Market perspective

The grain markets have been in a downtrend for the last couple of months, pressured by very favorable weather in the central U.S. and continued selling by speculative funds. Traders were surprised that in the July crop report USDA increased acres and production despite the flooding and planting delays that the cornbelt experienced for most of the spring. Heading into Monday’s report, most traders were looking for a 14 billion bu corn crop and a 2 billion bu carryover for next year. Once again the market got caught leaning the wrong way.

The report showed a 185 million bu decrease in projected U.S. corn production and 120 million bu drop in carryovers. Soybean production was lowered 165 million bu, and carryovers were reduced by 75 million bu. Wheat production was left unchanged, but exports were increased 25 million bu and carryovers were reduced by a like amount. The 25 million bu increase in exports looks to be a conservative number since we are only 20% through the marketing year and already have over 45% of USDA’s estimated sales on the books.

The U.S. wheat numbers were tempered by USDA’s world numbers. World wheat ending stocks were increased 1.2 million metric tons from last month due to production increases in Europe and the countries of the former Soviet Union. Chinese production was left unchanged, but still remains a big question mark as a result of their strong demand for U.S. wheat. Total U.S. purchases are now approaching 50 million bu. World corn carryover estimates were reduced 800,000 metric tons and soybean ending stocks were dropped 1.2 million metric tons.

As a result of the bullish U.S. and world numbers for corn and soybeans, markets moved sharply higher and wheat followed along for a while. Speculative funds still hold a record short position in the Chicago wheat market of over 450 million bu and a short position in the corn market of nearly a billion bushels. It will be interesting to see if this report is enough to get them to cover a good percentage of that short position.

Locally, harvest is wrapping up in the Odessa area, and farmers are turning their attention to seeding. The recent rain has added to decent soil moisture levels, although they have caused harvest delays and quality concerns in the last acres waiting to be cut. Selling from the country remains slower than normal, but has picked up a little bit lately.

The GMO issue with Japan appears to be resolved. The Japanese were in three weeks ago for a typical western white tender and again the following week in an effort to catch up on requirements for their mills. They test every shipment for GMO in Portland before leaving for Japan.