Corn
I am glad to put the month of August behind us. After getting blindsided by USDA’s report, corn has been unable to muster much of a recovery and closes the month out down 38 cents. There are still a lot of questions about USDA’s numbers, but it is going to take a while to get better answers. In the meantime, most of the dry areas in the Midwest have gotten good rains which the market views as bearish and ethanol plants continue to announce closures which has added to the pressure. The market seems to have found the bottom now with a new low reached and then a higher close. Getting the Sept contract into delivery should be a big weight off for the market as well.
Trump has promised to fix the loss of ethanol demand he caused with the small refinery exemptions but the market wants to see something concrete before reacting. He has done more damage than just approving E-15 can offset now. There has finally been enough of an uproar to get his attention and he could change the balance sheet quickly by fixing ethanol demand, but we need to see action. Promises alone will not do it.
The market is viewing the cool temps in the Midwest as a positive because it will not stress the crop, but the coolness also slows the accumulation of GDUs which the crop desperately needs to try to make it to maturity before frost. Many guys in central Illinois are estimating they will not hit black layer until mid Oct in the late planted crop, but are still too far out to be very accurate on that guess. The market is going to be watching very closely for signs of an early frost. We could severely damage yield with even a normal first frost date much less an early one.
Below is a chart showing the reported planted and prevented plant principal crop acreage. You can see that we have been trending lower since 2013 until this year. As we get more data from FSA and other branches of USDA, it seems more clear that some acreage was double counted. Due to the MFP payment and the incentive to maximize acreage classified as “prevented plant,” we would expect an uptick, but a 6.7 million acre increase from last year does not seem likely. We probably planted more corn than some expected, but I think 90 million is probably above the real number. The question is how much above?
We still do not have a firm grasp on yield or acreage and most of the growing season is behind us. This market should keep a risk premium until we get a better idea of both. The first yields reported should be the best, so if they disappoint the market will react quickly. Basis is strong (and getting stronger in most areas) and trains are not moving well. When we decide to sell more 2019 corn, we need to sell more 2020 corn!! We could see a major shift in acres to corn next year!!
Soybeans
The USDA acreage report was comparatively bullish but the market has not reacted higher. Beans are only down 6 cents on the month so they have done much better than corn. Good weather for continued crop development and increased rhetoric on trade with China have pressured beans this month. Beans will be just as sensitive to corn on a frost threat and they will also react to any perceived progress on the trade front. As both the Chinese and US economy look a little shakier than this spring, it should give both sides more incentive to actually come together.
Sell beans on any move above $9. We need to start planning logistics for beans as lots of corn is being tucked away with people waiting on better flat price.
Wheat
Chicago wheat got knocked this morning as Sept went into first notice due to big deliveries in Chicago. KC and Minneapolis wheat have been hit harder than Chicago throughout the month but today was Chicago’s turn. Exports have been good and the world balance sheet seems to be tightening up but not enough to overcome the weakness in corn and the KC wheat. Basis is staying very strong.
Cotton
Cotton has gotten a lot of bullish news this month, but cannot make any use of it. Funds are almost record short cotton and condition ratings have dropped significantly in Texas due to heat and dry weather. The world balance sheet is getting tighter but without being able to ship to China the US is going to be awash with cotton so the main thing cotton is watching is trade. Things look more hopeful, but the market needs to see real progress to scare some of these shorts.
