Limit Up

By Tori Uhland

July 19, 2023

July is an important month in the grain markets. The big USDA acreage report gets released at the end of June, just before we approach a critical point in the corn growing season and begin to grow more confident in what the new crop will really look like. We also usually have a better idea of demand. Usually, the market has a pretty good idea of what direction to go.

Last week, the July World Agricultural Supply and Demand Estimates (WASDE) report was released and contained a few surprises from the USDA. The USDA cut corn yield from 181.5 bushels per acre down to 177.5 bushels per acre, which wasn’t as much as the trade has been expecting, with the average estimate coming in at 173.3 bushels per acre. Recent rains have helped save the corn crop in many areas of high production, but we are going into one of the most important parts in the production season: pollination. Though the weather pattern seems to have improved and maybe gotten back on to a more “normal” path, this is still something to keep an eye on as dryness is developing in the Northern Plains and the Canadian Prairies have been battling dry weather for a while now.

The USDA left new crop demand for corn unchanged, which was rather surprising as the trade has been expecting lower numbers in that category. That being said, just because they didn’t cut demand in the July report, doesn’t mean they won’t be doing that in a future report. Demand is half of the equation. Be wary of that if you are holding on to unpriced bushels and hoping for the next big rally. Another thing to keep an eye on in the corn market is the Brazil harvest. Brazil’s production has increased substantially over the last several years, and they are already out of storage space and their Safrinha harvest is only around 30 percent complete.

In soybeans, the USDA cut exports which helped to offset the production losses from reduced soybean acres. New crop soybean production is still a bit of a mystery. U.S. beans are overpriced after rallies from perceived losses. New crop sales are nearly two-thirds less than they usually are right now, and China purchased brazil soybeans for December. Rallies are great for farmers with unpriced bushels, not so much for demand. A wise person once said, “high prices cure high prices.”

The wheat market is off to a jittery start this week with big swings Sunday night/Monday morning because of news out of the Black Sea. The export corridor agreement was set to expire, and Russia announced that they would not be renewing, causing a rally Sunday night. This came after news of Ukraine bombing the bridge that connects Crimea. Russia said this was not a factor in their decision to terminate the agreement, but could have just been the cherry on top after the U.S. shipments of cluster bombs to Ukraine. At the time of this writing, there are rumors of talks to extend the deal once again, causing a selloff in the market, but nothing is concrete. In their report, the USDA added bushels to new crop carryout after the rains this summer have helped boost production, adding to the bearish factors.

Whatever China is doing seems to almost always make a big wave in our markets. There are a few interesting things to note that are going on across the pond. It has been expected that there will be some major stimulus from the Chinese government. This has acted as support for the markets because in the past, their stimulus has worked to increase their domestic consumption, therefore increasing import needs. However, that scenario is the opposite of what the Chinese government has said over the last few years. They also have many other problems to deal with, so increasing imports may not be on the top of their priority list.

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