Weekly Update – August 3, 2018

Soybeans had a very exciting week with almost a 30 cent rally on Tuesday. There were two sparks to give beans the fuel for the rally. The Chinese signaled a willingness to negotiate on the tariffs and forecasts showing heat and dry in the Midwest. This was almost a 30 cent rally on just initiating talks. The market is looking for any progress on the trade front and any signs of progress will be very well received. If we see signs of real progress, the market will rebound very quickly. August weather makes beans and so the market is very closely watching both short and long term forecasts. There are dry pockets that are starting to develop and forecasts showing heat will generate a significant reaction. Later in the week the talks did not seem to get off the ground and Trump threatened more tariffs and the Chinese responded with a list of their own new tariffs causing the market to give back most of the gains over several days. The rally may be gone, but it gave us validation of what we will see when progress is made. Exports remain fairly strong and only slightly behind the 5 year average pace despite all the threats. Analysts estimate that China is using close to 8 million tonnes of beans per month and will come 10-12 million tonnes short if they do not import any US soybeans. The weather forecasts added some moisture back in next week but the longer term models still show significant production areas remaining dry with heat building. Some private yield estimates came out this week with FC Stone at 51.5 which is 3 bushels above last USDA estimate. USDA will update their estimate next Friday August 10th. If 51.5 is achieved and China does not import any US beans, we could see carryout at record highs but we still have a long way to go before that is possible.

If you still have $10+ hedges, we continue to encourage you to think about taking profits with plans to rehedge in the mid $9 level.

Corn continues its slow but steady gains. The corn market has not had near the excitement as beans or wheat but has been able to continue to march higher. The heat in Europe that has hit their wheat production is now beginning to significantly affect corn production and the market is taking note. Hot dry weather in the northern corn regions in China is also helping the rally. Exports remain strong and right on pace to achieve USDA’s estimates. FC Stone’s corn estimate was 178.1 which the market can easily absorb due to a lot of earlier estimates of 180+ with the excellent condition ratings. USDA will update their yield friday. The US crop continues its rapid development. Look for corn to continue strength and get back to $4 on the Sept. I would encourage anyone with any old crop remaining to clean that up close to $4. New crop basis vs March by that point should be close to $5 delivered by that point. Locally, we are not going to have the record crop in the Southeast we have had the last couple years. There are areas of exceptional corn but many more areas that have been hurt by both too much and to little water and heat at various times in the growing season. Rail rates are not getting any cheaper (or more reliable) and local demand is rapidly growing. Basis will be very strong.

Wheat remains the shining star of the grain complex. Extreme temperatures continue around the world and European prices continue their streak. We have seen some times of extra volatility when an announcement by Ukraine’s agricultural minister made the market think they were going to institute an export ban bringing back memories of the 2010 export restrictions by Russia and Ukraine. We have been watching the developments in Europe but were confident in our spring wheat crop due to very good condition ratings. That comfort has been reduced due to some crop tours reporting yield potentials significantly less than what the market was anticipating based on condition ratings. The strong rally in the European exchanges has kept the US competitive in the world market despite a stronger dollar and the price rally. New crop July wheat is trading around $6. $6 futures rolled to pick up carry to March and shipped to a flour mill in Jan should easily top $7.50 and has a decent chance of being $8 cash price delivered!

The weather has not gotten much better for Texas. We have been watching them burn up all summer. Exports remain very strong even though they typically slow down during the summer months. The stronger dollar and now re-escalating trade tensions are seen as bearish forces for cotton. There are beginning to be weather issues in India and Australia which will help lend support. The International Cotton Advisory Committee lowered their estimates for world ending stocks to 17.71 million tones from 17.8 last month and down from 19.29 last year. This should help support once trade issues start making progress.