The Morning Paper

02/07/12 -- The electronic grains have started July where they left off June, in positive territory.

What a turnaround month June was. Jul 12 CBOT corn finished May at a 17-month low of USD5.55 after falling 13.5% on the month. For June it reversed those losses and then some, rising 21% to close the month at USD6.72 1/2.

For the record Jul 12 CBOT Soybeans gained 13% in the month of June whilst Jul 12 CBOT wheat added almost 15%.

Jul 12 London wheat posted a slightly more modest near 10% gain, with Nov 12 adding a similar amount and Nov 12 Paris wheat rising 7%.

So, where do we go from here? The trade is currently almost universally bullish, tensions have eased considerably regarding the main thing that has been hanging over it like the Sword of Damocles - the European debt crisis - following last week's summit and subsequent announcement of an apparent easing in bailout criteria.

We are back to trading the US weather, and keeping an eye on yields out of the Black Sea where a Reuters survey last week pegged wheat output from Russia, Ukraine and Kazakhstan 22% lower this year at 78.9 MMT.

Following Friday's USDA report, besides the weather, the trade will now be focused on next Wednesday's WASDE report and wondering what the USDA is going to say about US yield prospects.

On Friday the usually bullish Informa Economics estimated the 2012 US corn yield at 154.9bpa, down 5% from their previous estimate of 163.4bpa. Using Friday's USDA estimated harvested (not planted) area of 88.9 million acres that gives us a US crop of  13.77 billion bushels in 2012, or just under 350 MMT which is almost 26 MMT under the current USDA estimate.

As shocking as that may sound, that still represents an increase of 36 MMT on last season, or over 11%. The USDA will doubtless be currently working on tweaks to domestic demand (possibly lowering consumption from the ethanol sector?) and maybe reduced corn US exports due to increased competition from South America and the Black Sea in order not to cut US 2012/13 ending stocks too much. Having just got the chance to increase them to more comfortable levels, they will not want to go cutting them too sharply at this early stage in the season, that's my guess.
For soybeans, the USDA are now predicting a harvested area of 75.3 million acres. Using Informa's new yield estimate of 42.7bpa, that would give us a US crop of 3.215 billion bushels in 2012. That's 87.5 MMT in English money, which is actually slightly higher than the USDA's current estimate of 87.2 MMT amazing as it may seem.
Maybe there's some potential then for a bearish surprise in soybeans next week's report?
Before we get there though, short-term direction may be governed by this afternoon's revised weather forecasts and this evening's crop ratings. Neither of those are likely to be bearish. Last week the USDA cut corn good/excellent by six percentage points to 57% - a larger drop than the trade was anticipating. They also cut soybeans good/excellent by three percentage points to 53%.
I think that tonight we may see a further 3-4 points taken off corn and maybe 2-3 off soybeans.