July USDA Report

USDA made almost no changes on this report. Not many people had expected an update to yield but some were thinking an uptick in demand would be warranted. USDA incorporated the updated acreage from the last report but left yield alone. They did increase corn feed demand by a mere 25 million bushels. On beans they left everything unchanged. If you look at the numbers compared to expectations, this report looks bearish to neutral for corn and beans. So why did we see such a strong close? I wanted to get this report under our belt in order to bring back to the forefront of everyone’s mind how tight these carry outs are going to be even with a trend yield.

Over the last week all that we have talked about was a crop saving rain. A crop saving rain is not a crop making rain. Even if we save the crop we are still losing carryout and we still have a lot of growing season left. The forecast turned wetter for the hardest hit areas and some areas of northern Iowa and Southern Minnesota got 4 or 5 inches of rain, but many areas did not. It was only a crop saving rain for those who got it. They also have no subsoil moisture and are using as much as 2 inches of moisture per week so those that did get the rain only bought a few weeks. There is still a lot of weather ahead. I included a map below that shows the total accumulated precip for the last 14 days. You can see the many areas that only got an inch or two. Lots of the eastern belt got up to 6 inches but that was not the area that needed it. They have potential in the east to make an above trend yield, but not enough to pull up the average for the Northern Iowa and Southern Minnesota that have burned up now.

This report, though not bullish on the surface, got everyone’s attention back to carryouts. Also the midday model runs were trending drier that probably gave the market more movement than the report anyway. We are still in the same place we were two months ago. If it turns wet and stays cool over the whole corn belt, the highs may be behind us. If a portion of the western belt misses a rain event or two, there will be no coming back for them. Do not forget how much yield we lost last year just from a dry August (9.8 bushels of corn and 3.3 bushels of beans). USDA has been very conservative on making yield and demand adjustments and the market has come to expect it now. I believe there are upward adjustments coming on feed, ethanol and export demand and also downward adjustments on yield and South America production. Chinese demand is the wild card.

What To Do
We put a low in the Dec corn of $5.07 last week that you have to look back to May 26th fo find a lower trade and back to mid April before that. That low should hold until we know more about the crop. I anticipate the market should be willing to put more weather premium back in the market. I would be patient here. If you need to catch up sales, scale in small on big up days.

Beans have held on over the last week better than corn. They have stayed above the range we were trading in late June. Beans are being hurt in the Delta and some in the Eastern belt by too much rain and in the Western belt by too little. They are even tighter than corn. Wait on $14+ on beans

Wheat was the only thing USDA made major adjustments to today. USDA made significant cuts to spring wheat production. Minneapolis wheat is now well over $8. They actually added a bit to winter wheat carryout. July delivery will be behind us soon and the delivery pressure that added to Chicago wheat. Soft winter wheat production was up so there is a competition between the classes. We do not have huge carryouts in any wheat class but adequate. Southeast milling basis after corn harvest start will probably trade at or above rail replacement as a good deal of our crop has been shipped into the feed channel. If you have wheat in the bin, as always, take care of it! Flour bids are going to be very strong later. Be patient on the board.

Cotton is once again trying to break through resistance in the mid 88 cent level. This is the third time we have tried to push above there since March when it almost made it to 90 cents. USDA dropped yield but upped harvested acreage. They are projecting a carryout of 3.2 million bales which is more than last year (2.8 mln bales) but still a significant drop from two years ago when we had 7.8 mln bales. I think 3.2 million bale carryout is the highest we will see from here as there is cause to trim that lower. Wait for 90 cents on cotton.