Weekly Market Update – July 24, 2020

We can start with some good news. China is buying US corn, wheat and beans! Exports reported this week were massive. It was mostly new crop and it was widely expected since we have seen these sales announced individually over the last week, but it was still very nice to see. Many people have asked me why the market has not reacted to this positive news. The answer is that, as has been the theme this year, it seems that every time we get a piece of good news there are several pieces of bad news to offset. Right now the bad news is escalating tensions with China. The forced closing of a Chinese consulate in the US also happened this week and points to increasing tension with China. These actions seem to be an escalation from the rhetoric traded back and forth over the last few months. The market will be very sensitive if that continues to escalate or quiets down. Resurging virus cases across the country calling into question economic reopenings are also not bullish for demand as energy demand seems to be leveling off again.

Another big positive is weakness in the US dollar. With our prices where they are, noone that grows or uses ag commodities is making money. However, other countries (like Brazil) have record high prices since their currency is so weak so they are expanding acreage and gaining market share. A weakening dollar will make our exports more competitive in the world market and we desperately need exports to help offset our unknown domestic demand. A weakening dollar could be a really big deal for all ag commodities if it continues. A weakening dollar has preceded many of the big rallies in the grains and oilseeds.

The weather in the Midwest has moderated significantly. There has been enough moisture flow to generate enough storm activity to mitigate the heat in much of the Midwest. It was very hot and very dry weather forecast that sparked the weather concern. The heat is still there but there has been fairly widespread rains to help. This is not the whole Midwest, but enough coverage to reduce the concern. There is a significant area of Iowa that has seen drought conditions get worse, but they have subsoil moisture reserves to draw on. Weather will be less of a factor for corn going forward as we get over the hump on pollination. August weather makes beans so there is still time for a weather story in beans.

It has been a very low volume week in corn and the trade has not moved a lot other than a slow bleed lower. We are approaching the point where weather is not going to matter nearly as much. Once the weather matters less, we have to face the issues in demand. We have to debate how much ethanol demand was lost and how much China will buy from us. The way everything has been going this year, I do not feel we need to hold everything waiting for China to bail us out. If you did not price anything this summer, i think you need to be pricing a little now on an up day and hoping you are wrong. Barring something major from China or demand, i think we should be prepared for pretty seasonal trade from here. This means a drift lower until we make a seasonal low in late Sept early Oct. Then the possibility of a bounce from there.

There has been some corn cut in the south but just getting started. I think harvest is going to be slow to get started in NC and Southeast VA so there should still be some good Aug basis numbers available in many markets. If you need to move more corn for Aug, you need to be shopping now.

Soybeans have felt some strength this week, but on low volume. Chinese purchases along with the weaker dollar have helped. Cargos from South America to China have slowed down but probably because they are just about out of beans down there. The trade deal was supposed to give us back our positions as number one supplier, not supplier of last resort. The market has not seen enough of a shift back to being the preferred supplier to react more. Weather has been non threatening but August weather matters more.

If you have not sold any beans, you need to be hedging beans above $9. It is not where we wanted to be, but we need to manage risk. There is upside if China continues to buy, but there is also downside if relations continue to deteriorate. To manage risk, you must scale in sales, not try to hit the top.

Wheat rally has seemed to run out of gas this week as it trades sideways. It is holding support fairly well but cannot get enough traction for more upside. Such is the nature of wheat. Chicago wheat should be the strongest of all the wheat contracts. Soft wheat is the tightest. Rumors of Russia export restrictions and adverse weather in Argentina has helped wheat.

You need to be scaling in sales of old crop wheat if you have not sold any on this latest move above $5. We can still be patient on new crop, working orders above $5.50. Basis is soft right now as enough wheat is moved to make room for corn. As soon as we get into the fall, wheat will not be as easy to get out of bins. Basis gets much stronger in Oct, Nov and Dec.

Cotton was the lone commodity with poor exports this week. We are entering the time of year when exports typically do slow down. Better weather in Texas has also contributed to weakness on the board. Cotton is just drifting now. An improvement in the macros or in trade rhetoric will help cotton. We are still below support price so not much to do on cotton here.

Cumulative Precip for Last 7 Days

Forecast Precip for next 7 Days