June 30th report is around the corner

by Jacob Sebade

by Jacob Sebade

A classic saying within the commodity markets is that they tend to take the stairs on the way up and the elevator on the way down. An example of this in the grain markets is it takes a couple of weeks to dry out and only one day to catch that crucial inch of rain. There has been a large weather premium built into the market but this week the dice didn’t roll in our favor. Up until this point, there has been a lot of talk about La Nina and it had created a scare within the market. Weather experts are starting to push the timing of La Nina back until late fall and into winter which will less likely have an effect on our crop production in 2016.

Trading for the week started off in the red due to rainfall that was received over the weekend. As thunderstorms kept developing and covering most of the Corn Belt, we started to see more and more of the weather premium being taken out of the market. We are not in the clear yet as there is a lot of growing left to do, but the weather outlook is much more favorable than where we were a week ago.

A favorable weather outlook was not the only thing that took the wind out of the grain market’s sails. The market had been planning on the USDA lowering crop conditions in their report that came out on Monday. The report ended up saying that corn conditions have remained “unchanged” as a whole. This was the second week in a row that corn conditions stayed the same even though trade estimates showed corn conditions dropping by 1-2%.

Bean crop conditions did drop down another 1% from last week as they are now rated at 72% good to excellent. Although we did see a slight change in the report, they were rated a 65% good to excellent at this time last year, so we are still sitting much better than where we were last year at this time.

It is also important to note that for the first time in a long time, bearish news hit the market from South America. The bearish news consisted of Argentina increasing corn production next year. Although it is bearish news for the corn market, it is believed that the acres to support the increase in corn production will take away from other commodity production in South America. The other bearish news coming out of South America is that Brazil is exporting some corn into the United States. This ship is set to land in Wilmington, North Carolina, and the grain will be able to find its way into many major hog and poultry facilities.

The last big surprise in the market this past week was Britain’s vote to end up leaving the European Union. Many of the experts were leaning toward Britain staying in the E.U., and the market was trading accordingly. Since their vote to leave, we saw the dollar take off and has traded up over 200 points. The long term effect of this decision has yet to be seen as everything is just simply speculation at this point. If the value of the dollar continues to increase it will be interesting to see if we can sustain the strong export demand that has arisen with some of the crop complications in South America.

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The June 30th report is right around the corner, and it will be interesting to see what it has in store. The market is planning on seeing an increase in bean acres and a decrease in corn acres. Just as a reminder, the March report had an expectation of 93.601 million acres of corn being planted and 82.236 million acres of beans being planted. With that in mind, the average estimate of acres that actually got planted leading into the June report is 92.896 million acres of corn and 83.834 million acres of beans. Yield is expected to stay the same as it is too early in the growing season to deviate from the trend-line yield that is currently figured into the projections. To put these numbers in perspective, if they are the numbers the USDA comes out with, bean production would increase by close to 75 million bushels and corn production would fall by 118 million bushels. If corn acres do not decrease as expected, more downside pressure could be added to the corn market.

As with any report that comes our way, it’s important to make sure that we are positioned for any surprising news that may come our way. Talk to your ProEdge Grain Specialist or Risk Management Consultant and make sure you have orders in place. You never know, it could be another wild ride!