Commentary provided by Chad Burlet of Third Street AG Investments
The last business day of June always brings the USDA’s June 1 Stocks Report and updated estimates of Planted Acres. The combination of those two reports, one for old and one for new crop, make it the most important agricultural report day of the year.
This year was no different. While analysts nailed most of the key numbers, that did not prevent the markets from going on a wild ride. The average of the analysts’ estimates of June 1st stocks for corn, wheat, and soybeans were within 1% of the actual numbers. Their acreage estimates for corn and wheat were within 0.1%. Only soybean acres provided a surprise. Despite that, wheat and corn futures broke more than 5% on the second quarter’s final day, with some help from outside markets.
The surprise in soybean acres was a government number over 2.1 million acres below the average of the analysts’ estimates. That is roughly equivalent to 110 million bushels (MB) of soybean production, or 40% of next year’s carryout. The number was also 2.7 million acres below their March estimate and their third-largest drop ever. Despite that very bullish number, soybean futures were pulled lower today by the grains and an assortment of outside markets, including crude oil. (Note: the USDA will re-survey acres in Minnesota and the Dakotas due to large unplanted acres on June 1. Any changes will be in their August WASDE.)
Over the course of the month, U.S. soybeans were under pressure from a very weak Brazilian Real, which ended the month at its lows, losing almost 10% to the dollar in June alone. With July soybeans losing only eight cents this month, Brazilian farmers were looking at sharply higher domestic prices. They were strong sellers and helped Brazil capture almost all the export business. That sad reality was confirmed when today’s weekly export sales report showed a negative number for old crop, more cancellations than sales.
After months of losing ground to soybean oil, soybean meal made a sharp recovery this month. Soymeal futures were up 13%, and Soyoil futures were down 10%. Soyoil was sharply lower because of the record 30% drop in palm oil prices, which occurred when Indonesia ended its export ban. With soybeans consisting of roughly 80% meal and 20% oil, that relationship change helped board crush margins recover nicely. July crush started the month at 86 cents per bushel (CPB), broke as low as 65 CPB mid-month, and then rallied to close at 128 CPB.
U.S. wheat futures were more bearish than soybean oil this month but not as bearish as palm oil. Late-May rains in the Plains managed to prevent a complete disaster in the HRW crop, SRW yields are very good, and North Dakota farmers switched to Spring
Wheat when it got too late to plant corn. Chicago wheat futures were down 20% for the month, including the 5% they lost on today’s final day. The monthly range was $2.40, and they settled the month $2.19 lower, so we spent very little time on the plus side. Several observers noted that July futures traded with an $11, $10, $9, and $8 handle this month. Good crops in Europe and Russia have also helped temporize world prices.
One common feature this month for the row crops, corn, and soybeans, was the strength of old crop versus new crop. The July-November soybean spread gained 48 cents, and the July-December corn spread gained 65 cents. In both cases, the old crop was supported by very strong cash grain markets and the new crop was pressured by relatively good U.S. weather. Corn and soybeans are experiencing significant export competition from South America, yet the river markets have remained well above delivery values. The key has been very strong processor bids in the Midwest, which have prevented most bushels from moving to the river. Those small river programs kept barge freight cheap and helped the gulf market stay above the futures market for the Illinois River delivery terminals. So, unsurprisingly, there have been no delivery intentions for corn or soybeans against the July futures.
With these reports behind us and as we head into the long Fourth of July weekend, all attention is now turned to July and August weather. Currently, most forecasters see a warm July with moisture for the Midwest and generally drier conditions for Texas and the delta. There are also dry concerns for Nebraska, Kentucky, and Tennessee. But, as always, the devil will be in the details. Some unexpected relief or a rain event missed can make all the difference.
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