LEADING OFF: Grain and oilseed futures have ignited coming out of the Fourth of July weekend, with both corn and soybeans surging on concerns about crops. Corn is up 12 to 13 cents, and soybeans are up 28 to 30, in both cases to fresh one-month highs. Both markets have reaffirmed the bullish reversals posted on June 30, which in the case of corn was off of a contract low. Wheat is up 10 to 12 cents, and cotton is up 120 to 140 points.
The gains this morning are not being driven by outside markets, which are mostly subdued. Crude oil is down 40 cents, and gold is up $30. The U.S. dollar index is up slightly. U.S. equity futures indexes are mixed this morning. This will be a relatively quiet week for economic data, with the PMI for services out this morning, Existing Home Sales on Thursday, and not a whole lot else for economists to chew on.
The July 4 time period is often a pivotal one for the grain markets, and if that’s the case this year it is very good news for bulls. The rally is being fed by continued heat in the forecast for the Midwest into the latter part of July, along with excessive rains that fell over the weekend in parts of the western and central Corn Belt, all of which is clouding the outlet for a crop that is already seeing a lot of variability. The market is also getting a lift from the heat wave across Europe, as well as last week’s news that China and the U.S. are working an agreement to normalize two-way ag trade, a move that would presumably re-start their purchases of U.S. soybeans.
CORN: Looks like a classic weather market coming out of the holiday weekend. Forecasts continue to show above-average temperatures for virtually the entire country through the next two weeks. And now that heat is being accompanied by an outlook for below-average rains, in both the 6-to-10 and 8-to 14-day outlooks according to NOAA. While the hope last week was a stretch of hot and drier weather would actually help crops that were running a little behind and in many places that were dealing with saturated soils, the returns on that heat quickly diminishes and becomes negative as we get deeper into July. Meanwhile there’s also a growing recognition that the crop has looked highly variable around the country, which could place some added emphasis on this afternoon’s Crop Progress report.
While the U.S. is facing persistent heat, Europe continues to bake. Western Europe faces up to nine days of excessive heat and dryness according to World Weather Inc. with temperatures reaching 90°F to over 100°F from Iberia through France, the U.K., Germany, and the Low Countries. This will worsen France’s existing drought, as no rain relief is expected until at least July 16. Late last week, France AgriMer showed the condition of the crop already deteriorating rapidly: Just 58% good/excellent, down from 76% the prior week.
SOYBEANS: While the heat in the forecast is the main concern for corn and soybeans, note that rains were excessive over the holiday weekend in many areas. Through eastern Iowa, southwest Wisconsin and northern Illinois, 1.4 to 3.8 inches were common, with much greater totals in localized areas: Ames, Iowa saw 8.33 inches of rain while most of the surrounding area saw 4 to 7.5 inches. Some areas of northern Illinois also saw more than five inches, and parts of the northeast Corn Belt saw multiple inches of rain as well.
The market did not show much reaction to China’s announcement last week that it was working on a deal for two-way ag trade, with reduced tariffs, but that should precede a pickup in purchases of U.S. soybeans. There were more rumors about Chinese buying last week. The extent to which Chinese buying could boost the market is unclear, since the baseline assumption has been that China has a 25 MMT purchase agreement for each of the next two years. In the near-term, Brazil reported soybean exports of 14.5 MMT in June, up from 13.42 MMT a year ago.
WHEAT: The heat concerns in Europe and the U.S. are having a muted impact on wheat due to timing, as it is too late to have a dramatic impact on winter wheat. France’s winter wheat harvest last week was already 26% done. Meanwhile conditions in the Black Sea region are mostly favorable, and concerns about Australia suffering from drought in an El Nino year haven’t come to fruition yet.
Saudi Arabia purchased 661,000 metric tons of wheat in its fourth tender this year, Reuters reports. Delivery is expected in September and October, with multiple origins including the EU, North and South America, Australia and the Black Sea region.
LIVESTOCK: Live cattle futures ended last week on a down note amid soft beef demand and expectations for softer Plains cash trade. That weaker trade did emerge, with Kansas trading lightly at $255 on a live basis on Wednesday, with more active trade at that price on Thursday, down $3 from the prior week. Nebraska also traded at $255 live, down $3 from the prior week. Deeply negative packer margins hang over the demand outlook, as does the heat across most of the U.S., which is expected to continue over the next two weeks and could curb grilling demand. Feeder cattle futures also stumbled on Thursday, losing more than $3, and will likely come under further pressure this morning from the surge in corn prices. Lean hogs were firm to end last week.
