July 1 – Stock futures were cautiously upbeat overnight, despite Friday’s bearish reversal that saw Treasury yields surge higher, with that strength in yields continuing in today’s session thus far as well. The markets will be closed on Thursday for the Independence Day holiday, before traders return on Friday for the monthly jobs report. That report, on top of last Friday’s inflation data, will go a long way toward setting the tone ahead of the next Fed meeting coming up at the end of this month. No rate cut is expected at that meeting, but traders anticipate a more dovish tone in that meeting’s statement to set the stage for a September rate cut. The VIX continues to trade below 13 this morning, while the dollar index is trading near 105.6. Yields on 10-year Treasuries are trading at three-week highs near 4.44%, while yields on 2-year Treasuries are trading near 4.77%, as they also break out of their recent trading range to push higher. Crude oil prices are pushing above $82 once again, while the grain and oilseed markets traded mixed to weaker following Friday’s bearish set of USDA reports.
Mexico’s threat to block imports of GMO corn has been discarded, according to a Reuters story this morning. Former President Andres Manuel Lopez Obrador had made the import ban a key piece of his policy leading up to the presidential election, even though he was not on the ballot. His handpicked successor was on the ballot though, and he saw it as a winning political issue. His successor, President-elect Claudia Sheinbaum, did win that election, but she will apparently not continue with the plans for the import ban, which was sure to face problems with enforcement in both trade agreement litigation, as well as from a practical standpoint. Mexico simply cannot meet all of its food needs without massive imports of corn, and U.S. corn is the most economical to import. Most U.S. yellow corn goes for animal feed, but that also had been on the table. Mexico’s marketing year to date commitments to import U.S. corn are currently up 47% year-on-year at 850 million bushels.
USDA gift wrapped a bearish surprise in Friday’s reports, throwing cold water on any bullish embers that were trying to get started. It all started with the quarterly stocks report, with June 1 corn stocks coming in just shy of 5 billion bushels as farmers hang onto massive supplies of last year’s crops in hopes of better prices. This year’s June 1 stocks were up nearly 900 million bushels year-on-year, and 120 million bushels above the average trade guess. That suggests that USDA either under-stated the size of last year’s crop, over-stated this year’s feed usage, or some combination. Any assumptions about feed usage then have implications for the next marketing year as well. USDA historically doesn’t like to adjust the size of the previous year’s crop until the September 30 stocks report, when we’re all focused on the new crop fundamentals, so that puts the focus on feed usage for now. Keep in mind that stocks reports don’t have to make sense in the near-term, so USDA may also just count it up as survey error for now, while waiting for the September survey.
That brings us to the acreage survey results, in which USDA bumped planted acreage up to 91.5 million, up from 90.0 million previously. Most of those additional acres (additional from March survey) showed up in the northwestern Midwest. Some of them might not get planted – may end up as prevent plant – while others may not get harvested following recent flooding problems in a portion of that region. Look for better acreage numbers adjusted from FSA certifications in the August and September reports. There’s been a lot of discussion about USDA’s statement that 3.36 million corn and 12.8 million soybean acres were still unplanted when the survey was conducted. USDA reported in its weekly crop progress reports that 91% of the corn was planted as of June 2, which was similar to the 15-year average for the week of 92%. It also reported that 78% of the soybean crop was planted, which was near the 15-year average for the week of 76%. That says that the portion of the crop that was still un-planted when the survey was conducted was similar this year to the long-term average. It does not however say what happens to those remaining unplanted acreage.
The market is expected to focus more on the anticipated impact of the weather on yield than it will on the acreage question going forward. Forecast models have taken much of the heat out of the forecast over the next couple of weeks, although the longer-term bias is still on the expectations of a “hot” summer. That will likely be more of a product of high nighttime temperatures than it will be of extreme day time highs. It’s yet to be seen whether we will see nighttime lows high enough to cause the type of yield losses we had in 2010. My discussions with climatologists suggest that the odds of a repeat of 2010 losses are still probably well below 50%, but they are high enough to warrant monitoring, especially later this summer while we’re in the grain fill stage of development. For now, we’re going into pollination with most areas benefiting from adequate moisture. Yes, it’s still too wet in portions of the northwestern Midwest, but the trend improves for that region going forward.
