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July can send chills up the spines of grain producers because it is notorious for adverse weather. However, so far this month, conditions have been favorable in most areas of the Midwest. Meanwhile, a high pressure ridge is forecast to develop next week that could trim back yield potential. As of last week, 76 percent of the corn crop was rated in good-to-excellent condition, up one point from the previous week and compares to 66 percent for the 10-year average. According to Ag Watch’s yield model, this equates to a national yield of 174.7 bpa. With 2016-17 ending stocks projected at 2.081 BB, if the high pressure ridge forecast next week does not meet the bulls’ expectations, a swift downside break is likely. Last week, the funds shed 390 MB from their long position reducing it to 535 MB. Meanwhile, exports are promising with inspections last week at 53.4 MB.
The bulls have been chomping at the bit quite some time for a weather event to get underway. A high pressure ridge is expected to develop late next week, which may be their last remaining shot for an incident happening. However, there is inconsistency among forecasters that it will last long. At any rate, with 2016-17 ending stocks projected at 290 MB, extreme heat could potentially reduce yields and tighten stocks further. In the meantime, conditions have been favorable up to this point. Last week, the ratings improved one point to 71 percent of the crop in good-to-excellent condition and compares to the 10-year average of 62 percent. According to Ag Watch’s yield model, this translates to a national yield of 50.4 bpa. In mid-June, the funds held a long position of 1.075 BB and have since reduced it to 805 MB. Meanwhile, export inspections perked up last week at 13.7 MB, the highest level seen since April. China took 5.0 MB or 36 percent of shipments.
It is difficult to find many bright spots in wheat. With 2016-17 endings stocks of 1.105 BB, and even a 4.1 million ton reduction in global inventory to 253.7 million, we have an oversupply of wheat. Harvest is progressing without any glitches, and is 66 percent done compared to the average of 65 percent. Export inspections last week were 13.7 MB, and are off to a decent start for the season. Last week, the funds increased their short position 80 MB to 620 MB. The record is 765 MB and suggests that the bears may be leaning too heavy on the short side even though the fundamentals are not supportive.
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