We are on the cusp of finishing another month and for the wheat market it has been a continuation of a downtrend that began in early May. From that spring high, spot futures have lost right at 30% or $2.20 ¼ into the July low and December futures are down nearly the same percentage at 29.12% or $2.22 ¾. While it may not seem like it, this market has actually been tracking sideway now since mid-month, which would seem to indicate that we have factored in much of the bearish fundamentals but of course, we have found nothing to date that would force the bear from the stronghold.
Domestically, yields have continued to improve as the harvest has moved north and as I have commented previously, yield estimates for the spring crop sound solid. Europe continues to suffer from an overabundance of moisture hurting quality and slowing the harvest but the most recent forecast call for a drying pattern. Russian has been the bigger news as crop projections there have continued to rise. Australia continues to lean to the drier side but ideas of a more moderate El Nino have brightened prospects.
The Black Sea remains the dominant completion in the export trade as they once again filled Egyptian business but US exports sales for the latest week were very solid. We sold a total of 801,000 MT or 29.4 million bushels, versus trade expectations of 13 to 20 million. The top purchasers were Nigeria at 167k MT, Panama at 128.5k MT and Brazil at 116.1k. Basic economics would appear to be at work once again.
While there is little to find that appears encouraging in the wheat market right now, particularly with corn and beans with ongoing pressure, but as I pointed out previously this market has really been tracking in more of a sideways pattern now for the past few weeks in spite of it. The old rule of thumb is that when a market quits responding to news, you should be close to the end of a run. It remains difficult to envision much of a turnaround at this time but at least for now, the bears’ appetite appears to be mostly satisfied.
The percentage losses for December corn since the spring highs are basically identical to those in wheat, as at the low posted a week ago today we have lost 29.24% or $1.50 ½. For that total, 54% of the break has occurred since the June 30th grain stocks and acreage report. We are seeing a little bit of a sideways pattern in this market as well, but unlike wheat by no means would I suggest that have absorbed all the bearish news at this time.
Just about every August weather forecast that I have seen continues to paint a picture of cool an moist conditions and while that could begin raising concerns about growing degree days and the crop maturing on time, I believe that would be a tough sell to attract buyers with. It would not be unusual to see futures move into more of a sideways pattern during August as we wait for the report and allow technical indicators to correct but that would not necessarily translate into much in the way of a rally.
As expected new crop export sales were solid as we sold over a million tonnes but old crop sales are drifting lower. For the 13/14 marketing year we sold 173,900 MT or a measly 6.85 million bushels. We have now sold 14 million bushels more than the 1.9 billion projected to actually get that quantity out of the country looks questionable. For the 14/15 marketing year we sold 1.093 MMT or 43 million bushels. The major purchasers were Mexico at 431.5k MT, unknown destinations at 277.2k MT and Columbia at 129k MT.
The continued bright spot for corn is ethanol, which is no surprise with the profitable margins they continue to enjoy. For the week ending July 25th, the industry produced 280,476,000 gallons using approximately 100.9 million bushels of corn. I would not be surprised to see the USDA bump the usage number up another 25 million on the August report. The only cautionary note was that the ethanol inventory increased by 27 million gallons and with the travel season waning, we could see this begin to grow more. Of course the declining DDG market needs to be watched closely as well.
I do not want to become overly encouraged with the mini-sideways pattern in corn as we need only look at the recent action in cotton or the corn market at the end of June to see that we can break lower from a sideways pattern. That said, for now, it would appear that the remaining bulls, which appear to be the managed funds, are not ready to surrender and there could be a few shorts that may want to take some money off the table before the report.
As a percentage of price, the break down in beans has not been as severe as in the grains, but from the spring highs, November futures have lost 17.51% or $2.24 and from the late June high, 15.35% or $1.91 ¼. Of course beans make up in sheer dollars what they lack in percentage moves.
Realistically, this market has moved into a sideways congestion pattern for the better part of the past month, evidently supported by the uncertainty of the August weather and ultimate yield potential and very solid new crop export business. While none of us knows what the cool moist forecast currently offered up for August will produce in bean yields, the 84.8 million acres planted offer us somewhat of a buffer as we wait to find out.
As far as the sales for the past week, while not a surprise, we did sell a very solid 1.2687 MMT or 46.6 million bushels which was even above the upper trade estimates. Of this total, China purchased 60.6% of them. While basically a moot point, old crop sales were 187,400 MT or 6.9 million bushels. For the record, this moves us to 71 million bushels above the USDA estimate of 1.62 billion but it looks very doubtful that we will ship that number and may not even reach 1.60.
The bean market should continue to maintain its risk premium for another couple weeks as we reach out to the August 12th report but I suspect we will remain within the existing 11.15 to 10.65 range during that time frame. At the outside we could see a shot at the gap up around 11.30. All that said, if the bull has not found reinforcements soon, I would expect to see a dip down against the 10 level into harvest.