Markets were stronger yesterday, continuing a trend seen in recent years of a rally into the August WASDE report. Corn managed to breach the ever-important 200 day moving average at the close yesterday, finishing 9 higher. September wheat was up 11 on the day, with November beans up 21.
All attention will be focused on the USDA supply and demand report today, with the first actual survey and satellite data driven yield estimate from the agency’s statistical service set to be released at noon eastern.
Going into the report there has been a lot of focus on what is happening not only from a cash market standpoint with incredibly strong basis levels seen in the Western Corn Belt and Southern Plains, but also on the drought monitor and what a second year of limited rainfall will mean for production.
Looking at vegetative health it is easy to see where and why concerns over production potential exist, with large portions of highly productive farm ground across Western and Southern Iowa, Nebraska, down into Kansas, Oklahoma and Texas obviously struggling with extreme heat and limited rainfall.
However, large portions of the Northern Plains, Minnesota, Northern and Eastern Iowa over into Illinois and to the east show signs of above average vegetative health, or at the very least the index shows conditions equal to or better than a year ago.
Coming in to today the mixed bag when it comes to conditions and production outlooks has trader expectations for yield adjustments relatively limited, with the average analyst estimate at 175.6 bushels per acre on corn, down from 177 predicted by the USDA in July. The low end of analyst estimates puts yield at 173.2 with the high end at 177.6.
The adjustments to yield are expected to be mostly offset by a potential small increase in old crop carryout, with a small adjustment to new crop demand, but a drop in new crop carryout is still anticipated.
Soybeans have a similar outlook, with only a slight reduction in production anticipated and some minor adjustments to demand. Old crop bean carryout is expected to move up 11 mbu from last month, with new crop carryout expected to come in unchanged.
Domestic wheat ending stocks for the 2022/23 crop year are expected to increase slightly from last month.
Globally, traders are expecting a cut in new crop corn carryout, with a slight increase in beans and limited adjustments to wheat. Global grain figures are where the USDA likely has its work cut out for it as traders weigh what affect the open grain corridor will have on Ukrainian export outlooks, with room for some possible production increases in the country as well.
With the situation dire when it comes to grain production and just about everything else that relies on water throughout France, Germany, England, and the surrounding region though, cuts to Eurozone production are likely to be large. Yesterday we saw a well-followed analytical group cut 10 mmt (390 mbu) off their Eurozone corn production estimate, if realized this would be the smallest corn crop out of the region in 15 years.
With Ukraine sitting on a large amount of unshipped corn from last year, in addition to new production of both corn and wheat that will need to move, it will be interesting to see how the shift in trade routes 6 months ago due to the Russian invasion could facilitate increased Eurozone corn imports from Ukraine.
Outside of what we’re expecting today from the USDA, reports indicate China is set to waive some of the phytosanitary requirements in their Brazilian corn import agreement that would have delayed the start of trade until next crop season. According to anonymous sources close to the negotiations, Chinese traders are already discussing potential purchases of recently harvested Brazilian supplies with values out of South America currently running around 50 cents lower than US values.
Traders are also closely watching what is happening in Argentina as the government there is tackling 70% inflation. Yesterday the country’s central bank increased their benchmark rate 950 basis points, something that seems unthinkable as US central bank officials debate a 50 or 75 point rate increase in September.
The massive disparity in currency conversion keeps the farmer holding onto supplies tightly as while the rest of the world sells soybeans in dollars, the Argentina farmer gets paid in their depreciated currency. The lack of grain flow and increasing uncertainty is limiting government revenue and creating concern that officials could try to move grain exports from private groups to a government entity—something that could potentially create major disruptions to trade and production. As a result, any developments there when it comes to economic decisions could have major impacts on US agriculture.
We will have the USDA numbers shortly after their release. Markets are mostly quiet this morning ahead of the update.
Corn down 2 to 4
Beans down 10 to 15