Weekly Market Update – September 24, 2020

After a pretty jarring wakeup from Monday’s selloff, the biggest question on most people’s mind this week is whether this market has hit its peak and is going to fall from here or if it is just consolidating and waiting to take the next leg higher. Whether we go higher from here or lower is not something that is already decided and the market is just waiting until everyone makes their bets before it shows its hand. The market is hitting pause here while we get more facts and see what the weather in South America is going to do. China has been making purchases every day for over a month now and there has been no natural seller so the markets have been working higher. They are starting to cut beans in the Midwest and many of them are being sold across the scales so there is some new hedge pressure that has offset the buying we have been experiencing. The other outside markets have also greatly influenced us this week. There was renewed panic in Europe which caused the equities to drop and the dollar to get stronger which was not friendly to commodity markets.

The next USDA report will be the quarterly stocks report coming out next Wednesday (9/30) followed by the Oct supply and demand the following week (10/9). The stocks will be closely watched to get a handle on how much grain has been used over the summer and the Oct supply and demand will give us USDA’s updated yields. Both of these reports could be market movers.

The Chinese purchases that have been announced daily for the last two months are commitments. We see those commitments on the Thursday export reports. As we get into harvest the report we will be closely watching will be export inspections every Monday. That is how many beans have actually been loaded and exported. China has a long history of making huge commitments, then cancelling them when South America’s crop is coming along. The “commitments” are not really set in stone. We need to see them honoring the commitments as we get through harvest and as South America gets their crop planted and we see the growing season weather down there. If South America has a big crop coming and/or China starts cancelling US beans and purchasing South American crops, this market has some downside. If they keep taking delivery and/or there is threatening weather (La Nina dryness) then there is some additional upside. The market is not waiting trying to make up its mind, it is waiting for further developments.

Noone can accurately see the future or predict it. We do not know with certainty what the weather is going to do. Noone can see all of China and know how much corn they are going to need to buy to calm domestic food inflation and satisfy their domestic needs. Noone knows who is going to win the election. Therefore you need to be selling crops at profitable levels!! Do not try to be picking the top, protect profit!! This market gave us a gift, take some risk off the table! In this instance, you want to be wrong by selling because you can sell the rest of this year’s or next year’s crop higher.

Many people have been disappointed with corn’s rally compared to soybeans. With all the pictures of corn down in Iowa, dry weather and heat ending the season prematurely for some, production issues in China, and beans above $10 people are wondering why corn cannot make a move to $4. The biggest thing holding back corn is demand. We still have many questions about corn demand and specifically ethanol demand. People are not driving so there is a lot less gas being used. We have not seen the quick recovery back to normal life yet. There are political questions about ethanol as well with continued wrangling over the small refinery exemptions. Ethanol is such a large part of our corn demand, corn will continue to struggle to keep up. $4 is going to be a hard peak to hit.

Last year at this time, we had similar carryout projections and the new crop contract was above $4. Right now Dec 2021 is trading mid $3.80s. This is due to the unknowns on demand for corn. We may not need as many acres next year. The new crop contracts have lagged the rally in the nearby.

We are still at good levels in the old crop compared to where we thought we would be at this time. The market is still offering a gift. If you need to move more corn at harvest, continue scaling in sales. Basis has remained shockingly resilient. There are still very strong basis bids in our markets. Work orders just below $4 on new crop.

Today was the first day in almost two months that we have not had a daily sales announcement to China. If the buying by the Chinese is over, we may have more of a correction. Export report today though showed huge commitments, but they were widely expected due to the daily announcements. South American weather is dry, but it’s still a little early to be a huge concern. There are increasing readings of a La Nina year which typically results in a dry South American growing season. Harvest pressure is what is pushing beans lower right now. As bean harvest continues in the Midwest, many of the beans are sold across the scales and the elevator sells futures to hedge those sales so that is the natural seller in the market right now. Any pause the funds take in buying will cause a sharp move lower during this harvest period.

If they have weather problems in South America, we will make new highs in beans. If they have a perfect crop with no threats there is more downside risk. Do not be so upset that you missed $10.40 that you do nothing. The market is still offering over $10!! Basis is stronger than we have ever seen for harvest. There are premiums for early beans. The market is still offering us a gift! Do not sell any basis without talking to us. Beans may go to different homes than we are used to due to the strength of the export market. Get some beans protected!!!

Wheat has had more volatility than corn or beans. It has been volatile in both directions. Weakness this week has come from strength in the US dollar and also some improving weather in Ukraine. World stocks to use is sitting at very high levels on wheat. The strength has come from weather issues, fund buying and some importing countries stockpiling. Dollar strength puts us at a disadvantage selling to other countries.

New crop wheat is still above $5.50. If you have not protected any new crop, you need to be getting some hedged!

When China started buying US beans, they kept buying every day. The huge cotton commitments we got last week were not repeated this week and exports fell off dramatically. Weakness in outside markets also weighed on cotton. We have not seen evidence of widespread damage from the recent tropical weather events in the Midsouth. Cool temps will slow crop development but dry stretches for much of the country after this latest system will help harvest progress. We need to be thinking about selling cotton on any moves above 66 cents. Hedging the board will allow you to maintain ownership and collect on an LDP payment if we get one this fall.

Forecast Rain for South America. One of the major soybean producing regions is circled.
It is not enough yet to scare the market. We still have time, but if the trend continues it will help prices.