Weekly Market Update – July 16, 2020

Corn has struggled to find any strength this week. The USDA report was not a surprise but was a reminder that we still have comfortable stocks projected. The reduced acres brought us down from massive record stocks down to just massive. There are still a lot of unknowns on demand. Gas demand has been recovering, but rising COVID cases and the possibility of shutdowns is threatening to level off the slope of the recovery. This week China made one of the biggest one time purchases of corn ever. It was just under 61 million bushels. Everyone is wondering why the market did not react higher. We are going to need to sell way more than that to China for them to even come close to meeting the Phase 1 commitments and with the loss of so much ethanol demand we are going to have to find demand for way more corn than that. They also bought a like amount of corn from the Ukraine so it looks like they are just buying from us what they cannot buy from somewhere else. We still remain the supplier of last resort rather than their main trading partner. Before the trade war, we were their main supplier of a lot of ag goods and other countries were the backups. So this is a step in the right direction but does not even get us back to where we were, much less into the new territory we were supposed to be heading for.

The weather is the biggest factor affecting the corn market. In late June the weather models had a very dry and hot July. As we have gotten into July the models have trended wetter and a bit cooler. This has been a big reason for the drop in corn. There are some pockets of dry areas but overall there is a good crop coming. As we move through July the corn crop is getting very close to made. The funds bought many of their short positions in the run after the USDA acreage report. Pollination is coming and there does not appear to be a belt wide serious weather threat. Every day that passes, we are getting close to having a corn crop and a big one at that.

Corn opened Sunday night with a gap lower. The gap is above $3.42 on the December. Any move the market makes to try to fill that gap needs to be sold. We need to be selling corn above $3.40 on the Dec and $3.50 on the March. So far this year the market has traded very normally seasonally. Dropped after the crop was planted, rallied on a weather scare and then drifting lower through pollination. If that continues, we would look for a harvest low in late Sept early Oct and then an attempt at a rally. For corn to rally strongly from here would take a major recovery in the economy like from a vaccine or something to stop the spread of COVID or something major by the Chinese. I do not see very big odds of either of those things happening. The odds are not zero, but I think they are slim.

It is August weather that makes beans and so we still have more time for beans to have a weather scare. China is importing a lot of soybeans, just not many from us. They are trying to rebuild their hog herds so their demand is increasing. Exports were nothing special this week as we continue to wait for them to come to our market. On a positive note, the Chinese president has started reaching out directly to US companies to keep lines of communication open since the White House has been increasing anti-China rhetoric. In reaching out directly the Chinese president continued to assure the CEOs that they intend to meet the Phase 1 targets. Talk is cheap but it is at least positive talk. There has not been much positive from the US side as Trump has said that a Phase 2 agreement is not going to happen.

If you did not sell any beans above $9 on this last run, be scaling in sales. Soybeans have a better chance of going on up above $9 than corn does of getting to $4, but we need to be managing risk and taking some risk off the table. There is still many variables with weather and demand to sort out and only time will tell.

Wheat has been the lone bright spot this week as Chicago wheat pushes up to levels not seen since April. Rising prices in Russia calling into question how much wheat they actually have are helping support wheat. Soft wheat stocks are projected to tighten up and we saw good exports this week. I also suspect there are some rumors of Chinese purchases of wheat helping to support.

We need to be pricing old crop wheat here on this move back above $5. There could still be upside in the market depending on how the Russian crop finishes out, but like the other commodities we need to manage risk and that means selling when the market rallies $0.50 in our favor. We can be more patient on new crop and work orders between $5.50 and $6 since we have more time on new crop. But we need to scale in sales on old crop.

Cotton did not get a big boost from USDA and with rainfall in Texas has seen weakness this week. We came within a few points of losing the LDP last week and then got a boost back in it this week. People I talk to in Texas say the rain is too little too late to make a huge difference but with the questions in demand it was enough to scare the market lower. Nothing to do on new crop cotton below the LDP support price. Need Chinese demand to really see a boost.