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Crops dip, recover after USDA’s bearish supply numbers

United Soybean Board soybean field
Traders sweat heat wave more than bearish numbers.

Crop markets dropped a little after the bearish numbers in the U.S. Department of Agriculture’s monthly supply/demand report but soon recovered as a heat wave forecasted for the Midwest through early next week had traders building in weather premiums.

In the report, soybean ending stocks were increased for this crop year and next, which countered trade forecasts that largely favored small reductions. The 15 million bu. increase in old-crop stocks was the result of USDA lowering the crush by that amount. Exports, production and other categories were left unchanged.

The corn ending stocks were unchanged, while a reduction was expected. The wheat stocks increased as USDA increased production slightly.

Wheat production was raised to 1.824 billion bu. from the May estimate’s1.82 billion bu. due to a similar increase in winter wheat production. The 1.25 billion bu. forecast for winter wheat was on the high side of trade estimates and was largely the result of hiking hard red winter wheat figure to 743 million bu. from last month's 737 million bu.

“USDA didn’t have anything friendly to say for the market today, but the trade quickly moved back to trading weather after initial headline selling subsided,” Bryce Knorr, Farm Futures senior grain analyst, said. “The increase in winter wheat production went against models based on crop ratings, though they’re in line with estimates derived from Vegetation Health Index maps."

USDA did not issue a specific spring wheat number, but Knorr noted that the crop is a concern, “as evidenced by the big drop in North Dakota winter wheat yields.”

Argentina and Brazil soybean production increased for this year’s harvest, with Argentina’s at 57.8 million metric tons versus the previous 57 million. Brazil’s crop went to 114 million mt from 111.6 million mt. The 114 million for Brazil was larger than expected and topped the average of 112.24 million in a Reuters poll.

“The increase in Brazilian soybean production was even more than I expected, and my number was on the higher end of trade guesses,” Knorr said. “That supply will hang over the market this fall, which is why new-crop corn and soybean export sales are off to a very slow start.”

Forecasters say temperatures of about 100°F are headed for the Midwest this weekend and should last through early next week. Funds entered the week largely short, so such a forecast likely prompted short covering ahead of the weekend break.

“It’s a weather market, pure and simple. That means the clock is ticking, especially for corn,” Knorr said. “Soybeans have a longer period of uncertainty, but their fundamentals are likely more bearish. Wheat could be the wild card. It looks like the market is on track to follow the trend seen in bullish years, if spring wheat can stay the leader.”

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