Perspective: Mid-Day Commentary for July 27

By: Arlan Suderman, Chief Commodities Economist

Wed, 27 Jul 2022, 16:36

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

July 27 - Cautious optimism hangs over Wall Street at midday, with traders hoping that the Federal Reserve will not surprise them this afternoon with anything other than what's been priced into the market. Stocks are firmer, while the VIX is trading below 24. The dollar index is trading near 107.3, while yields on 10-year Treasuries are trading near 2.77%. Crude oil prices are more than 2% higher, while most of the Ags are higher as well. Wheat prices are one of the primary exceptions, with this week's spring wheat tour in North Dakota finding better than average yields thus far overall. However, soybeans continue to be the poster-child for a weather market in the row crops, with forecast models continuing to call for heat and dryness to build over the Midwest next week, and possibly beyond. Lower wheat prices took some of the top off corn prices this morning.

Grain shipment from Ukraine's ports remain at a virtual standstill, even as Russia continues to hit port cities with missiles out of the Black Sea. Ship owners are afraid of committing to hauling grain out of ports until they have more details regarding the proper procedures to follow under the recently signed agreement, as well as details about insurance coverage for their ships. The high cost of insurance is also an obstacle, although some expect the United Nations to work something out to make that more acceptable. Grain traders are also reluctant to make commitments as long as the ships are sitting still. Those ships still trapped in the ports since the war started in February are anxious to leave port once answers are provided for the above questions. The next question then will be whether they'll be agreeable to return for another load. The general thinking among many observers is that Russia remains committed to its stated objective of taking control of southern Ukraine, including the ports, and that it has nothing to benefit from allowing grain to flow out that would help finance Ukraine's ability to defend itself. As such, they expect Russia to accuse Ukraine of violating the agreement shortly after grain starts to move, giving it an excuse to become more aggressive in the region.

Midwest weather is the top story currently for the corn and soybean crops. The trade tends to assume that July is the critical month for corn yield determination, and that August is the key month for soybeans. There's a lot of truth to that, but it's also an oversimplification. This year's corn pollination is delayed, pushing a bit more of it into August, while August is also a critical month for determining kernel length, which has a significant impact on yield as well. Soybeans are leading the way in the current weather market, because they probably do have the most to lose as they head into their primary period of pod set and pod fill, but corn has a lot to gain or lose as well.

Let's look at current corn ratings now that we're at the end of July, to see where this crop rates versus other previous crops. The below graphic shows that this year's crop boasts a condition index score of 356 this week, which is slightly below the 10-year average of 362. The graphic shows the crop's condition index score for the same week since 1986, when USDA first started posting ratings. It also shows the final corn yield for each of those years. The bottom line is that the current score is modestly below average for the date, but that doesn't guarantee that we'll see a below trend yield. A mild August could still increase seed size to boost the national average yield above trend levels. Unfortunately, that's not in the forecast currently.

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