The long string of limit moves following a Quarterly Stocks report came to an end. We certainly had a great deal of volatility right at 7:30 and perhaps being open as the report was released helped to avoid the limit move. On the first glance the report numbers were slightly negative. Both corn and soybean acreage estimates were increased from the March Planting Intentions report at 96.4 and 76.1 million respectively. Both wheat and soybean stocks were higher than expected at 667 and 743 million bushels. On the bullish side was the lower than expected wheat acreage estimate of 56 million and slightly lower than expected corn stocks estimate at 3.144 billion.
If you dug a little deeper in the report the numbers became friendlier for the corn. The planted acreage estimate was increased from 95.9 million to 96.1 million, but there was also acreage shifted around. Most notable the acreage estimates for Iowa and Nebraska were cut while Illinois, Indiana, Missouri, Ohio, and S. Dakota were increased. In other words acreage was shifted out of two states where conditions are good into the drought stricken states of Illinois, Indiana, Missouri, and Ohio, plus the typically lower yielding state of S. Dakota. Nearly 2 million of the 4.5 million increase in planted acreage versus last year are in North and South Dakota, two states that do not reach the national average yield. The combination of drought and the shifting of acres north and west is making a 145 national average yield look more likely all the time. Then there is the fact that USDA cut the harvested acreage estimate to 88.9 million while they increased the planted acreage. This is a warning to expect more abandonment than usual, which of course will only add to production cuts in future supply and demand reports.
Weather is still the main issue for the corn and soybean markets. Conditions in Illinois, Missouri, Indiana, and Ohio, among others are bad and getting worse. Heat and the lack of moisture are rapidly reducing crop condition ratings. Unfortunately there isn’t much relief in sight. The 6-10 and 8-14 day forecasts both call for above normal temperatures and below normal precipitation for the bulk of the Corn Belt. The short term forecast gives some hope for rain in Iowa, northern Illinois, and northern Indiana over the weekend, but much of the region will miss out and there will be very high temperatures across the entire area. Crop condition ratings will take a big hit Monday and most likely the Monday after that as well. If USDA is honest we will see a double digit decline in the corn yield estimate in the July 11th supply and demand report.
July corn made the highest close since January. We are now in the delivery period so it will be interesting to see how traders handle basis levels and delivery. The December contract reached the highest level since September and gained 80 cents for the week, but only managed midrange closes three days in a row. That isn’t very impressive and the market is overbought, which makes me nervous about the chart set up. Weather will trump the technicals, so it is stays dry we will see further gains. A close above $6.75 in the December contract will suggest new all time highs are likely.
Lots of traders are comparing this year’s drought to 1988 and pointing out that the market peaked around the 4th of July in 1988. The two biggest differences between this year and 1988 are that the market peaked when it started raining, and it hasn’t started raining yet and the other difference is that in 1988 we started the crop year with 4.259 billion bushels of corn and ended with 1.930 billion. The 2012/2013 crop year is projected to start with 851 million and we don’t know what it will end with. I think the comparison between stocks levels is key when comparing this year with 1988.
August live cattle climbed back above the 50-day moving average despite the $116 cash trade. A like the technical set up of the market and I like the fact that the beef market is still above $190. I look for a test of the contract highs in the next six weeks.