Weekly Market Update – August 23, 2019

ProFarmer Final Yields
Corn 163.3 bu/acre compared to USDA @ 169.5
Soybeans 46.1 bu/acre compared to USDA @ 48.5 

The markets have continued to struggle since the surprises handed down from USDA last week. Pro-Farmer tour was this week and they found what we had been expecting, there is extreme variability across the crop and very late. Worst hit areas are in the Eastern corn belt. The Western corn belt looks comparatively better, but still lots of variability. The small number of acres that were planted on time look very good, but a majority of the crop was planted very late and therefore weather is going to matter way later in the year than normal. Weighing on the market and countering some of the bullish forces of the tour were big rains that fell on most of the corn belt over this week breaking the dry pattern and also a seasonal tendency to make a low as Sept corn goes into delivery. The weather pattern has turned cool which will make it difficult for the crop to accumulate enough GDUs to mature before frost. The market is going to be closely watching weather during a time that weather usually does not matter as much. The announcement today of China increasing tariffs on US products does not affect the ag markets directly, but does indicate a lack of any progress when many were expecting more face to face meetings coming soon and is therefore contributing to weakness. The administration has also hurt ethanol demand by issuing exemptions to refineries to allow them to use less ethanol. Until now, there had not been much pushback or outrage over this undermining of the ethanol legislation but that has changed. There has been significant attention by the corn belt politicians and lobbyists in the last couple weeks and it has reportedly finally made Trump realize this is a serious issue. There are reports that Trump has brought his advisors together to try to find a solution to the damage to demand he has done. The market will want to see action before reacting but we are more hopeful than we have been that something will finally be done. 

Everyone is wondering why the market will not pay attention to these bullish yield estimates and seems content to trade sideways and drift lower despite ongoing yield issues. This summer the market was in full blown panic as no one thought these last acres were going to be planted. The market incentivized many to plant and ignore the advice of agronomists saying the yield penalty is too high to plant so late. During that time we also hurt demand cutting exports and also cutting ethanol demand. When the market looks at USDA’s huge carryout number and tries to guess how much further demand will fall, it still looks like there is enough buffer in carryout to absorb small downgrades in yield. Whether or not that is the case and the magnitude of the yield downgrades will take us a while to sort out. We need to see the first frost and also get combines in the later planted corn. The first combines rolling in the corn planted on time will not help us.

In the meantime, basis is still strong. Users are having to shift trains around in the Southeast to keep feedmills with corn. Rail is not running as well as it was last year at this time. Basis has not dropped as low as it usually does during harvest. If you need cash or space, let’s take advantage of these high basis levels and move hedged corn now.

USDA’s acreage estimate on beans was almost as bullish as their corn estimate was bearish but beans have not been able to gain any traction since. Beans have actually pushed to new lows led by renewed trade tensions and additional moisture falling in very dry areas of the corn belt. ProFarmer found pod counts much lower than last year and noted very short and immature beans. The bean market is all going to come down to the first frost. If we get an extended growing season, beans have some more downside. If we get a normal or an early frost, it will stop a lot of beans before they reach maturity. Additional trade tensions today with China announcing additional tariffs on US products and Trump making threats via twitter have contributed to weakness. $9 seems like miles away, but a weather forecast that includes frost could get us there quickly. Be ready to sell beans aggressively over $9. Basis should be better than average but not at the historic levels we will see in corn.

Wheat has been helped by supportive fundamentals, but victim to corns slide lower. Exports are strong on wheat as US wheat remains competitive in the world. Excess rains falling in Minnesota and the Dakotas delaying harvest and negatively impacting quality have also added support to wheat. Milling basis continues to stay strong and will gain into the fall as everyone starts into corn.  

Cotton along with beans are being pushed lower in part to the increased rhetoric on trade. Cotton condition ratings dropped again this week but due to lack of progress on trade and possible escalation the market ignored it. The forecast also shows decent chances for moisture to help dry areas in the cotton belt.