Weekly Market Update – July 31, 2020


We can continue the good news from last week: China continues to buy US corn and beans! Last week’s sale to China was one of the biggest one time sales ever and this week broke all the records. There was an announcement yesterday of a 70 million bushel sale of corn to China. China is having record flooding in production regions and their domestic price of corn is well over $7 equivalent. You can see in the chart below how big July exports were in both corn and beans. This is just for the month of July but it is still huge and it is a big step in the right direction. The rhetoric has died down between China and the US as well. I do not see that as an improvement yet, but at least it does not seem to be getting worse.

Everyone is wondering why we have not seen a bigger reaction from the market. At the same time the Chinese are starting to buy, the weather has normalized significantly. The heat has been reduced and the precipitation has increased. We need China to continue to buy because we have a big crop coming. Iowa has remained dry as you can see from the drought monitor but most other areas in the corn belt have had enough. On an early planted crop enough means trend yield or better. There are trouble areas that may keep records from being blown out of the water but it will still be a big crop. We still have a lot of unknowns on domestic demand as we approach the end of the summer driving season without a full economic recovery. The gasoline demand recovery seems to have leveled off. These big purchases for right now are what China cannot get from South America. Being the seller of last resort rather than the preferred supplier to China will not get us out of the hole we are in. We need more evidence that we are becoming the preferred supplier. Just the signed deal itself isn’t enough. This is the start, but it needs to continue.

Corn
Seasonally July and August are not typically good months for corn. We usually trend lower into harvest then bounce as the market tries to draw corn out of the bin. It would take much bigger and continuous sales to China to turn the trend. It is not impossible, but it will be very difficult in the time between now and harvest. Funds still have a large short position in corn which will help the bounce when it does come. The best chance we have for a sustained rally is after harvest. With the big fund short and the growing world demand, right now we expect $3 level to hold through harvest.

It never feels like enough when the market drops, but everyone should have gotten some corn sold this summer. If your yield continues to get bigger, some sales on positive bounces would not be a bad idea as there could be some downside through harvest.

Soybeans
August weather makes soybeans and the forecasts for August are trending better than the summer weather. That has added to the weakness in soybeans. China is buying US beans at record levels, for July. They have bought just about all they can from South America and now making purchases of our new crop. It does show that they have optimism about the future of relations. These big purchases need to continue to convince the market they are going to try to meet the terms of the agreement.

August weather has turned less threatening and even with China stepping up purchases, we need to be selling beans above $9. We need to be selling beans!

Wheat
Chicago wheat seemed to react more to the Chinese purchases than corn did. We have found support at these levels. Russian harvest is off to a decent start. The crop in Europe has gotten quite a bit smaller. We have seen Brazilian purchases of US wheat due to the tightness of Argentinian wheat. Wheat basis has weakened as people move wheat to make room for corn, but it is still very strong for Oct forward.

Scale in sales for old crop at these levels. Work new crop orders above $5.50.

Cotton
Cotton has had a counterseasonal move higher. Exports have slowed down and the crops look better in Texas after some rain. Cotton is still below government support levels so not much to do. Concerns about global growth has offset part of the bullishness of Chinese purchases of grains. Cotton felt a bit left out.

7 Day Forecast Precipitation

July Rain Totals (deviation from normal)