The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
The Hueber Report is a grain marketing advisory service and brokerage firm that places the highest importance on risk management and profitable farming.
Click here for a free trial
The buy the fact sentiment appears to have subsided over the weekend and grain/soy markets have returned some, but certainly not all of the reversal gains that had been posted last Friday. While there should be a very strong probability that we marked a low last week, now we have to deal with the reality of what trade wars can mean for business, both short and long-term, and of course the even more immediate prospects of what kind of crops are being produced around the globe.
New from Russia would suggest that the size of their crops is at risk of slipping further backward. SovEcon commented over the weekend that there is an urgent need of moisture over the next couple weeks to bolster the potential spring crops. A representative from the consultancy firm stated that “if agricultural producers do not see rains in the nearest weeks, the potential of yields will face additional significant damage.” (emphasis mine) A previous Reuters poll has predicted a 16.7% drop in the wheat crop this year to 70.8 MMT.
As for the U.S. crop, we have the July production and supply/demand reports scheduled for this Wednesday and here is a breakdown of industry estimates that I have seen thus far; Total corn production of 14.29 billion bushels coming from a yield of 175 bpa. This compares with the initial forecast of 14.04 billion and 174. The bean production estimate stands at 4.319 billion from a yield of 48.65. The current government number stands at 4.28 billion bushels and a yield of 48.5 bpa. Total wheat production is expected to come in at 1.859 billion compared with the June estimate of 1.827. 2017/18 ending stocks are projected to fall in around 2.111 billion corn, 506 million beans, and for the 2018/19 crop year, corn is pegged at 1.718 billion, beans 484 million and wheat at 979 million. On the world scene, 2017/18 ending stocks for corn are expected to come through at 191.42 MMT, 91.76 MMT for beans and 272.46 MMT wheat and then for 2018/19, corn at 156.27, beans at 88.15 and wheat at 265.05. Finally, Argentine corn production is expected to show up at 32.7 MMT and bean 36.7 and in Brazil, corn at 83.2 MMT and beans 118.9 MMT.
This morning Bloomberg reported the Chinese government would reimburse bean importers the 25% tariff if the beans are going to be held in state reserves. This would appear to be a maneuver to circumvent the impact of tariffs on users as they are selling beans from the reserve weekly. Additionally, the Commerce Ministry in the country has stated that companies that have been negatively impacted by the trade sanctions will submit reports on the effect so that they can monitor. Of course, that does not say they intend to do anything to mitigate the impact.
While they should be semi-supportive, macros do not seem to be providing much help this morning. The metals and energies a higher and the dollar weak. Grain and soybeans market probably need a few days to settle out from the recent volatility and move beyond the reports on Wednesday and considering we have returned to the low end of the now four-year-old trading range, I cannot imagine we have tremendous downside potential. That said, outside of technical corrections, I am not sure if we have much of anything to sustain higher prices for long either.
No comments have been posted to this Blog Post