On The Money Grain Commentary 8-27-15

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Corn Outlook:

Volatility in the grains has been on the upswing recently because of the turmoil in China’s economy and the devaluation of the yuan.  Since June, the Shanghai Composite Index has fallen 43 percent in value.  This has unnerved the financial markets resulting in sharp price swings of late.  Meanwhile, China cut their interest rates this week, which has seemed to calm the markets, at least for now.  In other developments, the trend following funds sold 155 MB of corn last week reducing their long position to 80 MB.  For the second consecutive week, the corn rating has stood at 69 percent of the crop in good-to-excellent condition.  Thirty-nine percent of the crop has dented, which is below the average of 43 percent.  Export inspections were routine last week at 34.8 MB.  With only two weeks left in the marketing year, cumulative shipments are running at 1.721 BB  suggesting that the USDA will likely fall short of their target of 1.850 BB.

Bean Outlook:

Soybean futures fell to a new contract low this week from the sell-off in China’s stock market and the devaluation of the yuan.  The devaluation of their currency has the potential of sending more export business to South America.  Inspections last week were disappointing at 7.7 MB with cumulative shipments at 1.822 BB.  With only two weeks left in the marketing year, we should have no trouble in reaching USDA’s target of 1.825 BB.  However, their projection of 1.725 BB for 2015-16 could be a different story as sales are lagging by 50 percent.  In other developments, the crop rating has stood at 63 percent in good-to-excellent condition for the fourth consecutive week.  This implies that USDA’s yield estimate of 46.9 bpa may not be far off target.  Eighty-seven percent of the crop is setting pods, which is one point below the norm.  Last week, the trend following funds were active as they sold 220 MB bringing them to a flat position.  Look for soybeans over the next few weeks to take their cue from weather and news in China.

Wheat Outlook:

There is not a lot that can be said for wheat other than it is a follower of corn, soybeans, and the outside markets.  Spring wheat harvest is progressing quickly at 75 percent complete, which is well ahead of the average of 47 percent.  Meanwhile, exports are a sore spot with inspections last week at 10.2 MB.  If the pace continues, we will ship slightly over 700 MB compared to USDA’s projection of 925 MB.  While the dollar has backed off the past three weeks, it has the potential of rising 6-8 percent in value, which will keep U.S. wheat noncompetitive in the global market.  In other developments, the trend following funds have lightened their shorts in wheat by 50 MB reducing their position to 185 MB.

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