Price Outlooks and The Heat Goes On... - Wednesday, 03 August 2016

Production expectations for the crop of 2016 continue to remain strong while prices continue to fall.  The Funds are known to influence price movements, it seems as though these investment groups have “turned against” corn, soybeans and wheat with the anticipation of continued well-timed rain events.  According to the Commodity futures Trading Commission data the 3 largest U.S. crops had a combined net-short position of 74,033 contracts.  Just 1 week prior to that the Funds held 7,724 net-long contracts!

Outlooks for total U.S. crop production have made the argument for higher prices virtually impossible.  Kevin Van Trump of the Van Trump Report stated that, “it has become extremely difficult to build much of a fundamentally bullish case. Perhaps if the U.S. Dollar weakens and crude oil can make another run back towards $50 per barrel, the macro bulls will begin to find more interest in being long commodities, which will ultimately help provide a tailwind for corn. Until that happens it seems like the current bearish mentality associated with “supply” will be looking to offset any bullish momentum or talk being created by “demand”.” Further crop analyses from producers will begin next week when the USDA will present their 1st farmer based survey of the season on August 12th and first-hand assessments from the Pro Farmer Midwest Crop Tour will follow from August 22-25th

We have been hearing all season about the deteriorating crop in Brazil and their need to import corn for domestic purposes.  Reuters just reported this week that leaders inside the Brazilian government are working to make changes to current regulations regarding the importation of GMO corn.  The changes that are being considered would allow imported GMO corn to be used for animal feed. This initiative proves (to some extent) that Brazil is in need of corn and perhaps the demand they will bring to the U.S. is even greater than earlier believed. 

The recent news out of China also gives hope to U.S. producers.  It’s being reported that the Chinese are working to reduce the countries total corn acres by -9% over the next 4 years, 5 million acres this year alone.  If this reduction occurs it will be the first real decrease in key production regions in 14 years!

The USDA continues to rate the 2016 corn crop extraordinarily high.  This week saw the Good to Excellent rating increase by 1% to 76%, which has also prompted respected groups like FC Stone to estimate record average yields of 175 bushels per acre.  There are many reports of the crop looking better than ever-from the road but when the fields are walked a less than perfect crop becomes apparent.  Reports of tipping back and smaller than normal ear/kernel size are not uncommon once closer inspections are made.

These are samples taken from a field in north central Iowa earlier this week. The two ears on the left were taken from good standing corn, the two on the right were taken from stalks that were wind damaged and gooseneck.

Here are a few of the specifics from the USDA report:

  • Iowa is expected to average 190 bushels/acre- 83% of the crop is rated Good to Excellent, this is +13% higher than the 3 year average.
  • Minnesota is estimated to see an average of 191 bushel/acre-85% of the crop is in Good to Excellent condition.
  • Indiana and Nebraska look to average 187 bushels/acre
  • Wisconsin is forecasted to average 184 bushels/acre
  • South Dakota is expected to average 144 bushels/acre

91% of the U.S. corn crop is in the silking state vs an average of 85% and 30% of the crop has reached dough stage which is +5% above average.

Likewise soybeans also saw an increase in the Good to Excellent rating this week from the USDA to 72%.  This brings the 2016 soybean crop to an anticipated level of production not seen in 30 years. Thankfully demand for U.S. soybeans remains healthy with some analysts anticipating an increase in the USDA soybean export forecast as well as the crush estimate.  Another piece of encouraging news arrived this week when China booked another +250,000 tons of new-crop soybeans, this sale was the 5th day in a row that the U.S. had made new sales of soybeans.

The Climate Prediction Center has forecasted (for the 1st time in history) that “every square inch of all 50 states” should expect to see above average temperatures from August through October this year.  Dan Collins, a meteorologist with the CPC said, “An entire forecast map awash in the red and orange colors of unusually warm temperatures for a 3-month period is unprecedented.  Typically parts of the map register blue, depicting the likelihood of cooler-than-normal air or white for equal chances of cool and warm.”  They are not alone, the Weather Company (parent company to The Weather Channel) also predicts similar conditions with an exception of northern Montana.

 

The month of June set records in the U.S. and globally, it was the warmest non-July since record keeping began in 1880 according to NOAA.  The entire year of 2016 is actually in the running to be the warmest year on record for planet Earth as well.  

We tend to only take in to consideration the weather conditions where we are and forget about what other locations around the globe may be experiencing.  A couple of weeks ago the temperature in Mitribah, Kuwait reached 129.2 degrees F; Basra, Iraq hit 129 degrees F!  These temps (once confirmed) could be a couple of the hottest temperatures ever recorded in the Eastern Hemisphere.  Death Valley currently holds the hottest temperature ever recorded on Earth, this record setting day occurred on July 10th, 1913 when the temperature reached 134.1 degree F.  There are many weather experts that doubt whether that temperature reading was actually valid, if you were to assume it was not accurate then the readings from a couple of weeks ago in the Middle East tie the highest know temperature ever recorded on the planet.

Meanwhile here in the Midwest….The 6-10 day National Weather Service Forecast for August 7th-11th is predicting warmer than normal temps for the center and eastern portions of the country with near to above normal precipitation expected as well.

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