Wheat Drops While Corn Closes Near Its Highs

August 24, 2020 03:42 PM
August USDA crop report was slightly bearish
Corn and Soybean futures closed on session highs,
China is buying soybeans again
Grain futures market update

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Today was a tale of two cities with wheat futures sharply lower, corn closing near their highs, with soybeans pacing and choosing to follow corn. Wheat futures turned sharply lower after overnight strength when sales data that have been rumored so much for wheat to China did not materialize at 8 AM. Wheat continued lower as well following the forecast for rain across Argentina and reports that frost did not produce much damage to developing E Australian or S Brazilian wheat crops. The world has a supply abundance of wheat, which pressured the spot Chi wheat/corn spread after the recent run-up to a $1.87/Bushel (Bu) wheat premium. The KC wheat/corn spread has narrowed to $1.02/Bu, which amid a discounted cash basis, could cause Plains wheat feeding. Stats Canada will be out early next week with their August crop forecasts.

Even though beans did not find beans sales this morning, expectations are high that tomorrow they will. Otherwise, corn and beans were supported by the pure lack of rain since August 8. Ratings are tumbling this week and will also be lower next week, as rains for the critical parts of Iowa and Illinois look to be a miss later this week. The finish on the prospects of a large crop is diminishing. Nobody is going to starve. It’s just that the optimism that was so high just three weeks ago has eroded rather quickly. The Pro Farmer tour still saw potential mid-last week, but consistently reports from field scouts said the crop is stressed and needed rain soon to finish the perceived production.

Crop ratings out at 3:00 p.m. today had corn and soybeans down more than expected. A 1-2% decline in the GD/EX category for both ended up with corn down 5% and soybeans down 3%. This should prompt a rally in the night session, as next week will experience another erosion in ratings.

In classic form for this time a year when wheat has a significant drop, after the close, Egypt did a snap tender for wheat for October 11-12 shipment and/or October 21-31. It will be interesting if Black Sea wheat captures the sale at an elevated price over the prior sale. The results should be known by mid-morning Tuesday.

US export inspections for the week ending August 20 were 35.1 Mil Bu of US corn, 42.2 Mil Bu of soybeans, and 20.9 Mil Bu of wheat. The soybean and wheat inspection totals were better than expected and considered supportive. For their respective crop years to date, the US has shipped out 1,624 Mil Bu of corn (down 219 Mil Bu or 12%), 1,552 Mil Bu or soybeans (down 81 Mil Bu or 5%), while US wheat exports stand at 229 Mil Bu (up 7 Mil Bu or 3%). China shipped out 18 Mil Bu of US soybeans or some 51% of the weekly total.

Central US Weather: The midday GFS is wetter across the E Midwest but drier across the E Plains and W Midwest. The areas that really need the rain would have to wait until early September for moisture to fall. Note that soon to be Hurricane Laura looks to make landfall slightly farther east, but this all depends on the forward movement of the storm after it exits Cuba with warm Gulf waters to promote rapid intensification. If the storm is slower, it will be stronger and farther west. The afternoon run of the EU model should help in the landfall determination. Until Thursday, mostly hot/ dry weather will prevail across the Midwest that is rushing crop maturity.

Rumors continue today that China was in booking another 4-6 cargoes of US beans, which we may find that announcement in the morning. With falling crop ratings, rain lacking in some of those critical areas of the Midwest to finish what was to be a record crop, and continued demand should prompt an extension of gains from today into Tuesday.

 

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About the Author

Eugene Graner is the founder and President of Heartland Investor Capital Management Inc. He is a veteran commodity analyst, and broker with 28 years experience in the industry.