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Farm Futures - Weekly Market Recap

 

Acreage, stocks reports offer new uncertainty


Trade war status isn’t only question mark as June winds down

The soybean market focused mostly on trade tensions between China and the U.S. in June, and rightly so. It’s no secret that China is the big dog in the soybean trade, controlling roughly 65% of global imports.

China’s 25% tariffs on U.S. soybeans could go into effect July 6, not only after markets reopen following Independence Day, traditionally a volatile time for prices anyway. The week leading up to those deadlines features another potential inflection point: USDA June 29 reports on acreage and quarterly grain stocks.

History shows that trading can plenty volatile around these reports too. But predicting which way the market could head is difficult. In soybeans over the past 37 years, prices were higher half the time after the report, and unchanged to lower the rest of the time. Results were also a jump ball for corn.

Uncertainty this year focuses mostly on acreage, because USDA’s March planting intentions were much lower than the trade expected. There’s a tendency for this June survey to find more acres of both crops, so the market is starting to dial in that prospect. I’m putting corn plantings at 88.4 million, up around 400,000 from March, in line with the rest of the trade. For soybeans, I penciled in 89.9 million, up around 900,000 and a little higher than the average trade guess.

The impact of acreage is pretty easy to figure: More acres mean bigger crops unless abandonment rises or yields fall. By contrast, June 1 grain stocks are an “inside baseball” statistic that take some explaining.

The differences between March 1 and June 1 stocks, less imports, shows how much of the crops were used during the quarter – disappearance, as it’s dubbed by economists.

Usage categories like exports and crushings by ethanol plants and soybean processors are pretty well known for the March-May quarter. USDA puts out export inspections data weekly, which is compared to Census data that is current through April. Crush reports are also missing a month of data, but ethanol production is reported weekly, while the National Oilseed Processors Association has already put out its report for May.

The big question mark comes from a murkier category. For corn, there’s no exact way to measure how much livestock eat. Grain that isn’t chalked up to ethanol and other industrial users, or exported, is assumed to have wound up inside an animal.

Some grain is always in transit and can’t be counted. But USDA also uses a category called residual usage to make adjustments for sampling and other errors in previous reports. This can be important for  soybeans because some quarters residual use is actually negative.

For soybeans, big surprises in the quarterly reports are generally a tip off that the crop harvested the preceding fall was either bigger or smaller than the agency’s last monthly estimate in January. USDA’s March 1 soybean stocks estimate was around 75 million bushels more than the average trade guess. That could be a hint the 2017 was even bigger than previously estimated.

A double dose of bad news for soybeans would be especially negative for prices, just as decision day for tariffs looms.

Corn couldn’t hold the line when soybeans plummeted on trade fears. But the news flow didn’t help the market much either. Weekly export sales suddenly dropped, after buying spurred by smaller crops in Brazil and Argentina. South Korea was a big buyer on the way down, but most of those deals were optional origin for new crop delivery, and haven’t shown up on anybody’s books so far.

Heavy rains over the growing region moved talk of drought from the conversation. Anecdotal reports from farmers voiced concern over flooding, damage that’s difficult to quantify, sometimes until after harvest. Conditions remained at some of the highest June levels on record, though vegetation health index maps showed there were trouble spots too.

Above normal temperatures could continue in July, but rainfall looks normal according to the latest forecasts. That could make it difficult for the market to rally until more is known about yields. Nearby futures rejected one test of their uptrend for the past two years but may not be able to survive a second.

Soybeans plunged to the lowest level in nearly a decade on concerns about Chinese demand that finally triggered a bearish shift by big speculators. A small relief rally after the meltdown was mostly the result of a little bargain hunting and short covering.

A move by the U.S. and China back to the negotiating table before the July 6 deadline won’t end concerns until a final agreement is hammer out. Even then, traders may be gun-shy, fearing China will again play the soybean card at the first sign of trouble.

Probably the best hope for price stability now could come from weather, and the notion that “soybeans hate wet feet.” Deteriorating crop ratings or a threatening forecast could be essential to finally proving an early summer bottom is in.

Wheat struggled valiantly to keep its bullish uptrend alive. Usually selling in the second half of June comes from harvest pressure. But with lower winter wheat production the market was looking better until it sold off in sympathy with soybeans.

Other growing regions around the world are also encountering problems, from northern Europe into the Black Sea, and Australia remains historically dry. But there’s still plenty of wheat available to the market, which could limit rallies.

USDA’s June 29 reports could show a modest increase in acres, and spring wheat conditions are rebounding after last year’s drought on the northern Plains. That plus weakness in corn and soybeans could keep markets treading water.

 

Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.