Weekly Market Update – October 4, 2019

I want everyone to take a minute to remember this week as the first time we got a really bullish report from USDA in quite some time. However, this report was only about 2018 crop, not the crop in the field with all the uncertainty that it still has. This report did not help us understand any more of the questions we all still have about the current crop of corn but it did significantly reduce the bushels we are carrying into this year so it significantly reduced the buffer we have to absorb a production shortfall this year. USDA estimated corn stocks 314 million bushels less than the trade expected and 69 million bushels less on beans. These are almost record adjustments in both corn and beans and it means one of two things. Either USDA has been underestimating demand or they missed the yield from last years crop. Last year we had very little weather adversity planting or harvesting so it does not speak well for USDA’s ability to estimate yield (in a good year, much less a challenging year) if that is where the error came from.  

The stocks report on Monday did not give us any information about the current crop in the field that we have so many questions about but it did take 300 million bushels off of the balance sheet. It is a big step in the right direction but we need more. We need some more help from USDA. The crop is still very behind but the late summer weather has taken the threat of an early frost. The long growing season has not fixed all the ills from the planting season, but it did not make them worse. There will still be a penalty for mudding in the crop late, but it will not be as big as it could have been if the growing season got stopped early by frost. Harvest progress has been very slow in the Midwest due to the late crop. Harvest progress was only reported at 11% this week compared to the average of 19%. I foresee that falling further behind the average as we move through due to most of the Southeast being harvested now. We were harvesting almost on schedule and keeping the percentage advancing. Anecdotally, the yields from the Midwest have been a little disappointing, and the early corn will be the best corn. However, anecdotal yields do not provide enough hard data to move the market. We get USDA’s October supply and demand update Oct 10th (Thursday). It remains to be seen how (or if) they will adjust yield. Despite getting updated FSA data, if the USDA does not update acreage and yield next week, the market will not expect it until we get closer to the new year.

Corn has now traded 40 cents higher than the low that was hit in early Sept. We are close to $4 on the Dec and above $4 on the March. Basis is at record (or near record) levels in almost all markets in the Southeast (and the Midwest) even with the big imports from South America. If you need cash, you should scale in sales. If you have not priced much of your crop, you should scale in sales. This is a good opportunity to catch up on sales. We all want the board to go higher. There is still a lot of uncertainty in acreage and yield that if it goes our way it will make the board go higher. However, if it does not go our way there is downside from here too. We just came from $3.50. We need to manage risk here, not try to hit the top of the market! Scale in sales! Whenever you sell 2019 crop, you need to sell a little bit of 2020 crop corn as well. $4+ dec futures should be $5+ Jan corn.

China has been buying US soybeans which either means they are completely out or they are trying to buy some goodwill ahead of the October talks. Since soybeans have played second to corn all year including planting progress, they are even further behind in maturity than corn. Only 55% of the soybeans are dropping leaves compared to 76% on average. We have gotten a long enough summer that a frost probably will not do more damage, but soybeans cannot make up much ground agronomically. The fact we are above $9 with so few Chinese purchases all summer is a miracle. We still have record stocks, but we have trimmed them way more than anyone expected without a trade deal. Soybeans now have several things going for them. Yield estimates continue to fall, USDA adjusted old crop stocks lower, China is back buying US beans and South America is dry. It is too early for dryness to affect yield in South America yet, but the market is closely watching. We need these things to keep going in our favor.

Despite the reported progress being made with China, I am skeptical we are going to get a deal done too early before the election next fall. I am trying to focus on the incentives to gauge the likelihood. A deal will be a huge shot of adrenaline for the US economy and it would have the most benefit for Trump if it happened closer to the election than right now. Also once a deal is made, opponents are going to try to find all they can wrong with it. It seems to me his incentive is to do it closer to the election so as to limit the time people have to find things wrong with it. I hope i am wrong.

If you have not sold any beans yet, you need to be selling above $9!! Beans do have several things going for them, but that could change. Even though we have trimmed the balance sheet, we are still at record carryouts!! Harvest has started early in the Southeast due to the hot dry finish to the summer so early premiums are not as good as previous years. We lost the top end of the bean yield due to the heat so I do not believe local harvest pressure will last as long as it has in previous years. Sell beans above 9!!

Wheat has had very little of its own news but has been mostly a follower. Rain hindering harvest in the spring wheat areas has been priced in now. Exports were on the low end of the estimates but did include a sale to China which was the biggest since 2016. Black sea offers are increasing in price which should offer some support, but the main thing for wheat is to keep the strength in the other feed grains. Wheat will continue to be a follower. Basis is staying strong.

Too much rain in the cotton producing areas of Texas has helped give cotton a boost. This is in addition to the appearance of progress with China and strong exports. Cotton has finally shown at least some life as we saw the highest close since Sept 16th. I am skeptical about a full deal being announced, but we could see some more life to cotton if China were to make some decent goodwill purchases in cotton as they have in beans. They have left cotton out of most of the previous rounds of purchases. With the market finally taking note of condition rating drops in Texas and the massive fund short, it could get a spark in cotton. We need to be sellers of cotton in the mid 60’s if you do not believe a deal will be done before next summer.