Weekly Market Update – September 17, 2021

Dry warm weather has made for a very fast corn harvest pace in the southeast. Above seasonal temps across the entire country means there is no threat for an early frost to harm crops and will accelerate dry down. No rain forecast for the midwest also points to a very fast harvest pace. After the market fell following the bullish August supply and demand report and then rallied after a somewhat bearish September supply and demand report, the market is trying to decide if the harvest lows are already in or ahead of us. We are in a period of overall commodity inflation and cheap money looking for returns but the funds will not build too much of a long position until they think the harvest lows are behind us and we have a compelling bullish story.

The rains did come in time to add to soybean yields across most of the growing regions even in the west (unlike corn). Carryouts are tighter on beans than corn but there was enough rationing by domestic crushers and enough of a slowdown in exports to keep from running out. The soybean market was hit by selling pressure due to the hurricane damage at the same time the market was also digesting the increased yield prospects from the late season rains. I think the rains and increased yield that resulted from those rains has taken a good bit of upside potential away from the beans on the US balance sheet. We still need to make a big crop in South America and if that is threatened, we will dramatically increase the volatility and shift the range higher.

Basis in the Midwest will tell the tale as we move through harvest. Basis has fallen hard in most areas of the Midwest from almost record levels trying to shake loose the last bushels of old crop and they have fallen in anticipation of the big new crop coming (port shutdown due to hurricane damage also added to basis weakness). If there is not as much harvest movement as what the market is expecting, the basis in the interior of the US will start to climb higher. If the crop is bigger than what was expected we will see further weakness.

The earliest they can plant in Brazil is Sept 15th. Areas that have had enough moisture (southern growing regions) got started planting this week. The majority of the growing regions have been too dry and will not start planting until the start of the monsoon rains. Long term forecasts are currently very dry, but there are some hints at a pattern change creeping in the models toward the end of the 10 day forecast. These models indicate some moisture starting in the eastern growing regions. The 30 day forecast trends also indicate a change in the pattern that may bring in some moisture. It is too early so far for the delay to matter. There is not much confidence in the actual forecast at the end of the model runs but the trends are important. The market will be paying close attention and if they start trending back dryer, the market will start to add a risk premium. The later the bean crop gets planted, the less second crop corn can be planted. Forecasters have increased the chances of a La Nina winter to 70%.

What To Do
Late season rains helping yields, port shutdown slowing exports and domestic users slowing down usage enough to keep from running out of soybeans have all contributed to the downside in the soybean market. Those same factors have also limited the upside in the near term. We need more Chinese demand or a weather issue in South America to have a chance to get back to $14. We still have a tight balance sheet, but the market believes we have reduced the chances of actually running out. With that tightness, we should get back over $13 and may be able to get close to $13.50. Be scaling in sales at $13 and above. We have been losing our crop with the late season dryness. There are significant early basis premiums and good harvest basis levels available.

The direction of the corn market will be determined by the yields we see coming out of the Midwest. My bias is that yields are going to disappoint and the corn market will work higher from here. We really need to start seeing some exports again to give the market some support. Without some kind of catalyst, i do not see a quick rally coming. More likely right now is two steps forward one step back. I would be targeting $5.50 for the next sales.

After a rough week last week, wheat was able to break back through the $7 level in old crop and new. Wheat had to shake off bearish outside market forces like a strengthening dollar. Bearish outside forces have continued this week but wheat was able to overcome that. Shrinking crops in Canada, US and Russia have helped support the market. More talk of Russian export taxes also adds to the bullish sentiment as they try to rein in inflation by slowing exports. These bullish factors are enough to offset record crops in Ukraine and possibly one coming in Australia. The world balance sheet is still tight enough that there is no buffer anywhere. Saudi Arabia bought wheat for Nov delivery at the equivalent of $9.10/bushel this week which is up sharply from earlier this year.

I would be getting a few bushels hedged over $7 as you get acreage allocated on your farm for the fall. The market is trying to get acres and will be buying some at these levels, but with input prices so high $7 is not as attractive as it would have been just a few years ago. Basis is strengthening for Nov/Dec and Jan/Feb/March to the NC flour mills.

The threat of rains from the tropical systems in Texas and the Delta has helped cotton stay in the 90 cent range despite such concerning indicators on the world economy. Cotton is generally more sensitive to economic indicators than the grains and with a big crop coming and questions on demand i would have expected more downside. Exports are only 43% of USDA projections compared to the 5 year average of 51%. I think the late season weather threats are what has kept it supported. I would be selling cotton here above 90 cents.

10 Day Forecast for South America