Weekly Market Update – September 4, 2020

This year we are going to have decent crops in many areas of the Southeast after several tough ones in a row. It is a little easier to stomach low prices if you have yield or at least some bright spot on the farm. Seeing a good crop in the field gives you somewhere positive to focus your attention. Prices have gone from bad to worse the last few years and no one wants to think about marketing. The market has given us a gift here and we need to be taking some risk off the table. There is potential to go higher. I want it to go higher just like all of you. I hope that whatever sales we make now are the cheapest we make and are viewed as a mistake because that means the rest of your crop is worth a lot more. The crop you are going to grow next year is worth more. Make some sales! And hope it’s the wrong thing to do!

Private estimates continue to whittle down the size of the corn crop. FC Stone this week gave their new yield estimate at 179.6 (their last was at 181.6). RJO had theirs at 177.8 compared to USDA’s August estimate at 181.8. USDA will be out next Friday with their Sept yield estimate but the market is going to be skeptical of it. All the yield modeling generally assumes normal grain fill. This crop is going to be especially hard to estimate until the combines roll. How much died prematurely and how much grain fill did we lose? These are all questions that will not be answered for a while. Uncertainty on production is good for us, but the opposite is generally true for demand. The gasoline demand recovery has leveled off still well below historical averages which is not good for ethanol. We need to lower the ethanol demand side of the balance sheet but we do not know how much. We may lose a billion bushels of supply due to yield reduction, but we could also lose that much demand that would offset.

A big unknown that cannot be easily offset is Chinese demand. They are increasing usage and have had significant production problems. They have bought everyone else in the world out of most things and we are the last place to buy from, so they are buying. We do not know how much they are planning on buying. If you are waiting for higher prices before selling anything, you are making a bet China will continue to buy US corn.

Going into this rally, the funds had a large short position. This weather and foreign buying has spooked them to want to buy out of those positions. Up until this week, open interest was falling as the corn board rallied. That means the funds were buying out and no one was taking their place. This week open interest has been increasing which is a good sign that the market is not getting overbought. The flat trade this week has not given much ammo for the bulls or the bears.

If you need to move corn at harvest, you should be scaling in sales on it. There will be some amount of harvest pressure on the futures price. If you are putting it all in the bin, scale in sales on the deferred contracts while there are big carries. You do not have to price your whole crop, but sell some. Hope you are wrong.

Yield estimates are coming down quickly on soybeans too. August weather makes soybeans and August was very hot and very dry in the Midwest. They had huge yield potential but have lost a significant amount, the question is how much. FC Stone’s Sept yield estimate was 50.9 down from their August estimate of 54.2 taking 274 million bushels off the crop. RJO’s estimate is at 51 compared to USDA’s Aug yield of 53.3. We will get to see USDA’s updated yield on the Sept report coming out next Friday. One thing is very clear on beans, the balance sheet has been tightened significantly in the last 30 days. In corn, we have concerns about demand to offset some of the supply losses, but not in beans. That does not mean you should sit on your hands and do nothing here though. China is buying US beans at the highest pace since the trade war. They bought so many from Brazil that Brazil is going to have to import beans. They are buying from us because Brazil is out. If Brazil’s crop is delayed or otherwise threatened, China will have to buy from us no matter what the political climate is. If Brazil makes a bumper crop on time then and only then will we see if we are the preferred supplier of soybeans once again or just the supplier of last resort.

We have lost a cushion in beans which gives us upside potential. Beans have more support here than corn right now due to uncertainties in production. As soon as our weather matters less, South American weather matters more so we will have a weather market for a while longer. I say do not sit on your hands because while there is a lot of upside left, if certain things happen, there is also downside if South America makes a big crop. There is more risk in both directions in beans than there is corn. You are not going to hit the top of the market with your whole crop so scale in sales. I said earlier that holding all your corn unpriced was a bet that China was going to continue to buy so one known thing that we see that could help us. With beans we have time and weather in addition to Chinese demand. There is more potential there.

We keep talking about the dollar being weaker. That when we compare it to the Euro and the Yen. Compared to the Brazilian and Argentinian currencies it has not gotten weaker. We compete with Europe on wheat and South America on beans so the relative strength of the Euro is a bullish current for wheat. There is dryness in Argentina and growing areas of dryness in Australia. The market feels like something else is pulling it too which I think is the expectations that China buys more wheat from the US. They cannot buy from Russia due to phytosanitary regulations. China needs more feed grain and wheat certainly qualifies.

New crop wheat is above $5.50 but has not been able to get to $6. If you are going to grow wheat next year, do not wait on $6 to get started. Get some hedged now. I hope we do get to $6 and if we do, you can sell some more. A $5.75 July hedge rolled to March and shipped in Jan should net close to $7 or higher delivered to a flour mill. Wheat acres have been down in the US for many years now. With wheat where it is and potential upside in beans, winter wheat may stop the slide in acres. If we do get a bump in acres we have not really gotten much of an increase in domestic demand to help so that may put some downside pressure. Wheat is at good levels and everyone should have some protected here.

Cotton had a good run this week but has been unable to hold those gains. The hurricane did not seem to be as damaging to the crop as many had feared. China continues to buy cotton from South America as theirs is cheaper and they are not sold out of it like they are in beans. The stock market has set new all time highs which was supportive to cotton until we saw the sell off late week. The funds are building a bigger long position in cotton. Moves above $0.65 should be hedged.

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