Weekly Market Update – June 21, 2019

The bulls were in full control last week after the surprise from USDA and this week started off with new highs posted on Monday. The market closed off the highs Monday waiting for planted progress and condition ratings after the close. Corn planting progress came out at 92% complete. Since the release, there has been a great deal of discussion about what that 92% entails. It was assumed by many that was 92% of USDA’s original acreage estimate of 92.4 million leaving approx 7.3 million acres left unplanted. However, USDA clarified this week to say that it is 92% of what they NOW intend to plant. So a farmer who had decided to take prevent plant on all his remaining corn acreage would now be 100% planted using USDA’s definition. This leaves open the possibility of prevent planted acreage being much higher than 7.3 million acres. Some analysts have corn acreage down as much as 10 million acres or more. As the next system of rain will most likely close the planting window for corn, the planting progress percentage will mean very little. The focus of the Monday update for corn will be condition ratings. Last week the crop was rated at 59% good or excellent which was the same rating as the week before one of the lowest ratings to start. Early condition ratings have very little correlation with final yields, but things are not improving for this crop. The crop is way behind and are not getting the heat units to help catch up. Long term forecasts show a ridge forming and some heat building but there is low confidence in the forecast at this time.

Everything I have written so far seems bullish for corn so where did the weakness come from this week? I think part of it is profit taking by people who have made money on long positions. In a supply driven rally we need to be constantly feeding the bull, that is we need more news positive for corn. This has been a quiet news week leading up to next week where we will get USDA Quarterly Stocks and June Planted Acreage which is usually a very accurate estimate of planted acres. This year there will be a lot of questions about it since many farmers were still not sure what they were going to plant or keep even last week when the surveys were completed. Also now that planting is behind us and the funds have blown out of their short positions, there are a lot more factors for the market to work out. Until now we have had one focus, planting progress. Now we have to estimate how much has been planted, what kind of yield potential it has with changing weather forecasts, how much will need to be rationed, and how much old crop we will have left to carry in to help.

We also need to keep in mind that US supply and demand is not the only thing the corn market has to price. We live in a world where a tweet in the early morning can change a lot of things seemingly very far from the corn market that can end up having a very negative effect on us. I think most of the downside risk here comes from outside our markets. I think we will see higher prices based on the current situation, but we have the opportunity to lock in profit now and those higher prices are not guaranteed no matter how little corn is planted in the US. Lock in some profit!!

The region most behind planting is the eastern corn belt where most of our corn comes from. Therefore basis is going to be historically very strong. There is already triple digit basis bid for many mills for Oct Nov Dec shipment. When you are ready to lock profit in, hedge futures. I would be patient on basis.

This is a short supply driven rally which right now is only threatening the corn balance sheet. If it remains just corn, it will be very easy to fix next year. We will plant A LOT of corn and assuming return to normal yield, we will solve the issue in one year. For that reason December 2020 has not rallied near as much as Dec 19. Dec 20 is currently trading around $4.15 which assuming normal carry to the March and normal basis, that should be $5 corn in most of our markets. I am not making a recommendation yet, but I want to make sure everyone takes note and starts thinking about next year so it is not a surprise when we do make a recommendation. As noted above, these are good prices now and higher prices later are not guaranteed!! We can lock in profit for 2020 corn.

Soybeans are sitting where corn was in Mid-May. If it stops raining and the planters get rolling, there is going to be a lot of downside. Soybeans can be planted later without the yield loss that corn is facing now. However, soybeans have a much bigger cushion on the balance sheet with carryout estimated at close to a billion bushels. It will take continued bad weather to keep support for the bean rally. Unlike corn, planting progress in beans will still be closely watched as it was only reported at 77% last week compared to the average of 93% for that week. Right now the funds are blowing out of their short position and once they have gotten out, we will probably see even more volatility in beans. Soybeans have more cushion and it takes a lot of work on the balance sheet to really see threateningly low stocks levels, but it is not impossible. This has been historic rain so far and if it continues, there could be a supply story in beans as well. There has been some more positive news on the trade war front as there seem to be some low level meetings scheduled leading up to the G-20 summit at the end of the month where Trump is supposed to meet with the Chinese president. Very few analysts are expecting a deal at that time as the talks have just now been restarted after some very negative rhetoric over the last few months.

Beans still have a lot of downside risk and upside potential just based on the balance sheet, not including the unknowns from outside the supply and demand. $9.50 beans is far from where we would like to be pricing beans, but I think everyone should think very hard about getting started pricing if you have not done so already. Most have had some good rains to get the rest of the beans planted and up so we need to start protecting some.

Wheat continues to be a follower of corn. Whenever corn falters and trades lower, wheat falls further. It does not have as much of a story of its own yet but if we have to ration demand in a big way, wheat will be fed as a substitute reducing burdensome stocks. Chicago soft wheat also continues to get rain in the eastern corn belt when they need to be harvesting which has significantly reduced yield and quality but the world balance sheet is still fairly comfortable. There has been some concerns about dryness in Russia, but the balance sheet has some room before we need to ration. Basis in the Southeast is huge just as was predicted. If you have wheat in the bin, let’s get samples on it to make sure of grade and work on getting a bid. Feed homes are looking hard too.  

Funds still have a large short position in cotton. With little progress on the trade war with China and projections of big acreage in the US, the market has been pushed. Recent rallies in the Chinese stock market and decent new crop exports despite trade tensions have helped cotton find some upside this week. Also cool wet weather in a good bit of the cotton belt has made for a very tough start to the crop for some of the intended acres. We could see a short squeeze if the threatening weather continues and funds begin to blow out of their short positions, but cotton needs a trade deal to get back over $0.70.


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