The USDA's July production and supply/demand revisions prompted a mixed response from the trade, with wheat's data being positive for prices, soybean's neutral, and corn's negative. However, building concerns about dryness in the western Midwest and the northeast areas of the Corn Belt became the dominant market feature later this week.
Corn's June quarterly stocks and acreage reports had already set a negative tone for the USDA updates, but the 150 million jump in old crop ending stocks (100 million drop in feed and 50 million cut in exports) was above the trade's expectations. 2007/08's ending stocks rose to 1.5 billion bu. without the USDA adjusting its new crop yield from 150.3 bu.-which also left many traders deflated. The recent stretch of dry weather in the western Corn Belt (limited moisture west of Interstate 35) limited fund liquidations as concerns about further declines in the national good/excellent ratings (78% to 70% over the past six weeks) and slip over from other pits lifted corn by week's end.
In soybeans, there were slight gains in old-crop export and crush (10 million each), but a 10 million cut in seed/residual didn't impress the trade with only a 10 million drop in old-crop stocks. However, 2007/08's drop in ending stocks of 355 million to 245 million bu. (with the U.S. yield being left unchanged) countered the old-crop data and lifted the soy complex, given the current weather outlook of minimal moisture and above normal temperatures moving into the Midwest later this month. The USDA cutting beans' world stocks by 2.2 mmt to 51.8 vs 64 this year also was supportive.
July's USDA wheat production update was lower than expected when this month's hard red wheat was down 7% to 969 million, because of sharp cuts in KS and OK yields due to flooding rains hitting these two states hard in the past month. SRW output was upped 23 million to 364 while PNW's white wheat slid 3 million this month. Spring wheat and durum were approximately as expected (at 498 and 79 million bu. each), but wheat's ending stocks declining to 418 million (due to U.S exports being increased 50 million) provides support-particularly to KC values. The USDA did increase their world wheat stock 4.5 mmt to 116.5 this month, but most of this jump came from their 5 mmt increase of the Chinese crop, which normally isn't available to the world supplies each year.
After last month's dramatic shift in U.S. plantings from soybeans to corn, the CBOT's market leadership has shifted from corn to soybeans. With just a minor decline in yield to 40 bu., beans' ending stocks could slip to 2003/04 stocks/use levels when nearby prices rallied above $10. Hold sales for now. Producers should look to clean out old-crop corn and have 2007/08 sales at 45% on strength to $3.80-$3.90 (basis Dec) and up 2007/08 wheat sales to 65-75% at $6.75 (basis KC Sept).
