Weekly Market Update – September 18, 2020

Another huge week in the markets with corn up 10 cents, wheat up 38 cents and beans up 56! There are two main drivers: Chinese purchases and lost yield.

For the last four weeks, we have had another export announcement every single day of more purchases by China. Export commitments are huge! In soybeans they are nearly off the charts (see chart below). China bought all the beans in Brazil and now we are the only ones left that have beans. Right now they have to buy from us. When we see the crop planted in South America, we will see if they continue to buy from us to fulfill their Phase 1 commitments or if they abandon us for South America when beans are available down there again. Also important to note that these announcements are for export COMMITMENTS. These commodities have not been loaded or shipped yet. So they could use them as leverage later on by threatening to cancel them or not take delivery of them. It is also important to note that China is the only one making major purchases right now. If their buying dries up we will quickly start to fall behind on export pace as there are not many other countries doing much buying.

We were one rain away from making massive crops in the US. The system that became the derecho was supposed to drop enough rain to get the crops to the finish line. If they had gotten that rain, the heat that followed would not have been near so detrimental. Since they missed the rain the heat that followed shut down a lot of the crop prematurely. The winds themselves also took out a lot of yield. That has been followed by one of the driest Septembers on record and early freezes in the Dakotas and risk for an early freeze in Indiana and Ohio this weekend. Beans are reacting more than corn to all of this because bean demand is not in question like corn demand. We have lost some corn demand, we just do not know how much. We have not lost any bean demand and in fact have increased it with China rebuilding their hog herds.

Corn and beans came into this year projected to build stocks back to burdensome levels. These changes have taken away a lot of the buffer that stocks had. Now the markets need to get to levels to be ready to slow demand if we have additional weather problems. South America is key now. After two years of sideways trade, the market is now on a hair trigger for problems. On top of that we have easy monetary policy and threat of inflation bringing more fund and institutional money into the commodity space.

Trump announced another round of CFAP money of $13 billion. He did not give many details of how it would be calculated or distributed so be looking for more info on that.

Since we have taken out the burdensome stocks, a return below $9 seems unlikely. However, we could see a return to mid to low $9s if Chinese buying dries up and South America makes a big crop. All the sales everyone has made up to this point feels like a mistake but this market is giving us a gift here. You need to be making sales to take advantage of it. It could go higher, but when it turns it is not going to sit at the high and wait on you to make up your mind. SELL SOME BEANS!!! Your previous sales are not a mistake, you were managing risk and you just need to scale in more to pull the average up. This market will not go up forever. Do not forget how fast we got here. The dry September will facilitate fast harvest and we could see some harvest pressure. If the weather is good in South America, China will probably slow down (or stop) the buying from us and may start canceling the purchases they have made.

Sell some old crop and work some orders on new crop!! The new crop has not moved as much because the market knows if we make a big crop in South America, we will not have a shortage anymore. I would have orders working at $9.99 or below to get started on new crop.

Basis is going to be very strong at harvest as the exporters should keep all the processors from getting their basis too cheap. If you need to move beans during glut slot of harvest, consider selling a little basis but I would not load up too much on basis. I would hedge the majority of the beans I was protecting. Also early beans should have a significant premium so please let us know when you start cutting!!

Soybeans lost supply and increased demand. Corn has lost some supply but there are still a lot of questions about demand. That is one big thing that is keeping corn muted compared to soybeans. That is why new crop 2021 corn is still below $4 when last year the new crop Dec contract was above that level. There are still many questions about how much production has been lost in China and how many stocks they have. There are lots of questions about how much supply has been lost in the US as well. But the unknowns on demand have muted the markets reaction to those shocks. We get USDA Quarterly stocks report at the end of this month and the market expects corn yield to continue to drop.

Everyone needs to continue to scale in sales on old crop corn!! Work orders just below $4 on new 2021 corn!! Basis has remained surprisingly high for harvest locally.

Of all the commodities, wheat has the most comfortable stocks world wide. One positive on wheat is some big wheat importing countries have started to stockpile more wheat this year. Wheat has been a follower so far but this week has gotten a life of its own. Dryness concerns in the US and Black Sea region have started to catch the market’s attention. Export values for the Russian crop have been increasing.

Keep scaling in sales for new crop wheat up close to $6!!

Cotton had huge export sales this week but fell victim to weakness due to the hurricane not hitting the cotton production areas as hard as feared. Cotton exports have been sluggish lagging the other commodities and this is the first week seeing huge movement recently. The market needs to see more of that before we will see much of a reaction.