We failed to bring the heat
Aug 04, 2017
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We need only look backward one month, and we find quite literally high-flying grain and soy markets, as heat and dry conditions to the western and northwestern reaches of the growing areas were being reflected, and the concern du-jour was for more of the same. Of course, that was the first ten days or so of July and here during the first few days of August, there are still are some periphery concerns about drought conditions, but the lack of heat has eliminated much of the fear factor that was panicking the short, and since then, it has been the longs turn to be taken to the wood-shed for a licking. If you looked only at a comparison of the drought maps between the two periods, one might question why we have fallen so hard. In early July, most of the drought concerns were centered on the Northern Plains, but since that time, we have seen this intensify in Nebraska and a good portion of Iowa as well as extend to Kansas and Missouri. Borrowing a phrase from popular culture, it would appear that if you don’t “bring the heat” neither will you bring any market excitement. All that said, now that we have returned grain prices to the pre-rally levels and have erased the post-July 1st advance in beans, we should be at a point of value unless you are in the camp that believes the 2017 weather conditions have not trimmed yield potential this year.
While it remains unknown as to what will be reflected in the August USDA crop report, we only need to wait a few more days to find out. Bloomberg News has released the first trade survey that I have come across, and their numbers break down as follows; Total corn production of 13.807 billion using a yield of 165.9 bpa, leaving us with a carryout next year of 1.94 billion. For beans, their average production in the survey came in at 4.203 billion bushels from a yield of 47.4 bpa and carryout of 433 million. The estimate for total wheat production was 1.717 billion with carryout dropping to 901.5 million.
We are finishing the week with a little positive news for the ethanol industry. Much to the chagrin of billionaire investor Carl Icahn, it is expected that next week the EPA will announce that they have rejected a proposal from the refining industry that would have pushed the biofuel blending mandate to others in the energy chain, thus eliminating the need for refiners to use RINs. If…