week, with their domestic corn prices at record level and the U.S. corn cheaper. Therefore, we have to expect China to replenish reserves with U.S. corn at our harvest time. Their only chance to build a safe reserve level is during our harvest, until next summer, when European crops become available again. Expect a harvest cash market buying frenzy at about the 30% harvested point. 

The big news in beans this week was not the extraordinary demand but potential yield problems come harvest. Field surveys found the deadly “Sudden Death Syndrome.” This disease could cut yields by 20 to 60%. It’s similar to Asian rust disease found in the hot, wet, and humid fields in South America or Argentina and Brazil. As you know this summer’s growing season was one of the hottest on record and one of the wettest in northern Illinois, Indiana, and all of Iowa. One report has up to 50% of the state of Iowa’s crop affected. Like all fungus or mold type diseases, you don’t know the ending yield damage until the crop is harvested. 

Our weekly crop condition reports by the U.S.D.A are already cutting yield potential on number two U.S. bean producer Iowa, as Monday’s crop condition report showed a 4% decline in the good to excellent category. Look for this to be big news when the Midwest bean harvest starts late September into October. Bringing our thoughts closer to home and our pricing potential for next week., the weather site, sees potential for fairly good rain event next wheat over 80% of the Russian winter wheat prairies. If the coverage is 70% or more, with 1 inch of rain or more, we will cut wheat prices further with December futures pulling down to 6.45 area. Failure of the rain to prevail and the system never arrives another weather premium will enter with a test of 7.60 or higher basic December futures. Support on December corn today, Friday, is 4.23 and Monday 5.25. A close under support sets up 4.08 as next stop. Resistance is 4.32. A close over leaves next resistance at 4.50. 

November beans have resistance at 10.40 after breaking support Thursday. A close over and 10.52 is next. New support is 9.95 then 9.80. 

Like I said on my last report , highs are in for corn, beans and wheat going into the beginning of our September harvest, unless weather turns hot and dry across Russia threatening their winter wheat harvest the next four weeks. Then new wheat highs could be seen with the other grains following. Weather is the key. 

The very bullish supply demand fundamentals for corn and beans are now in the big picture of fund trader thinking or long term with harvest supply-side pressure capping gains.  

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