MarketsFarm — With the U.S. Department of Agriculture (USDA) already set to release its monthly supply/demand estimates on Friday, the U.S. Labor Department threw in a curveball two days prior.
The Labor Department on Wednesday reported the annual rate of inflation declined to 8.5 per cent in July, 0.6 of a point lower than in June. Immediately after the announcement, the U.S. dollar weakened and provided support for commodities (all figures US$).
Sean Lusk, vice-president of Walsh Commercial Hedging Services in Chicago, said the effect of the announcement was purely reactionary.
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“Whether you think it’s fool’s gold or not, it’s in the market today. They’re selling the dollar, which makes commodities buy, in theory,” he said. “At the end of the day, we’re going to get a big crop report on (Friday) and we’re very elevated here.”
Analysts believe USDA will make downward revisions to average yields in the report due to delayed seeding and recent hot and dry weather in many growing areas.
Lusk questions whether corn and soybean production from states with higher-rated growing conditions (Illinois, Indiana, Minnesota) can offset a lack of production from states with lower-rated growing conditions (Colorado, Texas, Kansas).
However, buyers may be waiting on results of USDA’s re-survey of acres in North Dakota and Minnesota before taking action.
“You could have a situation here whether you raise acres but temper the expectation of yields. But if you produce more on more acres than what the market is pricing in and we have agreeable weather in the second half of August, these are great hedging opportunities for producers in my opinion,” Lusk said. “That being said, there is a lot of fear-based buying currently.”
Dry weather conditions have raised corn and soybean prices over the past week, while wheat has traded sideways mainly due to speculation on Ukrainian exports. Projected ending stocks for all three crops are already low, according to Lusk, and any further adjustment downwards can cause a greater rally.
“The average ending stocks for beans are only 230 million bushels. Any hiccup here in the next two weeks could have an adjustment below (200 million), which could warrant a board price to go back to the spring highs or near there up at $15.40 (per bushel). Maybe even $16. For corn, maybe $6.50, maybe $6.70 to $6.80,” he said.
“This could be setting up to be ‘buy the rumour, sell the fact.’ But weather is really going to determine over the next two to three weeks what these crops are or aren’t, especially in the bean market.”
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
