MARKET UPDATE

Futures Prices Close

Today’s update will a little different than usual. Instead of breaking each of the grains down 1 by 1, we will be doing a vast overview and everything you need to know that is going on in the grains and perhaps what we can expect going forward.

As aside from weather, not a ton has changed. Weather continues to steal the show and will continue to be the make or break factor all summer long.

Grains finally found some support following our rough start to the week. As beans explode for nearly 30 cents, the wheat market closed up double digits in both Chicago and KC. Corn initially saw some strength, but ultimately faded 14 cents off its highs and ended the day lower a penny and a half, while new crop corn did finish 8 cents higher.

Overall, the markets are in a much better situation from where they were just yesterday morning. We rallied corn 30 cents off its lows from yesterday, the wheat 30 cents off its lows, and the beans well over 50 cents. So a great turn around from yesterday morning perhaps a sign of a reversal here in our markets.

We had two key things moving the markets today. Those being war and weather.

The were reports that Ukraine says Russia has blocked Black Sea grain export deal again. This has been a back and forth headline for a very long time now, but ultimately gave some support today. Russia also stated that their coast was being under attack, which led to them coming out with statements saying they might go ahead and cancel the grain deal. Is this just another ploy by Russia to sell wheat at higher prices? Who knows. But Russia has been making a lot of complaints ever since they extended it. So perhaps there is that chance they make that decision to not renew it when it comes time.

The second, and more impactful factor we saw was simply the weather. There has been some pop up rains but nothing note worthy. The long term forecasts still look very dry. We received the newest updated drought monitor.

Below is a drought monitor comparing the most recent one, with one from 3 weeks ago. As you can see, we are seeing some slight improvements in areas such as Oklahoma, but the dryness is spreading east into the corn belt.

Just for comparison, 2012 was drier overall at this same point in time. But if we take a look at the corn belt, this year is actually far drier thus far.

Another 2012 comparison. There is 23% more drought in 2023 for the Midwest than we had in 2012. The question is, does this dryness continue? If so, we could see corn a lot higher from here.

Forecasts are looking very dry for the first part of June. This is after coming off of a near record dry May. So even if rainfall is slightly below average, it doesn't make for a very ideal situation coming from such a dry May.

Short term, we essentially have no meaningful rain in the forecasts for the corn belt. Notice the only area expected to receive minimal if any rain.

Here is a monthly outlook comparison for June. The top one is the current outlook which came out yesterday. The bottom one is from May 18th, just 2 weeks ago. That is a big difference. Again, the corn belt looks to be getting hotter and drier.

We saw intial crop conditions come in at 69% rated good to excellent, which is already lower than that of last year's. If it stays dry, I can’t imagine we see this number improve. As we had been mentioning for the past few week's before the initial ratings came out, we still think that this number could very well be the highest number we print all year long.

Currently, 34% of the corn here in the US is experiencing drought. This was a pretty big 8% increase from last week's 26%. As mentioned, the forecasts don’t indicate this is going to change within the next 7 to 10 days at minimum.

US soil moisture rated short to vey short also jumped 10% to 36% nationwide this week. As soil moisture drops rapidly in the midwest and north east.

So all in all, it is clear the drought situation is getting worse not better.

For those of you that have been following us since last year, have been preaching about this potential drought since fall.

The market is finally beginning to realize that problems we could face, and we are starting to build that weather premium in.

In the end, it will all come down to weather. Does it stay dry, and we get a similar type drought to that of 2012 that ultimately rallies us much higher? Or do we get rains that bust the drought and send us lower?

Personally, I think the market is still undervaluing weather premium here. Especially in the corn belt. The trade and USDA are expecting us to have this perfect growing season, and currently, that just doesn’t look like it is going to be the case. What happens if we fall short on yield by a wide margin?

What is AI's current outlook and yield predictions?

Below is another interaction with the popular AI tool "ChatGPT" that has taken the internet by storm the past few months. We asked it for the current outlook on the corn belt, it’s predictions for the July & August yields, as well as what it would do if it worked for the USDA.

Me:
What is the current weather and growing conditions outlook for the month of June in the corn belt?

ChatGPT:
The current weather and growing conditions outlook for the month of June in the Corn Belt are not ideal. There has been an unusual amount of dryness in the region, with the final week of May being the driest in over 30 years. Dry conditions have increased in various regions, including abnormally dry to drought conditions in parts of Iowa, Illinois, and Indiana.

As June begins, the heat is expected to shift farther east and south into the core of the Corn Belt. The start of June is forecasted to be the third hottest in over 30 years, according to data from WeatherTrends360. The dry weather is set to continue as temperatures rise, which is raising concerns for soil moisture, especially as evapotranspiration rates increase in the heat

Me:
What do you think is the probability of US corn yield dropping below 160 bushels per acre?

ChatGPT:

The previous yield was 181.5 bushels per acre. The impact of the 2012 drought, which was severe, resulted in a yield decrease of about 48 bushels per acre (from 171.9 to 123). If this year's drought has a similar impact, we would expect a significant yield decrease.

Given that the current drought conditions are even more severe than they were in 2012, and the fact that we're already seeing an early drop in corn good/excellent ratings (from 73% to 69%), the probability of a yield below 160 bushels per acre is quite high.

Me:
What number would you put on the probability if you had to take a guess?

ChatGPT:

Given the worsening drought conditions, the probability that the U.S. corn yield will drop below 160 bushels per acre would indeed increase. However, it's difficult to provide a precise number without making many assumptions about the relationship between drought and corn yield, which can be influenced by a myriad of factors.

In reality, a wide range of outcomes is still possible, as crop yields also depend on other factors such as changes in farming practices, technology, and weather conditions throughout the rest of the growing season. The actual outcome could be quite different from any estimate based on the current situation.

That being said, if we were to take a guess based on the given conditions, I would estimate the probability to be somewhere in the range of 50-75%.

Me:
If you worked for the USDA and had to put the corn yield projection out in June, what would you put the yield at?

ChatGPT:

Given the increasing drought conditions in the Corn Belt, especially in the major corn-producing states of Iowa, Illinois, Indiana, Ohio, and Missouri, it seems likely that the USDA would decrease their yield forecast.

In an extreme drought scenario similar to 2012, corn yields fell to about 123 bushels per acre, a significant reduction from the trend line yield. However, there have been advances in drought-resistant seed technology and farming practices since 2012, which may somewhat mitigate the impact of drought on yields.

If I were to make an estimation based on the available information, I might suggest a yield forecast in the range of 155 to 165 bushels per acre for the June report.

Me:
What would you set the yield at in August if you worked for the USDA?

ChatGPT:

Under the extended severe drought scenario, with more current corn under drought conditions than in 2012 and with depleted subsoil moisture, we could expect a significant impact on corn yields.

If the drought continues into July and August, the USDA might reduce the yield forecast further. Based on the 2012 yield of 123 bushels per acre during a similar severe drought, but accounting for advancements in drought resistance and farming practices since then, I would estimate the USDA might project a yield in the range of 130 to 140 bushels per acre in their August report.

This continuous corn chart was included in yesterday’s update, but I again wanted to point out the similarities. If it does indeed stay as dry as forecasts indicate it could through out the first half of June, I don't see why we couldn’t see a similar replication of this.

The Bottom Line

From Farms.com Risk Management,

North Dakota planting pace is back on pace but have the markets removed the concern about a lack of planted acres in the Northern Plains. But todays U.S. corn crop condition rating of 69% will be the highest printed number of the year! It’s good to see U.S. corn states like Colorado, North Carolina pulling their weight while Illinois, Iowa, and Nebraska start with ratings considerably less than last year, but everything is fine! Remain patient 2-more weeks before fireworks start.

This week’s weather is expected to be similar to last week, daily showers and thunderstorms along the Plains on all days into next week. It is expected to be spread out and not falling on the ssame spots every day, and it is not going to be evenly distributed. But, farther east remains dry. This week will likely see some more showers in the Midwest vs. last week, but not widespread. Many parts of the Midwest are getting drier & are in immediate search of timely rains. Also, as temps go above 90+ degrees this week, it will dry out soil moisture for the new plants. Some spots west of the Mississippi River are only forecast to get any significant rain. (Please see charts below)

Based on preliminary statistics provided by USDA/NASS, U.S. winter wheat abandonment for 2023 is pegged at 32.6%. If realized, this would be the nation’s highest winter wheat abandonment rate since 1917. But we would know this only after harvest, by Sept. In fact, since abandonment reached 28.6% in 1951, the only years more than one-quarter of the winter wheat was abandoned were 2002, with 28.8%, and 2022, with 29.5%. According to initial 2023 expectations, Texas will lead the U.S. with 70% winter wheat abandonment, followed by Oklahoma at 53%. (Please see chart below)

If the moisture does not materialize in the ECB by the end of June the funds will hit the panic button by mid-June as they always do in dry years like 1934, 1983, 2012 and in 2023!

Twitter @CropTech Ken Ferrie talking corn stressing/rolling in Central IL in May! Corn is playing defense but if you going to have bad days & a dry period now is the time. NO rain in the 10-day forecast. Iowa City temps hitting near record highs not seen since 1934! ECB subsoil short/very short at 39% up 27% since April 2nd! Where’s the SUPER EL NINO? (Please see chart below)

Visit Their Website

The Charts

Corn 🌽
We didn’t get that follow through strength I had hoped for today to confirm a bottom. But nonetheless, we have made an impressive reversal and would like to see a close above that $6.06 level to open the door to higher prices.

Corn July-23

Beans 🌱
That double bottom formation in beans holds on today's 30 cent rally. Was that the bottom and reversal we had been looking for? it definitely could have been. I would like to see us test that $13.50 level and our 20-day moving average.

Soybeans July-23

Wheat 🌾
For Chicago, we are now getting extremely close to the end of that apex where the support meets that trend line. So we could be in for a big move soon. Bulls haven't been able to hold above that long term resistance line for very long at all the past year, we will have to see if we can break the trend.

Chicago July-23

KC July-23

MPLS July-23

Hedging Account

Texas Hedge Risk Management, in collaboration with Banghart Properties, is pleased to announce the addition of Jeremy Frost and Wade Hardes as associated persons for Texas Hedge Risk Management. With their expertise, we aim to provide enhanced support for your grain price risk management solutions by incorporating futures and options into our existing cash grain trading services, which will continue to be offered through Banghart Properties.

Established in 2022, Texas Hedge Risk Management is a new Independent Introducing Broker clearing through Dorman Trading. While our organization is new to the industry, our brokers possess over a decade of experience in both the brokerage business and production agriculture. We take pride in maintaining a small, regionally-held office, which allows us to retain control over our operations while consistently offering a competitive and comprehensive range of risk management services and strategies.

The invaluable contributions of Jeremy and Wade to our team stem from their deep connections to production agriculture and unwavering dedication to their customers.

For those unfamiliar with Dorman Trading, it was founded in 1956 by Bernard Dorman, a local grain trader on the Chicago Board of Trade. It is owned by Miami International Holdings, Inc. (MIH), which also holds ownership of the Minneapolis Grain Exchange. This partnership further empowers producers in the Northern Plains, granting them a competitive advantage.

We greatly value your business over the years and appreciate the time you have dedicated. We eagerly anticipate the chance to assist you in your grain risk management and marketing needs in the near future.

To open a hedge account or initiate the process of transferring your current hedge account, kindly click the button below or contact Jeremey at 605-295-3100 (jfrost@banghartproperties.com) or Wade at 605-870-0091 (wade@banghartproperties.com)

Thank you.

Learn more