Conflicting market news is making trends hard to identify on the Chicago Board of Trade right now. Hard numbers in the recent U.S. Department of Agriculture World Agricultural Supply and Demand Estimates Report seemed to supply some direction, but that direction did not last through release day June 12.
The market started lower after the report was deemed negative by traders but turned back up. By the end of the day, the report was considered neutral.
South American numbers
The market was looking for reduced corn and soybean crops in South America, where weather problems have cut crops and local yield estimates have been sharply lowered. In fact, USDA only changed the Brazilian soybean production estimate. That was lowered by 37 million bushels. Analysts had pre-report estimates that were significantly lower.
I don’t follow the production numbers for South America regularly, but it is the changes in those numbers that matter. We are no longer the world’s largest exporter of corn or soybeans, even though we produce by far the most. We consume most of our production domestically. Still, it’s troublesome that USDA production numbers for Brazil and Argentina are higher than the Brazilian and Argentine numbers. I am thinking they know better than we do, and that their numbers might be in the next WASDE.
USDA now estimates the Argentine corn crop at 2.087 billion bushels. The average trade guess was at 2.003 billion. USDA used the same number in May.
Likewise, USDA now puts the Argentine soybean crop at 1.837 billion bushels, the same number they used in the May estimate. The trade was looking for 1.831, not a huge difference. The USDA says the Brazilian corn crop will be 4.803 billion bushels, the same as the May estimate. The trade was looking for 4.762 billion. Although the USDA did cut the Brazilian soybean crop from the May estimate of 5.658 to 5.621, it still was nowhere near the trade estimate of 5.577 billion.
This means we now have to argue about methodology. USDA is taking the position that we don’t know the crop size, and they are not going to change it in the June report, using the argument of an abundance of caution. Analysts are taking the position that an estimate is an estimate, and we know crops are smaller after flooding during harvest for Brazilian beans and after drought in the Argentine crops.
Last week, I mentioned that we could expect some version of the situation where analysts are caught between the number value of their own estimates, and the estimate of what number USDA would actually print, which could be widely different. Now we are left wondering what the numbers represent. Are we seeing the crop size or the crop size USDA was expected to predict or the crop size analysts actually believe is true.
Confusion
This confusion may be part of the reason that the report was expected to hurt prices, but they rallied back to neutral territory by the end of June 12. Numbers are only negative if the traders consider them negative.
It reminds me of a colleague’s remark when I was working for Scoular. He said that the free market value of a grain was only determined by actually trading it. After the fact, you could feel if you got full value or traded it too cheaply. But, talk is cheap, and the value has to depend upon actual trading, just as we saw on the Chicago Board June 12.
Another confusing factor is the condition of the crop in this country, and the perception of what is going to happen here in the start of serious summer weather. June is the month that we measure value on the Board of Trade. We tend to have the corn high in June. Talk is especially cheap when we get to July. Very rarely do we get late summer weather that really changes things. Often the drought that hurts us in August was hinted at, and traded, in a weather scare in June.
So, what is the weather? It has been very good in the Eastern Corn Belt so far. The Western Corn Belt has been dry, and that has helped prices a little. There is no major fear, so it has not helped much. Now we see forecast for rain in the ECB may be too much rain. Probably at the same time we will see, over the next two weeks, enough rain to keep the crop in good shape in the West. However, we have higher-than-normal temperatures forecast for the West, which is often worse than dry weather by itself. High temperatures and wind can wreck a crop very quickly.
Current prices
Looking at prices, we see July corn futures at $4.46 the morning of June 18. In the middle of May, they were at $4.75 1/2, 29-1/2 cents higher. We saw a low of $4.38 1/4 June 5 and a high of $4.60 1/2 June 13. This kind of defines volatility without much direction. December corn futures are currently $4.65 3/4. We have been as high recently as $4.96 3/4 May 15, and as low as $4.58 1/4 June 5.
The soybeans and wheat have been more volatile with double-digit changes some days. July soybeans are currently $11.60 3/4. They were as low as $11.40 1/2 March 29 and then back to $12.40 on March 24. The next drop was to $11.58 3/4 on April 30 and then back to $12.58 1/4 May 23. this kind of defines a lot of volatility, based mostly on weather news from South America, and the trend seems to be down.
Wheat was trading at $6.05-3/4 the morning of June 18 and had a bad day June 17, losing over 21 cents. The negative in wheat right now seems to be that the Plains wheat crop is better than expected, and the harvest pace is ahead of normal. Still, better to have good yields than good prices.
July futures have been as low as $5.50 March 3 and as high as $7.39 1/4 May 28. That looks like the date we will remember for awhile, since we have lost $1.33 1/2 since then.
We are not likely to rally with the harvest we are having. The wild card is still Russia with a drought badly hurting their wheat crop. That may mean we can rally after our harvest is finished. Locally, the harvest will be very early. It has likely started in Ohio as you read this.
