Weekly Market Update – June 5, 2020

If you have old crop corn you need to be selling some now! You need to be working orders or selling new crop corn! Beans have a better story than corn fundamentally, but have more political risk. If you will need cash soon from old crop beans, start scaling in sales on them too. Sell rallies!

Despite a rough start to the week, the markets have managed to finally find some momentum. Monday morning we woke up to reports that China had instructed their state owned firms not to buy any pork or beans from the US and beans opened down double digits but suspiciously were not down more. Before the trading session was over beans were trading higher and there were reports of Chinese purchases of soybeans that same day. We do not know if the news reports were due to intentional misdirection by the Chinese or just a genuine mistake by the news agencies or maybe a combination of the two. Both the US and Chinese sides are making big threats and if you just read the words spoken it seems very bad but neither side has taken much action. It certainly feels like there is a lot of intentional misdirection to try to disguise their true intentions. The viral infection curve in Brazil is not being flattened at all. It continues to go straight up. If they get bad enough to disrupt export operations and are unable to have record shipments each month, China will have little choice but to make nice with us. Despite all of this back and forth this week, by the end of the week there were significant purchases of soybeans by both private Chinese companies and state owned companies this week.

Another bullish tailwind to the markets has been the weakness in the US dollar index this week. With announcements from the EU regarding their stimulus and monetary policy the Euro has found some strength giving the dollar some weakness. The Brazilian currency was also weaker this week giving another boost to beans and the Russian currency was a bit stronger giving a boost to wheat. The unexpected drop in unemployment today is going to turn the tide of the dollar for now ending this bullish current.

Some analysts are still citing the hot dry forecasts as bullish but I still disagree with that for now. The Midwest continues to get topped off with rain keeping their moisture profile full. They need some hot dry weather to force the roots down. The crop is basically planted now and in good shape. Weather will not be a story until mid July at least.

We get USDA’s latest supply and demand next thursday, June 11th. There should not be any big changes on this report. The big one is coming up at the end of this month with the updated acreage report on June 30th followed by the July supply and demand report on July 10th that will use those updated acres and typically also makes demand adjustments. These reports have a lot of potential to move the market.

Gas demand is rebounding and some ethanol plants are opening back up which is helping support old crop basis. We still have a massive new crop coming at us with an unknown amount of demand destroyed compared to last year. Even with us finally moving in the right direction it may not be as bad as it could have been, but that is a long way from where we were. As such, the funds are building a massive short position so something spooking them can give us a bounce as they cover. These bounces need to be sold! You need to sell old crop and some new crop now! At very least get some orders working for new crop!

Soybeans have stronger fundamentals but more political risk which may be harder to measure. I would be patient on new crop beans but you need to be scaling in sales on old crop! The market gave us a gift this week. There could be more upside if the purchases continue, but if you need cash soon you should be scaling in sales and taking the gift!

If you are cutting wheat now, get your falling number checked!! There is a huge discount from milling to feed wheat and with all this rain falling numbers have been all over the place. We have already lost the quality in some areas so there will be more opportunities on milling wheat than we thought just a few weeks ago. But you have to know what you have!! NC State has a lab that can check falling numbers or you can mail samples to the NC flour mills to have falling number checked. Renwood has had several weeks of record grind and chewed through the buffer they thought they had going into new crop. The quality of the KY or OH crop is a big question too so there is not a huge amount of good quality soft red winter wheat they can turn to and ignore our crop. They are going to have to work with us this year. Lets get it in the bin and get your quality checked so we know what you have!

Weakness in the Russian currency supported as well as weather in the US and Black Sea. Chicago continues to be the leader on the board of the wheat classes. The rain that fell in the Black Sea took some of our upside away but we still have a chance to get to $5.50. I would have orders working close to there on wheat.

If we had any confidence in demand right now in cotton it would be off to the races. This crop has endured as all the bad weather one can imagine. Too wet, too cold, and now some areas are getting too dry. The strength in cotton has all come from the supply side not the demand so far. Today with the surprise good news from the unemployment data, we are getting a boost from the demand side too as the market is gaining confidence in a faster recovery. LDP payment is at risk of going away next week on this rally, so if you have cotton in the loan you need to start preparing incase you need to redeem before next thursday to get your storage paid. Nothing to do on new crop.

Brazilian Currency

7 Day Forecasted Precip

8 to 14 Day Outlook Maps