WEATHER IMPROVING, BUT DAMAGE WAS DONE

Written By Sebastian Frost

MARKET UPDATE

Prefer to Listen? Audio Version

Futures Prices Close


Overview

Grains mixed as corn and wheat see a slight bounce as they look for a bottom while soybeans continue to slip off of their recent highs. However, beans did manage to close nearly a dime off their lows.

This morning we saw yet another sale of beans, with 251k tonnes to unknown. We now have a crop that is getting smaller everyday and China continues to take more soybeans. Not exactly a bearish scenario.

The crude oil market continues it's recent rally. Trading at it's highest levels since last November. WTI crude is now up nearly 30% in the past 2 months.


The dollar also continues it's recent rally, trading at it's highest levels since March. This definitely isn’t helping our exports.


Now crop conditions, I've been patiently waiting since last Monday to see these. I mentioned all week last week that I fully excepted these to drop much more significantly than we had seen them drop last Monday.

Bulls get a nice little surprise especially in the beans. As bean ratings dropped by 5% from 58% to 53% rated good to excellent.

Corn also dropped by 3% from last week, to add on to last week's 2% drop.

Much more bullish numbers than last week's disappointing numbers, where soybeans only dropped 1% last week..

Here are the top 5 producing soybean states vs their ratings from last year:

  • Illinois: -9%

  • Iowa: -17%

  • Minnesota: -23%

  • Indiana: +10%

  • Ohio: +19%

Very good chance that the USDA printed it's high for bean yields.

Here is the state by state breakdown and changes from GrainStats.


Let's take a look at the soil moisture situation.

Not much of a difference between the top 4 inches and the top 40 inches.


Here is the soil moisture change over the past 2-weeks.


The forecasts have started shifting more bearish, especially considering the recent heat and dryness. As a good portion of the corn belt is now expected to see some rain with cooler temps.


Although rain is expected, the next two weeks still look fairly dry compared to normal for a good portion of the corn belt aside from the west side of the Dakotas, Nebraska, and Kansas.


Overall, we had a brutal last two weeks. It was extremely hot and dry over the weekend, causing more damage to these crops, and I think the extent of this damage is being underestimated by the market and I think we still have some issues not only in the US but globally in countries such as Australia, India, Argentina. Long term a bullish picture for the grains, but we may have to get through the harvest first before we are looking at a major rally in corn and wheat.

However, I do expect this crop conditions report to support us nicely heading into tomorrow on the corn and beans.

One week from today, all eyes will be on the USDA's crop production and Supply & Demand reports. More importantly, everyone will be watching where yields come in at for corn and beans as well as demand for new crop.

LABOR DAY SALE ENDS SOON

Save over $500 a year before your trial. Lock in this discount before it’s gone.

Today's Main Takeaways

Corn

Corn nearly a nickel higher here today, as bulls look to find a bottom.

This next image is from Ben Heath, a producer in Nebraska. These 2 ears of corn have the same number of kernels. The importance of how a crop finishes is this simple.

The market is going to be in for a surprise when they realize the extent of damage we've seen and that yes. It matters how a crop finishes.

The market is nowhere close to pricing in a 167 crop, but it is definitely a real possibility. Now it may take a very long time until the USDA comes to the realization, but eventually they will.

The past 10 years. Corn has made it's harvest low in August 6 of those years. This year could still be one of those years that follows history, as our current low of $4.72 was made back on August 16th.

What about years where we didn’t make our lows in August? 3 of those 10 years, we made our lows in September. The latest we have made a low in the past decade was all the way back in 2014, where we made our low on October 1st.

Our average rally from these harvest lows the past decade is $0.64 cents. However, the past 3 years, this average jumps to $1.05. I expect this rally from our harvest low to be in the same realm, as things are so much more volatile over the past few years. Take this past July for example. We rallied $0.90 cents from July 13th to July 25th. 12 days is all that took. What about our May to June rally? That was a $1.40 rally.

So bottom line is, harvest is not the time to be selling. We don’t want to supply the market when it has the most supply and inventory it is going to have all year long.

Could we see more downside? Of course we could. But in my opinion, there is far more upside than downside in this market. The market has finally stabilized and currently seems comfortable trading in the $4.75 to $5 range. If the bottom is not yet in, it will be very soon.

I also noticed a few other advisors had placed buy signals in corn. If you made sales around $6, this area isn’t a bad spot to be looking at cheap calls or other ways to start re-owning over the course of the next month or so. Remember, we don’t want to chase a rally. That is why it is called hedging. We like buying calls while they are still on sale. If you are worried about the market dropping even further, perhaps look at cheap puts. Using puts to establish a floor is never the worst idea in the world.

Every operation is different and requires different strategies to meet their needs. If you need help making any decisions at all, give us a call or text anytime at 605-295-3100.

Here was the reasoning for one advisor, Roach Ag, and why they like getting long corn here. They said;

All boxes are checked on this corn buy signal. The funds hold a large net short position. The months of September through November are associated with harvest lows, and the average case price is well below the USDA's forecasted prices. This puts corn in our strongest buy signal this week. Livestock producers should accumulate feed on this signal.

Bulls would still like a close above $5 which hasn't happened in over a month now. A firm close above and I think we eventually look to close that gap in the $5.25 range.

From a technical standpoint, when taking a look at the downside, bulls need to hold $4.73 or there is a good chance we trade lower and perhaps fall into the $4.60 range before finding that harvest low. But the market has held it's current lows for over two weeks now. So I’m optimistic the low is in.

Corn Dec-23
 

Soybeans

Beans continue to trade off of their recent highs, now roughly 45 cents off their highs from last Monday.

Beans were pressured here with some profit taking following their recent rally as well as a more favorable weather outlook in the forecasts.

We saw yet another sale of beans to China, as this crop is getting smaller and China is taking more beans every day. It just doesn’t feel like this bull run in the bean market is quiet over yet.

Does that mean you shouldn’t practice good risk management? Of course not. Because when taking a look at where we have traded in the past, there is a lot of downside risk in the bean market.

Could we trade $15 if this crop doesn’t turn out and shocks the market? It's absolutely a possibility. But we need to keep in mind that the market just gave us $1.27 from $12.83, and the market has taken a good chunk of that rally back. We also need to keep in mind that the last day of May, we traded $11.30 which is over $2 lower than where we are at today.

This is what I had to say exactly a week ago in terms of risk management:

"Now is still a great place to take risk off the table if you need to do so. Whether that is because you haven’t made any sales or need to put a floor in. We are right around $14, and we have all seen just how quickly we can drop if the forecasts change. Yes, I think we are in for higher prices, but you need to be comfortable. If that means making sales, then make some. Some would suggest you be somewhere around 50% sold of your expected new crop production. However, we realize every single operation is different and everyone has different needs. If you want specific advise on your situation shoot us a call at 605-295-3100 and we will gladly help you.

Demand is solid. The weather remains bullish. We can’t afford to lose bushels on this crop. So I do expect us to keep climbing even though it it usually a difficult task for beans to lead us higher going into harvest. But given the circumstances, they might just be able to do so. We are going to see a not so favorable end to the growing season which will further pressure yield as well as seed size. The recent damage could also very well be being underestimated.

I just don’t think this bull run is over yet. The funds are still long, and there isn’t much reason for them not to continue to pile on here."

If you need to make sales or put a floor in, by all means do so. Be comfortable.

The current weather situation is no longer as bullish as it has been the past few weeks, which removes a lot of weather worry and premium. But we can't deny the recent effects this weather had on the crops.

So we have a crop that just took some major damage and demand remains solid. It is just hard to imagine we couldn’t go higher from here. As mentioned, we do need to keep in mind that it is often a hard task for beans to rally throughout harvest. So something to be aware of.

Next week we get the USDA report. Outside of demand, the biggest question is the yield. Bulls argue that we are ultimately sub-50, the USDA's current estimate is 50.9 bpa. This would place even more pressure on an already tight balance sheet. We simply cannot afford to lose bean bushels and demand isn’t slowing down.

Here is StoneX's most recent yield estimate from Arlan Suderman for beans. Their estimate is 50.2 bpa, down from last week's 50.9 bpa. He actually said that this is the type of year where he would expect his yield models to over estimate yields. So he is essentially saying that a 50 bpa yield, is likely too high.

We've said this time and time again. The most logical way to curb demand is higher prices.

To add on top of this, we have bulls also arguing that Chinese demand is going to continue to grow and that eventually later this year or perhaps early next year, the renewable story could start to gain more traction and attention. Thus leading to an even bigger demand story developing down the road for beans. Especially once we get past harvest and get into the South American weather worries.

Taking a look at downside, the next downside risk is $13.45, which is right around a 50% retracement from the recent rally.

Soybeans Nov-23
 

Wheat

Wheat trading higher here today, but still remains the weakest of the grains as we just traded at +2 year lows last week.

Over the weekend we did see some further war escalations as Russia again attacked the port of Odessa and more ports along the Danube River.

Here are a few things Black Sea guru Andrey Sizov had to say about the war and black sea situation. 

  • The Turkey and Putin talks made zero progress. As Turkey failed to resume the grain deal.

  • Wheat prices keep falling, but another Black Sea drone can change that dramatically.


My biggest takeaway from the current war situation is that it's not going anywhere. Will we see another war rally? Probably. I'm not holding my breath waiting for one, but we will almost certainly get one. The bigger question is more of "when" will we get one.

On the other hand, the recent strength in the dollar has not helped wheat futures whatsoever, and is keeping us from being competitive on the global market.

Australia cut it's wheat production forecast, cutting it by 36% from last year's crop due to their dry weather.

We still have obvious problems in Canada and Argeninta. These global problems will eventually tighten our global balance sheet.

Not a ton of new fresh things going on in the wheat market. The wheat market is still one that is likely going to take some time to catch a major rally unless we get a war headline. Seasonally this is the time we look to put in our lows. So I'm staying patient letting these lows be put in while keeping in mind we could see a war or weather wild card dealt from the deck at any moment.

Chicago Dec-23

KC Dec-23

MPLS Dec-23

SA Weather Webinar

We will be participating in a webinar with Texas Hedge Risk Management about South American Agriculture on September 6, 2023, at 2:00pm.

If you would like to register for this event, please click the link below. We look forward to hearing from you!

Webinar Registration Link

Hedging Account

No matter the situation you are in, our partners at Banghart Properties Grain Marketing can help you come up with a plan of attack to help you manage your risk. If you want help managing your risk you can give them a call anytime at (605) 295-3100 or set up a hedge account below.

Sebastian Frost
Previous

BE PATIENT MAKING SALES AT HARVEST TIME
Next

HOW MUCH DAMAGE WAS DONE & WHAT IS MARKET EXPECTING