The heat in North America during the first 10 days of July has certainly got the market building in another weather premium. Areas that got hit with the most hit include southern regions in Western Canada and the U.S. Northern Plains. Temperatures in the 90s hit most of the corn belt and are expected to continue this week, especially in the western half of the region. Without enough moisture to compliment the heat, this is what’s helping drive corn and soybean prices this morning.
On Wednesday, we’ll get the USDA’s July installment of their world agricultural supply and demand estimates. Heading into the report, the market is expecting production downgrades for the U.S. crop compared to a year ago and last month. While the USDA will use the planted acreage numbers from their June 30 report, we’re more interested to see if they’ll update harvested acreage. A more interesting question to ponder is if soybean harvested acreage will end up larger than harvested corn acreage. We are seemingly in the decade of the bean. More on this tomorrow.
Despite the bullish demeanor across the board, managed money continues to sit in a net short position of nearly 50,000 soybean contracts and 60,000 lots short of corn. The former cruised up above $10 USD per bushel and is sitting at its best levels since December as mentioned by our Garrett Baldwin in his Friday afternoon recap.
If more wet weather returns towards the second-half of July, then we should start to expect a correction. Until then though, it seems that the complex wants to drive another weather market. Jerry Gulke notes that “a weather market can take 4-6 weeks before the market predicts the worst-case possibilities.
(But) when a weather market turns, it turns fast.” Selling into strength is never a bad idea.
The USDA’s crop progress report is expected to show all lower crop ratings when it comes out later this afternoon. The good-to-excellent (G/E) ratings of spring wheat, corn, and soybeans are all expected to drop by at least 2 points. Other than spring wheat, this would still put the ratings close to their 5-year average of 70% for corn and 66% for soybeans. However, the trend seems to be suggesting worse-off crop health, especially with all this heat.
Wheat is still flirting with $8 USD per bushel and will need some further buying to get back above last week’s four-year high of $8.68. We don’t say short-covering because hedge funds are no sitting at a net-long of 18,000 contracts in the cereal. For corn, new crop contracts are up above $4 USD per bushel and many analysts are now looking for $4.25 to $4.50 as the next range to price in some of this year’s production.. Looking at it from an old crop perspective, Joe Vaclavik of Standard Grain that corn and soybean price points are close to touching one-year highs (technically corn did just that this morning).
As such, you should consider that you’ve been given another opportunity to sell at those levels.
Covering your bases and your bills should never be considered a bad thing. Think about making sales when you can, and not when you have to.