Latest Weather, Trade, And Export Inspection Data To Increase Selling Pressure, Though Crop Yield Concerns Could Offset Some

Includes: CORN, SOYB, WEAT
by: Andrei Evbuoma

Export inspections all lower than last week.

Weather non-threatening in the near term, with no signs of any long-durated heat risk or widespread heavy rainfall.

Chinese companies have stopped purchasing U.S. agricultural products following the latest trade dispute.

Corn and soybean progress is still lagging behind last year and average; concerns increasing on low corn and soybean yields this season.

Investment Thesis

Given the array of news surrounding weather, trade, and export data, downside risk will outweigh upside potential in the near term. Crop yields are concerning, and weather (e.g., frost) potentially detrimental to crops later in the season could help to trigger a rally longer term.

Grain markets finished mostly higher on Monday; soybeans flat

The U.S. September corn futures finished Monday's trading session up 1.66% to $4.0562, with the U.S. November soybean futures down 0.04% to $8.6762 and the U.S. September wheat futures finishing higher 0.82% to $4.9400. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished up 1.13% ($0.18) to $16.06, the Teucrium Soybean Fund (SOYB) finished down 0.40% ($0.06) to $14.92 and the Teucrium Wheat Fund (WEAT) also finished up 0.57% ($0.03) to $5.33. Figure 1 below is a price trend chart of the front-month September futures contract for corn over the past 24 hours.


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


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


September Chicago Soft Red Winter Wheat (SRW) futures were seen up 3.2 cents to $4.940, with September Kansas City Hard Red Winter Wheat (HRW) futures up 3.4 cents to $4.252, resulting in a bearish 69-cent premium of CBOT wheat to KCBT wheat. MGEX's Hard Red Spring Wheat (HRSW) September contract was down $0.022 to $5.244. Figure 4 below is a price trend chart of the front-month September futures contract for spring wheat.

Source: MGEX

Export inspections all less than last week, though in line with traders' estimates

Monday's export inspection report showed corn from the week ending August 1 at 631k metric tonnes. This came in below last week's mark of 668k metric tonnes but in line with traders' expectations of 584k-737k metric tonnes. Japan (214k) and Mexico (214k) were the main destinations.

Wheat reported 395k metric tonnes, less than last week's 413k metric tonnes but in line with traders' expectations of 327k-490k tonnes. Wheat inspections included 152k tonnes of Hard Red Winter (HRW) and 41k of Hard Red Spring (HRS). The Philippines (57k) and South Korea (56k) were the main destinations.

Soybeans came in at 1,029k metric tonnes, less than last week's 1,064k tonnes but in line with traders' range of 599k-1,089k tonnes. China (579k) was the main destination. Figure 5 below is Monday's grain inspection chart for the week ending August 1, 2019.

(Source: USDA)

Wheat faring well in latest crop progress report, while corn and soybeans continue to lag behind

On Monday afternoon, the USDA issued its weekly crop progress report. The report showed that as of August 4, 78% of this year's corn is silking. That's well behind both last year's 95% and the 5-year average pace of 93%. Corn dough is at 23%. That's also well behind both last year's 54% and the 5-year average pace of 42%. Of the corn planted, 57% is in good-to-excellent condition. That compares to 58% a week ago and 71% last year.

Spring wheat harvested is at 2%, compared with last year's pace of 12% and the 5-year average of 14%. Of the spring wheat planted, 73% is in good-to-excellent condition. That compares to 74% last year and 73% last week.

Of the soybeans emerged, 72% are blooming. That's well behind the 5-year average of 87% and last year's pace of 91%. Additionally, just 37% of soybeans are setting pods. That's also behind the 5-year average of 63% and last year's pace of 73%. Of the soybeans planted, 54% is in good-to-excellent condition. That compares to 67% last year and 54% last week.

Meanwhile, 82% of the winter wheat crop has been harvested, compared to 89% last year and the 5-year average of 92%.

Other crops of note from Monday's report include:

  • Oats - 32% harvested (up 11% from the prior week; 65% in good-to-excellent condition)
  • Peanuts - 92% pegging (up 8% from the prior week; 69% in good-to-excellent condition)
  • Rice - 60% headed (up 18% from the prior week; 68% in good-to-excellent condition)
  • Sorghum - 45% headed (up 12% the prior week; 68% in good-to-excellent condition)
  • Cotton - 95% squaring (up 9% from the prior week; 54% in good-to-excellent condition)

Here is the link to this week's USDA's Crop Progress Report.

Chinese companies have stop buying U.S. agriculture products in latest trade spat; China de-values currency and could impose additional tariffs on the U.S.

With regard to trade, on Tuesday, China's Commerce Ministry confirmed that Chinese companies have stopped buying U.S. agricultural products. The news is a blow to the gut for U.S. farmers, who have already seen their exports cut by the more than a year-long trade war. The ministry also added that China may impose additional tariffs on U.S. farm products.

President Donald Trump announced on Thursday that China has not fulfilled its promise to buy large quantities of U.S. agriculture products and vowed to impose new tariffs on around $300 billion of Chinese goods coming into the U.S.

On Monday, China devalued its currency, allowing the yuan to slip past the key 7 per dollar level for the first time in more than a decade.

In 2018, China imported $9.1 billion of U.S. ag products, down from $19.5 billion in 2017. Overall, China has bought about 14.3 million tons of last season's soybean crop, the least in 11 years and down from 32.9 million tons of U.S. soybeans in 2017.

Grain belt mild north, warm to hot south for next 10 days; potentially turning warmer/hotter in the 11-16 day for much of grain belt; precipitation mostly near normal levels outside of Missouri and eastern Kansas next 7 days

Our weather over the next week here in the Lower 48 will be influenced by a high latitude blocking pattern with anomalous ridging/warmer temperatures over Baffin Island/Bay and western Alaska/Alaska Peninsula. In between these two ridges will be an area of broad cyclonic flow (upper-level troughing) that will be centered over Northeastern Canada near James Bay and will extend from North-Central Canada southeastward into the Eastern U.S. Associated with this broad cyclonic flow will be a series of mid-to-upper level disturbances or shortwaves that will track southward from Canada into the Great Lakes and Eastern U.S. Figure 6 below is a map from the 0z GFS ensemble (GEFS) depicting the 0-5 day (August 5-10) upper-level/jet stream pattern.

(Source: WeatherBELL)

Closer to home, across the Lower 48, the upper-level flow pattern will be amplified with a developing upper trough just off the west coast of the U.S., upper-level ridging over the interior West U.S. highlighted by a heat dome over the Southwestern U.S, and the aforementioned upper-level trough downstream over the Eastern U.S. Over the next 5 days, we will see these upper-level features shift eastward. This means that temperatures will cool off over the Western U.S., heat will shift from the Southwestern U.S. to the South-Central U.S., and temperatures will remain mild over the Central, North-Central and Eastern U.S. Figure 7 below is a map from the 0z GFS ensemble (GEFS) depicting the 0-5 day (August 5-10) temperature pattern.

(Source: WeatherBELL)

Next week, or in the 6-11 day time frame, we will see the upper pattern flatten out, turning more zonal. This will cause for temperatures to be mild across the Northern U.S. and hot across the Southern U.S. (hot South U.S. vs. mild North U.S.) Figure 8 below is a map from the 0z GFS ensemble (GEFS) depicting the 6-11 day (August 11-16) temperature pattern.

(Source: WeatherBELL)

In the 11-16 day time period, forecast models do indicate some northward expansion of warmer temperatures. Figure 9 below is a map from the 0z GFS ensemble (GEFS) depicting the 15-16 day (August 20-21) temperature pattern.

(Source: WeatherBELL)

Figure 10 below is a map from the 12z GFS ensemble (GEFS) depicting the 14-15 day (August 19-20) temperature pattern.

(Source: WeatherBELL)

From a precipitation standpoint, rainfall levels over the next 7 days will be near normal levels across the grain belt and much of the country. A cold front later this week will move across the grain belt and Eastern U.S. This will bring the chance for scattered showers and thunderstorms to many areas over the Central and Eastern U.S. However, due to the influence of being under a Northwest upper flow pattern, moisture and instability levels will not be impressive enough to support heavy rainfall amounts. The only area of heavy rainfall/convection will be across the southern Plains and the mid-Mississippi Valley (Missouri, to be precise). That's where the frontal boundary will stall out allowing for continuous rainfall to fall. Additionally, moisture and instability values should be stronger in this area, being further south (Southwestern grain belt). Figure 11 below is a map showing the seven-day accumulated precipitation forecast across the Lower 48.

(Source: NOAA)

Figure 12 is a map from the 18z GEFS depicting a normal to a wetter-than-normal pattern across the Northern U.S., and a drier-than-normal pattern over the Southern U.S. in the 1-7 day time frame (August 5-12).

(Source: Tropical Tidbits)

Figure 13 is a map from the 18z GEFS depicting a near-normal pattern across much of the country (more of a wetter bias north and a drier bias south) in the 10-16 day time frame (August 14-21).

(Source: Tropical Tidbits)

Final Trading Thoughts

Non-threatening weather conditions over the next couple of weeks, combined with the trade dispute with China, provide downside risk to the grain market. Corn, soybeans, and wheat export inspections were all lower than last week, providing additional support to the downside.

While wheat is faring well in its progress compared to last year and average, corn and soybeans continue to lag. Additionally, there are concerns that six years of above-average corn and soybean yields could come to an end this year amid challenges from weather and trade. Acreage of both crops are down from last year after record spring floods. Though near-term weather is not a concern, the late-developing crops could be vulnerable to weather longer term in terms of frost that could further trim yields.

While near-term weather, the trade dispute with China, and the latest export inspection data supports downside movement in prices, corn and soybean yields and progress for this year can't be ignored. In the near term, prices could slide with the variables mentioned above. Crop yields and progress could help to offset some of the selling pressure in the near term.

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.