After spending much of the past few weeks on the defensive, the grain markets finally found something to get excited about. Weather concerns, renewed optimism surrounding trade with China and another round of aggressive fund buying combined to give corn, soybeans and wheat a much-needed rally heading into the second full week of July.
The biggest story continues to be weather. While many areas of the Corn Belt have enjoyed generally favorable growing conditions this season, parts of the central Corn Belt received excessive rainfall over the holiday weekend, leading to localized flooding. At the same time, forecasters are calling for above-normal temperatures across much of the Midwest over the next couple of weeks. Anytime the calendar flips to July, traders become increasingly sensitive to weather forecasts as corn enters pollination and soybeans begin their most critical growth stages. Weather markets can develop quickly, and that’s exactly what we’ve started to see this week.
Adding fuel to the rally were fresh rumors that China has been inquiring about purchasing U.S. grain and oilseeds. Reports circulated Monday that Chinese buyers may have booked several cargoes of U.S. soybeans, while discussions continue between U.S. and Chinese officials regarding additional agricultural trade ahead of a possible presidential meeting later this fall. None of that guarantees a major buying program, but after months of disappointing export headlines, the market was eager to latch onto any sign of improved demand.
Corn has responded particularly well. Large speculative funds, which had built sizable short positions earlier this summer, suddenly found themselves scrambling to cover those bets as weather concerns intensified and trade optimism improved. Estimates suggest funds purchased as many as 35,000 to 40,000 corn contracts during Monday’s session alone. Export demand continues to provide underlying support as well. Weekly export inspections once again came in strong, keeping shipments well ahead of the pace needed to meet USDA’s current forecast. Many analysts now expect USDA to increase its corn export projection in Friday’s WASDE report.
Soybeans posted some of the strongest gains of the week, climbing nearly 50 cents during Monday’s session. The rally wasn’t necessarily driven by changes in crop conditions, which remain mostly favorable, but rather by a combination of weather uncertainty, fund buying and renewed hope for Chinese demand. Even modest reductions in yield potential could tighten an already balanced supply situation, giving traders another reason to build weather premium into prices. Whether those gains can be sustained will largely depend on how weather develops over the next several weeks and whether export business actually materializes.
Kansas City wheat also moved higher, although much of its strength came from following corn higher and maintaining the traditional wheat-to-corn price relationship. Winter wheat harvest continues to move north across the Plains, with harvest expected to be approaching 60% complete nationally. Export demand remains sluggish compared to last year, but any improvement in Chinese buying interest could eventually spill over into the wheat market as well.
Outside of grains, livestock markets have remained relatively steady. Cattle futures continue to receive support from historically tight cattle supplies and strong cash prices, although high beef prices continue to test consumer demand. Hog futures have been more mixed as traders balance seasonal demand with adequate pork supplies and ongoing export competition.
Energy markets have actually been somewhat supportive to agriculture this week. Crude oil prices remain near recent lows around the upper-$60 per barrel range, helping ease inflation concerns while still providing enough support for renewable fuel demand. Lower energy costs have also helped improve the overall mood across financial markets, encouraging investment money to flow back into commodities.
Looking ahead, Friday’s USDA WASDE report will be the next major market-moving event. Traders will be watching closely for potential increases in corn and soybean export estimates following another stretch of strong inspections, while weather forecasts will likely continue driving day-to-day price action. As always in early July, forecasts can change quickly. For now, however, the bulls finally have momentum on their side, giving producers an opportunity to evaluate marketing plans after several weeks of disappointing prices.
