What Traders are Talking About:
Overnight highlights: As of 6:15 a.m. CT, corn futures are 1 to 2 cents lower, soybeans are mixed with most contracts fractionally to 2 cents lower, SRW and HRW wheat futures are 4 to 6 cents lower and HRS futures are steady to 2 cents lower. The weaker tone is expected to carry over to the open of daytime trade this morning. Price action could get more volatile ahead of or after the expiration of September grain and soy futures at noon CT. Cattle and hog futures are expected to open higher this morning.
* Corn crop gets bigger. The old saying that big crops get bigger held true for the corn crop -- at least for now -- as USDA raised its estimate to a record 13.843 billion bu. in yesterday's Crop Production Report. USDA's objective data showed a record number of ears in the sample states, which we saw on Crop Tour. The question this year isn't the number of ears in fields, but kernel size and test weight -- both of which were very likely hurt/being hurt by late-season heat and dryness. But I'm not looking for a major reduction in yields or production moving forward. If test weights come in lower than normal, which is a very real possibility (if not probability), that will show up down the road as the crop will be used (disappear) at a quicker clip than anticipated -- much like the 2009 crop. Meanwhile, USDA lowered its soybean crop estimate to 3.149 billion bu. yesterday. That would still be the fourth largest crop on record. Pod counts are the issue, which we also uncovered on Tour. But while pod counts are the second lowest since at least 2004, USDA is estimating the second heaviest pod weight since 2004. If that holds true, it would be a surprise as the hot and dry late-season conditions are not conducive to building a big, plump bean.
The long and short of it: The rise in the corn crop estimate was yet another bearish shocker for the corn market. This is another hurdle bulls must clear, though I feel the market has limited downside risk at current price levels.
* Bean carryover slashed. The shocker in the report for soybeans came in the Supply & Demand table as USDA slashed projected 2013-14 ending stocks by 70 million bu. to 150 million bu. Soybean carryover is now projected to rise only 25 million bu. from estimated 2012-13 ending stocks despite the fourth largest crop on record. That's bullish for soybeans as demand is projected to chew through much of the increased supplies. Demand in the soybean market remains very inelastic. Meanwhile, USDA raised its new-crop corn carryover projection by 18 million bu. to 1.855 billion bu. despite a 58-million-bu. cut to estimated 2012-13 ending stocks. And corn ending stocks could move higher next month as I expect old-crop ending stocks will rise from the 661 million bu. estimated by the World Board in yesterday's report. Sept. 1 corn stocks in NASS's Quarterly Grain Stocks Report will be final 2012-13 carryover. Based on USDA's data yesterday, roughly 450 million bu. of 2013-crop corn was harvested prior to Sept. 1. Not all of that will show up as old-crop stocks, but there's a history of some new-crop supply being pulled forward in the September Quarterly Grain Stocks Report and I suspect that will again happen to some degree.
The long and short of it: A tightening new-crop carryover projection is more fuel for the bullish fire in the soybean market, while corn ending stocks are a wet blanket for that market.
* Battle lines drawn: Which market will win? With the September Crop Production and Supply & Demand Reports out of the way, the outlook is much the same as it has been -- bullish for soybeans and bearish for corn. The corn market is stuck trying to find a bullish catalyst that will help futures put in a low and spark sustained buying interest. The soybean market is trying to muster enough strength to push futures to new contract highs and spark fresh buying. In all likelihood, near-term price action is likely to remain similar to what it has been with soybeans favoring a bullish bias and corn having a bearish lean amid the divergent attitudes and fundamentals. But with the new-crop soybean/corn price ratio already at 3:1, it seems unlikely the divergence between these two markets will greatly expand.
The long and short of it: Will soybeans have enough strength to pull the corn market grudgingly higher or will the corn market weight soybeans down to the point where buyers become exhausted and futures tumble despite strong (and strengthening) fundamentals?
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