WEATHERING THE STORM: WHAT’S NEXT FOR CORN & BEANS?

Written By Sebastian Frost

WEEKLY GRAIN NEWSLETTER

Audio Version

Here are some not so fearless comments for www.dailymarketminute.com

 

What just happened?

In today’s lingo perhaps a WTH “what the heck” type acronym would be appropriate when talking about what happened in our markets in the past few weeks. 

 

Well in the past 7 days corn lost the 2nd biggest percentage since the 2008 slide via losing over 21% in the past 7 days. Before that we had nearly everyone starting to jump on the drought bandwagon. Which by the way is still going on in many areas, but the heat wasn’t present enough for the market to care last week.

 

To summarize what just happened “rain makes grain”. We trade a futures market, meaning what will happen in the future, not a today’s market. If you rewind a couple of weeks we get the crop conditions below estimates, followed by the drought monitor expanding in the corn growing areas, followed by another crop conditions decline below estimates and then we get another drought monitor that expands and should push us higher. But then we fail to follow through to the upside because of some moisture coming in the forecast. Looking back it was a sign when we got the drought monitor, which should have been good news for the price action but we failed to follow up with higher prices.  

 

The momentum shifted and the selling started and really hasn’t let up. Even last week's crop conditions, which declined more than expected, couldn't stop the bleeding. We followed that up with Friday’s USDA report that added a couple million more acres of corn. Leaving the biggest corn-bean spread move I can ever remember with over a dollar a bushel swing in one day between the two. 

 

What did we learn?

First off is markets can have everything priced in that one is reading about, talking about, and thinking about. 

 

Next is that markets make one humble. Very few guessed the highs and very few will guess the lows. Expect the unexpected as they say.

 

More importantly is if I told you that the corn market will be higher in a month then it was at its highs a couple weeks ago. What would you do?

 

This is a serious question. If you knew that corn would be higher in a month, what would you do? Would you be able to hold out or would you be tempted to sell on some mini bounce?

 

This question is asked to help determine one’s risk reward profile. If your answer is that I can’t afford to hold out to see if we can get back to where we are then one probably needs to be more proactive. If your answer is great I knew this sell off was just an attempt to steal grain at cheaper levels. Then your operation has holding power.

 

My point is not to try to outguess what the next move will be, my point is to make sure you are comfortable with the possibilities and probabilities and to learn what your operation is actually comfortable with.

 

Looking back it is easy to think that one wishes he would have sold everything at the high. Sold calls, sold futures, bought puts, sold cash grain, did HTA’s. Etc.  

 

But a month from now if we do get a rally will you really have wished you would have pulled the trigger 10 days or so ago? Find a way to balance the possibilities and probabilities with what allows you to sleep best at night knowing those. For some that’s having a hedge account owning courage calls in times like now so that you can make sales when we get the rallies. For others it’s much more complicated depending on your situation, how much you have sold or don’t. What your crop looks like. If you need help please feel free to reach out to me directly at 605-295-3100.

 

 

What’s next?

First off let’s look at the soybean market and its fundamentals. We don’t have an updated supply and demand for a little over a week. But what we did get last week was an acre update. Just simple math is 4 million acres at 50 bushels an acre is 200 million bushels less supply then what we had just last week.   

 

So what does that do to prices? Well if we get any weather scare at all we have POTENTIAL to get new all time highs. Will we? I think so because markets have the ability to over do moves. Such as what we have seen to the downside in corn over the past week and a half.  

 

The other thing that is somewhat known is that the USDA will not print a balance sheet that says we have ZERO soybean carryout. They will reduce demand because of the lack of supply. The market's job will be to curb demand. The most logical way to curb demand is simply to go higher.  

 

Below is from Wright on the Markets, it fits very good on what’s next.


When will corn bleeding stop?

A couple weeks ago everything was bullish, but today everything is bearish. When will the bleeding stop is the question many are looking for……

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INCLUDED IN THIS WEEKS EDITION

  • When will the bleeding in corn stop?

  • What is the marketing expecting & what is priced in already

  • What will USDA decide to do in July? Comparing history

  • Areas that got rains vs ones that didn’t

  • What the current weather outlook is

  • Is this bearish weather built into the market?

  • What are some things that could stop the bleeding

  • If we reverse, how high could we go?

  • Sunflower & millet markets

  • Damage of the derecho

  • Unknowns in our market

  • Are you comfortable?

Sebastian Frost
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WHAT THE USDA REPORT MEANS