By Kirk Maltais
--Wheat for September delivery rose 0.4% to $5.26 3/4 a bushel on the Chicago Board of Trade Tuesday, with a decline in crop quality spearheading the notion among traders that U.S. wheat supplies may be tighter than those of corn or soybeans.
--Soybeans for November delivery rose 0.3% to $8.77 1/2 a bushel.
--Corn for December delivery fell 0.8% to $3.33 3/4 a bushel.
Scarcity Scare: Weather factors are dominating trading for grains futures across the board, but this is most true for wheat--with the most-active wheat contract leading grains higher Tuesday. "Wheat is our leader--still: if we are going to see higher prices in corn and soybeans, I think the wheat fundamentals are where this begins; and then the weather plays the next major part," said Mike Zuzolo of Global Commodity Analytics. Spring wheat conditions are down from last year, as is production, according to USDA data.
Lower Quality: The USDA's crop progress report released after Monday's close showed a 2% decline in corn crop quality, and a 3% decline in soybean crop quality. Corn in good or excellent condition totaled 69%, while soybeans totaled 68%. This decline was expected, since hot weather has been an issue for crops over the past week. "Even with these declines the crop ratings are still historically high," said Karl Setzer of AgriVisor. "Given current weather conditions it would not be surprising to see these ratings bounce back next week." Even so, the decline in quality is expected to impact production numbers, providing support for CBOT futures.
Selling Opportunity: Confirmation of China purchasing over 1.7 million metric tons of U.S. corn exports for delivery in the 2020/21 marketing year Tuesday sparked selling by traders--pushing the most-active contract down from its overnight starting place. While the purchase confirmation is a bullish indicator, traders are opting to lock in profits instead of pushing prices back up. "You should be using the rally to catch up on sales," John Payne of Daniels Trading advised clients in a note Tuesday. It is the biggest one-time corn purchase by China on record.
Wrecked Recovery?: An uptick in cases of Covid-19 seen in many states could halt the recovery seen in ethanol production, said Tomm Pfitzenmaier of Summit Commodity Brokerage. "There is a lot of concern that if more states begin to shut back down over Covid concerns, that could affect gasoline demand and thus the demand for ethanol," said Pfitzenmaier. Back in late April, ethanol production hit its lowest level since reporting on this data began in 2010, totaling 537,000 barrels a day, according to EIA data. Recovery has since recovered to 914,000 barrels a day, but that may soon hit a wall if more shutdowns are required to quell a resurgence in the disease, said Pfitzenmaier. The EIA will report updated ethanol production data on Wednesday.
Rethinking Reopenings: The Covid-19 resurgence in some states has leaders pushing back timelines for a full reopening of businesses like restaurants. This is bad news for meat sellers, as food service is the biggest consumer of meat. "Production levels look to remain high in the weeks just ahead and many restaurants restocked inventory in preparation of reopening but the progress has been slow with the recent spike in new cases," said RJO Futures. This is also bad news for farmers, who are relying on livestock feed usage as a main source of grains consumption. According to Johns Hopkins, some 3.36 million Americans have been infected with Covid-19 since the pandemic began.
--The EIA releases its weekly update on ethanol production and inventories at 10:30 a.m. ET Wednesday.
--The USDA will release its latest weekly export sales numbers at 8:30 a.m. ET Thursday.
--Rail transportation provider Kansas City Southern reports its second-quarter earnings before the market opens on Friday.
--The CFTC releases its weekly commitment of traders report at 3:30 p.m. ET Friday.