Weekly Market Update – June 19, 2020

It has been a very quiet week in the markets with corn, beans and cotton working higher while wheat has fallen apart on harvest pressure. The US and China met in Hawaii this week to discuss progress on the phase 1 trade agreement and there have been very mixed reports coming out of that meeting. Bloomberg reported that China plans to rapidly accelerate purchases of everything from corn to soybeans to ethanol to make up for time lost due to the corona-virus disruptions. When reading the official reports the outlook does not seem quite so bright culminating with Trump tweeting about decoupling from China. You would have whiplash by now from trying to gauge progress so far based on the news reports. One thing is clear, we cannot count on this to bail us out. We need to trade seasonals and weather and not just sit on our hands and wait on China to fix everything. If they do, that will be great but we cannot bet everything on that. We need to start making sales in corn now!

The biggest crop reports of the year come out over the next couple of weeks. We get updated acreage and stocks on June 30th which is a week from Tuesday. That is followed by the updated supply and demand report on July 10th where they will use the updated acreage and typically start making yield adjustments. This year we expect some significant demand adjustments too. USDA has so far been hesitant to make many changes to demand and that has kept the new crop carryout from getting as large as some analysts are anticipating.

It is dry in some parts of the midwest and we got a drop in condition ratings this week. There is always a risk of turning dry in July and losing some of the crop. Going into this year all of the corn belt had adequate soil moisture reserves unlike some of the worst drought years that went into the growing season already with a deficit. I am not trying to talk down the probability of getting a weather bounce during the growing season but i am trying to maintain reasonable pricing objectives if one were to happen. We need to be selling any strength starting right now! This is not where anyone wanted to be pricing corn at the end of June, but we need to start. There are too many years that our June sales were our best sales. I hope this is the exception. I hope we are all mad about the cheap sales we made in June but we have to be realistic of the downside that remains into harvest and not just hang everything on China or a weather rally. The funds continue to build a massive short position and they would have to buy those back if something spooked them, but something has to spook them. And their short position will be offset by a lot of farmer sales when they cover.

Everyone needs to be selling more new crop and scaling in old crop sales if you have any left. Now! We hope we are wrong and sincerely hope these are the cheapest sales we make all year but we have to be realistic of the downside risk we have from here.

China is importing all they can from South America and are still not getting enough. They are starting to buy more and more from us which is helping to support the market. Right now it is just enough to show progress but not enough to know if they are just buying what they cannot get from South America or if they are actually trying to increase purchases to make good on their commitments. Fundamentally beans look alot better than corn but there is more political risk with the back and forth between us and China.

If you still have old crop beans, be scaling in sales on this rally. Basis remains strong. Work new crop orders close to $9. There is a gap there on the chart that I think the market is going to make a run at. I am not as scared of the upcoming USDA reports on beans as corn.

Wheat has been the lone black mark in the markets this week. We had been waiting on a rally before harvest but when the weather in the Black Sea turned wetter we missed that window. Now the best shot for a rally will come after first notice day when we get some of the harvest pressure behind us. I do not look for much chance of a rally until we get into July so if you have basis contracts vs July, you need to be scaling in with sales or plan to roll. The spreads have tightened up so much that there is a good chance of a pop after we get past first notice day. The spreads are signaling that wheat is tighter than the price action indicates.

If you have wheat in the bin, get it tested!! Do not dump wheat cut after these rains on top of it. There is a huge drop from milling to feed wheat so we do not want to mess up and make feed wheat ourselves. Mother nature has done enough of that to us. Get your wheat in the bin, get it tested then let’s go over options. We can move whatever you have!

Just about all cotton has struggled in the US with one of two extremes. It has been too hot and dry in Texas and too cold and wet in the Southeast for cotton. Texas saw such bad wind storms that even some of the irrigated cotton was hurt. All areas have seen a lot of prevent plant acres so USDA’s updated acreage has some potential for a friendly surprise.

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