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Tropical Storm Barry, Hot Weather, And July WASDE Report Provide Upside To Grain Prices

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

Wheat climbs more than 3% Thursday after a bullish WASDE report.

Tropical Storm Barry takes aim at the central Gulf Coast/Lower Mississippi Valley this weekend into next week; could become a hurricane before making landfall.

Hottest period so far this season coming as heat and humidity to build in the days ahead and sticking through next week.

Investment Thesis

Investors should expect grain prices to be mixed near term, but to move higher if the hot weather is expected to persist longer term.

Grain prices led by wheat finish higher on Thursday after net export sales and July WASDE report

On Thursday, the U.S. September corn futures finished up 2.01% to $4.4375, with the U.S. November soybean futures up 0.51% to $9.1662 and the U.S. September wheat futures finishing higher 3.35% to $5.2088. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished up on Friday 1.44% ($0.24) to $16.88, with the Teucrium Soybean Fund (SOYB) up 0.20% ($0.03) to $15.64 and the Teucrium Wheat Fund (WEAT) was also higher 3% ($0.17) to $5.73. Figure 1 below is a price trend chart of the front-month September futures contract for corn over the past 24 hours.

Source: Investing.com

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

Source: Investing.com

Figure 3 below is a price trend chart of the front-month November futures contract for soybeans over the past 24 hours.

Source: Investing.com

On Friday, the September Chicago Soft Red Winter Wheat (SRW) futures were seen up 16 cents to $5.206, with September Kansas City Hard Red Winter Wheat (HRW) futures up 19.4 cents to $4.610, resulting in a bearish 60-cent premium of CBOT wheat to KCBT wheat. MGEX's Hard Red Spring Wheat (HRSW) July contract was up $0.124 to $5.350. Figure 4 below is a price trend chart of the front-month July futures contract for spring wheat.

Source: Barchart

USDA net export sales revealed no surprises for most part as sales came in line with expectations

The United States Department of Agriculture (USDA) released its weekly net export sales report for the week ending July 4 Thursday morning.

The 2019/20 wheat export sales for the week ending July 4, 2019, came in at 284,400 metric tons. This came in line with traders' expected range of 250,000-550,000 metric tons. Main buyers of the old wheat crop last week were from the Philippines, Mexico, and Thailand.

The 2018/19 corn export sales for the week ending July 4, 2019, of 505,400 metric tons exported beat traders' expectation range of 150,000-400,000 metric tons. The 505,400 metric tons were noticeably up from the prior week and from the four-week average. The main buyer of the old corn crop last week was Japan. For the 2019/20 new corn crop, net export sales for the week ending July 4, 2019, of 108,400 metric tons fell in line with traders' range of 100,000-300,000 metric tons. The 108,400 metric tons were noticeably up from the prior week and up 80% from the four-week average. The main buyers of the new corn crop last week were from the French West Indies and unknown destinations. Japan cancelled 120,000 metric tons of the new crop.

The 2018/19 soybeans export sales for the week ending July 4, 2019, of 132,200 metric tons exported was below traders' expected range of 200,000-400,000 metric tons. The 132,200 was down 84% from the prior week and 70% from the prior four-week average. The main buyer of the old corn crop last week was from China. For the 2019/20 new soybean crop, net export sales for the week ending July 4, 2019, of 129,500 metric tons were in line traders' range of 50,000-350,000 metric tons. The main buyers of the new soybean crop last week were from unknown destinations and Taiwan.

USDA increases corn production but keeps yield unchanged; soybeans yield and production cut; US and world corn inventory beat expectations, soybeans mixed, and wheat less than expectations

On Thursday, the World Agricultural Supply and Demand Estimates (WASDE) report showed that the USDA kept U.S. corn yield unchanged at 166 bushels per acre and increased corn production from 13.68 to 13.875 billions of bushels. Both corn yield (166 bushels per acre) and production 13.875 billions of bushels) came in more than trade expectations of 165 bushels per acre and 13.664 billions of bushels, respectively. The USDA slashed both soybean yield and production from 49.5 to 48.5 bushels per acre and from 4.150 to 3.845 billions of bushels, respectively. Soybeans production and yield remained the same at 4.125 billions of bushels and 49.5 bushels per acre. Soybeans numbers came in less than trader estimates and less than the 2018/19 final of 51.6 bushels per acre and 4.544 billions of bushels.

World ending stocks for the 2018/19 corn crop of 328,750,000 metric tons beat traders' expectations of 325,930,000 metric tons and USDA's June report of 325,380,000 metric tons. World ending stocks for the 2019/20 corn crop of 298,920,000 metric tons beat traders' expectations of 292,480,000 metric tons and USDA's June report of 290,520,000 metric tons.

World ending stocks for the 2018/19 soybeans crop of 112,980,000 metric tons beat traders' expectations of 112,770,000 metric tons and USDA's June report of 112,800,000 metric tons. World ending stocks for the 2019/20 soybeans crop of 104,530,000 metric tons fell below traders' expectations of 109,170,000 metric tons and USDA's June report of 112,660,000 metric tons.

World ending stocks for the 2018/19 wheat crop of 275,150,000 metric tons fell below traders' expectations of 275,750,000 metric tons and USDA's June report of 276,570,000 metric tons. World ending stocks for the 2019/20 wheat crop of 286,460,000 metric tons fell below traders' expectations 292,430,000 metric tons and USDA's June report of 294,340,000 metric tons.

USDA raised U.S. corn ending stocks for both 2018/19 and 2019/20. U.S. ending stocks for the 2018/19 corn crop of 2.340 billion bushels were more than traders' expectations of 2.197 billion bushels and USDA's June report of 2.195 billion bushels. U.S. ending stocks for the 2019/20 corn crop of 2.010 billion bushels were more than traders' expectations of 1.692 billion bushels and USDA's June report of 1.675 billion bushels.

U.S. ending stocks for the 2018/19 soybean crop of 1.050 billion bushels were more than traders' expectations of 1.044 billion bushels, but less than USDA's June report of 1.070 billion bushels. U.S. ending stocks for the 2019/20 soybean crop of 0.795 billion bushels were less than traders' expectations 0.812 billion bushels and USDA's June report of 1.045 billion bushels.

USDA trimmed U.S. wheat ending stocks for 2018/19 and 2019/20. U.S. ending stocks for the 2018/19 wheat crop of 1.072 billion bushels were less than traders' expectations of 1.075 billion bushels and USDA's June report of 1.172 billion bushels. U.S. ending stocks for the 2019/20 wheat crop of 1.000 billion bushels fell below traders' expectations of 1.043 billion bushels and USDA's June report of 1.072 billion bushels.

Heat and humidity to build in the coming days, then hold through next week; Tropical Storm Barry could become a hurricane before making landfall and unleash life-threatening rainfall/flood to Louisiana coast

On the weather front, all eyes are on the central Gulf Coast as Tropical Storm Barry is expected to bring hurricane conditions, heavy rain/flooding, and life-threatening storm surge inundation. The coast of Louisiana, particularly the southeastern parts, is at the greatest risk for impacts. Barry is expected to make landfall on Saturday and could reach hurricane strength before making landfall. As it slowly moves northward, it will bring with it copious amounts of rain and a flood threat, first over the central Gulf Coast and then further inland over the Lower Mississippi Valley. Crops along the Mississippi Delta are at great risk. Figure 5 below is a map showing the five-day potential track area for Tropical Storm Barry.

Source: National Hurricane Center

Figure 6 below is a map showing the seven-day accumulated precipitation forecast across the Lower 48.

Source: NOAA

From a temperature perspective, much of the country (particularly the central and eastern U.S.) will experience hotter-than-normal temperatures this weekend through next week as a heat dome over the southwest U.S. expands northeastward into the Plains/Midwest. The remnants from Barry will also contribute to hotter temperatures across parts of the Midwest/Grain Belt as air vented out at the top of Barry will sink, compress, and warm over areas surrounding the storm. Figure 7 below is a map from the 12z ECMWF ensemble depicting the 0-7 day (July 11-18) upper-level/jet stream pattern.

Source: WeatherBell

Final Trading Thoughts

In addition to the net export sales and WASDE report, hotter temperatures and heavy rainfall across the Mississippi Delta/Lower Mississippi Valley could lead grain prices higher in short. If the heat sticks around longer, that should provide for greater support to the upside especially for corn and soybeans.

Stay Tuned For More Updates!

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.