Weekly Market Update – August 21, 2020

If you need to price more corn at harvest, you need to sell some now. The market has given us a gift in this rally. It may go higher and I hope this is the wrong thing to do, but we need to manage risk and there is downside risk from here. Heading into harvest the market typically drops. We got a bounce before harvest. You do not have to sell your whole crop, but sell some. Everyone should also sell a few more beans above $9!

I am so thankful to finally have bullish things to write about! The storm last week in Iowa has been making all the headlines but it is not the biggest help to the market right now. I want to be careful that we have reasonable expectations from the boost the storm may provide to the market. There have been a lot of headlines about 10 million acres affected. We have seen pictures of corn flat on the ground. The corn that is completely flat on the ground will be very difficult to pick and may end up close to 0 bushel yield, but there is not 10 million acres that is flat on the ground. In a lot of pictures, where there are fields you see flat there are nearby fields that are leaning. Leaning corn will still be difficult to pick, but probably will not be a zero. There are lots of acres with significant damage but I do not believe it will be 10 million acres. What the storm has done is added to the uncertainty of yield and that is a good thing for us at this stage in the growing season. Usually by this time of year the market knows what we have, that is why the market usually drifts lower this time of year. This year any uncertainty of production will keep some risk premium in the market and give us selling opportunities.

I think what was a more bullish force than the storm from last week is the weather forecast going forward. Iowa has had rain forecasted for the last 6 weeks and has hardly gotten any. The system that came through that did all the damage did not drop hardly any rain. It has been referred to as a dry hurricane. The old adage is that the crop planted early with good subsoil moisture reserves is hard to kill but there are many areas that have been months with very little rain now. Many soils in the corn belt can hold a lot of moisture in reserve, but they have run out now. The temps have been cool in much of the belt for most of the summer so that has made the water go further, but cannot last the entire growing season. The crop pollinated with cool weather and condition ratings have held steady until recently. A poor finish after pollination could cost a lot of yield in test weight and grain fill. A corn plant that dies at dent will still lose 40% of the yield. The drought area has expanded significantly in Iowa. It is unusual for us to be trading a weather market in late August but that is what is driving the market. That means that a change in the long term forecasts will have a big influence on the market even though the long term models have been extremely unreliable this summer. The long term models are showing a wetter pattern to finish the month and that has added to downside pressure on the market. No one can predict how the weather models will change so in a weather market, you need to scale in sales. If you need to price more corn at harvest, you need to be selling corn now!

USDA also released prevented planting claims last week and it was quite a bit above what the market was expecting. Last year’s record spring flooding saw 15.9 corn and soybean prevent plant acres. Last week, USDA reported 6.598 corn and bean acres that filed for prevent plant. The bulk of those were in the Dakotas and the Delta but this is a bit of a surprise due to the good planting season and rapid progress made during planting. This helps explain the surprise acreage number on the June acreage report compared to the prospective plantings. This may be mostly priced in but is another bullish factor that we now have to help balance all the bearish news we have been dealing with for the last few months.

Corn ratings were down 2% this week nationally, 10% in Iowa. The market was expecting more of a drop than that after all the stories of damage. That is a huge move for this time of year but does not point to 10 million acres dropped to zero. The Pro Farmer tour is going on right now and will be even more closely watched this year as we try to get a handle on what potential is left. Their estimates so far have been a bit below USDA and if they do not get widespread rains in the Midwest, the yield potential will continue to ease lower. ProFarmer’s Iowa yield was estimated at 177.81 compared to USDA at 202.

China continues to make very large purchases from the US but not enough to put them on pace with the Phase 1 commitments. There was a meeting scheduled for last weekend for the US and China to discuss their progress and that meeting was cancelled and there was no word on a rescheduled date until late this week. The lack of a new date was taken as a bad sign and I am trying to remain optimistic about an actual meeting taking place. It still appears that China is only buying from us what they cannot get anywhere else since they have bought out just about all of South America. The market wants to see signs they are trying to fulfill their trade deal commitment, rather than just buy from us as a last resort and there have been few signs so far.

Repeating from above: Corn is trading a weather market, if you need to price corn at harvest you need to be scaling in sales! The market has given us a gift that we do not generally get in late August. We can all hope that these are the cheapest sales we make and the market continues to rally from here but a big unexpected widespread rain across much of the midwest could turn the market until well after harvest. This is not the price that any of us want to be selling corn at. No one is excited to make sales here, but we need to manage risk and now that the market has added a weather premium, there is some downside risk from here.

August weather makes beans. That is why beans have rallied more than corn. The storm last week did not have as much impact on beans as it did corn so this rally is mostly about weather going forward and yield potential. The ProFarmer tour has been finding very high pod counts, but the plant will be quick to abort pods if stressed enough from lack of water. Beans, like corn are trading the weather forecasts going forward and putting in more of a risk premium for damage that has been done to the crop’s lost potential.

Thursday was the first day in over 11 days that we did not had a sales announcement to China which is a very impressive streak. We started off today with a sales announcement to start the streak again. The Chinese are buying beans from us at a pace we have not seen in a long time. However, everyone else is out. They are buying our new crop beans because South America is out and we will have the cheapest beans in the world as ours are harvested. As mentioned above, they are buying a lot from us but we are the supplier of last resort not the preferred supplier. This helps us because the world balance sheet is tight and China needs a lot of beans as they try to rebuild their hog herds. But this situation does not fix the damage that was done during the trade war. If relations with China deteriorate more, that is more downside risk for beans.

Beans have a good bit of upside potential if it stays dry, but they also have a lot of downside potential if it rains or things with China continue to deteriorate. There is a lot of risk in beans. Most areas in the Southeast have a good crop of beans coming. Everyone needs to be selling beans here above $9. You are not going to be able to sell your whole crop at the top. The only way to manage a market that has this much risk is to scale in sales!!

Sell beans!!

The bullish current in the other commodities helped stop the slide lower in wheat. The Chinese buying US wheat has also helped. Exports were strong this week and have been getting steadily stronger. Wheat has comfortable stocks on the world balance sheet and currently no production issues so it will just follow the current of the other commodities for now. The weakening of the US dollar has helped turn the tide as well.

Have new crop orders working around $5.50!! If it goes higher, we can sell more. If it goes lower you can buy it back and do not have to plant. Be scaling in sales on old crop as well now that we are back above $5. Basis for fall and winter is $1+ so there are good opportunities for wheat in the bin. Space is tight for wheat until after corn as most millers have been able to find enough to keep them full until then.

December cotton is trying to work back to the $0.65 level. For someone who can trade just futures, it may not be a bad place to put some shorts on with the intention of buying back on a dip. Cotton is still below support so nothing major to do but it is having a hard time breaking out of the range.

The Picture below shows the percent of normal precip for the last 60 days. You can see a lot of Iowa has had less than half of the normal amount of rain.

Forecast for the next 7 days

These are the long term forecasts that the market is reading and reason for the weakness. However these forecasts have been very inaccurate this year.

ProFarmer Tour Final Results