STRONG DEMAND & TECHNICAL BUYING FOR GRAINS

Written By Sebastian Frost

MARKET UPDATE

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Futures Prices Close

Overview

Grains higher across the board led by technical buying along with strong demand. As we get a continuation of large daily sale announcements.

Corn has seen a lot of export buying interest here. Here is a recap of the recent sales the past week: (metric tons)

Today:

  • 359k corn - Mexico


Yesterday:

  • 500k corn - Mexico, South Korea, & unknown

  • 380k beans - unknown


Last Friday:

  • 292k beans - unknown

  • 125k corn - unknown


Last Thursday:

  • 197k corn - unknown

  • 101k corn - Mexico


Last Wednesday:

  • 1.62 million corn - Mexico

  • 332k MT corn - unknown

  • 175k beans - unknown


Last Tuesday:

  • 131k beans - China


Total Past Week:

  • 3.23 million corn

  • 978k beans

Now we would love this "unknown" buyer to be China. But most do not think it is China for corn, as if it was China the board probably would’ve reacted more than it has. The market probably would’ve let you know if it was China.

For beans, unknown on the otherhand does usually mean China. But not always for corn.

However, last week we saw the largest weekly sales to unknown in a decade.

Chart from Karen Braun

Although this buying was not China, it is still friendly and a great sign.

It shows that the big buyers find value here. They wouldn’t be buying this big at these levels if they thought prices were going to go much lower. So this does add some support under this market, more so in corn rather than beans.


Spreads

The spreads have continued to rally in corn & beans.

Corn Dec 24 - March 25

Beans Nov 24 - Jan 25

This is very unusual especially for the middle of harvest when we have ample supply. It has really been a head scratcher.

Usually spreads firm when prices are in an uptrend, and spreads weaken when we are in a downtrend. But the opposite has been happening.

The spreads are rallying and taking that carry out of the market. (Usually don’t see this when we have a big supply of grain)

There is an old saying that says:

"First the spreads move, then basis, then futures"

We have also seen a nice surprise in basis from corn. As we've seen basis firm up in many areas. Basis is usually neutral or weak with harvest. But that hasn’t been the case.

Wheat basis has also improved. Especially higher quality wheat such as that spring wheat area in North Dakota or red wheat in western Canadian region.

Basis firms when demand strong.

So is this a sign or what is going on?

Something is going on in corn & wheat for sure.

Perhaps it's local demand. We aren’t out of grain but maybe the end user is. So they are paying a premium for it.

It could be export demand, or perhaps the crop isn’t quiet as big as everyone thought. (Although I do think the corn crop is likely there to an extend, soybeans might be on the small side)

In simplest terms, the spreads firming means that we have more demand than supply. So if you compare the spread today vs a few weeks ago, demand has increased vs supply.

Many people in the grain industry consider spreads as one of the biggest fundamental analysis’ of the market.

Spread thoughts from Pete Meyer:
"The spreads acting the way they are acting with the current interest rates, if you take them at face value, they are telling you the carryout is much lower than 2 billion bushels. That being said I don't think it is. In anticipation of a record harvest, maybe basis in a lot of places got pushed too low, and specs jumped in and shorted the spread. now they are kind of caught short here." he said on Standard Grain


Harvest Progress

Harvest is now well past 50% complete. Which is good news for grain prices. As this means less "harvest pressure".

We had been seeing a lot of harvest pressure on the recent sell off, but usually once harvest is well over half way done you start seeing a lot less.

Harvest Complete:

  • Corn: 65% vs 52% avg (fastest since 2012)

  • Bean: 81% vs 67% avg (fastest since 2010)

Things will wrap up quick as there is not much rain in the forecasts.

From Craig Turner of StoneX:
"Usually when harvest is 50% complete, you make a secondary bottom. Seasonally the first coming at the end of August, then the second after harvest is 50% complete" when talking about grain prices."

Charts from Karen Braun


Drought Update

Drought Change Past 2 Weeks:

  • Corn: 27% -> 62% (+35%)

  • Beans: 26% -> 54% (+28%)

The forecasts also remain very dry.

It is far far far too early to talk about drought next year.. but this could result in us going into next year without a lot of soil moisture.

We all saw how quickly the drought vanished earlier this year, but it is something to keep in mind if it stays like this.

Past 2 Months

However, this could be negative for exports.

As it has made the river levels restrictive.

Not ideal situation for this being the prime soybean shipping time. (Brown box is restrictive levels)


Today's Main Takeaways

Corn

Fantastic day for corn on the charts. We closed above a huge $4.13 level that could offer more upside from a technical standpoint.

We have seen a ton of large daily announcements. So global buyers see corn as a value grab here.

These cheap prices are curing cheap prices via creating demand…………………

The rest of this is subscriber-only…

IN TODAYS UPDATE

  • How bullish is corn demand?

  • Did corn find a bottom?

  • Why wheat might have a global story

  • Cheap prices curing cheap prices?

  • Will beans need Brazil scare?

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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

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Sebastian Frost
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