Grains finished lower this morning with December corn down 2 ¾ cents at $7.13, November soybeans down 6 ¾ at $13.73, and December wheat down 8 ¾ at $7.50.
The grain markets are still holding their high ground despite a minor setback today. The weak equity markets have not had a large weight on the grains as supply concerns are still the major focus for grain traders. Maybe the heat took more of a toll than what was expected, we will just have to wait to find out what yield ends up being. The latest yield forecasts were from the Lynn Group today and are putting corn down to 152.1 and keeping bean yield estimates at 43. We have seen analyst estimates ranging between 145-155 areas for corn. It is import to realize that we are trading $7 corn because the market is factoring in these yields. For the market to continue to rally from yield reductions we have to keep reducing the yields even lower. Another thing to consider is even if they do end up being that low at the end of the year, there is a real risk that the USDA August report comes out closer to 160, as they use count population and average test weight. Basically there is a potential for the August 11th report to disappoint the longs.
Tomorrow morning we will have the weekly export sales report released at 7:30 am. Here are the following estimates:
Corn 850,000-1,100,000 MTs
Soybeans 450,000-650,000 MTs
Wheat 350,000-500,000 MTs
The economic numbers haven’t necessarily been supportive to demand. Exports have been running 3-4% lower from year ago levels in Brazil over June/July. With a huge crop last year in Brazil, bad crush margins in China, and the Chinese government releasing stock piles, soybean demand is looking weaker. Chinese imports have been estimated to be all the way down to 51 MMTs, which was thought to be as high as 58 MMTs earlier this year.
For corn we are still seeing demand destruction at these levels. Ethanol numbers were out this morning with 93.526 Million bushels used. We need to average 117.997 Million bushels per week to meet the USDA estimate, we have seen these numbers steadily coming in between 92-96. Basically the monthly S&D ethanol demand estimate shows strong demand, but the weekly numbers are running behind pace. We have seen a lot of wheat fed in place of corn, and situations of poor margins for feeding cattle.
Until the market is more comfortable with what yields are, it doesn’t seem to want to break. We want to remain in sustainable positions, and stay well hedged at these levels. Please call your broker if you need additional coverage or want to go over your current position. We have option strategies available that can cover a larger amount of bushels with a minimum bushel level of upside margin exposure.