GRAINS SUCCUMB TO OUTSIDE PRESSURE

Written By Sebastian Frost

MARKET UPDATE

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Overview

Grains down hard today, as both beans & wheat fall double digits.

Why were we hit so hard today?

First was the war news (or lack there of).

The market was expecting news that Israel had attacked Iran's oil factories over the weekend.

Instead, Iran announced that Israel did not attack any oil facilities or nuclear plants.

So we received news that makes the market optimistic about de-escalation from that middle east war.

Initially, this news sent crude oil sky rocketing not too long ago. But this news can send crude lower just as easily as it rallied it.

The lack of war news led to crude oil dropping a whopping -5% today.

The sell off in crude oil also resulted in a brutal sell off in soybean oil.

As bean oil plunged over -3% today.

The grain markets were just unable to fight off the weakness in crude & bean oil. So they also got hit hard and followed the outside markets lower.

This middle east war does not "directly" impact the grain markets. Such as the Russia & Ukraine war affected wheat.

However, it does directly impact crude oil and other outside markets.

So this weakness (or strength) can spill over to the grains.

Take a look at this corn chart overlayed with a crude oil chart.

You can see just how closely correlated they are sometimes.

(Purple line crude - bars corn)

4 Hour Corn vs Crude

We also have first notice day this week on Thursday.

Historically, this adds a lot of pressure going into it.

So that might’ve added some additional weakness today.

Anyone that has a November basis contract will have to price or roll them by the end of Wednesday at the latest.


Brazil

Brazil rain wasn’t a key reason for the weakness, but didn’t help.

Brazil has received a good amount of rain and the forecasts suggest more is on the way.

Mato Grosso's (#1 growing region in Brazil) bean planting is at 56% now and is just slightly behind average pace as the rain has allowed them to catch up fast.

So overall, no planting delay worries or growing season worries for now.

But that can always change the next 2 months.

Next 2 Weeks


Harvest

In other news, harvest is wrapping up. Well ahead of usual pace.

Harvest Complete:

  • Corn: 81% (Average: 64%)

  • Beans: 89% (Average: 78%)

This should result in less hedge pressure.


The Funds

The funds are short:

  • Corn: -71.5k

  • Beans: -59.5k

  • Wheat: -28.9k

So we no longer have the possibility for a big "short covering event".

As they are taking a more balanced approach here.

I could see them perhaps add to some of those shorts ahead of the election, especially in soybeans just given the uncertainty and what happened last time Trump was elected.

But I don’t expect them to hammer the market, as they won’t want to lean too heavily to one side with the uncertainty of the results of the election.

Chart from GrainStats.com

Chart from Karen Braun


Corn Export Sales

The impacts of the recent sales & strong demand have worn off the past few days.

We saw our 9th straight day of corn sales in a row this morning.

Corn sales are the 3rd best of the past decade. Only behind 2020 & 2021.

Interestingly, in 2020 & 2021 it was China who spurred that buying.

We have seen pretty much zero buying from China this year.

It has all come from Mexico & unknown (also unlikely China).

There is some thoughts floating around that maybe Mexico is buying a ton of corn right now because they are worried about potential tariffs if Trump is elected. So they are basically front-running their purchases ahead of time.

That is definitely a possibility, but they also are likely just simply taking advantage of these low prices.

Soybean export sales have been "okay" but nothing special. Currently we sit in the middle of the pack for the last decade. Ranked 6th of the past 10 years.

Chart from NoBull Ag


Today's Main Takeaways

Corn

Corn mainly drug lower from weakness in crude oil.

Short term, we do have some tailwinds to face that could lead to slightly weaker or simply sideways price action.

We have harvest wrapping up and the yields are fantastic.

There are also some who believe that perhaps these recent export sales slow down if Mexico was really "just front running" their purchases. Possible.

Either way, corn is creating demand. Whether the effects of this demand show up soon or several months from now is an unknown.

Long term I still believe demand will lead us higher. If Brazil doesn’t get a weather scare.. demand will HAVE to lead us higher if we want higher prices.

I've went over several reasons in the past why demand should lead us higher long term.

To name a few:

  • Our current…………..

The rest of this is subscriber-only…

IN TODAYS UPDATE

  • Can demand lead corn higher?

  • Big picture bean chart.. how low can we go?

  • Chart updates

  • Global outlook for wheat bullish?

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Past Sell or Protection Signals

We recently incorporated these. Here are our past signals.

Oct 2nd: 🌾 

Wheat sell signal at $6.12 target

CLICK HERE TO VIEW
 

Sep 30th: 🌽 

Corn protection signal at $4.23-26

CLICK HERE TO VIEW
 

Sep 27th: 🌱 

Soybean sell & protection signal at $10.65

CLICK HERE TO VIEW
 

Sep 13th: 🌾 

Wheat sell signal at $5.98

CLICK HERE TO VIEW
 

May 22nd: 🌾 

Wheat sell signal when wheat traded +$7.00

CLICK HERE TO VIEW

Want to Talk?

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sfrost@dailymarketminute.com

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Sebastian Frost
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