Market Perspective

Grain markets continue to feel the pressure from export competition for wheat sales and impending large corn and soybean crops. The last couple of USDA Crop Reports have done nothing to break the downward trend that the grain markets have experienced over the last two months. The Grain Stocks and Planting Intentions Report, which came out on June 30, showed corn stocks about 130 million bu higher than expected. Soybean acres are projected to be a record 84.8 million. Since then, the weather in the cornbelt has been just about ideal as evidenced by the weekly crop ratings which now stand at 76% good to excellent for corn and 72% for soybeans. For wheat, the picture is not much better. Wheat from Europe and out of the Black Sea is still being offered at a significant discount to U.S. offers. The Soft Red Wheat crop has more vomitoxin than last year and that makes it unlikely that the Chinese will be big buyers of U.S. wheat like they were last year.

Last Friday's USDA Crop Report was a culmination of these bearish factors. U.S. corn carryovers for this year increased 100 million bu from last month to 1.24 billion bu due to a decrease in feed usage. For this year, corn production is expected to come in at just under 14 billion bu with a projected carryover for next year of 1.8 billion bu. World carryovers for corn were increased to 188.0 million vs 173.4 million last year and 138.2 million for the year before.

U.S. wheat production was increased 50 million bu from last month. Feed usage for wheat was lowered 15 million bu and export projections were decreased 25 million bu from last month. As a result U.S. wheat carryovers for next year are expected to be 660 million bu vs 593 million bu for this year. World wheat carryovers were also increased by one million metric tons from last month's projections to189.5 million for next year vs 184.29 million bu for this year.

U.S. soybean carryovers were also increased 90 million bu from last month's projection. Carryovers for next year are expected to come in at 415 million bu vs 140 million bu for last year and that represents the largest U.S. soybean carryovers in six years.

In the aftermath of the USDA Crop Report, wheat and corn futures made new life of contract lows with both reaching prices not seen since 2010. Needless to say, the markets are very technically oversold with commodity funds short about 300 million bu in Chicago wheat and just about even in Chicago corn. There just has not been anything to get traders excited about. El Nino is still in the background but India's monsoon is about a month late. In China and Australia there is still concern about the impact but the latest data shows a moderation in the El Nino pattern.

For white wheat, the picture is a little different. Demand continues to be decent, actually running ahead of USDA estimates so far. Early yields are coming in a little less than expected and USDA was already projecting a 25 million bu production drop for this year. With the possibility of El Nino affecting production in Australia, end users are being aggressive in covering their needs. So far selling from the country has been nonexistent for the last month-and-a- half and it looks like it might remain that way through August. My gut feeling is there is more upside potential than downside risk at these levels and I would like to see where we are at come October.

Just a reminder, if you plan on starting harvest please contact us so we can have your station manned.

Wishing everyone a safe harvest.