Unfortunately there was not very much positive news this week. Overall, Tuesday’s Planted Acreage report was bearish. Wheat and corn acres were both much higher than expected, which sent the corn limit lower on Tuesday. Corn acreage was reported at just over 87 million acres, which was 2 million over the March Planting Intentions. The higher acreage estimate means that we will not be seeing bullish numbers in next week’s supply and demand report. Old crop ending stocks may be reduced because of a higher export estimate, but we will definitely have higher new crop ending stocks. The big fear now is that not only will we have a higher acreage figure, but yield may be increased as well since crop condition ratings are better than last year and have improved since the beginning of the season. An increase in acreage and yield, with no increase in demand, would make ending stocks very comfortable, which is why the corn is under pressure.
The December corn will find good support at the $3.50 area next week, but we do have the potential to fall below that level if the new crop ending stocks estimate climbs above 1.5 billion, or if the perception is that the crop size is still growing. Weather is still very important. The weather at the moment is mostly non-threatening and crop condition ratings are improving. Keep in mind though, that even with the higher acreage estimate, if the yield is increased to 155 bu/ac ending stocks will still fall from the previous year. However, if weather stays mostly favorable, and traders start talking about a yield closer to 160, that would imply that ending stocks are going to grow, which would keep the corn under pressure for quite some time.
The outlook for the wheat is even worse than for the corn. At least in the corn there is a chance that weather will come into play and affect production and the corn exports have been very good, so there is strong demand to talk about. With the wheat, export demand is still terrible. I am beginning to fear that USDA will lower the export estimate in the July report, which would be very negative when combined with the increase in production we are bound to see.
I was surprised that Kansas wheat acreage was increased by 300,000 to 9.3 million. I was even more surprised to see North Dakota wheat acreage increased by 220,000 from the March report with all the problems and delays that they had. With the higher acreage estimate and the good yields we have been seeing in much of Kansas we could see a sizeable increase in the production estimate in next week’s report. Unfortunately I think we have the potential to see the ending stocks estimate reach the 850 million level sometime in the next couple of months. We really need to see better demand, but it just isn’t happening. Look for the September KW to move down to the $5.30 area.
The soybeans are still in their own world. The soybean acreage estimate was increased to a new record high of 77.5 million, but that was less than expected, so the November soybeans were actually higher for the week. The bull spreads are still working too since demand is still good. USDA will probably raise the export estimate next week because sales have exceeded the yearly estimate. Soybean oil sales were a marketing year high this week, so it isn’t just soybean demand that is good it is product demand as well.
Even with record high acreage, weather is even more critical to the soybeans than the corn. If we have hot, dry weather in late July and August and yield is reduced to last year’s level of 39.6 from the current estimate of 42.6, there would have to be a great deal of demand rationing to avoid domestic shortages. Even a yield of 41.7 like we had in 2007 would do no better than keep ending stocks steady. There is plenty of upside potential in the new crop soybeans, but I still would urge caution. I still like $10.00 November puts to give you some protection, yet leave the topside open in case there is a weather problem this summer.
We had a strange week in the cattle market. After a firm but slow start on Monday, the August LC ended up being limit higher. It was sort of out of the blue and based on a combination of fund and commercial buying. For the most part the gains held, which is encouraging and cash cattle traded at $83 in Kansas. That basis is a little weak for this time of year, but it is good to see the better money. The August live cattle are now in overbought territory, but from a technical stand point it looks like we can take a buy the breaks attitude. I really like owning feeder cattle calls and would be willing to own August feeder cattle futures on a move back to $101.50 or lower.