BEANS BREAK THEN BOUNCE - USDA PREVIEW
Overview
Grains end the day mixed. Wheat led us to the downside. Corn saw slight losses. Beans however had the most interesting day. Overnight we were trading nearly a dime lower and actually traded below that key support level of June's $12.56 1/2 lows, as we traded as low as $12.54 1/4 before bouncing well off those lows. As beans managed to close over 17 cents off of it's lows while holding that key support.
Wheat was pressured from the news that Egypt bought some Russian wheat for really cheap. ($10 per ton less than the stated Russian floor. Someone had to okay that, which indicates that Russia has more cheap wheat to sell. The weakness in wheat slightly spread over to corn, as corn is just waiting for the USDA report.
We have the USDA report on Thursday at 10am CT.
The funds are now short the entire ag complex for the first time in 3 years. So the funds are betting short. With this, if they are wrong going into the report, it could result in fireworks if we were to get a bullish surprise. If the report is negative, they will continue to pile on the shorts at least short term.
USDA Estimates
The estimates show slightly lower yields from last month.
Corn 🌽
Estimates: 173.5
Last Report: 173.8
Last Year: 173.3
Beans 🌱
Estimates: 49.9
Last Report: 50.1
Last Year: 49.5
October Report History
In the past 5 years except for 2019 (2019 was stready), this report has seen cuts to production in corn.
Soybean pod counts have been increased each of the past 5 years.
For corn, last year was a non factor. In both 2021 and 2020, this report was the start of a major rally. In 2010, this report started a major reversal from our awful September stocks report.
For beans, last year we saw a big rally, as they cut yield by 0.7 bushels an acre.
Guess we will see what this year holds.
Below are a few great suggestions from Chris Robinson of the Robinson Report. He goes over a few ways you can manage your risk heading into the report and how to protect your downside in case we do get a bearish report. If you need help or want specific advice shoot us a call/text at (605)295-3100
Chris Robinson Pre-Report Hedges
Do you have downside risk on any cash corn, beans, or wheat? If you want a protective floor to defend against another flush lower?
If you want a sell stop that --YOU- control--- vs. using a future's sell-stop which can get "triggered" by an HFT/ Algo/ Robot trader right after the report?
Use a put option.
Use November Puts---
Covers 17 days until 10/27/23
Corn CZ3-
Protect $4.75 for 16 days for 5 cents.
Currently, we are trading $4.87
Covers 17 days until 10/27/23
Soybeans- SX3
We just hit a 4-month low last nnight $12.54-- Harvest Pressure.
Currently we are trading $12.68-
Protect $12.50 for 12 cents- or $12.40 for 9 cents
Covers 17 days until 10/27/23
Wheat- Chicago
Currently trading $5.61
Protect $5.50 for 17 days for 11 cents
Covers 17 days until 10/27/23
Wheat- KC
Currently trading $6.75 The recent low was $6.62.
Protect $6.60 for 11 cents.
Covers 17 days until 10/27/23
From Wright on the Market:
"Two weeks ago, 8 out of 10 farmers we talked to said they were expecting less bushels per acre than a year ago. While they would not put a number on the beans, most were saying corn would be 20 to 30 bushels less. That translates to about 10 bushels less per acre. Half of the 1 in 10 said yields would be the same and the same number said better than 2022. Now, 6 out of 10 say corn is not as good as 2022 and the others are split between the same and better."
Harvest Progress & Conditions
Harvest is slightly ahead of pace. Bean conditions dropped -1% while corn remained unchanged.
Corn 🌽
Harvested: 34%
Last Week: 23%
Matured: 89%
Last Week: 82%
Good to Excellent: 53%
Last Week: 53%
Beans 🌱
Harvested: 43%
Last Week: 23%
Dropping Leaves: 93%
Last Week: 86%
Good to Excellent: 51%
Last Week: 52%
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Today's Main Takeaways
Corn
Corn slightly lower today, adding to it's 3rd straight day of losses.
Yesterday we failed to close above $4.90, which caused some technical pressure today as well as just a lack of fresh news and harvest pressure.
Often times before USDA reports, we see the 20-day moving average in corn act as a magnet because it positions traders for any surprises that come from the report. Which is exactly where we closed at today.
South America Update
Brazil has 37% of their first corn crop planted. Argentina has seen some slow planting due to their lack of rain. Most recent numbers show their planting is just 14% complete, behind the average of 21.4%
BAGE said that rain over the next two weeks will be essential for corn plantings in Argentina. If they don’t get some soon it will very negatively affect their plantings.
Brazil's corn is estimated to drop to 119.4 million metric tons. A pretty big -9.5% drop from last year according to CONAB's first crop production estimates. This is due to smaller planted areas and lower yields due to the El Nino.
Bulls are hopeful we have made our seasonal low and will start to grind higher. I also think there is a solid chance we have printed our lows of $4.68 but that doesn’t mean we can’t still see some harvest pressure and choppy trade from these $4.80 to $4.90 levels short term until harvest moves further along.
Now there is some risk heading into the report with the chance we don’t get a reduction in yield, along with the possibility that the USDA could show some weaker demand. Something to be aware of as always with the reports.
The funds are short. If we get a surprising cut, we will ignite a lot of short covering and rally. If yield comes in unchanged or higher, the funds will continue to bet short and push us lower or sideways.
If we get a negative report? $4.73 1/2 is the level bulls need to hold if we don’t want to see further downside.
Bullish report? Bulls want a break above $5. If we can reach our 100-day moving average of $5.11 it would likely give the funds a reason to cover.
Targets are $5, then the 100-day at $5.11, then $5.30, and lastly our 50% retracement of $5.50.
Corn Dec-23
Soybeans
A pretty good day for beans. At one point, the charts looked awful as we broke that key support. But bulls were able to bounce well off of those lows, giving us now a nice 15 cent cushion.
What has been pressuring beans lately? Harvest pressure (we mentioned all year long it's often a difficult task for beans to rally through out harvest), some weaker demand, and big crops out of South America are the main arguments for bears looking long term. We also have some chatter that yields might be left unchanged or even perhaps slightly better than the estimates are predicting.
South America Update
Brazil has 10% of their beans planted, pretty much on par with the average. Parana is the furthest along at 30%, while Mato Grosso is 14% planted. Bean planting in Argentina is still a few weeks out.
Brazil is forecasting yet another huge bean crop. However, we are hearing a lot of talk about weather concerns already in both Brazil and Argentina. Brazil is extremely dry to the north and has way too much rain in the south. Neither are helping. Argentina also continues to face problems of their own with their drought.
South American weather will be the number 1 factor later in the year, but still too early right now.
We will have to see how the report shakes out.
What's the downside risk if we get a bearish report and break that support? There is a big pocket of air to the downside. $12.46 is the risk and likely the next big support level.
$12.82 is still the level to watch for both bulls and bears. If we can get a close above we could see more upside and see the funds step in as buyers.
Not the worst idea in the world to keep a put under some unpriced bushels, but make sure it is a cheap one if you decide to do so.
Long term there are plenty of reasons to get bullish. However short term, we could potentially be in for a lot of chop or perhaps even slightly lower prices until we get closer to the end of harvest (50-60% complete). The USDA report might tell us if the harvest lows are in or not.
Soybeans Nov-23
Wheat
The wheat market takes it on the chin, as bulls struggle to find momentum. The wheat market has only been able to string together 2 consecutive good days 1 time over the past month.
Yesterday we saw prices higher due to the conflicts going on in the middle east. In typical wheat fashion, we gave back all of those gains today.
A large cheap crop out of Russia has continued to dominate the global wheat market. As mentioned, the pressure today came from Egypt buying cheap wheat from Russia, which indicates that they still have plenty of cheap product to go around. Funds are still short and don't see much reason to stop betting short as of right now.
How does the middle east war effect wheat prices? Well, bears could argue that the countries in the war are neither a big exporter or importer of wheat. Which is true.
However, one thing bulls are looking at with this war situation is that this war may intice other countries such as Egypt or Saudi Arabia to step in and purchase wheat, as nobody in the middle east wants to be short wheat if a war breaks out. That is if Russia doesn’t get all of the business. How this is also somewhat of a stretch, this war situation would have to escalate much much farther for that to be a major argument.
For the USDA report, the trade is looking for higher US ending stocks. With the estimates at 647 million vs last month's 615. On the other side, world wheat stocks are expected to get slightly tighter with 258.38 million metric tons vs last month's 538.61 million.
Globally, weather concerns are still a long term supportive factor. When will the matter is the question at hand. Most agree that we see both Australia and South America productions get smaller in the future.
From Wright on the Market:
Good morning, Roger,
What is your outlook on our wheat market? We would be planting 250 acres and we are confused where we would be on price for June next year. I see you said HTA at $9.80 (soft red winter). Do you think our price will
get there?"
Good morning, Vicky, I think the chance of soft red winter wheat getting to $9.80 is 50 to 60%. What I am sure of is the seasonal price trend for wheat is up until the middle of January, Australia (#2 world wheat
exporter) and Argentina (#6 world exporter) will have poor crops when they start harvest in November, the world has produced less wheat than it consumed 4 consecutive years and we have the world's #1 and #5 wheat exporters fighting each other in their wheat
fields. So, wait for $9.80 or mid-January and re-evaluate. Thanks for your business.
Taking a look at Chicago. $6 is our first obstacle we need to climb if we want to see higher prices and some short covering.
Bulls need to hold $5.39 if we don’t want to see more fund and technical selling.
Chicago Dec-23
KC Dec-23
MPLS Dec-23
Hedging Account
If you are forced to make sales and you need help, make sure to give Jeremey a call to help you come up with a strategy that fits to your situation.
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