It would appear that the bear is not quite finished in the wheat market as the breakdown yesterday pushed us into slightly lower lows for the year. Prices have stabilized overnight and I do not feel this is the beginnings of a new wave lower but is indicative of just how difficult it is to put the brakes on a train moving downhill.
While the negative sentiment in corn and to a lesser extent beans are dragging on the wheat trade, the fact that we are contending with a large world harvest and a discounted Black Sea market continues to hang around the neck of this market like a weight. The fact that the Russian Ruble has broken at least 5% over the past couple weeks has not helped the situation either. The USDA attaché in Russia projects a total grain crop in that country of 94 MMT of which he estimates 52 MMT will be wheat. Interesting to note that the current USDA estimate is 53 MMT and there are some in the trade who estimate the wheat crop could be as high as 60 MMT. Wet weather continues to hamper harvest in Europe but that should be more of a quality issue.
I continue to believe we should be rounding out a reaction low in the wheat market as we slide into early August but will need to be patient before expecting any kind of corrective bounce.
While the corn market did not push into lower lows, we did witness a classic Tuesday undo day yesterday and have continued to struggle overnight. This is by no means a stunning or particularly insightful statement but at this point it is all about the weather and by extension supply. Demand, while discussed to not really play in the psychology of the market this time of year particularly when there is no threat to the crop.
The weather outlook into August continues to look ideal for corn development. Temperatures are forecast to remain normal to below normal with reasonable chances of moisture across a wide swath of the Midwest. During my travels over the past 5 days or so, I heard time and again that all that was needed to finish this crop was another couple decent rains and a normal frost date. The rains appear to be in the forecast and on the latest update from Drew Lerner at World Weather, he comments that there does not appear to be anything this year to suggest an early frost.
We will see the weekly EIA ethanol number once again this morning and should continue to look positive. One side note is that DDG’s continue under pressure with China out of our market, which should continue to be a drag on corn and meal demand and ultimately could squeeze margins for the grind.
The corn market has been relatively stable for the past few weeks and traders may be reluctant to push the downside much more before the August report. That said, considering the lack of crop threats and the fact that the wheat market can continue to extend into lower lows with a better handle on the overall crop size, it does not provide for much of an encouraging picture in the corn market particularly with managed funds still holding a long position.
The rally on Monday of this week told us that the bean market is still prepared to maintain a little risk premium as we move into August but the failure yesterday also told us there is a limit to how much that will be without more of a hint of a weather issue. After testing the Ukraine air disaster high of two weeks ago, prices reversed lower and have been under pressure once again overnight.
The active interest in the new export demand has continued to provide support but the most recent updates for August weather have provided the counterbalance. If correct, we should have rains falling across a wide portion of the Midwestern growing region over the first couple weeks of August and no excessive heat. By no means does that assure big bean yields but it would not appear that the plants will be stressed either.
November futures appear to have settled into a trading range between 11.15/11.20 and 10.65/10.55 and we could chop back and forth between those parameter at least into the reports on the 12th. The USDA should now be beginning to collect data for the report but this figure will be basically statistical and I would not imagine they would make much if any adjustments in the bean yield. That said, if we have moved out to that time and still not found any threat in the weather forecast, I believe this contract will be headed for at least the 10.00 level.