Highlights
After this Friday’s close, the agriculture futures will be closed until 8:30 AM Central Tuesday.
Today is the day your July basis and long July futures need to be cashed out or rolled to avoid any chance of being assigned a cash grain delivery on a long July futures contracts.
Holland’s government closed dozens of farms and cattle ranches to reduce nitrogen by 30%. Angry farmers block the nation “everywhere.” Soon hungry consumers will join the farmers.
Corn/Soybeans
The Tech Guy stated that on the close yesterday, corn/soybean ratio was 2.55 to 1. That means it took 2.55 bushels of corn to equal the value of one bushel of soybeans. After the USDA said on March 31st that farmers intended to plant several million more acres of beans than corn, the corn/soybean ration got to 2.02 to 1; for reference, 2.40 to 1 is normal.
When it takes only two bushels of corn to generate as much income as one bushel of beans, farmers are going to plant more corn and less beans and that is what the analysts expect (see chart below). The market is telling us the same thing with the current 2.55 to 1 corn/bean ratio. That means Thursday’s acreage report is very likely going to be more bearish corn and bullish beans.
So… Should you drop everything and sell all the corn your nerves can stand in the $6.50 area and buy puts as well? No. Don’t even think about it. The market has already priced in way more corn acres and less bean acres. That is exactly why the corn to soybean ratio went from 2.02 to 2.55 the past two months. That ship has sailed; the horse has left the barn. It is entirely possible the market has priced-in too many corn acres because the corn/bean ratio is over 2.4.
The market thinks US farmers shifted about a half million acres from soybeans to corn since the March 31st Planting Intentions. Reuters Karen Braun put these numbers together:
The second reason you should not sell corn at a price less than $7+ is the weather the next four weeks is far more important than the acres planted. The market was shocked the crop conditions declined 3% last week and this week’s weather looks worse than last week. Yes, we may get some good rain next week, but we may not. Furthermore, the middle of July is expected to be extremely hot and not so much rain. That is pollination time for most of the crop. Last night’s 8 to 14 day forecast began reducing Corn Belt rainfall in the west.
The third reason you should not sell corn less than $7 is the basis tells us there is precious little old crop corn left. Plenty of people are saying local granaries are empty compared to normal for this time of year. Thursday’s Grain Stocks Report very well may be a very bullish surprise.
Gulf corn basis was 2 cents weaker and the soybean Gulf basis was 2-3 cents weaker for July. Processor bids are mostly unchanged for both corn and beans.
Wheat
The average estimate of the Russian wheat crop is 86.4 million mt with a range of 81.0-89.2 (USDA at 81) and Russian wheat exports expected to be near 41.4 million mt with a range of 39 to 45. USDA has Russia’s wheat exports at 40 million mt.
It is important that you understand what the market thinks versus what the USDA thinks. When there is a significant difference between the two, it means the USDA numbers on the next monthly S&D will probably be changed and, in this case, higher Russian wheat production.
With the USDA at 81 million mt for Russia’s wheat production and the market expecting 5.4 million mt more than USDA, it means there is a high probability the USDA will increase Russian production on the next several monthly S&D’s, which would (obviously) be bearish for wheat, especially if USDA jumps their estimate by 4 to 5 million mt in month.
Market Data
This morning:
Crude oil is at $111.66, down $0.10
The dollar index is at 104.48, down 0.03
July palm oil is at 5,068 MYR, down 91. The contract high was made April, 29th at 7,229 MYR. Palm oil owns 36% and soybean oil owns 28% world market share.
December cotton is at $94.88, up $1.40 per cw. The contract high was made May, 17th at $133.79 per cwt. Cotton competes with soybeans and corn for acres.
July natural gas is at $6.551, up 0.050. The contract high was made June, 8th at $9.664. Natural gas is the primary cost to manufacture nitrogen fertilizer.
July ULSD is at $4.1271 per gallon, down 0.0723. The contract high was made June, 17th at $4.6444. ULSD stands for Ultra Low Sulfur Diesel.
September Dow Futures is at 30,965, up 32. The lifetime high is 36,832 on January 5th, 2022.
Rain Days Update
The Western Corn Belt has 7 more rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 3 more rain daysthan yesterday.
The 6 to 10 day forecast updated every day at: https://www.cpc.ncep.noaa.gov/products/predictions/610day/
Explanation of Rain Days