Corn futures made new highs for the move this week, despite crop conditions being reported unchanged week on week. Now the debate centers on the heat moving into the western belt and Midwest. Hot and dry conditions during pollination are certainly worth risk premium in most years. However, after prolonged cool and wet conditions for most of the growing season thus far, it might be beneficial to crop development this year. Clearly a matter of how hot and how long it stays hot. Does the heat clip yields in Nebraska and Western Iowa? The market needs good (perhaps record) yields in the west to overcome damaged crops in the eastern belt. The trade is somewhere between 160 and 165 for the national yield, and a 165 yield new crop looks to be about a $4.00 item, while a 160 yield probably makes it $5.00 or more depending on harvested acres. Breaks should be well supported from $4.20 towards $4.00. Old crop spreads remain a non issue at this point, as the market sits at a decent carry. This is understandable, with the reluctance by the producer to get overly aggressive selling new crop corn not knowing what yields will be. It is also tough to make the September contract strong against the Dec, even in years with tight stocks to use ratios.
Soybean futures wrestle with the same issues as corn: yield and harvested acreage, and obviously, it is all about weather as it relates to flat price. While beans did make a new high for the move this week, a close under $10.22 would be the second lower close in a row on the weekly charts. Not sure it matters in a weather market, but the large spec may trim some length going into the weekend. Meal is the strongest leg of the bean complex by far, as domestic usage continues to be phenomenal. August board crush made new contract highs on Thursday at $1.30 ½ and meal outperforms oil again. With crush margins so good, processors should be pushing for beans, and it’s probably worth looking at bull spreading the Aug/Sep beans when it trades towards the recent lows at 7 or 8 cents inverse. New crop spreads are more difficult to handicap. New crop export demand is the lowest in the past 5 years right now, as South American competition eats into market share in the key window for U.S. exporters. Processors won’t have to compete with the Gulf to source beans like they did last year, making the Nov less dynamic versus deferred months. Having said that, large spec buying will be in the Nov on rallies, strengthening spreads. We would consider bear spreading the Nov/July if it gets back to a 15 cent inverse, where it traded on Monday.