Disappointing crop ratings lift grain prices overnight.
Grain futures recovered overnight on disappointing crop ratings and reductions to Northern Plains precip expectations. The question is, does the grain trade sell overnight strength when it gets reopened at 8:30? Heavy rains in the South Eastern part of North Dakota were the only soaking rains experienced, with the bulk of the state left dry. Last week's initial corn crop ratings were the best in years, but this week's downgrade indicates the crop will respond negatively to weather, with good/excellent ratings likely to test 65-68% in the next two weeks. Such ratings are slightly below average for mid-June. US soybean ratings, too, will be at or below 60% by mid-June, and suddenly yield potential has been eroded. Spring wheat GD/EX of 38% is worrisome. The US oat crop was pegged at just 46% GD/EX, vs 71% a year ago, with oats in ND just 24% GD/EX.
Brazil's interior corn market is again perched at $8.15 per bushel. This is partly due to recent strength in the Real, but safrinha corn in Mato Grosso, Goias and Minas Gerais will continue to labor under seasonal dryness and abnormal warmth. Max high temps across Central Brazil will continue into the upper 80s and low 90s – or some 2-4 degrees above average. Many in the trade now expect a final total Brazilian corn crop of less than 90 million tons, which implies the USDA must shift some 11-13 million tons of global corn trade to other origins.
New crop European and Canadian rapeseed/canola futures are testing recent highs, with rapeseed oil in Northern Europe this week posting a new all-time high of €1,450 per ton ($.80 per pound). Canada's canola market has shrugged off coming rainfall as recent excessive heat has done some measure of irreversible damage to yield potential. Recall Canadian canola exports account for 60% of total world canola trade. Canola yield loss in Canada implies supply rationing not only there but across the world.
The EU & Canadian models remain in general agreement on the 10-day forecast, with some discrepancy still in place over rainfall this week in North Dakota. The EU solution remains the driest of the major forecasting models. Still, even the Canadian model's call for regional totals of .25-1.00″ will not solve current drought issues. Rainfall of 9-12″ is needed to end the drought in ND in the next 30 days. Abnormal dryness will be expanding, not contracting, into late June. Lite/scattered showers will persist across Illinois, Indiana, Ohio and Kentucky into Friday. The best chance for rain across the Northern Plains occurs Fri-Sat. Accumulation across the Dakotas is most likely to be capped at .10-.50″, which amid high temps in the 90s will do little to boost soil moisture levels. The 6-15 day guidance features an expansion of high-pressure Ridging west of the MS River. This upper airflow allows temps to moderate across the E Midwest but keeps a pattern of abnormal warmth and dryness intact elsewhere.
A mixed to lower start to the week with live cattle futures trading softer in the front with more strength in the deferred. Negotiated fed cattle markets went untraded on Monday. But the beef market was slower and lower to start the week, which is expected to weigh on initial bids this week. The early week outlook is steady to lower. The cash beef trade started the week lower. The choice cutout was down $.38, and select broke $2.56 on light volume. Traders are looking for confirmation of a seasonal top in the beef market. National pasture conditions improved slightly last week, with national P/VP ratings slipping 2% to 37%. However, P/VP ratings in ND held steady at 67%, while SD jumped 14% to 54%. AZ conditions improved slightly, but P/VP pasture ratings held at 82% versus the average of 44%.
Seasonally summer cattle contracts score their low in late June, but it's likely the JBS fallout last week created that summer low, with August futures looking to tread water in the coming weeks with 114.50 likely becoming the summer low. Demand still looks to remain robust all summer, with packers working through supplies.