Good Morning! It's Wednesday, July 1st at 5:30 AM.
Grain markets are mixed on light profit taking following yesterday's sharp USDA report rally. The Greek debt fallout, weather forecasts, and acreage and yield adjustments are all factors which will continue to drive the market.
As of last night, Greece was officially in arrears on the debt payment due to the IMF of 1.6 billion euros. Initially it appeared Greece would not move to accept any of its creditors reform demands, but a letter released overnight indicates they have changed their minds. Greece now claims they are ready to accept the reforms to get more money. Negotiations will still need to take place, and trade will continue to watch the issue closely.
Update - Morning Coffee Commentary:
The big market mover yesterday, and what will be the subject of discussion for days to come, were the USDA Planted Acreage and Grain Stocks reports. The USDA corn acreage number reported was viewed bullish at 88.897 million acres (vs. an 89.292 estimate), soybeans 85.139 (vs. 85.171), and all wheat at 56.079 (vs. 55.867).
More surprises were found on the Grain Stocks report as the USDA reported corn stocks at 4.447 billion bushels (trade was expecting 4.555), soybeans at only .625 (.670 estimate), and wheat at .753 (.718 estimate). More coverage of yesterday's market moving reports is available here.
Managed money funds were estimated to be big buyers yesterday, not only on the USDA report numbers but also end of month, end of quarter rebalancing. Watch volume spikes closely for signs of more fund activity as the new month's trade begins.
Due to the heavy rains throughout much of the nations growing regions, the USDA announced that they will resurvey soybean producers in Arkansas, Kansas, and Missouri to, "ensure accurate final estimates for all crops." Any changes to estimates will not be reported until the August 12th USDA report.
Updated NOAA maps do not suggest any relief for many of the areas to be resurveyed by USDA. NOAA is calling for mostly above normal rains in these regions and below normal temperatures. You can keep up with the daily forecast changes to important agriculture regions in our morning weather blog for indications of possible yield reductions.
Canadian wheat acres are expected to rise 1.3% according to a Statistics Canada report also out yesterday.
The European Union cut its forecast for this year's wheat crop by 1.5 million tonnes to 140.0 tonnes. This compares with last years 148.8 tonne record harvest.
Germany's grain harvest is expected to be smaller than originally thought due to recent dryness in the growing regions according to a German farmers association. An individual breakdown of grains was not provided.
China intends to reduce corn acreage next year in an attempt to reduce its state stockpile of corn.
EIA energy stocks report will be out at 9:30 CDT this morning. Trade will be watching the ethanol production number on that report.
CME raised margin requirements on corn, soybeans and wheat overnight in response to the continued market volatility. The speculative initial margin for corn was raised to $1,375 from $1,100, soybeans $2,530 from $2,200, and wheat $1,925 from $1,650. For hedgers the initial corn margin rate was raised to $1,250 from $1,000, soybeans $2,300 from $2,000, and wheat $1,750 from $1500.
The U.S. and Cuba have agreed to open embassies in each other's capitals, according to a reported deal reached yesterday. This is one step closer to opening Cuba to more U.S. exports.
The economic calendar remains busy today with a few of the more important data releases including ADP employment change at 7:15 CDT, the ISM index, and Construction spending at 9:00 AM CDT. Auto and Truck spending will also be out later in the day, but all will provide clues to the health of the consumer.
The rally in corn prices has an obvious effect on livestock production, and the hog market certainly responded to today's corn move. Typically abrupt increases in feed costs encourage producers to bring hogs in early at lighter weights. We would like to suggest this will ease the tonnage of pork hitting this summer but wonder if a 1% – 1.5% drop in weights can offset the increase in hogs coming into production.
This week the USDA started the first steps for approval of more imported beef from Brazilian and Argentina. In April Brazil was sending us 3.3% of our imports. In February, the last month of actual imports from Argentina, they sent us 0.1% of our total imports. This week's move by the USDA is just one of many steps which would take place before more imports from South America would occur.
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