Weeks like last week in the market will test your resolve and mental health. Just when things start to all look bullish, the market will find a way to make you question everything. Luckily with harvest getting rolling in the Southeast and yields in most areas exceptional, time in the combine is a lot more fun (and productive) than watching the markets. Many of the things we cited last week as reasons for weakness are still around (rain in the Midwest, rising Covid cases, EPA rules on renewable fuels) but most of the bullish factors are too (dropping crop conditions, heat in the Midwest, China making purchases, uncertainty on yields). With easy money policies there is more money chasing returns than we have ever experienced. As such, the volatility is going to continue to be much higher than we have seen in the last few years. Buckle up!!
We are getting to the time of year that condition ratings do not matter much for corn as the crop starts to dry down. Next week will probably be the last condition rating that carries much weight. In a surprise to the market, corn condition ratings were down 2 points this week bringing them to the lowest of the season and declining in 4 of the last 5 weeks (second lowest in the last 9 years for late August). This drop came despite all the rain that fell over the western corn belt. Even with a few inches of rain, it has been way too hot for way too long and much of the damage is already done in the west. South Dakota is the only western belt state that increased and it was only up 1% with only 25% of the crop good/excellent. The east did not get much precip and ratings are slipping (Illinois was down 7%, Indiana down 1%, Ohio down 2%).
Soybean conditions will still matter for a few more weeks and rain that is falling now still has potential to add some yield in some areas. Conditions slipped 1% in the good/excellent to 56% (compared to 69% last year). That puts the crop as the lowest in the last 9 years and 2nd lowest in the last 14 years for late August. The weather pattern has shifted and there have been lots of fronts moving across the Dakotas, Minnesota and parts of Iowa. Some of these systems have had severe weather but many areas have gotten more rain in the last few weeks than they have had all summer. How much it is able to help these beans will be debated for a while still.
The weather pattern has shifted a good deal wetter for much of the western corn belt, but the eastern belt is not getting much relief and there is beginning to be some stress reported in those areas. However just about all of the belt has been dealing with excessive heat for a few weeks now. That pattern looks to continue in the 10 day forecast and the longer term models do not show any chance at relief coming out past the 10 day. They indicate some significant cooling for the Dakotas and Montana. Will that bring frost too? It is a bit far out to tell.
There is a hurricane pointed at Louisiana that right now will bring lots of rain to the delta. Whether or not it brings soaking rains to the Eastern corn belt that needs it for the beans will be closely watched.
Once condition ratings become less indicative, the market starts to shift focus to all the yield estimates and then to harvest reports. Profarmer was much higher than USDA, but did not sample the hard hit areas. The rest of the yield estimates have been all over the board so not giving the market any clear indication. USDA’s next update will be Sept 10th (two weeks from today). No matter how much USDA has done to damage their estimating reputation over the last couple of years, this report will be closely watched and could be a market mover. My gut right now is that USDA will continue trimming at least corn yield, possibly bean yield as well.
After breaking the 11 day streak with another soy export purchase announced every day, China was absent from the market for a little while. They have returned with two days in a row of announcements of bean purchases. We have not seen any corn announced yet. With hot dry Ukrainian weather and questions about the Chinese crop, we should see them back buying US corn.
South American Weather
The market will start turning focus to South American weather as our weather becomes less important. They wait on the rainy season to plant beans and we will start looking for that around mid sept. Brazil has been exceptionally dry through their winter but a normal return of the monsoons can correct that. They are not forecast yet but the market is not concerned yet. There is an indication of a return to La Nina but still a bit too early to matter. The world balance sheet is so tight that any threat to their crop will see a massive reaction by the bean market.
What To Do
I look for continued sideways trade over the next few weeks as we finish out the growing season. This sideways trade could be again punctuated by heart-stopping moves in either direction, but barring a world meltdown there should be enough uncertainty on supply to keep the market supported above the old lows. I think there is a good chance we have seen the harvest lows for corn and I would not be in a hurry to get priced. I would work orders above the market around upper $5/lower $6 levels if you need to make sales. Our yield is exceptional as long as we get it out of the field so you need to have a plan on the bushels you have to move at harvest. I would rather not have to sell any more basis at the end of Sept when everyone else is trying to sell off the combine. We have enough demand that basis will improve after the combines get put away.
Beans should trade back to mid to upper $13 range. If we have any South American weather issues, we can easily break higher out of that range. There are good basis levels for harvest in the southeast, if you need to move some in Nov/Dec get some basis locked in now. Early beans will be triple digits, get your early beans out and shipped.
On Monday we get latest estimates from STATS Canada (their equivalent of USDA’s NASS) but yesterday Agri-Food Canada (equivalent to USDAs World Board) did not wait and put out their estimate for the spring wheat crop at 15.01 million tons which is quite a bit below the average trade guess of 15.9. Going by USDA’s typical pattern of taking other countries’ own estimates, we can assume that USDA is going to have to lower its estimate of wheat exports from Canada, tightening up the world balance sheet even further. Russian wheat harvest has been disappointing. There is enough tightness on the world balance sheet that should support the market and the overall commodity inflation pressure will only help. Egypt has had to raise their tender price several times to get any bought.
Get some orders working on next year’s wheat around $7.50. We do not need to go crazy since we do not have a crop planted or know what nitrogen prices are going to do, but you would not be wrong to get started there. Wheat basis for Oct has weakened but Nov/Dec and Jan/Feb/Mar will be strong going to the western NC flour mills.
To me cotton has the least support from the fundamentals, but has found a way to continue to hang on in the mid 90 cent range. The storm pointed right through the Delta is most certainly helping that. Economic growth has seemed to slow a bit but is still churning higher despite the rising cases. That is supportive for cotton. Everyone needs to be making some sales in the mid 90s if they have not already.
This is the last 14 days of precipitation below followed by the soil moisture maps and drought monitor. Even with the rain, there are some very dry areas and the rains have not been enough with the heat to begin to break the drought.
Next 7 Days forecast precip. This could change significantly based on the path of the hurricane.
10 Day Temperature Forecast