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Grain prices closed higher today as the markets continue to chop back and forth within a fairly narrow range with USDA’s August crop report only a week away.
Grain Market News
U.S. Drought Monitor
The U.S. drought monitor came out this morning and shows ongoing drought in the northwestern belt and northern Plains, and severe drought in the northwest Pacific. In fact drought conditions expanded in much of the northwestern belt over the past week.
Drought Monitor Class Change
We can see that on the drought monitor class change map and with the exception of a few green areas, most areas saw the drought expanding. From Chicago to KC, north and west of that area is still extremely dry. Crops need additional rain in a hurry.
There’s a little bit of rain on the radar this afternoon. Nothing heavy. Some scattered showers in the central portions of the belt. Most of the rain is not producing significant totals. We’ve heard a lot of rain in the .10-.30” over night with a couple isolated 0.50” but many areas didn’t receive any rain at all. The forecast calls for improving chances of rain especially in areas like southeast MN, IA, northern MO, IL, and WI as we move into the weekend.
7-Day Precipitation Forecast
You can see that in the forecast, 1-2” of rain could fall in portions of the central belt primarily late Fri, Sat, and into Sun/Mon. These rains would be very welcomed if they do in fact fall in some of these areas.
6-10 and 8-14 Day Forecast
The forecast calls for above normal temperatures in the 6-10 and 8- 14 day forecast and below normal precipitation for the most part west of the MS River. The rains that are expected in some of those western areas this weekend are going to be very important for filling corn and beans.
Grain Market News
Corn: Weekly Export Sales
Corn export sales in the old crop position just a nominal amount at 68 tmt. Good news is there wasn’t a net cancelation. There are only 4 weeks left in the marketing year and therefore we don’t much in the next 4 weeks. We do expect new crop sales to increase dramatically as the harvest comes in. In fact, today’s export sales report shows 830 tmt of new crop sales as U.S. corn is becoming much more competitive in the global marketplace.
Soybeans: Weekly Export Sales
This week’s total 11 tmt, virtually zero but at least it’s not a net negative and we’ve already reached USDA’s target. That is why the level needed is negative because we’ve already surpassed the level needed. U.S. soybean sales are going to be very similar to corn, we don’t expect much in the next 3-4 weeks but the U.S. is not competitive for Aug and Sep and even more competitive for new crop and therefore world buyers will consistently be coming to the U.S. going forward for new crop export supplies.
Baltic Dry Index
One piece of news that may help explain why some world buyers are a little cautious in extending coverage right now is that freight rates are extremely high. This index monitors the 23 primary global shipping routes for bulk commodities. It includes various sizes of vessels and gives us a good idea on what it costs to ship grains across the globe. The Baltic dry index indicating that freight rates are the highest they’ve been since 2010 but nowhere near the levels we saw back in May and June of 2008 when crude oil went up to $148/barrel. The insert on the upper left-hand corner is the Baltic dry index for this year. It shows that freight rates have leveled off over the last couple of months.
U.S. Renewable Diesel
Another interesting chart is a chart by the eia. This is current capacity and proposed or announced construction for renewable diesel. Renewable diesel is not the same as biodiesel. It’s a completely different process and produces a much cleaner burning fuel. Because of the clear burning nature of renewable diesel, this year the capacity is nearly doubling and another dramatic increase is expected next year and in 2023 and 2024 as well. The fact that a lot of the capacity is already under construction tells us there will be tremendous demand for soybean oil going into the renewable diesel fuel industry going forward. This is a solid area of demand and some states like California who have clear fuel regulations are working hard at trying to acquire or contract the renewable diesel that will be produced over the next few years. This is a new area of demand for soybean oil and should create a very good demand for soybeans in the years to come.
December Corn Chart
Corn prices remain in a fairly narrow range compared to what we saw earlier in the year when prices were extremely volatile. The marketplace understands that we will make it through the old crop supplies without running out and the marketplace is also becoming convinced we’re not going to have a 2012 type drought and therefore, although the crop may not be ideal, we’re not going to have a major disaster. That is creating a much quieter market than we saw earlier in the summer. In addition, USDA will be releasing its August crop report next week on Thursday and the market is very quiet and chopping in a fairly narrow range ahead of that crop report coming out in one week. Technical indicators are almost dead center in the middle of the range so the market is comfortable will prices in and around the $5.50 level of new crop corn.
November Soybean Chart
Soybean prices also developing a more narrow range over the last month than we saw earlier in the summer when prices were extremely volatile. Some talk that U.S. soybeans could still see a trendline yield if we get some decent August rain has the market closer to the lower end of the range. This is not an area where we’re interested in selling. We think the market can easily trade within that range and we’ll wait to see if prices can work towards the upper end of the range, especially if we would get some friendly news from USDA next week on Thursday. Another reason we’re reluctant to be aggressive sellers in addition to the fact that we’re at the lower end of our price range, we also have technical indicators which are peaking into the oversold area. This is not a place to be making sales in the near term.
September KC Wheat Chart
Wheat prices are in an uptrend although we had a key reversal to the downside yesterday with a little bit of follow through today. We believe it’s a correction in the midst of an overall uptrend due to loss production in the U.S. spring wheat, loss production in Canada, loss production in Russia, and also some minor losses in Brazil due to recent freezes. That doesn’t mean the market can’t pull back towards chart support where we have a double top in the $6.69-$6.74 range. We have our up trending line and moving average converging. That level around $6.60-$6.65 should provide solid chart support if we get a little bit further pullback.
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