MARKET SUMMARY 7-30-2021

Spring wheat futures have fallen short of retesting the previous contract high. This could be a technical signal that prices may have peaked when the Sep contract traded to $9.44-1/2 on July 19th. After that day prices fell back in correction, but as crop ratings continued to weaken, like this week, the North Dakota Spring Wheat Tour was out testing fields and prices tried to rally to retest the high. The Spring Wheat Tour found a yield of 29.1 bushels/acre for the hard red spring wheat crop, confirming what the market knew after a horrible growing season affected by drought conditions across the region.  At times, the market may have a “buy the rumor sell the fact” mentality, and next week could be a signal if that were to occur in the spring wheat market. Regardless, supplies of spring wheat are very tight and the weather has had an extremely negative impact on yields. Prices may have the ability to work higher, but a possible pullback could be in the cards in the short term.

CORN HIGHLIGHTS: Corn futures ended the session with Sep losing 11 cents to close at 5.47. Dec closed at 545-1/4 losing 11-1/4 cents. For the most part, prices consolidated this week as Dec futures gained 2-1/4 cents compared to last Friday’s close. On the demand front, analysts will vary their opinion on China’s needs. Observationally, it looks as though China will need to be as big or bigger importer over the next several years as they have been this past year. It is estimated the hog herd is back to pre-ASF (African swine fever) size. China has also been vocal about reining in commodity costs. Generally, people or businesses who vocalize concerns about cost probably need to be a buyer. Our interpretation is that China needs to be a buyer. Yet with harvest just around the corner in three to four weeks in the South, end-user buying may be more hand to mouth unless they feel there is a significant urgency to buy sooner than later. The trigger for aggressive buying would likely come on adverse weather in August. Supplies will remain tight in the year ahead, yet if timely rains occur, end-user buying will likely remain on an as-needed basis rather than aggressive bookings. In the end, this implies producers should be defending the downside risk, yet be prepared to capture upside price potential. Do this by forward contracting to a comfortable level and covering with call options or bull-call spreads. Consider purchasing puts on projected crops you do not intend to forward sell.

SOYBEAN HIGHLIGHTS: Soybean futures were under pressure as rain on the radar had prices on the defensive, likely triggering sell stop orders once futures resumed trade after the pause session. Futures wasted little time dropping near 30 cents. Sep futures closed 19-1/2 cents lower at 13.55-1/2. Nov lost 28-1/2, finishing the session at 13.49-1/4. For the week, Nov futures lost 2-1/2 cents. Weaker palm oil prices, after reaching new highs this week, weighed on soybean oil. Meal continues to struggle on ample near-term inventory as crushers have remained active this year crushing for oil. This week we focused on the idea that heading into August weather will be ultra-critical. Assuming demand holds, there is no room to error with production. A rather robust yield projection at 50.8 bushels an acre seems challenging at this time with only 58% of the crop rated as good to excellent. 36% of crop areas are considered in a drought. Last year the crop was rated at 72% good to excellent for this same week. It would likely take a blanket coverage of rain throughout the entire Midwest to change prospects for higher yield. While we don’t rule that out (unexpected, better rainfall today could be a start), expecting a significant change in moisture patterns is not likely.

WHEAT HIGHLIGHTS: Sep Chi down 1-1/2 cents at 7.03-3/4 & Dec down 3/4 cent at 7.13. Sep KC wheat down 1-1/4 cents at 6.73-1/4 & Dec down 1 cent closing at 6.84-1/4. Despite the sell-off on corn and soybeans today, wheat refused to follow suit accordingly. Most of this week’s wheat trade was dependent on the Wheat Quality Council’s Spring Wheat Tour that started Tuesday and wrapped up yesterday covering over 270 farms in North Dakota and nearby. Not really all that shocking, final yield was released to be at 29.1 bushels per acre – that’s the lowest yield projection from the tour since 1993. One surprise from the tour was that comments were made that despite the low yield, many samples still had a decent test weight with good protein. No estimates have been given of abandoned acres but the concern is rising that the USDA’s current estimate could easily triple in reality. Spring wheat harvest just began this week, and crop conditions could once again fall in Monday’s Crop Condition report. Globally, although a short crop is far out of the question, production levels dropping in the EU, Russia, and China are all lending a bullish hand to the wheat markets across the globe – ours included.

Author

Bryan Doherty