June USDA Report

No significant changes to the grains from USDA today and none were expected. Domestic balance sheet was slightly higher and the world balance sheet was a little bit tighter. USDA will update acreage at the end of this month, June 30th, and that report has the potential to be a market mover as we also have first notice day on the July contracts at the same time. The July supply and demand report will follow on July 10th in which USDA will use the new acreage estimate and sometimes adjusts yield on that report. There are still so many unknowns on demand. Usually this time of year supply is the biggest variable as we are a long way from making a crop. This year, we do not know supply or demand. With so much of the growing season ahead and the feeling we have already priced in the worst of the coronavirus damage to the economy, the downside feels limited until we know more about the crop. However, the upside is also limited for now and once it appears we have a crop in sight it will quickly turn focus back to how much demand is left and that will open up much more downside. Gasoline demand is recovering quicker than most people thought (see chart below) but we still have a long way to go and much damage to the ethanol industry that has yet to be uncovered. The damage to the industry probably will not get any worse than what has already been done, but we have not been able to fully understand the implications for a while yet.

Be scaling in sales on old and new crop!! I talk to people in the midwest who all have a ton of orders for new crop sitting at $3.50. If you want to price corn there, do not put it right at $3.50. Put it right below at $3.48 or $3.49. If there are a few million bushels of orders right at that even number it will take a lot of buy orders to push through to $3.5025 and guarantee your order being filled. The market is currently pricing in some weather risk premium for the corn crop. The precip totals from the tropical system were not as big as forecasted so there are some areas who could use rain. The market is building a risk premium, but we do not need a record yield, or even close, to have too much corn. We need to sell more of our corn this summer on this weather premium than we usually do. The economy is trending in the right direction, but we have a long hole to dig out of.

Soybeans have better fundamentals than corn but cannot get much of a rally put together. One of the services that tracks the ocean ships was not able to show all the ships going to China from Brazil because there were so many (see images below). I have been writing for weeks that Brazil is maxed out on ships to China and they continue to stay maxed out. China’s demand is growing as they try to rebuild their herds and they are buying all they can from South America. If there is a hiccup down there, they will not have a choice but to buy from us. Be selling old crop here but we can be a little more patient on new crop. I am not as worried on beans as I am on corn, but that still dosen’t mean we should do nothing. Get orders working on new crop close to $9 to get started and be scaling in old crop sales.

Wheat production came in just slightly higher than market expectations. The soft wheat, that trades in Chicago, was not above expectations; it was in the hard wheat that the surprise came. Chicago was down in sympathy with Kansas City wheat but has pared its losses. Due to late rains in the Black Sea, Chicago wheat was never able to get its run close to $6 as we wanted. The calendar is not on our side anymore, we need to sell wheat on rallies now and not wait to trade above $5.50. We have a lot of falling number issues in the Southeast. If you have wheat in the bin, get it tested now!! If you have wheat in the field make sure you separate by quality as best you can. There is a huge drop from milling to feed wheat and with all the problems we should see flour mills becoming more tolerant. Keep your wheat separate so you can blend and make it all into milling!

USDA gave us a very negative surprise on cotton by lowering domestic demand but i think the market quickly overlooked it. They project ending stocks of 7.3 mln bales last year to over 8 million next. However, I think the market already dismissed that projection due to weather. It has been very dry in Texas hurting the dryland cotton and now there have been strong winds tearing up the irrigated cotton as well. We should also see a big correction in acres on the June 30th report. The correction in the stock market and tensions with China have driven the cotton direction more than USDA right now.