July USDA Report

In a typical year the July S&D report does not hold any major surprises. With all the unique challenges faced this year and the huge surprise from the acreage and stocks report at the end of June, the market was apprehensive about this report. USDA did not give us any major surprises today. On its surface, the corn numbers are bearish as USDA did not reduce yield from their June estimate of 166 and they used the acreage as printed on the June report at 91.7 million acres. As soon as USDA printed the 91.7 million corn acreage number on the last report they immediately announced an unprecedented resurvey that will be reported on the August supply and demand report. They know and acknowledged a great deal of uncertainty in that estimate. The market was not scared by the 2+ billion bushel carryout estimate reported on this update because everyone is acknowledging the uncertainty in the acreage number. There is also more questions about the yield estimate than in a normal year due to the historically late planted crop as well. So the market was able to absorb the numbers as given with no dramatic surprise in any direction and find support and trade higher.

The market is more concerned about weather going forward. The crop is behind and was planted in very poor conditions so it needs heat units to catch up. Many areas of the Midwest have been several weeks now without any rain and have been unseasonably warm which is starting to bake the ground that is exposed from the smaller than normal plants. There is a hurricane in the gulf that may bring some rain to parts of the Midwest. This crop needs perfect weather and a late frost to have a chance. Any threatening weather will concern this market. Basis continues moving higher in all parts of the country. New crop basis is triple digits in most areas. Trains are being loaded in the Dakotas to come to Ohio which is a move that would have been impossible only a few years ago. With the uncertainty of this USDA report not hanging over our heads, the market can get back to trading weather.

Soybeans saw a fairly friendly report. Only a few months ago we thought a deal with China was the only thing that could possibly bail out beans, but the extreme weather has really pulled the balance sheet down. USDA dropped yield a bushel from the June report and the same acreage. The market knows there is room for both acreage and yield to come down further. Bean market can go back to trading weather as well. We do not have enough data to understand what kind of yield potential we have on a crop planted this late so there will be plenty of uncertainty to trade. In a supply driven rally like this, uncertainty is our friend. However the crop turns out, there will be much less beans in the east and much like corn, most of the beans that come to us come from the eastern belt. I do not think we will be seeing record basis levels in beans, but we could very well see much higher new crop bean basis than we have in the last few years. Be patient locking in bean basis for new crop. I think that end users are looking for offers, so if you have any firm offers, it is important we have a plan together.

Biggest surprise from USDA today was on wheat where USDAs ending stocks estimate came in 38 million bushels below average estimate. Wheat feeding and exports were increased while the Russian crop size was reduced. Wheat may have the headline today, but does not have enough of a story on its own yet to continue alone. Wheat will probably shine today before falling into line as a follower of corn. If you have any milling quality or feed wheat in the bin, having a home for it will be important this year.  

USDA today raised cotton yield to 845 from the June estimate of 842 but left demand unchanged increasing the carryout. They also increased world carryouts to 80.42 from 77.26 and increased 19/20 ending stocks to 6.7 mil bales. Cotton has taken it on the chin the last few weeks as condition ratings have steadily improved over the last few condition rating reports. The Commitment of Traders report has shown the funds building an even larger short position in cotton. We need a trade deal with China to help cotton!