July USDA Report

USDA does not typically adjust yield on this report and this year was no exception. The only changes on the supply side was the increase in carry in since stocks were higher than expectations in the last report. USDA did lower demand but with less acres the carryout still dropped below 3 billion bushels. I think this is a key mental level but 2.2 billion for old crop and 2.6 billion carryout for next year is still huge. This is not a tight carryout by any stretch, but it is less than what we have been fearing. As far as this report, this is about as good as we could have expected. At the same time the USDA numbers were released, the updated weather models showed more moisture and cooler temps. The market is back to trading mostly weather. Yesterday is a good example of a weather market. Sept corn was trading up 8 most of the morning and after the noon weather model runs were released it gave up much of the gains and ended up only closing up a couple cents. The major models do not agree about what is going to happen in the next few weeks. Some show major heat and some do not have as much heat. The market is going to react to each new model run as far as how much rain and how much heat it has. Dropping acreage from 97 to 92 million gave us the opportunity to have a weather market. At 97 million acres, yield did not matter that much. At 92 million it matters more.

This is a pure weather market. If it stays hot and dry, the market has some more upside. If it cools off and rains there is a lot of downside. There is more downside than upside due to all the risk we have with demand. We are managing risk so you need to be scaling in sales on this market! This is not where we want to sell corn and we desperately hope that we are wrong. We hope this is the cheapest corn we sell!

Sell corn!!

Soybeans do not have the scary large carryouts that corn does. They are comfortable, but not scary. China is buying some from us, but not enough to signal a big shift. They are still buying all they can from South America and buying whatever is left from us. Despite assurances they still plan on meeting the obligations they seemingly have not made much of an effort to do so. Beans are following corn with weather. August weather is as important for beans as July so we have more time for a weather market in beans than corn but beans have more political risk. I hope I am wrong, but I do not have a good feeling on Chinese relations. All the back and forth is not making any progress. Trump today said he did not see phase II happening.

I do not think we need to panic sell beans, but I would be scaling in sales above $9.

Wheat continues its strength today. USDA did not give us anything new on wheat and there is not one factor to explain wheat strength this week. More of a combination of several things. One thing is getting the bulk of harvest behind us takes some pressure off and being past first notice day. There is plenty of hard wheat stocks, soft wheat is where there could be an issue. Chicago should lead the wheat complex higher. I do think there is some more upside in wheat, but we need to be scaling in sales on the old crop. We have gotten a gift and we need to be taking risk off the table. I would wait for a move above $5.50 to be scaling in sales for next years wheat.

This report was not the huge market mover some had expected. Tempering the reaction on cotton could be comments regarding the Chinese. USDA reduced carryout to 6.98 which was a bit above expectations. Cotton yield should continue to come down.