Commodity Index
The CRB/CCI tried to rally early in the week, but the market was pulled lower on Friday’s break in crude oil/metal prices. Soft commodity values continued to rise amid threatening Central US weather and strong demand for US meat products. The US and world economy continues to gain traction with the US GDP rate to rise to 2.5-2.7% in the last half of 2017. The economic strength is likely to limit any further break in the CRB index and we would caution clients about turning bearish as the US Central Bank prepares to raise interest rates 1-2 more times in 2017, and at least another 2 times in 2018. The demand for US meat products will remain stout, its US grain and soy demand that could suffer on a further rally amid the abundance of other suppliers and a rising US dollar into yearend.
Corn
December corn rallied another 13 cents as the US weather forecast through the week trended steadily warmer/drier, especially across the Plains. As ARC discussed last week, some 25% of the crop is being grown in the Dakotas, NE and KS, which in 2014-2016 was bearish, but is now rather supportive.
High pressure Ridging of varying intensity will be anchored aloft the Plains & W Midwest through July 23 (no pattern change was indicated as of Friday evening), and as such substantial draws in soil moisture are indicated across some 50-60% of the US corn belt.
A sizeable decline in crop rating lies ahead, and ARC pegs the most probable US yield at 164 Bu/Acre as of July 7th, which in turn pulls end stocks to 1.7-1.8 Bil Bu. South American corn is still very cheap, and will likely find its way to the Southeastern US on any further rally, but a test of $4.25-4.50 Dec is projected without a rather quick reversal in Central US weather. Await a further advance to extend cash sales with the focus being on 2018 and 2019 production.
Wheat
Wheat futures ended steady to higher, and although contracts settled off their highs, our work suggests a new plateau has been reached. The wheat bear market which began in 2012 is over. The future goal of wheat prices is to00 secure additional spring wheat acreage in the US and Canada in 2018, and also to account for a roughly 40 MMT cut in major exporter supplies this year!
World wheat cash markets have largely followed the US advance and Russian wheat – the world’s cheapest – is now offered at a level comparable to $4.75-4.80, basis spot KC, and so sub-$5.00 US futures is unlikely in coming months. Rising corn, oat and barley prices, and falling crop estimates in Canada, will offer further support. Spring wheat futures should score a seasonal top closer to $9.00-10.00. Target $5.80-6.20, basis CME to catch up on sales. A seasonal peak should be scored in Sept/October.
Soybeans
Soybean futures extended gains through the holiday shortened trading week on continued fund short covering following the June NASS report. The Commitment of Traders report showed funds had been big buyers through the week, but are still estimated to be holding a sizable short position in soybeans. Hedgers were modest sellers on the rally, but are still holding a rare net long position in the soybean market. Additional fund short covering lies ahead.
Market focus in the week ahead will first be on Monday’s crop ratings, followed by the July WASDE report on Wednesday. Based on limited rainfall in the last week, we look for a 1-2% decline in national GD/EX ratings. The WASDE report is not expected to show any significant changes, but the current pace of demand is hinting at a lower crush and larger US export forecast. The new crop yield estimate is expected to hold steady at 48 BPA.
Spot soybeans have now retraced 50% of the January high to June low price move, with the next immediate price target at $10.60.