Wheat and soybean prices rose to their highest levels of the year as the latest weather models dropped the forecast for moisture in the central and eastern Midwest this week and the U.S. winter wheat crop was reported smaller than expected on the USDA's June updates.
The USDA's second U.S. winter wheat crop estimate, at 1.610 billion bu., was down 6 million from last month, but 30 million below the trade's average expectations. Hard red output didn't increase as much as some analysts were expecting, with just a 4 million rise to 1.032 billion bu. as OK yield was cut 2 bu. and KS yield was left unchanged. However, yields rose in TX (1), CO (2) and NE (1), but harvested acreage was unchanged in the Plains this month. Soft red output was also below expectations at 341 million, down 9 million from last month, as yields in IN (-4 bu.) and AR (-4) showed more freeze damage, and NC (-4) and SC (-5) yields slipped because of drought this month. U.S. white wheat also declined 4 million to 237 million bu., because of dryness in the PNW since last month.
The USDA increased old-crop imports on June's supply/demand update by 5 million, but they also upped 07/08's U.S. export prospects by 25 million to 1 billion. This was due to another decline in world wheat output and ending stocks this month, resulting in a 26-million drop in U.S. 07/08 stocks to 443 million. This spring's dryness in the FSU was the reason for the USDA's lower world output, as crop estimates fell 3.5 mmt in Russia (to 45 mmt) and Ukraine (to 14 mmt) and reduced the Black Sea's export prospects by 5 mmt this month. These smaller crops also tightened the world stocks forecast to 112 mmt, the smallest since 1981/82.
The USDA decreased corn's old-crop exports by 50 million to 2.15 billion bu. because of this spring's slowdown in overseas demand, which prompted similar gains in both 06/07 and 07/08 stocks. The USDA didn't increase new-crop corn yield or output, as some traders had been touting, because of this year's high good/excellent ratings (77%, -1% this week) but adjustments are likely after the USDA's June 29 quarterly stocks and 2007 acreage report.
No changes were made to soybean's balance sheets this month. But the USDA did increase its 2007 estimate for Brazilian and Argentine crops to 59 mmt and 46.5 mmt, respectively, and projected crops of 61 mmt and 47 mmt respectively for 2008. However, because of this year's smaller U.S. crop, world soybean stocks are projected to decline to 54 mmt, down from the current 63.6 mmt supplies.
With the world's wheat and corn supplies at their tightest levels in decades and soybean stocks declining in the coming year, this summer's U.S. growing season weather will be a major market factor. However, be prepared to take advantage of sharp advances in three major markets, because the current prices could erode some demand, and an important portion of this year's corn and soybean growing season isn't until the first half of July and August.
