Farm Futures - Weekly Market Recap

Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
June 26, 2015

Analysts surveyed by wire services don't expect bullish numbers on acreage from USDA's June 30 report. Conventional wisdom holds that flooding rains came after farmers responded to the government's survey. But history suggests the update could indeed reflect problems growers had getting corn and soybeans in the ground. The slow pace of planting progress reported in the first two weeks of June likely will slow up in the agency's end of June estimates.

The acreage estimates I gave the wires are the lowest in the industry right now. The average trade guess sees corn plantings up 100,000 acres, with soybeans gaining more than 525,000 from intentions reported March 31 by the government. By contrast, I see corn seedings 750,000 lower, with soybeans off 875,000.

Planted acreage will be only part of the acreage story on June 30. USDA will also make its first survey estimate of how much farmers will harvest. This number could be especially important for soybeans, because farmers can plant the crop well into July in some areas.

The correlations between planting progress and June acreage changes aren't perfect, so there's plenty of room for error. But even if the numbers aren't bullish the trade is unlikely to begin selling heavily unless weather forecasts stage a dramatic turnaround.

For corn, lower acreage could knock 125 million bushels off the government's initial production forecast, enough to balance supply with demand and keep the 2014 surplus from growing. Weekly crop ratings should help keep score of how yield potential is faring. No heat is in the forecast, but disease and loss of nitrogen could take their toll nonetheless.

Acreage alone isn't enough to rally soybeans once short covering by funds is over. But beans could get a boost from the other report out June 30. Quarterly grain stocks may add more fuel to suspicions the 2014 crop was smaller than previously estimated, perhaps by as much as 85 million bushels. Coupled with acreage reductions, this could make the market more susceptible to any threats of lower yields from either rain or an unexpected shift to hotter weather in August.

Still, if history is a guide, growers shouldn't expect huge rallies on soggy conditions alone. In the past it's taken a long time to judge the impact of too much of a good thing. But the uncertainty could help keep the market from resuming its long-term downtrend, at the least.

Corn prices followed wheat and soybeans higher in the last full week of June, taking December futures back above $4. That's still not a profitable price for the average grower. But coupled with carry in deferred futures contracts it's a starting point for those needing to make sales. A 30-cent rally is better than nothing.

Historical patterns in years with similar supply and demand fundamentals suggest there potential for futures to rally more, with some of these models still pointing to $4.50 to $4.60 December futures. That still seems like a stretch right now, because demand is flat. Usage for ethanol is better than many expected but not growing quickly, while bird flu should keep feed demand from rising too quickly. Exports depend on production problems around the world. It's hot and dry in France, but Ukraine is seeing good weather, with no threat yet materializing in China either. Cheap Brazilian corn continues to undercut offers out of the U.S., keeping new crop sales slow.

Growers who locked in basis earlier on remaining old crop inventory have a good chance to move it on this rally. Those selling out of the bin for a flat price will get unless they can find a buyer whose shipments are disrupted by rain. That's happening a few places already, but mostly outside the main Midwest growing region.

Soybeans are still not at profitable levels for most growers. But the outlook at least offered hope than the market won't crash soon while the impact of flooding is evaluated. Depending on how June 30 reports turn out the potential average cash price for the 2015 crop could range from $8.50 to $10 or more.

While most of the debate about beans focuses on acreage, the June 1 stocks number could be significant too. June 1 inventory around 665 million bushels would suggest the 2014 was significantly smaller than previously estimated, USDA won't officially change its estimate, however, until the end of September.

Growers wanting new crop price protection can consider hybrid cash contracts on stored inventory that pay for a November put with the sale of a an out-of-the-money call for deferred delivery in the spring or summer of 2016. This caps the maximum selling price but provides downside protection if the market heads south. Fundamentals suggest potential for rallies to $10.60 to $10.80, but those types of gains might take problems with late season weather in the U.S. or dry conditions in South America.

Wheat prices surged on continued harvest delays, with concerns shifting to the soft red winter wheat crop in the eastern Midwest. Chicago futures rallied to six-month highs as sellers covered short positions.

Big news for wheat is not anticipated June 30. Acreage could be up a little, but yields and quality remain up in the air. The June 1 stocks number becomes the actual carryout estimate for old crop. It could be around 10 million bushels higher than USDA's previous estimate due to weaker exports and perhaps feed usage.

Dry conditions in Germany appear to be improving, though the spring wheat crop is trending drier from the northern Plains into the Canadian Prairies. These issues don't appear to be enough to trigger any huge rally, as the market waits for word on quality of winter wheat.

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