Grain Spreads: August Weather Eyed

Sean Lusk General Commentary Leave a Comment

Commentary

Corn and Soybean futures rebounded after yesterday’s setback as stock futures rallied as did crude oil following Mondays rout. The grain market went bid overnight as good to excellent conditions only gained 1 point better in the good to excellent category, while Spring wheat plummeted again. I think we will get a better gauge on conditions following next week’s crop progress report that perhaps could show early July rains having an impact. That said the NW quadrant of the grain belt is where the worry lies. The condition ratings East of the Mississippi remain excellent. For Corn the thinking now is  the yields in the east will make up for potential shortfalls in Minnesota, the Dakotas, and some parts of Iowa. The reason though in my view in why were seeing a two sided trade in corn, is that prominent crop scouts now have yield at around 176 BPA, while the USDA is at 179.5. It’s a big spread considering a 1.4 billion bushel carry. Any variance lower on yield and ending stocks could fall to one billion. That said a few good rains in SD and Minnesota and we could be looking at a bin buster which potentially raises ending stocks to 1.6 billion. In my view the “Wild Card” for corn is beans. New crop ending stocks are at a paltry 155 million bushels. Stocks to Usage is near the lowest on record. The bean market cant afford misses in the Dakotas or Minnesota or somewhere else that matters. If weather or dryness persists into August and a sub 50.0 yield on beans is rumored by crop scouts, look out and buckle up for 2012 highs to be tested in my opinion. Therefore August weather will be detrimental to both grains moving forward. I’m going to refrain from putting out trade recommendations on this report. The market is reacting to each weather run aggressively at this moment and especially on the Sunday night re-opens. For weather, the likelihood of it turning hotter is more likely than not at this point. The questions is will our normal Summertime heat be accompanied by moisture?  Regardless, bean ending stocks look to remain tight, That is unless the USDA throws a curve ball in either the August or September supply/demand reports that lowers bean demand or beans into crush. 

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Sean Lusk

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