This is the Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.

We got USDA’s July supply and demand report on Friday and it contained several big surprises for corn and for the first time in a while, the surprises were not bearish. The market expected USDA to incorporate the extra stocks from the stocks report and the extra corn acres from the acreage report and print bigger carryout numbers on corn. The big surprises were that USDA actually lowered old crop carryout 145 million bushels to 1.877 billion bushels. USDA also lowered new crop carryout marginally keeping it below 2.1 billion bushels. Unsurprisingly, USDA left yield unchanged. We still have critical parts of the growing season to get through so it is rare that USDA makes yield adjustments on the July report. For the August supply and demand report (being released Aug 12th), USDA will incorporate both satellite data and subjective farmer surveys into their yield estimate. 

USDA lowered carryout by raising demand on both the old crop and new crop. The decrease of bushels from the old crop carried into the new crop and additional demand for the new crop was enough to offset all the additional production coming from the increased corn acreage. That left the new crop carryout almost unchanged from last month at 2.097 billion bushels. USDA lowered old crop carryout for soybeans by just 5 million bushels and new crop carryout by 20 million. This was from slightly lower production on the new crop beans. USDA did not make any meaningful changes to their South American production despite the record difference between their estimates and CONAB (the Brazilian equivalent of USDA). 

I am writing about a bullish surprise on a report but yet the corn and soybean markets continue to get hammered to the downside. The funds continue to sell corn and soybeans and build massive short positions. Rain makes grain and they are pricing in above trend yields. The crops in the east were beginning to dry out but the hurricane came up and recharged soils right at a critical time. The forecast going forward looks nonthreatening. What the USDA report gave us, was not a rally by itself, but made the market a little more sensitive to a shift in the weather. This huge fund short will create some significant momentum to the upside if something scares them to cover it but we need a catalyst to get them to cover. Without some kind of threat, the funds will continue to try to press the momentum trade and push us lower. 

The condition ratings we got Monday afternoon do not have enough surprise to spook the funds. USDA rated the corn crop the same as last week at 68% good/excellent compared to market expectations of 69%. That compares to 57% last year. Soybeans were also unchanged from last week at 68% good/excellent compared to expectations of 69% and 55% last year. Cotton conditions were also unchanged from last week and also last year at 45% good/excellent. Markets will continue to watch weather very closely.