Registered: Feb 2008
07-25-12 02:55 AM
Hello Again to All.
Here is the Part II.
CORN PRICES came under pressure once again today, despite deteriorating crops, as storms rumbled through Chicago. USDA reports that 86% of the U.S. corn crop is silking, meaning that most of the crop is either in or has passed through its most critical stage under stress. As such, 22% of the crop is in the dough stage and 6% is dented, up 13 and 4 points respectively from the five-year average for this point in the season.
This week's crop rates a condition index score of 263 (500=perfect crop), down 1 point from the condition of the 1988 crop in the same week. This week's rating was down from 281 the previous week and down from 359 the previous year. The 10-year average for the week is 364. Farm Futures yield model puts the crop at 121.8 bushels per acre, within a range of 119 to 124 bushels per acre.
A Reuters' survey of trade analysts put the yield at 130.8 bushels per acre, producing an 11.4 billion bushel crop. That would assume harvested acres of just over 87 million, or 90% of planted acres. Abandonment in 1988 brought harvested acres down to 85.5%, with a similar number in '83. That would argue for harvested acres down another 5 million near 82 million acres. Keep in mind that 45% of the nation's corn crop is rated Poor to Very Poor as of this week.
Of course, the more you raise abandoned acres, the more you firm the yield estimate on the remaining acres. The bottom line is the total crop size, which the data indicates to me will likely be well below 11 billion bushels based on a current snap shot of the crop. USDA is currently assuming a crop near 13 billion bushels.
There are a lot of reasons for today's weakness, primary of which is emotions typical of a bull market. In essence, the market continued a cleansing process after Monday's break raised fears among weak longs (speculators holding bought positions). Softening charts created more weakness, along with increased margin requirements for the grains this week. Some traders also are believed to have liquidated positions to meet margin calls in other markets, as most of the commodity world continued to tumble on global economic concerns.
Ironically, corn prices came off the 40-cent daily limit immediately after the Reuters' survey results were released, pegging the corn crop at 11.4 billion bushels. I've already documented that I believe why I believe that estimate to be too high, but the market's reaction suggests that the bulk of fund managers had the crop much larger than that.
Prices remained in negative territory into the close, but well off their lows. As such, I see good odds of the market trying to turn the corner on Wednesday, as long as Midwest rains fail to exceed current expectations and/or further economic collapse on Wall Street raising margin requirements for traders.
SOYBEAN PRICES tumbled as the rains fell in Chicago. Rhetoric suggested that soybeans felt the most pressure because they have the greatest opportunity to respond. That assumes that this break is primarily weather related. While a contributor, I believe that the break is tied more to external factors already outlined. Soybeans hold massive large speculative fund positions, which is what left them most vulnerable when fears began to rise on economic worries.
USDA reports that 79% of the soybean crop is blooming, with 36% already setting pods, up 19 and 17 points respectively from the five-year average for the week. This week's crop rates a condition index score of 287, down from an index of 303 in the same week of 1988. This week's score comes in below the 298 index the previous week and below the 361 the previous year. The 10-year average index for the week is 357.
Farm Futures yield model puts the crop at 36.5 bushels per acre, down 1.3 bushels from the previous week and down 4 bushels from the previous year. The model yield is also down 4 bushels from USDA's latest estimate. The Reuters' survey put the soybean crop at 38.6 bushels per acre, with the total crop at 2.9 billion bushels.
That infers harvested acres of 75.1 million acres, down slightly from USDA's estimate of 75.3 million. That's pretty optimistic considering that 35% of the nation's crop is rated Poor to Very Poor and many double-crop acres were never planted. Harvested acres are likely between 73 and 74 million; dropping another 50 to 75 million off the crop on top of what is lost from yield reductions. Meanwhile, demand remains strong, suggesting that the market still has more work to do.
Soybean prices locked the 70-cent daily trading limit lower this morning soon after corn locked its limit lower. Prices came off their limit soon after corn started to firm once again. End users know that this crop is in trouble, so I look for demand to ratchet up on this price break once it shows signs of stabilizing. Fund managers tend to make moves in three day waves, so it's possible this market has another day of weakness ahead.
However, I look for prices to stabilize before we get to the weekend, unless rains provide much better relief than currently expected. I still wouldn't be surprised by August sliding to $15 or November soybeans to similar levels. However, that would not do major chart damage. I remain confident in the fundamentals, despite this pre-mature sell-off, which will likely make the rationing process much more difficult.
WHEAT PRICES still do not have enough legs to stand on their own when the rest of the commodity world is in decline. Only energy prices were moving higher today, with the bulk of commodities and equities in decline on economic concerns.
USDA reports that 82% of the winter wheat crop is harvested, up 9 points from the five-year average for the week. The spring wheat crop is 12% harvested, marking one of the earliest harvests in memory. The crop rates a condition index score of 356 this week, down from 367 the previous week and down from 382 the previous year. The 10-year average index score for the week is 363. Farm Futures yield model puts the crop at 41.1 bushels per acre, down 1 bushel on the week.
The Wheat Quality Council began its industry tour of the hard red spring wheat belt this morning, focusing primarily on North Dakota. It did sent a group into northern South Dakota, which found most fields harvested already. Back in North Dakota and western Minnesota, yields were generally similar to year ago levels or a bit less, with some fields more disappointing. Overall, it looks like a decent crop with good quality; perhaps a bit smaller than was expected. However, we need to see a summary of the next couple of days before we can draw any meaningful conclusions.
Chicago September wheat has strong support at $8, but look for it to turn when corn does. Similar support can be found at $8.05 in Kansas City and at $9 in Minneapolis. However, the larger driver right now is the price of corn. Continuation of this drought another 30 to 45 days would be expected to significantly raise the threat for the 2013 winter wheat crop, but that's a concern for another day.