Weekly Market Update – July 26, 2019

MFP Payment
The MFP payment rates were announced today. The rate will be the same in each county for all acres of the following crops: alfalfa hay, barley, canola, corn, crambe, dried beans, dry peas, extra-long staple cotton, flaxseed, lentils, long grain and medium grain rice, millet, mustard seed, oats, peanuts, rapeseed, rye, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflower seed, temperate japonica rice, triticale, upland cotton, and wheat. Up to a maximum of 2018 acres.

USDA will make the payments in three ‘tranches.’ The first payment will be made in mid to late August and will be either 50% of the total calculated payment or $15/acre, whichever is more. The second and third payments will be made in November and January ‘if needed.’ The payment rates for NC, GA, VA, and SC counties are included below.

We started another week off on a sour note as corn fell hard Monday in a familiar pattern after a decent close higher Friday. Condition ratings Monday showed the crop down a point in the good/excellent categories while expectations were for it to be up a point or two. This crop is not getting better and everyone is wondering why the market is not reacting in the way we are hoping/expecting it to. Bull markets need to be fed and we are currently in a period of very little new information and way too many unknowns on supply and losing demand every day. We do not know how many acres are planted. We do not know what the yield potential is on corn planted this late. We do not know the yield potential on a crop where so much was planted in questionable conditions. Many of the metrics we usually use to measure a crop do not apply this year due to the unprecedented lateness of planting so we are adrift until we get more news. August 12 is when USDA will update the acreage with the resurvey and update the balance sheet with new supply and demand estimates. That is the first big news we have on the calendar. Progress on trade or something in the macro is news that could come at any time. Until then, we are going to drift probably based mostly on weather forecast runs but without clear decisive direction until we get some major news. We keep hearing rumors of how big prevent plant acres are going to be but they are just rumors at this point. We hope to hold support around the 4.20 level December. The market knows we are losing supply but we are also losing demand and the question is which one we are losing more of. On August 12, we will get the acreage question mostly settled, but the yield debate will be far from over. We will need a very late frost for the whole country to finish this crop. The volatility is far from over.

The question of how to trade this market falls back to how big you believe the crop is. I feel like the market is overestimating the size of the crop because a crop planted in mud is not going to be fixed easily. The crop needs near perfect conditions for the rest of the growing season to reach whatever yield potential is left and a very late frost. I think condition ratings are not accurately portraying what yield potential is left because crop observers are implicitly and sometimes unintentionally rating the crop compared to other fields this year rather than what a ‘normal’ crop should look like. To think you know something better than the market is not something that should be taken lightly and should give everyone pause. We do not know if we have already seen the highs because we do not know what the weather will be like the rest of the summer. I believe there are pretty good odds of getting at least another shot at $4.50+ on a weather threat, acreage discussion or yield estimates. I hope it comes late enough that we know more about our crop and how much we have left to sell so we can fully take advantage of it. Whenever you make another 2019 crop sale, you also need to sell some 2020 corn!

There is a lot of uncertainty of where price is going, but there is a lot less uncertainty of what basis is going to do this year. The southeast is going to be using a lot of corn that is coming from South America and Iowa west which is much further than where our corn usually comes from. Longer supply chains mean higher basis and more chances for something to go wrong. We had precious few train delay basis opportunities last year. We should be preparing for more this year. Some mills have harvest basis levels posted of $1.25+. Harvest is rapidly approaching, if you need to move corn at harvest let’s work on getting a plan together!

Soybeans are drifting much like corn but have a few more steering currents that have helped of late. Increased optimism on trade talks with China have given soybeans a little bit of a boost as there have been rumors of ‘goodwill’ purchases by China leading up to the face to face meetings scheduled for next week. We need to see confirmation of those purchases for the market to react with more than a blip but the change to a more positive tone has certainly been supportive. Condition ratings in beans dropped one point this week same as corn and the weather will be critical for the rest of the year. Very few soybeans have been sold or protected for new crop and any move through $9.25 needs to be hedged. The same comments on future price direction of corn applies to soybeans as well. It all depends on summer weather. A deal with China could be a game changer now that we have trimmed some of the excess stocks with the late planting. Soybean basis should be stronger than what we have seen the last few years, but will likely not set records as may be possible in corn.

Wheat looks to find a harvest low and has had some fundamental strength of its own of late with shrinking Russian crop estimates and frost in South America. Exports were above expectations this week signaling that the US is finally competitive by a combination of drop in our wheat price and an increase in the world price. Seasonally, wheat usually puts its low in late July and rallies from here. Wheat will also follow corn if we make another run at the old highs as more wheat will be fed to trim excess supplies. The wheat market seems to have done its job by reaching a point to stimulate world demand and if this trend continues of crop estimates shrinking around the world it will add even more strength to wheat. Some flour mills are full but they are going to keep basis strong enough to try to stay as close to full as they can because they know once we start cutting corn, it will be a tall order to get people to ship wheat. They know we do not have near as many bushels in the bin that we are used to. Basis will remain strong.  

Long term forecast shows very dry stretch in Texas with more heat and very strong exports this week have sparked some short covering this week. The funds had built a very large short position in cotton and seem to be covering here. Disappointing monsoon rains in India are also contributing. Macro factors are also helping cotton with a weaker dollar. The better tone and rhetoric on trade is contributing to cotton, but we really need to see actual progress to keep it going. China has purchased some beans and other commodities but has made almost no purchases of US cotton. We need a trade deal to have a chance to push $0.70 on cotton.