The roller coaster ride continues, but at least this week it is back in our favor. Below there is a map of the total precip for the last 14 days. Much of the corn belt has had great rains over the last two weeks. If this were a normal year, we would say the crop is almost made now. It is going to go into pollination with good moisture and decent temps. However as dry as much of the western corn belt had been before this rain this few inches of rain will not get the crop to the finish line. The crop is using up to two inches of water per week and there is no subsoil reserves in the western belt. I also posted subsoil moisture maps that show the moisture at 10 centimeters and 100 cm. There has been improvement on the surface but not much improvement deep in the soil. They have to keep getting water from rain, they cannot rely on subsoil moisture like in a normal year. The weather models do not indicate any chances for rain in the next two weeks for the driest areas and the long term forecasts do not give much chance either. That is what the market is reacting to. Long term models are not very accurate and are constantly being updated so if the trend starts to turn wetter, the market will probably turn as well.
The rain and subsoil moisture maps posted below how great the conditions are in the eastern corn belt. They keep getting rain and have had very cool temps. The market is trying to determine if the crop can be big enough in the east to offset what could be a disaster in the west. One thing on the condition ratings this week was that we did not get significant improvement in overall conditions. We saw conditions improve in Iowa and Minnesota but we actually saw condition ratings drop in the east as there are areas that have had too much moisture. Too much moisture is not common at all in the Midwest during the growing season. We have faced conditions of too much water during the growing season and so we know what that does to a crop but market analysts in the Midwest have not experienced that as much as we have. They are used to much more benign weather. It is these reasons I do not think a good crop in the East will be able to offset the damage done in the west.
Usually by July 16th the market thinks it has a pretty good handle on the size of the crop (its not always right). Last year we had a good crop, until we lost it at the end. This year there is still so much still up in the air. I have been saying this all summer now, if it rains more each week for the rest of the growing season in the western belt the highs may be behind us. If we have a stretch of hot and dry weather as the models seem to be indicating right now, we could make a run back to those old highs. We thought we might have a buffer in more acres, but we do not. It all comes down to yield and we just do not know yet.
The market is mostly trading weather but not ignoring other news. It was reported that Brazil was buying corn from Argentina this week. That would be like the US needing to import corn in January. They are importing corn at a time when they should have the most plentiful stocks. That is a sign how tight the world balance sheet is. Chinese demand has been quiet but we cannot be sure if that is because they have what they need for now, demand is lower, or if they are just waiting for a more advantageous time to come back to the market. The big purchases they made earlier in the summer were all done over a two week period.
What To Do
The bean balance sheet is tighter than corn. That is why beans have stayed better supported on breaks and rally faster when the weather turns. Beans have longer to make a crop too though but there are more beans than corn in the delta that is being hurt by too much rain. I think beans have more upside than corn on weather issues.
Harvest corn basis is going to get cheap in the Southeast as we seem to have an outstanding crop on the way. We have plenty of demand to get it done, but it cannot get gone all at once. If you need to move corn during harvest, be working on getting basis set. Even as i list all the reasons the board could go higher, there is nothing wrong with scaling in sales. We never know when something is going to come out of left field and take our legs out.
Bean processors are offering some decent basis for harvest. I would be setting basis on beans you need to move at harvest. I think early harvest premiums could get better than what is available now. Same story as corn as far as pricing some futures. We can all be sure that it has to go higher, but something can happen at anytime that we do not see coming. Nothing wrong with sales around $14.
We have an absolute disaster in spring wheat right now. All the drought maps i show are just of the US, but the drought does not stop at the Canadian border. Minneapolis wheat is over $8 and looks to be heading to $9. This has helped bring strength in the Chicago wheat futures contract too. However, we need to be very careful here. Soft winter wheat is not as tight. We need export demand and this rally may make us uncompetitive on the world market for soft winter wheat. The Russians have instituted some controls on export to try to keep domestic prices so that has helped keep the world balance sheet from getting too burdensome. There is hot weather in the Ukraine and parts of Russia that will not do their spring crop any favors either.
The last time wheat futures went absolutely crazy (remember $13+ chicago wheat) it was sparked due to one class nearly running out. I am not saying that is what is going to happen here, but i am saying we need to be careful. When that happened, basis had to do the work and was trading multiple dollars UNDER the board. We do not need to be too scared of hedging some when the time is right, but we do not need to get too loaded up either.
Nearby milling basis has softened in western NC as people are trying to finish moving wheat to make room for corn. We know it would get tight no matter how small the crop was or how much was shipped into feed. The milling homes are just too slow. There may still be some push for August bushels so if you need to move some before corn, work on it soon. If there is any way you can hold, not many mills have anything on for fall, winter or next spring. There should be great basis opportunities for any wheat that is tucked away. Take care of wheat in the bin and it will take care of you!
Retail sales out of China showed a big jump and steel prices in China are pushing through to new highs. GDP growth in China was a little bit below expectations but still growing at a good clip. Consumer price data is also strengthening in China as their consumers get back to normal. The same pattern we have seen in the US. That is all bullish for cotton. The strength in the other commodities is also beneficial. We have more acres than expected and conditions are good so that could be some bearish pressure, but demand can offset that if we continue to get the world economy going in the right direction.
We have been talking about 90 cents for a long time. Get a little sold here at 90!!
This is the precip totals from the last 14 days
This is subsoil moisture at 10 cm depth. Comparing it to the one below which is at 100 cm, you can see that the rains have provided some relief but not enough down deep to last for long. They will need to continue to get more rain.
This is a different drought map than I usually show. This one just shows the change from last week. You can see that very few areas even those that got good rains, have shown much improvement. The areas that needed it got enough for temporary relief, but not enough to change the conditions long term.