Grain Markets Finish Mixed On Friday With Weather And Trade In Focus; Winter Wheat Post Improved Yields After The Tour

|
Includes: CORN, SOYB, WEAT
by: Andrei Evbuoma
Summary

While weather is causing slow crop planting progress, it's slowing down exports.

Grain markets mixed, but mostly lower, led by wheat.

Wheat down over 1% after reporting good yields and a continued lack of export interest/demand; CBOT-KCBT wheat a bearish 36-cent spread.

Northern corn/soybean belt to see some weather improvements with drier conditions Week 2 (Day 8-14); southern U.S. to remain wet.

Investment Thesis

Downside risk and bearish sentiment continue to weigh on the market. Weather continues to support the grains, particularly corn and soybeans, with concerns over planting delays/disruptions, river system shutdowns, and poor field conditions. This will likely hamper yields and conditions of the crops. Outside of that, there are a number of variables that support the bears, including good wheat yields and condition, trade uncertainties, weather slowing down exports combined with a lackluster interest in exports globally, and strong old crop supplies.

The U.S. July corn futures closed the last trading day of the week flat up only 0.03% to $3.7012. U.S. July soybean futures finished down slightly 0.22% to $8.4112, while U.S. wheat closed down 1.41% to 4.3775. For the less volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) was flat, up only 0.01% ($0.001) to $15.33, the Teucrium Soybean Fund (SOYB) flat at $14.91, and the Teucrium Wheat Fund (WEAT) was down 26.68% ($1.83) to $5.03. Figure 1 below is a price trend chart of the front-month July futures contract for corn over the past 24 hours.

(Source: Investing.com)

Figure 2 below is a price trend chart of the front-month July futures contract for wheat over the past 24 hours.

(Source: Investing.com)

July Chicago Soft Red Winter Wheat (SRW) futures was seen down 6.4 cent to $4.374, with July Kansas City Hard Red Winter Wheat (HRW) futures down 3.6 cents to $4.012, resulting in a bearish 36-cent premium of CBOT wheat to KCBT wheat. MGEX's Hard Red Spring Wheat (HRSW) May contract finished up $1.02 to $5.052, while the July contract finished higher $0.086 to $5.206, and the September contract higher $0.082 to $5.292.

Improved Kansas HRW yields, good to excellent new crop condition, and large old crop supply/low demand added to the selling pressure of wheat on Friday

Unlike the corn producers, winter wheat producers have benefited from the spring rains. According to the Wheat Quality Council, hard red winter wheat yields in Kansas (the largest grower of winter wheat) were estimated at 47.2 bushels per acre, stronger than last year's average yield of 37 bushels per acre and USDA's estimate of 38 bushels per acre. If this is realized, it would make for the 4th largest Kansas HRW yield on record. Here is a list of the top 5 final Kansas wheat yields on record:

  1. 2016- 57 bpa
  2. 1998 - 49 bpa
  3. 2003/2017 - 48 bpa
  4. 1999 - 47 bpa
  5. 1997 - 46 bpa

Improved yields and strong supply of wheat have resulted in the lowering of prices. This ultimately has resulted in farmers cutting acreage down to its lowest levels in a century. Last year, Kansas produced 277.4 million bushels of wheat. Given the better yields, analysts project that this year Kansas would produce a stronger number of 306.5 million bushels.

Winter wheat is planted in the fall and lies dormant during the winter months until warmer weather triggers further growth. Because of this, the wet spring seen across the central U.S. didn't negatively affect the crop as opposed to corn and soybean plantings that need there to be dry conditions to begin the planting process.

The combination of better Kansas HRW yields than last year and compared to USDA's estimates, 64% of the winter wheat crop in good-excellent condition according to this week's progress report, large old crop supply, and a lack of demand or interest of exports, is what's been dragging wheat down lately.

Weather and trade weighing on corn/soybeans

Corn is trading nearly flat with the combination of planting progress being slowed, shipments/logistics slowed, which ultimately is slowing down exports, and drier weather on the horizon across the northwestern sections of the corn belt. Several locks on the Illinois and Mississippi Rivers are closed due to high water. CBOT on Thursday issued a force majeure on these rivers as participants aren't able to meet their delivery obligations because of the high waters preventing shippers to be able to load grain. The ongoing flood and transportation issues on the river systems likely contributed to last week's export data.

Soybeans also was seen trading flat after reaching lows on Thursday. Support could be coming from unfavorable weather/field conditions and also short-covering. Lower-than-expected export sales and U.S.-China trade uncertainties still weigh to the negative.

(Source: NOAA)

The weather pattern will remain under the influence of a -NAO, -AO block pattern. Figure 3 above are images of the NAO and AO indexes. Both are in and forecasted to remain in a negative phase over the next couple of weeks which support cooler air across the Lower 48 (particularly the central and eastern U.S.). Over the next two weeks, from a temperature point of view, this would yield a cooler-than-normal scenario over the Central U.S. with a warmer-than-normal situation over the Northwest and Southeast U.S. Figure 4 below is the 6-10 day temperature outlook for the Lower 48 and Alaska.

(Source: NOAA)

From a precipitation standpoint, the central U.S. has been sandwiched between cooler air to the north and warmer air to the south. The central U.S. has been where an active jet associated with a baroclinic zone has set up shop over producing several day-to-day rounds of showers and thunderstorms. Farmers and producers have seen very little in the way of days to get out into the field on top of poor working conditions. This pattern will continue across the central U.S. over the next two weeks. The good news is that after Days 1-7, the wetness will shift or be confined southward across the southern Plains and Lower Mississippi Valley. This means drier conditions across the spring wheat belt and the northern/northwestern corn/soybean belts. Precipitation in these areas in the week 2 time frame (Days 8-14) in particular will range to around normal. Meanwhile heavy rain and thunderstorms will continue to impact the southern Plains including Texas and Arkansas or the ArkLaTex region in both the week 1 and week 2 periods. Figure 5 is a map showing the seven-day accumulated precipitation forecast across the Lower 48.

(Source: NOAA)

Figure 6 is a map from the 12z GFS ensemble depicting wetter-than-normal (in green) precipitation over much of the corn, wheat, and soybean production centers over the next seven days. The highest amounts falling across Texas and Arkansas (ArkLaTex region).

(Source: Tropical Tidbits)

Figure 7 is a map from the 12z GFS ensemble depicting wetter-than-normal (in green) precipitation over southern U.S. in the Week 2 8-14 day time frame. The northern sections of the belt getting a reprieve from the very wet pattern lately. The highest amounts falling across the ArkLaTex region.

(Source: Tropical Tidbits)

Figure 8 below is the 6-10 day precipitation outlook for the Lower 48 and Alaska from NOAA supporting a wetter southern belt/U.S. with improvements coming for the northern belt.

(Source: NOAA)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.