Weekly Market Update – June 26, 2020

When you list all the things that have happened in the last 12 months in one place it is so unbelievable as to be almost comical but alas we are living it: Global pandemic, trade war with China, signed trade deal with China, Presidential impeachment, race riots, murder hornets, Saharan dust storm, and locust swarms the size of whole cities in South America and the Middle East. You cannot even make this up…

The little glimpse of hope the market gave us last week was undone this week. There was not one big thing that hit this week but a combination of factors. Biggest was rain in the Midwest. Forecast precipitation totals have been creeping higher and some areas that have been dry are forecast to start getting some showers. Most areas in the Midwest have a full profile of moisture and the corn crop is going to pollinate early. If we are going to get an opportunity to price on a weather bounce, it needs to happen very soon. With big crops in the field, a lot of farmers across the country will also be looking for a bounce to sell on and that will limit how much of a bounce we will see. If we see a weather problem, the funds will start to buy back their massive short position and farmers will be selling which will offset some of that volatility. Key takeaway here is that we are running out of time for a weather market and so we need to be more ready to sell whatever opportunities present themselves.

Tensions with China may have also contributed to weakness this week as the US congress is responding to China’s actions in Hong Kong. The US Senate passed a bill that would put sanctions on Chinese officials and companies that undermine Hong Kong’s autonomy. China is quietly warning that actions that they view as meddling in their private affairs of Hong Kong and Taiwan could jeopardize the Phase 1 trade agreement. This crap has been going back and forth since the deal was made so as I have written for several weeks, it is impossible to glean much information from the back and forth. I do not think the market has priced in them meeting the phase one commitments so I do not know how much downside would result. There would be some as illustrated by the drop the other night when a high ranking administration official went on Fox Business saying that the deal had been scrapped and the markets opened sharply lower and recovered after Trump tweeted that the deal was still good the next morning.

We get USDA’s final acreage and stocks report Tuesday. This will be a big one. It feels like the market has priced in a pretty negative number so we may be setting up for a bounce. If we do get a friendly number, we need to sell it! Many other people are waiting to do the same thing!!

There is still downside risk in corn with demand so unknown. We are losing one of the few advantages we had which was time during the growing season. The crop is closer to made and we still do not have a good idea on demand. We need to be selling any bounce!

Soybeans still have better fundamentals than corn and as such have stayed more supported. They have not lost all of their runup. The increased tensions with China are not friendly but things are also difficult in South America economically. China continues to set records on exports from down there. China used to buy all the beans we could ship them and then whatever else they needed, they would buy from South America. Now they are buying all they can from down there and we get whatever is left. Their demand is increasing so at very least the amount they need over what South America can provide is also getting bigger. Sell old crop beans now and work orders for new crop between $8.75 and $8.99.

Wheat has another brutal week as harvest pressure continues and rains on spring wheat adds to the bearishness. World balance sheet is comfortable but not excessive. USDAs wheat stocks estimate next week could support. There are currently no weather hotspots in the world for wheat to lend support. There were a lot of rumors of China buying wheat but those are called into question with the new tensions. Unless we get a weather problem or something with China, we do not have a great chance for much of a recovery until we get past First notice day and into July. If you have to price wheat before then, do it on any positive move.

Cotton has the best chance for a friendly USDA report. The market is looking for a big downward adjustment of acreage as the southeast was too wet and Texas was too dry. There is political risk with the increased tensions with China but cotton is currently below the LDP level so downside from here is not harmful to producers.