Morning Comments - Big crop get bigger

Published on: 08:45AM Jul 09, 2014

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Wheat

While it is to a lessor degree in wheat, the pressure continues across the grain and soy markets as bulls can find very little reason to hang around in front of mounting bearish news.  With the overnight pressure, December wheat has just slipped beneath the January 30th contract low at 5.77 ¾.  I pointed out in the technical comments yesterday the last time that a December wheat contract traded below this point was in December 2011 when we reached down to 5.67 ¾. 

There is realistically little fresh news to look at as we work our way out the July 11th supply demand estimates.  As I commented yesterday there remains concern over the monsoons in India but still potential over the next week or so for rain to move north.  In Europe, not unlike the US, the other problem exists in that too much rain appears to be affecting the quality of the wheat but realistically that will just translate into more feed quality wheat.  Harvest is moving forward in Russia with generally good yields and quality reported.  It is estimated that they have cut 6.1 MMT of wheat so far, which is only half of what that had harvested a year ago at this time.  For all grain Russia currently estimates that they will harvest 94 to 99 MMT this year, up from 92.4 MMT last year.  They also expect to export 27 to 30 MMT of this compared with 25.37 million last year. 

I suspect we will chop defensively now through the Friday reports.  The average estimates for wheat are as follows; Total production 1.964 billion bushels, 2014/15 ending stocks at 590 million and world ending stocks of 188.76 MMT.

 

Corn

Even though we closed lower in corn yesterday, it appeared that we were trying to stabilize but selling has resumed again overnight.  This is just out and out long liquidation mode and we will find our low once the last speculative long has been punished enough to exit. 

Weather of course is the dominant topic right now and there is increasing debate as to if the USDA will boost the yields or not for this upcoming report.  While unusual, it is not without precedence and in prior years with similar conditions they have raised the estimate by as much as 3 bushels.  Of course even that would not match the increasing talk of 170+ that is being heard.  The average trade estimate currently is around 166 and with the bearish psychology at this point, it would be safe the say that wherever is comes in at the trade will discount it as being on the light side.  For the other figures the total production is estimated to be 13.93 billion, the 2013/14 carryout at 1.233 billion and 2014/15 around 1.807 billion.  World ending stocks are estimated to come in around 184.47 MMT.

Conab released updated estimates for the Brazilian crops this morning and now expect the total corn harvest to reach 78.2 MMT which is an increase of .3 MMT from last month.  The Brazilians needed a little good news after their crushing defeat at the World Cup yesterday.  This number is actually 4.1% below last year’s production of 81.5 MMT.

Speculative funds have been steadily liquidating their long positions in corn but still have a way to go and little incentive to hang around at this point. I expect prices to drift defensively into the reports on Friday and ideally will be poised for a minor bounce from there. 

Soybeans

Liquidation continues across the entire bean spectrum but is most prominent in the nearby months.  The irony in this is that world cash markets have perked up just a bit but with thoughts that the Friday reports will reflect enough supply to reach new crop, the long has little to hang around for.  As with corn, speculative funds have been liquidating but have more positions to surrender unless the Uncle Sam provides them with a friendly surprise on Friday.

Conab slightly boosted the estimate for Brazilian bean production this morning and now estimates a crop of 86.3 MMT.  This was up .2 million from last month.  This compares with last years production of 81.5 MMT. 

I do not believe the USDA will make any adjustments in the yield for this report but of course with the increase in acreage, it should still reflect a big bump in production.  The average estimate is 45.1 b/p/a, which is actually just a touch below the June estimate of 45.2.  The average estimate for total production stands at 3.787 billion with 2013/14 ending stocks expected to be at 128 million and 2014/15 at 417 million. 

The trade recognizes that the bean crop will be made or not in the month of August but regardless, with what we know right now there seems to be little incentive to bring in or sustain buyers.  If we have not reached up to fill the gap at 11.32 ¾ by the close today in November futures, we should have a valid mid-point measuring gap.