Weekly Market Update – July 17, 2019

After a higher close on a bearish crop report and then a big move higher on Friday, the market seemed poised to run to try to challenge the old highs. Unfortunately, monday’s sharply lower trade took the wind out of our sails. After all spring of too much rain, it is hard to believe but some areas of the corn belt were in desperate need of rain. Much of the crop was mudded in late and has therefore faced a lot of additional challenges including catching up, root development and nutrient uptake. Tropical Storm Barry is forecast to dump a decent amount of rain on most of the Eastern Corn Belt providing needed moisture. The western belt is also forecast to get much needed precipitation in the next few days. The changing tracks for Barry providing moisture relief is part of what caused the weakness this week. We also have massive heat building over the next 10 days. The moisture will help the crops better handle it but it is still going to take a toll if temps reach the forecasted highs. The next three days in the eastern corn belt are forecast to be the hottest three days since 1995. The late crop needs some heat to help accumulate GDUs to try to get to maturity before frost, but how much heat is too much is being widely debated. That is why the market is not rallying to new highs right now. A supply side bull market needs to be continually fed and the hot weather has been partially offset by the rainfall and the longer term forecasts showing a return to seasonal temps after the heat wave.

Condition ratings improved one point this week which was a surprise to the market that was expecting a small decline. Eastern belt conditions showed the most improvement but this is still a very poorly rated crop historically and condition ratings do not take into account lateness. USDA reported that only 17% of the crop is silking (compared to a historic average of 42% this week). Pro-Farmer reported this morning that RMA has a running tally of reported prevent plant acres that already hit 7-8 million for corn and 2-3 million for soybeans as of early July with final amounts expected to go much higher. USDA will report updated acreage and supply and demand on Aug 12th. This will be a huge report because they will be bringing a lot of new information with the results of the re-survey of acreage. We will also have more growing weather under our belt to try to assess yield potential. The acreage will be more hard data than yield which will still be a lot of guessing by that point.

Everyone is wondering if we have seen the highs already or if there is still upside in this market. The answer depends on what you believe about the size of the crop. I think the market is pricing close to a 166 bushel crop but less acres than the last reported 91.7 from USDA. The corn belt is called that for a reason. They have surprised us many years by coming back from adversity and being able to make a large crop so we need to be careful writing them off, but there is a lot to overcome this year and it is much more widespread across the entire belt. The crop was late and not planted in good conditions and that is harder to recover from than a drought. One weather event will not fix it. It will take near perfect weather from here to not lose more. If you are waiting on higher prices to sell, you are betting on the weather and the crop potential. I think those are good odds right now. This is a supply driven rally so it could be almost corrected in one year. Whenever you do sell some 2019 corn, you need to also sell some 2020 corn!!

Harvest basis levels are trading triple digits. A lot of our corn comes from Ohio and the question is not whether Ohio will need to import corn this year, but how much. Do not be in a hurry to lock in basis for harvest. Let us know when you get close to cutting so we can shop basis and ship to whoever needs it the most.

Soybeans have had a very disappointing week along with corn. Weather forecasts are having similar impact on beans as they are on corn. The heat is a bullish force, but the nearby rain from Barry and the cooling trend in the longer term forecasts have partially offset that. The market is almost completely ignoring the headlines on the trade rhetoric. One minute Trump says we are really close to a deal and China will be buying ag commodities immediately and the next day he says we are going back to putting the final round of new tariffs on all their products. Until we see the Chinese show up making actual purchases, I do not think the market is going to react. On the other hand, we have taken a situation of so many stocks that we thought it would take several years without the Chinese to pull them down and now we are facing the prospect of correcting that in one year. The soybean balance sheet has a lot more cushion than corn, but this weather has been adverse enough that we may have used up almost all the cushion in one year. Similarly in corn, waiting to price your beans means you are betting that we are not going to be able to achieve USDA’s 48.5 bushel yield. With the weather we have seen so far, as widespread as it has been, and how late this crop is, I think that is pretty good odds right now. USDA report on August 12th is going to be a big market mover for soybeans as well.

Similar to corn, a great deal of our beans come down from the eastern corn belt where planting was delayed the most. Therefore even though we do not project to have critical levels of soybeans, we should get some help on basis. I do not look for basis to be at historic highs, but it should be higher than the last several years. When you are ready to price beans, I would advise hedging them so you can pick up the basis, rather than cash selling them. Right now, I would still have orders working at 9.50.

One final note is that IF we can push the bean carryout low enough it can make things very interesting next year. With the excess bean carryout we had, corn could pick up all the acres it needed to fix the problem in one year. These are still very long odds, but there is a possibility that bean carryout could get pushed low enough that beans cannot afford to give up all the acres that corn may need to rebound. An acreage battle next year would be very good for both crops.

Wheat has held on better than corn this week. The bullish USDA report is helping support wheat as production estimates around the world are being trimmed. There is still ample world stocks, but pulling down crop size estimates has been friendly to wheat. Seasonals start to turn more friendly for wheat as well as we put US harvest behind us. Basis has continued to improve locally as expected. If you have good wheat, make sure you shop the basis. Flour mills need the wheat!  

Other than a short covering rally Monday, cotton has taken a beating posting new lows almost daily. USDA last week was bearish as was the condition ratings on Monday afternoon. Tropical Storm Barry does not seem to have done too much damage to the crop in the Delta.