I do not think it is an exaggeration to say that the report coming on Monday at 12pm will be one of the most important in several years. By this point in the growing season in most years we have a fairly good idea of how big the crop is. This year we do not have a good estimate of acreage or yield. On Monday, USDA will give us the results from their updated acreage surveys and their estimate of yield. I do not think the market is going to take the yield as gospel, but the acreage estimate will be the markets best guess of how many acres actually got planted. Right or wrong it will be the number that everyone will use for the next several months. It will set the tone for the market over the next several months. The range of guesses as to what this report will say is huge, meaning the market has no consensus and no clue as to what USDA is going to show us on Monday. That will make for a wild ride.
The last month has been rough for the bulls. A bull market needs to be fed, and the last month has brought mostly bearish news about supply and demand in other parts of the world. The part of the crop that was planted on time has been faring pretty well. We will get the markets focus back on the US crop on Monday. For better or worse.
Basis is and will remain strong. Some end users are trying to push basis lower for our harvest but it cannot remain there long. We will be bringing corn in from South America and the far western corn belt and that does not happen cheaply. If you have triple digit basis in your market at harvest, it will be worth moving some corn if you can ship straight out of the field. Basis is going to remain strong all year and there is a better opportunity for train delays with corn coming from so far away. But high harvest basis gives you the savings of not having to double handle the corn through a grain bin if you can logistically move some that way.
I think the report Monday will be friendly to the market, but now that we know the size of our crop, we need to get ready to be sellers on any rally we get next week. If you need to move corn at harvest, you can make basis sales, but if you are going to the bin we recommend hedging it or doing a hedge to arrive to wait on basis. The crop may continue to get smaller, but demand is also getting smaller, and other world producers have big crops right now to help make up for our shortfall.
December 2020 corn only traded to a high of $4.23 this summer and is currently trading at $4.15. The way the balance sheet looks right now, we can fix this supply issue in one year by planting 95+million acres of corn next year. $4.15 dec hedge even with a normal basis should be close to $5 corn. Everyone needs to be thinking about hedging corn for next year if they have not already done some.
Monday will be a big day for soybeans but the escalation of the trade war will weigh on beans more than corn. Without any signs of progress on trade talks, it will take a bigger surprise from USDA to push the range higher on soybeans even though they were planted even later than corn. South America is tapped out of soybeans right now, so despite all the rhetoric on trade we should get some export business over the next few months, but it will likely not make up for the months of almost no exports. The crop we have left in the bin now is more than twice the size of the year before. If we had gotten the crop planted on time, soybeans would be trading like cotton with all the negative trade headlines. With both the Chinese and US economies seemingly teetering with the uncertainty, it should give both sides more incentive, not less, to come to the table despite the increased rhetoric.
Everyone needs to be hedging beans on a move back above $9.15. Even with the large carryout, stocks in the east have been drawn down so basis should be stronger than historic this year. We should have more beans loaded into containers this year which will also help basis. I would recommend hedging or hedge to arrive, not selling basis at this time.
Wheat has had a few sessions of trading on its own fundamentals instead of being just a follower of corn. Russian wheat loadings are down from a year ago. Wheat will follow corn higher, but should be able to find support here to the downside. Exports have been very strong showing our wheat is finally competitive in the world market again.
Condition ratings dropped 12 points but cotton did not even blink. It is overwhelmed by the trade rhetoric and does not have a late planted crop to cast as much uncertainty as soybeans do. The funds seem content to build an even bigger short. Conditions are hot and dry out in Texas so the US crop should continue to see declines. That will help stabilize, but as I have been writing all year, cotton needs to get a deal done on trade. Last December when the world economy looked a bit shaky is when both sides seemed willing to make compromises to get a deal. During spring, both economies looked like they were doing better so both leaders may have thought they did not need a deal as bad and backed up on some of the compromises. World economies are back looking pretty unstable, so maybe it will force them back to the table despite the rhetoric.