Could India Grain Production Lift the Markets?
The markets rallied sharply yesterday on the back of a dollar sell-off and concerns about India grain production.
In the overnight session the grains are trading slightly lower with corn down 3/4 of a cent, soybeans down 4 1/4 cents and wheat down 1 1/4 cents going into this morning’s pause in trade. Crude oil is down $1.04 this morning and the U.S. dollar has rallied back nearly 1/2 a percent from the sell-off yesterday. ADP numbers, which are generally used as a leading indicator for non-farm payrolls, were released this morning showing payrolls grew to 200,000 jobs in May, up from 169,000 jobs reported in April. ADP payrolls were better than expected and provided strength to the U.S. dollar this morning.
Yesterday, the rally was mostly fueled by a sharply weaker dollar primarily due to the anticipation of the ADP report and an improved tone toward the Greek debt situation. However, concerns about the intensity of the Indian Monsoon season played a role in the grain rally yesterday as well. Yesterday, India cut its forecast of this year’s monsoon to 88 percent of the long term average. If this comes to pass, this will have a huge impact on India’s grain production. Typically, a monsoon that is 90 percent of normal is considered a drought year.
According to the most recent WASDE report, India is forecast to produce 90 million metric tons of wheat. However, other organizations such as the India Pulses and Grains Association have forecast output to fall to 80 million metric tons. It has been wet in India throughout March and April but recent dryness and exceptional heat has sapped the moisture from the soil making it all the more important for the June-September rains to return.
Support for Grains Across the Board
Even with strong support Cody looks at whether or not these prices can be sustained.
Winter Wheat conditions decline in Texas and Colorado
Winter Wheat rated good to excellent fell by 1 percent throughout the U.S. in the latest crop progress report issued out on Monday.
In the overnight session the grains traded higher with corn up 2 1/4 cents, soybeans up 8 1/2 cents and wheat up 4 1/2 cents going into this morning’s pause in trade. The U.S. dollar index has fallen nearly 3/4 of a percent and crude oil is 55 cents higher this morning.
Yesterday, crop progress showed that all planting for corn is nearly complete with 95 percent done as of May 31st. This is on par with the average of 94 percent complete during this time of the year and up from 92 percent complete last week. The condition of the corn crop remained unchanged from last week.
Soybean planting pace jumped up 10 percentage points this week to 71 percent complete which is on par with the four year average of 70 percent during this time period. Weather looks to provide additional planting opportunities through Thursday throughout the eastern grain belt. Precipitation in the northern plains is expected through Wednesday. Next week’s weather outlook favors drier weather throughout the majority of the U.S., but will bring significant rain the east coast.
Winter wheat good-to-excellent ratings fell by 1 percentage point across for the entire crop but some states were affected more by the rain than others. Texas in particular saw its wheat rated good to excellent slide to 5 percentage points to 51 percent. Kansas and Oklahoma remained unchanged on the week but Colorado fell 4 percentage points to 49 percent good to excellent.
Bearish Wheat Trend is Sustained
Cody talks about pricing strategies for these spikes in wheat prices. Export inspections, weather, and crop progress are also covered.
Grains Quiet on Monday
The grains are mostly unchanged with the exception of soybeans on Monday morning.
In the overnight session the grains were mixed with corn lower, soybeans down 3 3/4 cents and wheat up 1 1/4 cents. The U.S. dollar is trading slightly higher with crude oil down 28 cents this morning. On Friday, the grain crushers strike in Rosario Argentina was resolved which should have a positive effect on exports out of Argentina.
Sunday provided precipitation that ranged from 1/4 of an inch to an inch of precipitation throughout eastern North Dakota, South Dakota and eastern Nebraska. In the southern Plains most of the precipitation fell in eastern Colorado with spotty showers spread throughout the western parts of Kansas, Oklahoma and the panhandle of Texas. This week’s weather outlook turns dryer for the southern Plains which is a break from the above average precipitation received throughout May. According to the Speedwell US Winter Wheat Index, the southern plains have received precipitation that runs 350 percent above normal throughout May.
After a week of hard selling, corn and wheat are closing in on support. July Kansas City Wheat has a previous low of 4.60 3/4 cents and July Corn is approaching the low set last September of 3.46 3/4 cents.
Weekly Cash Market Update
Tune in to watch Cody discuss the weekly export sales and talk about the basis changes throughout the country.
Tune into the weekly summary to hear about this week's export sales report and listen to Cody discuss the weekly basis changes.
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Weekly Cash Comments
Cash commentary for week ending May 29
It was another week lower in the grain futures markets as the prospects of another bumper crop this fall keep prices on the defensive. In the cash market, basis levels only showed modest improvement for soybeans, which gained 1-cent a bushel while corn basis was unchanged for the week.
For corn, basis levels were mostly flat with ethanol plants showing no real movement as a group. However, in Iowa there was some noticeable weakness in spot basis with numerous plants in the region posting 2 to 5 cent losses on the week. For river terminals, basis was higher by nearly 3 cents a bushel this week. In Saint Louis, spot basis moved up to +23N this week cents and is up 18 cents in the last two months.
For soybeans, there was a bit more strength overall this week as compared to corn thanks to sharp gains at crushing facilities. Soybean plants as a group were up 3 cents a bushel, but gains of 5 cents a bushel were fairly typical especially at Western Cornbelt facilities. At the Gulf, export basis was up 2 cents a bushel on the week, but river terminals as a group were only up 1 cent. With ample pipeline supplies and slowing export demand it will be difficult for basis levels to post any significant gains at this time of year.
Chart of Note: Colombia On Track To Again Fill Duty-Free Quota Before Year’s End
The large increase in the past two years was made possible by both greater availability and the U.S.-Colombia free trade agreement
This week’s U.S. Grains Council’s Chart of Note illustrates that Colombia is importing a similar amount of U.S. corn in the first four months of this calendar year as compared to last year and will likely exhaust its duty-free quota soon. This is in stark contrast to just two years before when only 18,500 metric tons (728,000 bushels) of U.S. corn were imported by Colombia from January to April 30. This large increase in the past two years was made possible by both greater availability and the U.S.-Colombia free trade agreement (FTA).
The FTA gives U.S. corn imports up to 2.43 million tons (95.6 million bushels) duty-free treatment, which has been advantageous so far this year. U.S. corn will likely continue to see a price advantage over other competitors even when the country is forced to import outside the duty-free treatment. The quota increases 5 percent every year until 2024 when U.S. corn will not have a duty to enter Colombia.
“The Colombian industry estimates importers are planning to purchase an additional 2.6 million tons (102 million bushels) this calendar year,” said USGC Regional Director of the Western Hemisphere Marri Carrow. “Out of quota U.S. corn will have a 16.5 percent duty applied, which is the same for Argentina and Brazil. Capturing these final year sales will really depend on the basis, but current market dynamics are favorable for the United States to maintain its current market dominance.”
All of this is good news for both U.S. corn producers and Colombian end-users. Colombian importers are reaping the benefit of competitively priced U.S. corn while the United States continues to regain dominance in this market.
Can exports lift soybeans?
Export sales continue to outperform for soybeans late in the marketing year.
In the overnight session the grains were mixed with corn up 2 1/2 cents soybeans down 1/2 a cent and wheat down 1 1/2 cents. The U.S. dollar is mostly unchanged with crude oil 74 cents higher. Rains are likely to continue in the southern plains over the next few days and then a drying trend is likely to take hold for the first part of June.
Yesterday, the weekly ethanol production numbers showed an increase in production by 11,000 barrels per day to 969,000 barrels per day. Stocks declined this week by 337,000 barrels to 20.1 million barrels. Ethanol production has picked up sharply in the late part of May which is typical going into the driving season. Ethanol production is up 4.8 percent over last year compared to the USDA’s corn used for ethanol balance sheet item which suggests only a 1.3 percent increase.
Export sales were mostly in line with expectations for old crop sales, but new crop corn and soybean sales disappointed. Old crop soybean sales beat analyst expectations at 322,400 metric tons which was up sharply from last week’s sales of 98,909 metric tons. The buyers this week included China, the Netherlands, Germany, Japan and others. Soybean sales continue to show above average export demand late in the marketing year. However, this morning the Argentine soy crushers union stated that he expects a salary agreement which would end the strike that has negatively affected the local market and slowed exports form the Rosario Region.
Old crop corn and wheat sales met expectations with corn showing sales of 654,600 metric tons of old crop and wheat recording 42,500 metric tons. Sales were down 19 percent and 43 percent respectively but managed to fall within the range of expectations.
On Thursday GASC purchased 240,000 metric tons of which 75 percent was sourced from Russia and 25 percent was sourced from Romania.
Russia has taken measures to limit exports in the event of a sharp decline in the Rouble by setting a wheat export tax at 50 percent minus 5,500 Roubles per metric ton. The government set a minimum tax at 50 Roubles per ton. The export tax was designed to limit wheat exports in the event wheat prices reached 13,000 Roubles.
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