Weekly Update – August 24, 2018

Corn has struggled all week in the face of selloff in wheat, weakness in beans, benign weather and decent results from the Pro Farmer tour. The tour is reporting variable but good corn yields. Pro Farmer estimated Illinois at 192.6 (USDA was at 207). USDA has Iowa at 202 bu/acre and Pro Farmer has it estimated at 188. Most yields reported are above last years but it remains to be seen if we can achieve 180+ bu national yield. However, there is going to be a big crop and the tour continues to confirm that. We can debate how big of a crop the market has already priced in. At USDA’s record crop of 178.4 we are still trimming the balance sheet in excess of 500 million bushels from last year. This crop may be big, but we also have very robust demand which is the bright spot for corn. The world balance sheet is projected to be the tightest since the 70’s. Exports were slightly below expectations for old crop but exceeded for new crop. The Chinese government has issued statements promoting the use of corn ethanol in 15 regions.

We were hoping for a recovery bounce before harvest pressure but with a rapidly maturing crop in the Midwest and not much help from the crop tours, the prospects are looking dim. A recovery in wheat or some progress on trade negotiations could give us a boost counter seasonally. Looking at the world balance sheets, we look for March futures above $4, but feel like we need to get into harvest now before that becomes realistic unless we get a spark from trade or wheat. North Carolina is off to a very slow start and yields have not been much to brag about in much of the state. Georgia cannot miss a rain so they are slow going as well. South Carolina has found better than expected yields in most areas and have not been held up nearly as bad by the rain. Basis is fluctuating, so it is imperative that we talk over a plan on what you have to move at harvest. There are several options out there and we will help you make the best decision to get the best price for your crop!

Soybeans have been under significant pressure all week with consistently very large pod counts across the entire Pro Farmer tour along with beneficial rains to help finish the crop strong. The high pod counts seem to lend credence to USDA’s record 51.6 bushel estimate. There does not seem to be much progress made in the low level diplomatic talks between the US and China this week to help give the market a spark. Several confirmed cases of African Swine fever in China pressured meal this week as this is an extremely contagious disease requiring culling to halt the outbreak. We have not heard much about USDA’s support payment until this week. This week there have been rumors that the soybean payment will be $1.65 per bushel for bushels harvested this year. That is just rumor at this point, Sec Purdue said we would know the details by next Tuesday. If confirmed, this payment could put additional downward pressure on beans especially if there is some indication it will be continued next year. With futures around $8.50 adding the $1.65 equals $10.15 board price which will be a welcome help to the farm income statement this year. A resolution with China on trade could push futures into the upper $9 range in the short term whenever it comes but even before the trade dispute, the world was facing growing carryouts in the world. The massive US crop will add to that so longer term we could be looking at a $9 trading range. A solution on trade is the spark that could get us approaching $10 and needs to be aggressively sold for this and next year soybeans.

Wheat has taken a beating this week as well. Fund selling of a quickly built long position, pressure from the Turkish currency crisis, beneficial rains on US spring wheat, rains in Australia, approaching delivery in the Sept contracts,  and comments by the Russian ministry denying an export ban have all helped pressure wheat this week. Crop estimates for Russia and Europe continue to shrink. Russian ministers have all denied the prospects of an export ban, but with the Russian currency falling making Russian wheat more attractive, a lot of exporters are trying to rush to get wheat exported before a ban could go into effect which has pressured the market. US exports were disappointing this week, but with continuously shrinking world production estimates, we hope to see US wheat more competitive this year. Despite the setbacks this week, wheat has very good long term prospects due to the declining world production. Wheat will continue to be very volatile. If you have a number in mind for next year, get orders working! Even if it seems out of reach, like $6.50 or $7, with a couple tweets from a Russian minister or a missed rain in Australia we could see the money flow quickly!!

Cotton has been the victim of more volatility than the grain/oilseed complex. Cotton will be greatly affected by the tariffs as China is a huge importer of US cotton so it is trading the ups and downs of the tariff talks. On top of that, we have a lot of acres planted this year, but some of Texas looks like a blow torch hit and other parts of the country are getting too much rain on open bolls so we add the ups and downs of the weather. Turkey is the second biggest importer of US cotton and they are in the middle of a currency crisis which also adds to the volatility. The US is well ahead of the export pace due to very strong exports through the summer during a time which seasonally usually slows down, but the Chinese tariffs and Turkey currency issues may cause a drop in exports this fall when they usually pick up. Funds still have a significant long position but a close above 82.93 would be a bullish technical level and signal the possibility of some more upside.


Pro Farmer corn yield numbers from last year and this year