|Corn CBOT||September||3.73||09 cents|
|Soybeans CBOT||November||10.00||12 cents|
|Wheat CBOT||September||4.78||25 cents|
|Wheat Minn.||September||7.30||45 cents|
|Wheat Kansas||September||4.75||25 cents|
|Chicago Oats||September||2.88||05 cents|
|Canadian $||September||0.8015||0.50 points|
The entire grain complex has been under pressure after having the best week in more than a year. As of this writing, we reached our support as outlined last week at the $3.60 area. The primary down-trend line that cuts above $4 on the lead month contract was too much on this run to overcome, and thus, the selloff was prompt and decisive after three attempts since June of this year. It seems a given that the last support area of $3.50 from June 23 on the September contract will be tested for support before we attempt another run at the primary trend line.
Initial support on the September futures is seen at $3.50 – $3.60, while overhead resistance is still at $4, also on the September contract.
Short term indicators are neutral and the primary trend is still down.
We are getting the pullback that was suggested in last week’s commentary, but I feel we still have more room on the downside. We are forming a bullish flag and if prices stay above the $9.60 level on the close on the November contract, we can expect another attempt at the all-important $10.50 trend line. The draw down in open interest from the beginning of July can be contributed in part by a short covering rally which saw prices shoot skyward on good volume. Typically, we now have many of the short funds on the sideline and we will wait to see if there is a genuine bullish move on the horizon.
Initial support is at the $9.80 level and it is possible that this may hold – in which case, we may not see our $9.60 target price. Should that be the case, we would likely see a significant change in direction and a challenge to the $10.80 target high of January 2017. Our red buy signal on the daily chart from July 3 is still intact.
Short term indicators are still positive, but for now the primary trend is still down.
Minneapolis wheat lost another 50 cents per bushel this week as the corrective stage of the recent rally continues. The main trend indicator is still on the red buy signal, even though it is an obvious corrective phase. There was a lot of short covering by the funds as noted by the drop in open interest as prices soared. Support is seen at $7 on September futures, while another support level, which may be tested on a larger pullback, would be the $6.70 mark. This would coincide with a 61.8 per cent Fib retracement of the move and possibly serve as a resting point before we move higher.
Chicago futures didn’t fare well as we flashed a red sell signal on our day charts. This signal nullifies the red buy signal of last week and does not turn the market negative but rather neutralizes the last red signal. Our current support line sits at the $4.50 – $4.60 area on the September contract while a larger support is seen at the $4.25 – $4.35 area.
Short term indicators are still neutral but the main trend is still up.
Harvest 2017 prices as of the close, July 26 are as follows:
SWW @ $205.27/MT ($5.59/bu), HRW @ $205.57/MT ($5.59/bu),
HRS @ $265.90/MT ($7.24/bu), SRW @ $202.98/MT ($5.52/bu).
US and World
It is a sizzling summer in the American heartland with North and South Dakota taking the brunt of a devastating drought, which has impacted spring wheat country. Temperatures across the American Midwest have been triple digit for much of July and it remains to be seen how this will impact corn and soybean crops in the United States. The 30-day forecast for the American Midwest is for a continuance of hot and dry weather.
On July 12th the USDA weighed in with their latest estimates of US crop production. In the report the USDA increased US corn production at 14.255 billion bushels with the US national yield sustained at 170.7 bushels per acre. At the same time the USDA increased soybean production to 4.26 billion bushels. This was based on a five million bushel increase based on expected harvested area at 48 bushels/acre.
The USDA also raised new crop corn ending stocks by 75 million bushels. This was offset to some extent by an increase of 50 million bushels in the feed and residual usage. The 2017/18 corn ending stocks are now estimated at 2.325 billion bushels, which is up 215 million bushels from earlier estimates. The new crop soybean ending stocks were reduced by 40 million bushels to 410 million bushels. This lowered new crop soybean ending stocks by 35 million bushels down to 460 million bushels. All wheat production was raised. However, spring wheat production estimates were slightly higher than pre-report estimates, but down 21% from last year. US Durum production was below pre-report estimates and 45% less than 2016.
On July 21st, corn and wheat futures were lower than the last Market Trends report. Soybeans futures were higher. September corn 2017 futures were at $3.79 a bushel. The July 2017 soybean futures were at $10.09 a bushel. The July 2017 Chicago wheat futures closed at $4.99 a bushel. The Minneapolis September 2017 wheat futures closed at $7.65 a bushel with the September 2018 contract closing at $6.66 a bushel.
The nearby oil futures as of July 21st closed at $45.77/barrel down from the nearby futures of last month of $47.07/barrel. The average price for ethanol on July 21st in the US was $1.77 a US gallon up from last month at $1.72 a US gallon.
The Canadian dollar noon rate on July 21st was .7969 US up from .7695 US reported here last month. The Bank of Canada’s lending rate increased to 0.75% %.
In Ontario the wheat harvest has been progressing nicely in southwestern Ontario, completed almost in Essex and Chatham Kent. Yield and quality has been good, but maybe not as good as 2016. In some areas of the province harvest is just getting started. Excess rainfall in some of these areas may impact the quality.Needless to say, the recent price spike in the wheat futures market came in the nick of time for many Ontario wheat producers.
Parts of Ontario have continued to be inundated with too much rainfall during this growing season, especially in central Ontario. After a wet spring, crops have been progressing and generally are behind last year’s progress to some extent. Corn fungicides are beginning to be applied in southwestern Ontario and many producers are including an insecticide for the control of Western Bean Cutworm. As of July 21st, it’s likely Ontario crops are not as good as last year, but may even still be above average. In Ontario a corn crop more like 1.85 million acres (vs. Stats Can 2.1 M/ac) and yield average of 155 might be in the ballpark. This is smaller than usual and may have ramifications for basis levels going into 2018.
The Ontario corn basis level has actually reached, backed off, and continues to flutter around the import level to processors in the province. However, basis levels at the elevator level are much lower partly because of some vomitoxin concerns, which were present in some areas of the province in 2016. The Canadian dollar almost reaching $.80 and gaining six cents over the last eight weeks has been negative to cash basis levels in Ontario for all three grains.
Old crop corn basis levels are $.60 to $1.01 over the September 2017 corn futures on July 21st across the province. The new crop corn basis varied from .70 to $1.10 over the December 2017 corn futures. The old crop basis levels for soybeans range from $1.95 cents to $2.10 over the August 2017 futures. New crop soybeans range from $1.70-$2.15 over the November 2017 futures level. The Grain Farmers of Ontario cash wheat prices for delivery to a terminal on July 21st were $5.88 for SWW, $5.88 for HRW, $5.85 for SRW and $7.71 for Red Spring Wheat. On July 21st the US replacement price for corn was $5.04/bushel. You can access all of these Ontario grain in the marketing section at Grain Farmers of Ontario.ca.
The Bottom Line
It might be hot and dry in the American corn belt, but it is not 2012. With December corn settling in a trading range between $3.84 and $4.17, the market does not believe the crop is in trouble. This is happening in an atmosphere where in the northern plains in the Dakotas the wheat crop is dead and the corn crop not much farther behind. So we move on into summer watching the market for any clue that may concern. Weather reports in the American corn belt have become the focal point of the market.
What cannot be lost in the recent run up in soybean and wheat futures is the effect of the Canadian dollar on our cash prices. The Canadian dollar as of July 21 is tantalizingly close to an 80 cent US level. This has had a great mitigating effect on Ontario cash crisis through the recent futures rally. On May 2nd the Canadian dollar was fluttering around the 72 sent US level and it is been almost vertical since then. It is the quintessential example of the challenge of marketing Ontario grain. Hedging the foreign exchange risk on basis versus futures moves will continue to challenge Ontario farmers.
We have hot and dry weather forecasts and a sideways trading range for corn. However, the ethanol, gasoline, oil market have been positive for corn prices. The US dollar has also been declining, which has been little bits of bullish stimulus in the corn market. It remains a critical time in the marketing decision-making process. We are at a tipping point on the US production direction for which way this crop goes.
That direction or tipping point may be on August 10th when the USDA releases their first survey-based in field look at crop production. Of course, by this time much of the hot dry weather will have manifested itself across the corn belt. USDA has stuck with their national corn yield 170.1. It is likely by August 10th to be reducing that somewhat, possibly down to 166 or lower. Needless to say, the market by that time will lose some of the interest it has in old crop bearishness and will be focusing more on conditions in the field.
Commodity Specific Comments
In 2016 the high in December corn was reached on June 18th. However, the high in December corn this year was $4.17 reached on July 11th only to be back down to $3.93 on July 21st. The question is will we get another kick at the can? Will farmers get a chance to see December corn reach back up to $4.50 a bushel like it did in 2016?
The American NOAA put out his three-month outlook for US crop weather in the Midwest and it looks hot and dry. In places like North and South Dakota the corn crop has been devastated like the spring wheat crop. It is a small part of the total US crop, but it is not insignificant.
The December 2017 March 2018 corn futures spread is $-.11 as of July 21st, which is considered neutral. Seasonally the corn futures market tends to trend down thru early October. The December corn contract is currently priced in the upper 41% of the markets past five-year price distribution range.
The soybean futures market has gained about $.80-$.90 in the last three weeks. This is significant especially because we have not hit the critical soybean pod filling stage in August. If the weather continues to look hot and dry into August, there is real potential for soybean prices.
American soybeans are still priced a bit higher on the export market than South American soybeans. For instance, there were will be quite a bit of competition for American soybeans come this fall. So there is still bearishness within the sector. However, August rains are critical for soybean development and we have yet to enter that time frame.
The November 2017 January 2018 soybean futures spread is currently -8.5 cents as of July 21st. This is considered neutral. Seasonally the soybean markets five-year price index tends to trend down through mid-August. The November soybean contract is currently priced in the lower 47% of the last five-year price distribution range.
There is no question that spring wheat in the Dakotas has been devastated. However, it is not devastated everywhere, including here in Ontario. There is a premium for high protein spring wheat and that will remain for some time. It is not completely transferred to the wheat market in Chicago, but it has come along in the nick of time for Ontario producers who are enjoying higher prices than a year ago.
$6 wheat off the combine was available in the first part of July for many producers in the deep south west of Ontario. It was also available for producers to forward contract for 2017 and 2018. The crop continues to be harvested in different parts of Ontario. These higher prices may spur more wheat planting this fall.
The Bottom Line (cont.)
As we move ahead the hot and dry weather forecast may have an impact, but keep in mind one good drenching rain wipes all that out and tips the scale back into bearishness. Of course, we are still a few weeks away from the critical pod filling time period in August for soybeans. With the lateness of the crop all of this has been pushed back a bit versus 2016.
Of course much of that opportunity in Ontario has to do with the value of the Canadian dollar, which is trying to break through $.80 US as of July 21st. The health of the Canadian economy has been good and it was partially recognized through the Bank of Canada increase in their overnight lending rate by 25 basis points in July. This was testosterone for the Canadian dollar and negative for our Ontario cash grain prices. Future Bank of Canada rate increases are not out of the question. Of course, many are asking the Canadian dollar can sustain its torrid pace over the last eight weeks?
The weather forecast will continue to dominate going into August. Soybean prices had been somewhat buoyant in July but could become very volatile into August depending on weather forecast. Seasonally soybeans tend to trend down to harvest and the market is fighting against that. A November soybean futures close of $10.22 on July 21st is still very healthy in this bearish market environment.
There are still a myriad of other issues affecting the grain market. We have onerous old crop supplies coming out of South America as well as good crops now being produced in Europe. Interest rate increases may be coming within the United States and Canada. Will there be a black swan event in late July or August to completely wipe the slate clean and send prices in directions we can’t imagine now? That is the unknown, something which is all a possibility; nobody knows where prices will go. It’s important to immerse ourselves in all of these market factors and make the best marketing decision we can. Daily market intelligence will remain key. Standing orders for grain will remain a great tool to capture these opportunities.