This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.
The US entered the conflict in the Middle East over the weekend but the energy markets did have much of a reaction. The US is a net exporter of energy and OPEC was pumping lots of excess oil leading up to Israel’s initial attack on Iran. Noone has targeted any energy infrastructure so far. The US entry seems like a major escalation and the energy markets opened higher Sunday night but were trading lower by the morning. Iran fired missiles at US bases on Monday midday and initially energy markets spiked on the headline. But even before all the missiles were shot down, crude oil was trading lower. The market is reading this as such a minor response, it was just for them to save face and not to escalate. No US personal were even injured. This is far from over, but for now it looks like the Iranians are looking for an offramp not retribution.
The market expected crop condition ratings to hold steady this week but the report released Monday afternoon showed a drop for corn. The corn crop was rated at 70% good/excellent vs 72% expected. That compares to 72% last week and 69% last year. The soybean crop was rated at 66% good/excellent vs 67% expected. That compares to 66% last week and 67% last year. Winter wheat conditions were rated at 49% good/excellent vs 52% expected. That compares to 52% last week and 52% last year.
Wheat had a strong showing last week but backed off to start this week. We had to wait until Monday to get the Commitment of Traders Report due to the holiday last Thursday. It reports the positions through Tuesday of last week and showed the funds were still big sellers of corn selling another 20k contracts putting them net short over 180,000 contracts. That is a big short position but well below the record of 353,000. They have felt confident in their shorts with no weather threat to scare them to cover so far. Funds were buyers of wheat and soybeans last week. The wheat market was the leader to the upside last week for the first time in quite some time. Weather is hot and dry in Europe and too wet in the US Plains which is not new. What is new is the funds finally got spooked enough to start covering some positions and hit some technical levels which triggered more short covering. Funds were buyers in soybeans on the hope of bigger demand from the EPA’s renewable volume obligation (RVO) proposal seen as friendly to soybean oil.
Corn, soybeans and wheat were all down hard on Monday even as a heat wave grips most of the country. The 7 day forecast is showing plenty of precipitation showing up for most of the growing regions and some heat will be welcome after crops got off to a slow start with cool temps. If the heat stays longer than expected or precipitation totals start to back off the market may react but until the funds see something that seems to threaten the crop the path of least resistance will be down.
We get USDA’s Quarterly Stocks and Planted Acreage report on Monday June 30th at noon. That is also first notice day for July futures and the end of the quarter. Since it is first notice day, July futures have no price limit on the board, not that we are expecting a surprise big enough to move the market close to a limit. But worth noting anyway because if you were expecting it, it would not be a surprise. With the weakness leading into the report, I think we have some bearish numbers priced into the market. Other than the report, this the time of the year the market is watching weather the closest. Each new model run will be quickly priced in.