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USDA Ratings, Data Establish Lower Price Trend

In the past week, we’ve had a bearish USDA August report on 8/10, and weather has turned nearly ideal making the weather also bearish. The soggy areas of the Corn Belt that need warmth and sunshine are forecast to get it (the soggy eastern Corn Belt), and the dry areas are forecast to get rain (the dry western Corn Belt). In fact, so far in August, the dry western Corn Belt states of Iowa, South Dakota, North Dakota, Nebraska, and Minnesota have been relatively wet in some areas—a critical time of development for corn and soybeans (especially soybeans).  

The USDA report on Thursday, August 10, had one big surprise and that was a HIKE in soybean yields of 1.4 bushels per acre to 49.4 bushels per acre instead of a DECLINE of 0.5 bushel per acre as the average traders expected. USDA must have some data that suggests a higher soybean yield for 2017 (Pro Ag’s yield model is 46.7 bushels per acre). But with improving weather forecasts the next two weeks and little to no stress on soybeans in August, perhaps USDA will be right in the end? With that hugely bearish yield for soybeans, USDA tried its best to offset it by hiking demand significantly, with 2016-17 exports hiked 40 mb (and thus lowering beginning stocks to 370 mb, down 10%!) and 2017-18 exports hiked 75 mb to 2.225 billion. So demand was hiked 115 mb on exports, so that ending stocks were up only 15 mb to 475 in spite of production hikes of 121 mb. However, that still was 49 mb larger than the average trade guess, and therefore bearish. Soybeans closed 33¢ lower, and we were 12¢ higher at one point in the trading day before the report. That formed a huge downside reversal on soybean charts, and it's likely soybeans will be testing their recent lows around $9.05 November. 
 
Corn yield was reduced as expected, but only down 1.2 bushels per acre to 169.5 bushels per acre, well above trade expectations of 166 bushels per acre. The Pro Ag yield model is 167.9 bushels per acre, so it was very unlikely USDA would reduce that far in this report (traders were too optimistic). Corn carryout was projected at 2.273 billion bu., about 307 mb larger than expected and thus bearish. Price retreated sharply to new recent lows, and also formed downside reversals on daily charts. 
 
HRS wheat didn’t get as bullish a report as expected, either, with production reduced to 402 mb (down 21 mb), but expectations were 393 mb. Ending stocks of HRS wheat were actually hiked 9 mb to 131 mb due to a cut in exports of 20 mb as Russia has an outstanding, bumper HRS wheat crop. USDA shifted exports to Russia because of that, and it looks like the shortage in HRS wheat that everyone expected may not come worldwide. So HRS wheat reversed lower yesterday as well, running to new recent lows. World ending stocks of all grains were up vs. expectations, with corn up 6.17 mmt from expectations (at 200.87 mmt), soybeans up 5.58 mmt from expectations (to 97.78 mmt), and wheat up 7.99 mmt from expectations (to 264.69 mmt). These are quite bearish numbers, and will likely push prices lower into harvest. 

Crop conditions out yesterday afternoon, 8/14, indicated an improvement in many crops, led by corn with a 2% hike in G/E to 62%. The Pro Ag yield model went up 1.7 bushels per acre to 169.6 bushels per acre, now above the USDA estimate (reduced to 169.5 bushels per acre Thursday in the August report). That is the first time this year that the yield model has been above the USDA estimate, and the fact that we are in improvement mode for the potential yield means further hikes in yield potential are possible.  

Oddly enough, soybeans declined 1% in G/E ratings to 59% G/E, odd because most other crops improved last week with the favorable weather. But not soybeans! The yield model dropped slightly (0.07 bushel per acre) to 46.7 bushels per acre, similar to the yield model estimates all year. Except USDA hiked its yield estimate from 48 bushels per acre (already high) to 49.5 bushels per acre. It seems they jumped the gun a little on their yield hike, but then again the weather forecast for the rest of August is nearly ideal. So perhaps we can get there eventually?  

Corn silking was 97%, 1% behind average while dough was 61% (1% behind average), and 16% was dented (4% behind average). Soybeans are 94% blooming (1% ahead of average) while 79% are setting pods (4% ahead of average). Cotton ratings improved a large 4% to 61% rated G/E, well above last year’s 48% rating. Sorghum conditions also rose 3% to 64% rated G/E, almost as high as last year’s 65% rating; 31% of sorghum is coloring (7% behind average) while 21% is mature (4% behind average), but 75% is headed (1% ahead of average).   

Winter wheat is 97% harvested (1% ahead of average), while HRS wheat is 40% harvested (5% ahead of average), oats are 66% harvested (6% behind pace), and barley is 52% harvested (12% ahead of pace). HRS wheat conditions improved 1% to 33% rated G/E, and barley improved 4% to 49% rated G/E. Topsoil moisture levels also rose 4% to 60% rated adequate/surplus, with subsoil up 1% to 60% rated adequate/surplus. So soil moisture levels also improved with last week’s rains and relatively cool weather, providing more cushion to drought to finish up the year.    

The seven-day forecast calls for above-normal temps for most of the country, and precipitation will be above normal for the western Corn Belt and southern Corn Belt (where it’s mostly needed), and normal to below normal for the soggy eastern Corn Belt (where it isn’t needed). The eight- to 14-day forecast is also favorable for crop development, normal to some areas above-normal temperatures in the western Corn Belt, and above-normal temperatures for the soggy eastern Corn Belt. Precipitation is forecast above normal for the southern and western Corn Belt, and mostly below normal for the soggy eastern Corn Belt. This should result in continued improvements in both corn and soybean crop ratings and yield potential.  

With the washout in prices recently, we may be due for a bounce in the market in the next few days. But the trends are clearly established and headed lower, and the weather seems to be improving most crops at this time. So as harvest nears, it’s likely we will continue to slide lower in price for most grains.  

Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years. See http://www.progressiveag.com for rankings.

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. 

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