Morning Comments - Rain is the only story right now
Jun 20, 2014
Grain markets finally caught a little response to the excessively wet conditions that we have seen across much of the crop region of this country and bounced higher yesterday. If July wheat can hold above 5.86 for the close today, it will be the first higher weekly close in the past six weeks.
After the weekend, it is forecast that much of the moisture turns south and east which should allow the pace of harvest to pick up. Oklahoma should be pushing the 75 to 80% complete mark by the beginning of next week and Kansas potentially reaching the 25% mark. Yields continue to be disappointing but quality so far has not been a major issue. Of course, if the wet weather were to continue, that story could change as well.
Outside of that, there is little encouraging to talk about for wheat. The majority of the export interest continues to be satisfied via the Black Sea and with generally good production weather across much of the Northern Hemisphere it is difficult for traders to be overly excited about too much rain in the U.S. That said, if the pattern does not shift next week, I suspect that shorts will become increasingly uncomfortable, which could provide is with a corrective rally. Outside of that, most of the chatter next week will likely be directed towards the June 30th reports.
Nice pop higher in corn as well yesterday as the Midwest becomes more and more saturated but the strength did not carry far into the overnight session. We are ponding in this part of the country for the first time this year and seeing that we have not had nearly the quantity of moisture as many areas, I have to imagine there are a number of low areas being damaged. Of course, that can mean the hill-tops will perform much better this year. If July corn can close above 4.47 today it will be the first higher weekly close in six weeks but as I prepare these comments we are trading at 4.47 ½ so we hang in the balance.
The Buenos Aries Grain Exchange now estimates that the corn harvest has advanced to 44% complete, which has been an agonizingly slow process. A year ago at this time they stood at 72%. Part of this has been due to wetter than normal conditions but also and maybe just as important, farmers would rather hold the commodity than the peso, which is constantly at risk of devaluation.
Looking out to next week, I suspect that the abundance of moisture will have translated into slightly lower crop rating but by no means anything alarming. Through the first week of July, temperatures are expected to remain generally moderate and while I still see a few forecaster trying to hype up a high pressure ridge after that period, I have not seen anyone calling for lengthy periods of extreme heat. Realistically, much of this crop is going to need heat pretty soon or we will be talking about maturity issues for the fall.
Most of the conversation next week should center on the June 30th reports. While possibly not quite as critical as beans, the grain stocks figure should be interesting as it will possibly reveal not only the extent of the ongoing issues with the PED virus in hogs but also if the current estimate of 5.3 billion bushels of feed/residual usage is overly optimistic.
By no means does day to day market activity have to make sense but it would seem reasonable to look for sideways congestion trade between now and the 30th. A sharp move in either direction between now and then could possibly setup a trap.
Bean were led higher by the new crop contracts yesterday in response to the wet conditions but have been unable to sustain that strength into today’s session. Nearby contracts have surrendered all the strength while the November about a third. I guess you could maintain that this moisture is creating potential issues with the growing crop but if we believe beans are made in August, it would be difficult to prop them up on moist condition in June for long. I suspect that next week it will be reported that planting has pushed beyond 95% and ratings should remain very solid.
The latest updates that I have seen from Argentina confirm a very slow harvest pace in that country but reaching around 92% for beans. Farmers in that country probably feel more secure holding onto their commodities than the peso.
Certainly weather will continue to be an important topic next week, as with corn and wheat much of the attention will have shifted to the June 30th reports and particularly concerning the size of last years crop. I have read some estimates that feel the government will boost the number by as much as 65 million bushels, which at this point would basically wash with the amount of export sales already above the current estimates. We will see additional guesstimates next week but I suspect most will be calling for higher acreage numbers as well.