"Since USDA basically extrapolates from the June 30 stocks and acres, it would have taken a reduction in yield today to create a surprise,” says Jerry Gulke of the Gulke Group. “But USDA left corn and beans unchanged at 163.5 bu./acre and 42.9 bu./acre, despite the fact that ratings have dropped some since June. It could be they don’t want to lower yields just at the critical production time and risk that later they find we pulled through with an excellent crop again.”
In any case, Gulke says, “We’ve had huge increases in price for all grains so I expect a pull-back into the weekend; the surprise would be if we finish the day strong.”
However, he notes that traders will be focusing on weather. “At our summer client meeting yesterday, meteorologist Mark Russo of Chesapeake Weather Services, who is generally conservative, said that—in keeping with the shift toward La Nina—a ridge is already in place in the East and is expected to affect the Midwest during the last half of July,” he says.
“Soybeans don’t need hot dry weather,” he says. “In addition, only about 20% of my clients attending the meeting thought they have a real good corn crop. A lot say their stands have very shallow roots and could be affected by dry weather.”
With USDA’s 1.378-billion corn carryover, trimming 1 bu./acre would take it down 80 million bushels. “It wouldn’t be hard to see a 160-161 bu./acre yield,” says Gulke. “All of a sudden carry-over next summer is 1.2 billion—snug in today’s demand environment. We need the acres and good yields.” We could see a surprise in October when USDA again reports he adds. “I still think we may have 500,000 fewer acres than the June report because of reductions in Illinois, the Dakotas and drowned out spots.”
While soybean carryover is expected to rise to 360 million bushels next summer, trimming 1 bu./acre could drop it under 300 million—“not too different from last year, after a 1 billion-bushel increase in the South American crop,” says Gulke. “And although some traders think we won’t see the big fall export program we had last year, China’s buying for 2010 could be up and they already are booking U.S. supplies for August and September delivery. Our prices are cheaper than Brazil for October, too.”
So we could see a bit of weakness near-term, but Gulke is by no means bearish. See AgWeb's Weekly Wrap-up for his comments on marketing.