Weekly Market Update | July 20, 2018
Corn continues to find strength after putting the contract low in on July 12th and despite continued rhetoric about escalating the trade tensions with China. Conditions dropped more than expected this week helping continue to push the market. Progress seems to be happening in the trade negotiations with Mexico (top buyer of US corn) which helps offset lack of progress with China. We have lowest projected world carryout since the 70’s and estimates of feedgrain crops in Europe continue to get smaller. This bullish world balance sheet is weighed against near perfect weather so far in the US. We think the market has priced in a 180+ bu record crop. Using the current acreage estimates, a 180 bu record crop only gets the US balance sheet to the same carryout projected for last crop year with a much smaller world carryout. No major weather threats to the crop in the extended forecast and the market will debate how much hot weather during pollination has affected the potential of the midwest crop.
Be patient on new crop as the market gains some momentum and we think we have all the negative priced in by now. Any progress on trade with China will spark bean recover and will also help corn. Any old crop that is left, we can make a move toward $4 on the sept.
Soybeans have closed higher four sessions in a row which is the longest streak in a very long time. There is absolutely no progress being made with China right now and both sides continue to blame each other. Weather in the Midwest is forecast very nonthreatening to the crop. August weather makes beans and we are quickly approaching. On a positive note, exports have remained very strong. We have seen export commitments to Argentina which is a net exporter of beans. Weaker US gulf offers have generated some business from other non typical destinations. Condition ratings dropped significantly on Monday but showers are forecast to help areas beginning to dry out. Lack of progress on the trade war will limit upside for now but any announcement of progress is likely to be met with a quick rally.
If you have hedges, we continue to encourage you to look at lifting and taking profit. We wrote we did not believe beans needed to be at $10.50 and we do not believe that they need to be at $8.50. Trade war or not, people still have to eat. Chinese demand is not going to zero. If you have beans cash sold and are concerned about being oversold, you can buy a futures contract against your cash sale and be able to participate on any upside. The processors will most likely let you out of a $10 bean contract but will not pay you any equity. Using futures, you can be paid for some of the equity you have in those contracts. Please call if you want to learn more about this.
Wheat has been the brightest spot on the board of late. European wheat is at 3 year highs and the Russian crop is finally starting to get rain just in time to hurt the maturing crop. Concerns about dryness in Brazil’s Parana state over the next two weeks is also helping prices. Canadian wheat estimated production was also lowered by Agri-Food Canada. Exports have been steady but could get a boost in the second half of the year as things get tighter in the Black Sea region. US wheat should become competitive. If you have wheat in the bin, milling basis continues to strengthen. There are competitive bids in some new areas this year too. Wheat is paying huge carries into the winter. Basis bids in Oct/Nov/Dec and Jan/Feb/March are well over $1.00 in most markets. If you have new crop hedges at $6, we can take profit here and plan to rehedge back at $6.
Cotton weather remains very bullish with continued dryness and heat forecast for Texas. Dryland cotton is toast by this point. There has been no measurable rain in Lubbock since July 6th and the lowest high temp for the next week is 102. Weighing on cotton is the trade war. Cotton is very sensitive to exports to China and if not for the weather, cotton could have traded the tariff threats much like soybeans. Cumulative exports for the year are almost twice the five year average which is also lending some support. Cotton is overbought technically but should remain supported as long as trade threats do not escalate.
See 7 Day precip forecast below. None showing for Texas but southeast should get some much needed showers.