MORE PAIN FOR GRAINS

Written By Sebastian Frost

MARKET UPDATE

Video Version is Subscriber Only*

For Full Access: CLICK HERE

(Main Takeaways: Corn 3:20min, Beans 7:10min, Wheat 10:38min )

Futures Prices Close

Overview

Another ugly day for the grains as corn leads us lower.

Now off their highs:

  • Corn: -33 cents (-7.54%)

  • Beans: -79 cents (-7.21%)

  • Wheat: -36 cents (-5.83%)

Why are the grains falling?

For starters, Friday the USDA confirmed big crops. Which means the demand side of the equation will have to do the heavy lifting.

We have harvest pressure. Fund selling. Less geopolitical tension. China has failed to provide any more details on their stimulus. Brazil is getting rain.

Harvest Pressure & Funds

The dry conditions in the US have ramped up harvest fast. Which means more harvest pressure. Many producers aren’t super interested in paying interest & storage fees. Which leads to more farmer selling off the combine. Thus pressuring prices.

Outside of that, the biggest thing is the funds.

Just like I mentioned in my updates on Oct 3rd & Oct 4th, this rally was due mostly to short covering.

We saw a HUGE short covering event. But now that the funds are near even they are taking a more balanced approach.

When the funds were buying, it was offsetting all of that hedge pressure. But the moment they stopped buying is the moment the markets succumbed to that hedge pressure.

From Oct 4th's Update

Make it stand out

Whatever it is, the way you tell your story online can make all the difference.

The funds simply do not see reasons to flip long here. Like I mentioned 2 weeks ago, for them to flip long it is going to take a real market moving factor.

Something such as a Brazil weather scare. Massive Chinese buying. etc. But we just do not have that.

It is a lot easier to make the argument that they could flip long corn given how much friendlier the balance sheet outlooks are for corn rather than beans. Corn has a potential solid demand story going for it.

For beans it would likely take an outside factor such as Brazil given how bearish the global balance sheet is.

Fund Postions from Advanced Trading Inc

China & Brazil

The other big reason for the sell off in beans was China.

China artificially pumping their economy with stimulus money was one of the biggest reasons for the rally along with fund buying. But this headline has faded and China has provided zero additional details on the stimulus.

When China isn’t pumping money into the bean market, the trade looks at the awfully bearish global situation to go along with the harvest pressure we are seeing.

Brazil is getting rain which hasn’t helped prices, but that premium is completely removed. Brazil getting rain did not have a massive influence on this sell off.

Brazil bean planting is at 9.3% complete vs 17.4% last year. But this is not a threat.

Brazil has a long growing season. When these rains come planting will catch up very fast.

So now the weather market is going to move into that Nov-Jan time frame. That is the period where you can get a possible weather scare.

What the late planting did negatively impact is the 2nd crop corn however. As late bean planting pushes that 2nd corn into a less favorable growing window. According to Dr. Cordonnier: If Brazil's beans aren’t 60% planted by the end of Oct it will push a big portion of that 2nd corn into less than ideal window.

Next 2 Weeks

Now let's jump into the rest of today's update where we go over short term & long term outlooks and what is going to drive these markets....


Today's Main Takeaways

Corn

First let's look at the chart.

Awful action in corn today.

We are no longer in an uptrend on the chart.

On the positive side we held $4.00

This is a huge spot for corn to hold. If we do not hold $4.00 there is not much holding us back from testing those lows. I would be lying if I said a re-test of $3.85 was impossible.

Short term, it looks like we could be getting more harvest pressure just like I had mentioned we likely would 2 weeks ago.

The problem I see short term is that there is no fund short covering here to meet the farmer selling. We have a lot of farmer selling & supply hitting the market.

Long term, there is a very strong argument to be made for corn that demand could lead us higher.

When you look at the supply & demand situations for corn & beans they are complete opposites.

The USDA currently projects soybeans to have the most bearish global outlook of all time. It is about as bearish as it possibly can get without a production flop in Brazil.

Corn on the other hand.. demand is very solid. Exports are strong. Ethanol demand is stout.

If ethanol demand continues at it's current pace, it alone could add an additional 100 million bushels of corn demand.

We have seen our yield bumped every single USDA report.. yet our carryout has continued to shrink report after report.

Yield is going to be up +7 bpa this year.

Yet our carryout could very possibly shrink YOY due to demand. (Current carryout is 1.99 vs 1.81 billion last year).

Next year we could very well plant less acres as high fertilizer & costs of production aren’t going to be incentiving extra acres. Then we are going to be adding all of this built up demand on top. 

Corn definitely has a story going for it long term. Let's just hope beans don’t act as anchor.

Looking at risk management, I hope we hold $4.00. If we do not, there is a chance we test those lows once again.

If you are someone who followed our protection signal at $4.23-26 and still has that protection, I like keeping it until you make a sale.

If you are someone who does not have protection, but is going to have to move something off the combine then your best bet would be to grab puts now. It is called hedging, not guessing.

In my opinion, corn likely doesn’t start to move up out of here until harvest is out of the way. Altough I don’t see us continuing to scream lower like we have, there is definite downside risk here. A lot of corn is hitting the market right now, so a rally is going to be hard until harvest is over with.

*Our $4.23-26 protection signal: (CLICK HERE TO VIEW IT)


World Stocks to Use Ratio Visual

To help give you a better visual on how much more bearish the global bean situation is vs the corn one, here is a comparison.

As you can see, corn is…….

The rest of this is subscriber-only…

IN TODAYS UPDATE

  • Global corn vs comparison

  • How bearish is global beans?

  • Short vs long term thoughts

  • Wheat breakdown

  • Spreads telling a story?

TRY 30 DAYS FREE

Get full access to our daily updates, sell signals, & 1 on 1 tailored market plans.

On Sep 27th we alerted a bean sell signal. Since then.. beans are down -75 cents. Don’t miss future signals.

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?

Our phones are open 24/7 for you guys if you ever need anything or want to discuss your operation.

(605) 295-3100

sfrost@dailymarketminute.com

Hedge Account

Interested in a hedge account? Use the link below to set up an account or shoot Jeremey a call at (605)295-3100.

LEARN MORE

Sebastian Frost
Previous

BEANS CONTINUE DOWNFALL. CORN & WHEAT FIND SUPPORT
Next

GRAINS SMACKED. BEANS BREAK $10.00