The Department of Labor reported this morning that August unemployment was at 9.6%, unchanged from the previous month. Non-farm payrolls dropped by 54,000, but the private sector portion of payroll actually grew by 67,000. Wall Street gave a big sigh of relief, but remained cautious ahead of the three-day holiday weekend.
Nonetheless, the fear factor had been removed, allowing money to flow once again into the grain and oilseed pits. Prices received a boost from private production estimates suggesting that this year's corn crop may be much smaller than USDA's August estimate. Buy stops were triggered, accelerating gains and attracting even more outside money to the food-based commodities.
Today's finish sets the stage for a volatile holiday-shortened week next week, concluding with USDA's updated monthly crop report. The markets are closed for Labor Day on Monday. USDA's closely-watched weekly crop condition report will be released Tuesday afternoon, followed by updated production, supply and demand data from the agency on Friday morning. Friday's report should set the tone for the harvest period.
Commodity Weather Group notes that rains did a good job of easing dry spots in many areas of the Midwest yesterday but remained limited into Ohio, central and southern Indiana and even parts of southeastern Michigan. Approximately 10 to 15% of soybeans remain unfavorably dry as growth finishes up.
Rains are not likely over the next 2 weeks for the remaining dry areas. Some forecast models bring scattered showers into the southeastern Midwest next weekend, but drier solutions are preferred. The lack of rain is also drawing down pre-planting moisture for much of the soft red winter wheat belt.
Rains will be limited over the next 5 days in the western belt, but showers are expected to increase in the 6 to 15 day period. These rains will likely focus on northern and eastern Iowa, Minnesota, North Dakota and Wisconsin with the heaviest and most frequent activity. The 16 to 30 day outlook is also turning a little wetter in the west (particularly Minnesota, Wisconsin and North Dakota).
As for the former Soviet Union (FSU), its winter wheat belt received light to moderate showers in the western Ukraine and the Central Region yesterday. Light showers will scatter across the Volga Valley and eastern Ukraine today and tomorrow with only isolated areas getting up to a half inch of rain. This will keep most areas too dry for planting in the eastern third of the belt.
This week's showers added enough moisture to allow seeding in more of the Central region and central Ukraine bringing the total area that may be encouraged to plant to 60%. The showers this weekend could tack on another 5% to that total. Cooler air moving into the north will lead to some frost early next week but damage potential is minor at this point. Germany should be on the dry side the next 5 days with just sprinkles. Rains will return next week and hold up the final stages of wheat harvest.
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This morning's jobs report removed much of the fear factor from the markets today, although traders still faced a three-day holiday weekend. Even so, the lack of surprises in the monthly employment report allowed money to flow once again into the food-based commodities. That buying received an injection mid-morning that poured fuel on bullish embers smoldering in the pits.
Private analyst Informa Economics reportedly released an estimate that USDA would peg this year's corn crop at 164.8 bushels per acre next Friday, down from its latest estimate of 165. However, reading further into the report traders noticed that Informa expects the yield to eventually drop to 158.5 bushels, down 6.5 bushels from USDA latest estimate.
I've been expecting USDA to eventually drop its yield 3 to 5 bushels per acre, but was leaning hard to the greater side of that reduction after visiting with producers at this week's Farm Progress Show in Boone, Iowa and getting another look at the crop myself. Informa's 6.5 bushel reduction does fall within the range of losses seen in previous warm humid summers, so the possibility must be respected. One of the keys will be to see how significantly the expected high yields in far northern and western areas make up for losses elsewhere.
Informa's survey also found an extra million acres of corn not on USDA's current balance sheet, which is similar to what we have also seen in our surveys. Yet, USDA is not expected to adjust acreage in next Friday's report. Nonetheless, a 13-billion bushel crop with the expected increase in demand is expected to make corn stocks tight over the next year if verified, making speculators wary of being short (sold) until more is known about the size of this year's crop.
The corn market is beginning to feed on itself, similar to what we've seen in the wheat market, with December corn trading to nearly two-year highs today. The December contract posted a high of $4.67, with its eyes now on the $5 mark. First support is at $4.50. Some consolidation is still seen ahead of Friday morning's USDA report, but this market remains in a buy-the-break mentality.
Soybean prices were along for the ride today. Strong corn and wheat prices backed by fresh fundamental news dragged soybeans higher. Traders were willing to buy soybeans since they successfully tested the bottom of the recent trading of $10 to $10.50 mid-week. However, I doubt that the enthusiasm would have been as great if prices had been near the high end of that range.
Support comes from continued concerns about the size of this year's crop, although fears about how big it is are blamed for capping prices at $10.50 as well. USDA likely won't settle that argument next Friday, but we should begin to see good harvest numbers begin to emerge to provide a better idea over the next two to three weeks.
The ongoing question revolves around the ability of fields infected with sudden death syndrome to fill high pod counts in the core of the Midwest. Meanwhile, demand remains robust, with buyers providing support on the breaks.
Chart-driven buying supported impressive gains to go along with spillover strength from the other pits today. Look for November soybeans to test $10.50 next week if money continues to flow into the food-based commodities from Wall Street. Soybeans are well-valued at $10 to $10.50 until we know more about the size of this year's crop, but that doesn't matter if money flow takes over the corn and soybean markets creating a momentum of its own.
As such, your risk management plan must continue to respect the fact that prices may trade beyond levels justified by the fundamentals this fall, both higher and lower, depending on sentiment on Wall Street. Corn has strong fundamentals to underpin the market, while soybean fundamentals are really only strong if the size of this year's crop falls short.
Commodity Weather Group expects rains to expand again through much of the Northern Plains, Saskatchewan, and southern Manitoba by early next week. This will continue to slow late harvest in the U.S. and hinder early progress in central and eastern Canada.
Another event toward mid-month will also reach much of the Prairies, with damp conditions continuing to keep harvest well behind average for much of Saskatchewan and Manitoba in CWG's 16 to 30 day outlook as well. Frost concerns are ending due to the later than normal occurrence that is all but certain now for this season, but the slow harvest could still make harvest difficult to complete before the first snow of the season.
In Argentina, CWG notes that rains have spread into eastern and far southern parts of the wheat belt, reaching some of the driest southwestern areas. Based on satellite, amounts appear to have been mostly in the .10 to .50" range, with heavier totals over the past few days focusing on mainly Entre Rios. The rains will pull eastward through Buenos Aires today, with drier weather then expected until late next week.
However, the European model then shows a chance for another rain event. The GFS tends to focus this next rain event further north in the belt, but the European model handled this week's rain event a little better. In addition, CWG's analog years tend to support a better chance for rain in these southern areas, so they'll include fairly good coverage for Buenos Aires and La Pampa (mostly .50 to 1.25" amounts) that will ease dryness concerns in the southern half of the belt. The northwestern 1/4 of the wheat belt (particularly Cordoba) is the area most likely to still be short-changed.
Wheat found spillover buying from strength in corn today, with traders pointing to yesterday's extension of the Russian export ban for fundamental justification. Additional fundamental support came from fresh combined export sales of 14.1 million bushels to Egypt and unknown destinations this morning.
In reality, it merely combined with bullish fires in the corn pit to provide fresh fodder for this market to feed on itself once again. In other words, money flows into the pit triggering chart buy stops, which attract additional money to push prices even higher. The market is again gaining upward momentum that makes market bears reluctant to get in front of the train.
Today's rally completed a 50% retracement of the collapse from the early August high in Chicago. As such, next week's first resistance will be at $7.43, followed by $7.50, with buy stops likely sitting above both of those levels. A move above $7.66 would open the door among chart-watchers for a retest of this summer's high. Increased volatility will likely be negative for basis on the cash market once again. Wheat is over-price in the futures market relative to the fundamentals, but that's not the perception of the money flow and they are clearly in charge of the market at this point.
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