As we commented yesterday morning, it was a pleasant departure from recent action to see grain and soy prices higher on a Monday morning, but unexpectedly that higher action developed into A HIGHER MONDAY, led by the bean market with corn coming in a close second. Wheat appears to have gotten pulled along in the slipstream. It would not seem that there was any particular piece of news to stimulate the advance and in fact much of the macro activity would have been considered negative but evidently some of the funds decided they had liquidated too much last week and elected to replace a few longs. It is estimated that funds purchased in excess of 13,000 contracts of soybeans and over 30,000 corn. The weakness overnight would suggest that these markets probably got a bit carried away yesterday, but still most likely gives the bear a little pause before trying to press values hard before tomorrow report.
Speaking of which, the Wall Street Journal released their survey for the report yesterday which breaks down as follows: Average corn yield of 164.4 with production of 13.318 billion bushels and ending stocks of 1.427 billion. The average bean yield came in at 44.6 with total production of 3.719 billion and ending stock for next year at 305 million. Projected ending stock for 2015/16 wheat is 858 million. As a reminder the July USDA estimate had corn yield at 166.8, production of 13.53 billion and carryout of 1.599 billion. For beans they projected a yield of 46, production of 3.885 billion and ending stocks of 425 million. Wheat ending stocks were estimated to be 842 million. As we know, the August report will be far from the “final word” on production this year and in many locales is little more than a population count, but of course it is always highly anticipated because it is the first “official” field survey of the summer.
We are not going to go into the crop conditions/progress reports in much detail this morning as there was really little to no change and the overall crop remain just a smidge behind normal. Note that the eastern side of the growing regions largely missed the rains over the weekend, which we suspect would have been very welcome. It almost stands to reason that the area that could not shut off the water six weeks ago now cannot buy a rain.
One story of note and not because it will specifically impact grain and soy trade immediately but because of other world implications is that China, unexpectedly devalued the Yuan overnight by 2%. For a brief period, this sent the U.S. dollar higher and the metals lower but the moves were not sustained. Maybe markets have finally adapted to the realities of slower growth in that nation. We know one thing for sure and that the slowdown there has not appeared to have impacted soybean imports as they imported a record 9.5 MMT in July but of course, they can currently originate beans out of South American for much less than US origination.
We suspect today will primarily be one of positioning for the report tomorrow, but after the volatility we have seen over the past few sessions, one has to wonder if there can be any fireworks left for tomorrow?
Take a look at the charts below to view the market ahead of Wednesday’s report. (Click chart to expand).
**The views expressed above are entirely those of the author.