Weekly Update – August 31, 2018

Corn continues to struggle to find support and a low. The last two years, this is the week the market has posted its low. Weighing on corn is quickly approaching first notice day on the Sept futures (tomorrow). A lot of DP contracts in the Midwest have to be priced by tomorrow which is putting selling pressure on the market. Weakness in beans is adding to fund selling causing additional pressure. Funds have added significantly to their short position this week as we continue to price in a bigger and bigger crop. The market pretty much ignored the announcement of a trade deal with Mexico due to the bearish pressure. FC Stone came out today with their corn yield estimate of 177.7. Historically, Stone is on the high side. Even with a 177-180 bu crop, which would be an all time record, ending stocks are still projected to be down around half a billion bushels from this year. Chinese and world stocks are also both projected to tighten dramatically. Low prices have done their job in encouraging and building demand. Starting next week we should start to have the seasonals on our side and more private yield estimates. Anything below 180 will be bullish.

A lot of the early rain and reduced heat units in corn has caused the top end of irrigated yield to be off 15-30 bu/ac depending on location. Basis is under harvest pressure, so every bushel that is not forward contracted needs to be going in the bin if possible. This will be a year that having a grain bin will pay off. A possible 25 cent bump in basis in addition to a 15 cent spread to December futures will make grain bins more attractive!!! Midwest rail basis has fallen, but rail rates have not so there will continue to be decent basis available once local pressure subsides.

Soybeans have taken another beating this week. News about the spread of African Swine Fever in China has added to pressure on beans and meal as it could reduce Chinese demand if it effects enough of the herd in China. Continued rains in the Midwest after Profarmer already found massive pod counts and USDA gave us a huge yield are adding to pressure from the supply side. USDA announced a payment of $1.65/bushel to mitigate the damage from the trade disputes. Exports were weak but within the range. Soybeans are extremely oversold after this week and any spark could result in a significant recovery bounce, but we need a spark. Trade talks with China have not been able to give us even a glimmer of hope this week. We should get some private yield estimates this and next week, but doubtful the market will pay too much attention to any of them as we all know the crop is big.

As we experience all too often in the Southeast, too much rain during harvest can really change a bean crop and the models continue to add moisture for the Midwest. There is a massive crop in the field, but it is far from in the bin yet.

Wheat, like corn, continues to struggle yet has an improving fundamental outlook. Wheat was able to catch a bid from news yesterday that Russia would consider an export tax if shipments approach a certain level. Russia sparked a significant rally several weeks ago with rumors of an export ban, but after a sharp rally in price they tried to temper fears of restricting exports. With the private estimates of the size of the Russian crop, this had the effect of spooking everyone who needed to export wheat from Russia to go ahead and do it now before the government put restrictions which pressured world price. Either we are completely wrong about how much damage was done to the Russian crop or the Russian government is trying to manipulate the market by putting off talk of export restrictions as long as possible. Stats Canada will release their production estimates tomorrow morning, but the surveys were done in July which was before the heatwave scorched the Southern Prairies.

There are production concerns several places in the world. The funds had build a sizeable long in wheat so it was subject to a general selloff in all the commodities over the last couple weeks. We look for wheat to remain very volatile through fall as we get more information about production in the trouble areas. HAVE ORDERS WORKING ON WHEAT! Even if they are $6.50 or higher, have something working!

Cotton has been victim to the fund liquidation. Surging stock market and very high consumer confidence readings are bullish to cotton which typically trades with a much higher correlation to the stock market than the other grains. However, lack of any discernible progress on trade negotiations with China and the complete absence of Turkey as a buyer are bearish. The Turkish economy is still very shaky and they are a very big importer of US cotton. Strength in the US dollar compared to importing countries has not helped cotton. Any progress on trade would be a big boost to cotton.


FC Stone Yield Estimate

7 Day Precip Forecast