Coming off the optimism and excitement of last week, this week has been a real slap in the face in the markets. August is rarely an exciting time for the corn market either higher or lower but we were hoping with all the bullish news we got last week, we could at least hold some support. It is very discouraging to have so much bullish news and yet have to watch the market bleed lower. The main features this week have been the ProFarmer crop tour, changing weather forecasts, increasing Covid cases, and comments from the federal reserve. The icing on the cake to end the week was reports on Friday that the EPA was going to recommend lowering the biofuel blending mandates below 2020 levels. That was a big part of the market move Friday and one final kick in the shins for the week.
Pro Farmer Crop Tour
Everyone has been looking this week to see if there was a consistent bias from the ProFarmer crop tour to what USDA’s final yield was and none has been found. They are not consistently above or below USDA. I posted quite a few different charts and tables of the data below. Looking at the states individually, Pro Farmer was very close to USDA in Indiana (USDA @ 194, Profarmer @ 193.48). ProFarmer was higher than USDA in Minnesota (166 vs 177.44) and South Dakota (133 vs 151.45) but lower than USDA in Iowa (193 vs 190.76), Illinois (214 vs 196.3), and Ohio (193 vs 185.06). The released their national yield after the close and somehow came up with corn at 177 and beans at 51.2 (USDA 174.6 corn and 50.0 on beans). I am a bit puzzled how they were only above USDA in two states but have a national yield 2.4 bushels above USDA. They have also run the same route every year for consistency in yield estimates even though the corn belt has been shifting a bit west. Many of the corn acres we gained this year came in the Dakotas and Minnesota (Ohio planted 3.38 million acres compared to South Dakota’s 6 mln this year and North Dakota’s 3.6 mln). We used to think of the Dakotas as the fringe of the corn belt, but that is not the case anymore. The Pro Farmer tour only went into the extreme southeastern corner of South Dakota and not into North Dakota at all. Despite all the “adjustments” USDA has had to make in the last few years, they are still the standard. I think more weight will be put on USDA than this estimate by Pro Farmer. I am at a loss to explain how they have states with the bigger acreage lower than USDA but national yield higher. After the other things affecting the market this week, I think whatever news we get from the EPA will set the tone for Sunday night, and weather will be second fiddle.
We have the best chances for rain in the Western belt over the next 7 days. I think the current forecasts have been priced in now and we will trade on what actually occurs and if the models are trending wetter or drier. In the areas that have been completely burned up, I do not think rain will help, but there are areas that are not a complete disaster that corn could still add a few pounds of weight. Beans will be greatly benefited by any moisture and a break in the heat.
Outside markets and EPA Rumors
Earlier in the week, the meeting notes from the Fed meeting were released. They indicated an increasing likelihood of the Fed slowing down the bond purchases possibly before the end of the year. Slowing bond purchases is the first step toward raising interest rates and it indicates the Fed’s increasing concerns about inflation. This news caused strength in the dollar, weakness in the equity markets and weakness in all the commodities. Ag commodities were especially hit due to the dollar being stronger. Since we export a lot of ag commodities, a rising dollar is not good for exports.
The ag markets were trying to come back today after the rough week until rumors started that the EPA was about to announce their proposed blending targets for 2021 and 2022. 2021 should have been announced over a year ago, but the EPA used Covid as the reason to drag their feet. The lack of fuel usage last year due to lockdowns gave blenders a reason not to meet the blending targets mandated by law in 2020. The EPA of the previous administration tried to find and exploit every loophole in the law to benefit the oil companies at the expense of the biofuels industry and farmers. The biofuel industry had to bring many lawsuits to remedy this and had won many of them which is bullish ethanol usage and therefore grains. The hope was that the new administration was going to change this and follow the intent as well as the letter of the law. The rumors that came out today led many to believe they were going to set the biofuel targets for 2021 similarly to what ended up being blended in 2020, which was very little due to the crisis. We are almost 9 months into the year and they have not set the targets for this year which is not a good sign for this administration being better than the last to the biofuels industry.
These two surprise headlines this week dictated the direction of the market more than anything else and they caught everyone by surprise. Even when the fundamentals look so bullish, it is what we do not see coming that generally moves the market. This is a reminder that no matter how bullish we are, we need to be scaling in sales and working orders.
China has made soybean purchases 11 consecutive days but did not today. That is still a very impressive run. This is how things started off last year with China buying first soybeans then corn. We still have strong export demand but until we get some direction on the biofuels it will be hard for the export demand to move the needle much. Uncertainty on the demand side is not bullish like uncertainty is on the supply side.
What To Do
We have done damage to the charts but as long as we get some direction on biofuels policy, we can easily get back to the previous ranges ($5.50 on corn and mid $13 on beans). We still have a lot of questions about this US crop and South America is supposed to be entering the rainy season in a few short weeks. La Nina conditions in the Pacific may delay that with implications for soybean yield and corn acreage. It was a rough week in the market but we still have a lot going for us. Be looking to get back to the previous range to make any sales.
Wheat has not been able to avoid the selloff this week despite global tightness. Earlier in the week, strength in the dollar had an outsized impact on wheat since we need to be competitive in the world to move soft winter wheat. Egypt has been trying to tender but has had to raise their prices several times indicating an increasing world price. There are issues in Russia and Western Europe but Ukrainian yield came out today at a record high of nearly 69 bushels per acre. This will add to the balance sheet but will not offset losses in Russia and Kazakhstan. New crop wheat is over $7. I do not mind working orders reaching back near the old highs up close to $7.50.
Cotton escaped the carnage Friday due to not being involved in the biofuels. The dollar was a little lower and equities recovered helping cotton find support and even close higher. The only explanation I have been able to come up with for USDA lowering yield last week was that they may be trying to adjust for an acreage number that is too high. The only way cotton has much upside is if the economy continues to shake off these increasing covid numbers and continues to grow at a surprising pace. We need more demand because I think supply is getting bigger. Work orders to price cotton in the mid 90 cent range!!
These are the state totals from each individual day:
These are the statewide and national yield estimates: