Perspective: Mid-Day Commentary for August 18

By: Arlan Suderman, Chief Commodities Economist

Thu, 18 Aug 2022, 16:18

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

August 18 - Stocks are quietly steady to higher at midday today following a mix in economic data. None of it was impressive, although some was a bit better than expected, and some a bit worse. The VIX continues to consolidate near 20, reflecting the easing of fears on Wall Street. The dollar index firmed to trade near 107.2 this morning, while yields on 10-year Treasuries are trading near 2.86%. Crude oil prices are 2% higher, while the Ags are mixed.

Wheat prices remain under active selling pressure - generally 3 to 4% lower at midday. Selling broke through chart support yesterday, leading to more sell signals for the Algo computers. End users have little reason to step in front of this market until something changes that dynamic, leaving this market vulnerable. Corn and soybean prices hit chart objectives earlier this week on their decline, and then bounced on end user and fund bottom-picking. There are still notable concerns about the summer crops in the Midwest, Europe, and in China. As such, these markets still have buying interest beneath them until more is known. Both markets will take particular interest in next week's Midwest Crop Tour reports from the field to get a better feel for how this year's weather impacted the corn and soybean crops. The protein sector is pulling back from recent gains, despite strong cash cattle prices this morning.

USDA pegged the U.S. corn crop at 175.4 bushels per acre on Friday, down from its previous estimate of 177.0 bushels per acre, which was also its final yield for the 2021 crop. StoneX's current official yield estimate is 176.0 bpa, based on a survey of our customers across the Ag Belt. Both USDA's and the StoneX estimate are based on August 1 surveys. I also maintain a regression yield model based on the weekly USDA crop ratings, with its seasonally-adjusted weekly yield estimates shown below. The yield model tends to do a pretty good job of estimating yield potential for the crop, with one exception - it struggles to pick up differences in grain fill in August due to better-than or worse-than normal weather conditions. For example, the model under-estimated the corn yield by 4.7 bpa in 2017 when the Midwest experienced a very cool August that lengthened the grain fill period, allowing for longer kernels that boosted the yield. Contrarily, it over-stated the corn yield in 2019 by 5.4 bpa when August had a similar rainfall pattern, but temperatures were much closer to warmer, leading to a shorter grain fill period than in 2017. That crop was also late-planted, resulting in the crop trying to "hurry up" to the finish. Last year the model came within 0.2 bpa for corn and within 0.1 bpa for soybeans after I tweaked the formulas.

The yield model is not our official StoneX estimate, but it gives us a sense of where we might see estimates move in the months ahead as more data becomes available. The model is currently at 52.0 bpa for soybeans, which is very close to USDA at 51.9, and just above the StoneX estimate of 51.3 bpa. The next several weeks though will be critical for determining the size of the U.S. soybean crop. Rainfall is largely below normal for most areas of the Midwest west of the Mississippi thus far this month, with temperatures above normal west of the River, and largely normal east of the River. This pattern is generally expected to hold through much of the remainder of the month, which would suggest shortening the grain fill period in the western belt.

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