Under the Agridome

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The days are long, sunny and hot, somewhat of a departure from what we saw during the last six weeks and we're hoping for more of it. It is that time of year when the crop is made or at least the market thinks it is. This year we have had good weather across the greater North American Corn belt, and it has led most of us to believe that big crops are coming when the dust settles this fall. Last Monday, we had the USDA weigh in with its latest big June 30 acreage projections.

The June 30 USDA Acreage and quarterly Grain Stocks reports are always big when it comes to our agricultural prices. However, this year there wasn't much to it. The USDA came out and said farmers planted 95.2 million acres of corn, which is a decline of 100,000 acres from the March estimate. This is about 5% more than what we had in last year's fields, and it will be the third-highest planted acreage since the Second World War. The old-crop corn stocks as of June 1 total 4.64 billion bushels (bb), which is down 7% from a year ago. If anybody was looking for a big surprise in the corn number on June 30, we simply didn't get it.

On the soybean side of the ledger, USDA trimmed its March estimate by 100,000 acres down to 83.4 million acres. That's about 4% less than last year. Soybean stocks on the other hand totaled 1.01 bb on June 1, which was up 4% from a year ago. The big shift into corn did take place, but might not be as big as some people had been earlier musing. Wheat acreage declined about 1% from a year ago.

Through the years, USDA reports on March 30, June 30 and the January report are the big three. Any dalliance with the numbers in these different reports can often cause big movements of prices. However, there was none of that this year on June 30. This surely had to do with the good weather that this crop has gotten in the United States. So far, our production looks stellar as we head into the July Fourth weekend.

However, there are some weather models which have consistently been predicting a dry July, August and September and that seems to have manifested itself during the last few days, especially in the soybean market. After dipping down toward long-term support at $10.17 earlier, new-crop soybeans have pushed up above the moving averages as of Wednesday of this past week. In fact, on Wednesday all the commodities were up in price. It surely might be related to some short covering, but there also has been some commercial buying. Going into the long three-day weekend of the Fourth of July, nobody wants to be short futures, especially if there is hot and dry weather predicted, I guess.

Keep in mind, one of my old sayings. "The drought ends when it rains." Realistically, of course the drought hasn't even really started, it's just a theory now. So, it is unlikely to happen based on history. Having said that, as we March toward July 4 and beyond, we are going into that "weather sweet spot" which could determine price direction for the next year.

Whether we hit that or not, I don't know, but there are some fundamentals that are favorable even with abundant supplies surrounding us. For instance, soybean oil has been rising lately and especially since March. The May soybean crush was a record for last month and crude soybean oil stocks at the end of May were the lowest for the last month as far back as NASS data tracks (to 2015), noted DTN Lead Analyst Rhett Montgomery in his July 2 DTN Closing Market Comment video (https://www.dtnpf.com/…).

At the same time, we have the great elixir "cheap" grain doing its magic building demand. At a certain point, if Mother Nature doesn't play nice, that bridge will be broken, it's been so long since we've heard anything about prices rationing demand. However, it will happen again.

On the geopolitical front we didn't get much help last week as President Donald Trump cut off all trade negotiations with Canada unless we dropped the digital services tax of 3% which was being applied on Google, Meta and Amazon. The law establishing that tax was passed about a year ago, but it was never implemented. Somewhere along the line we got the implementation date of June 30, which gave our U.S. friends a great excuse to cut off negotiations. Right on cue, Sunday night the digital service tax died. Shazam, the United States and Canada are once again at the trade negotiating table.

The next couple of weeks will be instrumental for growing crops. We are headed into corn pollination which is always critical. Soybeans will remain the great liars. The markets know it -- and their algorithms have every weather model, every hint of stress in the crop dialed in. This is the critical window where prices are made or lost. The next few weeks aren't just about crop development -- they're about market direction, farmer confidence and setting the tone for the rest of the year. Daily market intelligence will remain key because what happens now, in early July, often writes the story for the rest of the season.

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Philip Shaw can be reached at philip@philipshaw.ca

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