GARBAGE REPORT AS EXPECTED & CHINA STOCK PILES GRAIN

Written By Sebastian Frost

USDA REPORT RECAP: AUDIO & WEEKLY WRAP

  • We got garbage as expected

  • Report was overall neutral but markets lower

  • Corn & wheat carry out lower. More to come?

  • Kicked can on Brazil crops

  • Second corn crop problems

  • The Brazil situation could be resolved, but it’s worse than the USDA wants to admit. Will need a trend change

  • China is stock piling grain.. why?

  • What to do if you need to sell soon

  • Time to lock fuel needs in?

  • Make sure you read our Weekly Wrap below*

Listen to today’s audio below

WEEKLY WRAP

Prefer to Listen? Audio Version

Futures Prices Close


Overview

Today's weekly wrap will be shorter and different than our usual ones on Friday due to to the USDA report today.

Make sure you check out today's audio above as well to get a full breakdown of the numbers, what it means, and our current outlooks moving forward.

As for the USDA report, you can probably guess what happened..

The USDA decided to kick the can down the road on the Brazil crop. No surprise, as we mentioned that would likely be the case yesterday.

Brazil beans came in down 2 million metric tons from last month, but 1 million higher than the trade was anticipating. Coming in at 161 million vs 160 estimates and last months 163.

Brazil corn unchanged from last month at 129 million, which was 2 million higher than the trade guesses as they were predicting 127.

Argentina crop for both corn and beans were unchanged from last month.

Brazil Producer Diego Meurer:

“While USDA and CONAB continue to report a super harvest, Mato Grosso and other areas are decimating the main soybean areas in Brazil due to severe drought and the south due to excess water. Which sharks are financing these reports?”

Jason Britt, President of Central States Commodities:
"Report out of the way and they still need to get the rain or no way they will be even close on these numbers. They will be way too high, but that's par for the course with the USDA. They over estimate production over and over again."

I completely agree with Jason, if this trend remains dry, which it looks like it will. Them not making major cuts today gives us all the more power to see an even larger cut down the road.

Outside of South America, there wasn’t anything major. However, the surprise of the report  was that US wheat ending stocks saw a big cut.. yet the market sold off.

Bulls were also happy to see the USDA raise corn exports by +25 million bushels. which reduced ending stocks by -25 million

Here were the US and World ending stock numbers:

Corn and wheat came in below expectations while the balance sheet for soybeans remained the same.

Charts from Karen Braun


So why did wheat sell off despite the cut to ending stocks?

Mostly just profit taking. We said yesterday we should be expecting this rally to take a breather, which has happened. That is completely natural after an +85 cent rally. It's not healthy for markets to go up and up in a straight line. 

Even with the sell off today, prices Chicago wheat is still up nearly +30 cents on the week and +75 cents off their lows from last week alone.

Now back to Brazil.

I just want to show you how off some of these rains in the forecasts have been and how they changed in 24 hours, the same ones that have pressured our markets from time to time.

These are from 247 Ag. He went on to say:

"The ECMWF forecast changed how much in 1 day? Beginning to come in line with the GFS model. Beans not planted or replanted by December 15th, begin to drastically change the Safrinha production outlook. More bullish for corn than soybeans. Soybeans will get planted, not corn."


I have been saying this for a while now.. the Safrinha corn situation is a major bullish wild card flying under the radar.

The first crop planted will always be the beans, not the corn. I simply think we could be looking at a lot less acres when the time comes.

When will the market come to realize this?

It might not be until January or even February, but eventually the market will take notice as they simply cannot have a good second corn crop from here.

Here is the past 30 days of precipitation for Brazil compared to the last 44 years.

Big portions of the prime growing areas either dying from no rain or suffering from too much.

Keep in mind, 70-80% of their second corn crop is grown in that area that just ranked dead last in rain the past 44 years.

This will already have a long term impact on the corn acres, there is a chance soybeans can still produce an "okay" crop, but if December is anything like these past 30 days have been it will not be good. Currently from what I've seen, the forecasts are looking dry for the next few weeks.


From Easy Newz:
"South  America's weather is at a critical point. Brazil's northern area needs rain. The following two weeks will swing production a potential 10 million tonnes or more for corn and soybeans."

I have been saying December is the absolute critical time frame.

So what's the next two weeks look like?


Here is some estimates from a consultant in Brazil named Aluisio Pancracio.

After today’s USDA report he said "Keep these numbers, considering December, January, and February without any more weather problems..."

Now these are very extreme bullish numbers. Do I agree with them? No I don’t think there is anyway the USDA ever makes production cuts that drastic, but it just goes to show bad the people that actually live in Brazil perceive the crops. Because the majority of us including the USDA will never see them first hand.

Do they know more than the USDA? Guess we will have to see.


Bottom line, this report didn’t change much. It was overall fairly neutral.

So where do we go from here?

Beans will be dependent on how Brazil rains look over the weekend.

Wheat will be dependent on if the funds decide they want to keep covering and if China wants to keep coming in here and buying our wheat like they have been. As we had yet another flash sale this morning.. this time China bought the trifecta. Corn, beans, and wheat.

What did we say last week? If China is buying, we don’t like selling because there is a reason they are buying at these levels. If they thought our markets would be going much lower, they would wait.

Corn on the other hand, I could see continue to slightly struggle until that Brazil second crop situation comes to light. We have to keep in mind we still have a giant carry out here in the US.

Now let's dive into the charts..


Corn 🌽 

Corn held up well today in comparison to beans and wheat.

We are still stuck in this wedge. As we have tried but failed to break out twice this week.

Personally I'd like a move past $4.96 to bring additional upside and short covering. Downside risk is last weeks lows of $4.70.

Could be a struggle to the upside, but long term the potential is there.

I look for the Brazil situation to come to life in January or so, seasonally we go higher, and fundamentals are still fairly bullish as well.


Beans 🌱 

As mentioned yesterday, I said this report could cause a minor set back. We closed 25 cents off the highs but we were still able to hold that $13 level and prevent us from taking out yesterdays lows.

Bulls need to hold $12.91 (Our 50% retracement level from the entire $3 move this summer) if we can’t hold there, we likely go back to test those October lows of $12.70.

Long term I do see us higher however. Seasonally we go higher fundamentals are bullish, we have a tight situation here in the US, and I still think the Brazil crops are getting smaller until they get some game changing moisture. IF they get game changing rains, we need to keep in mind that soybeans do have a lot of downside risk.


Chicago 🌾 

The USDA spoiled the bulls party and our longest daily streak since April of 2020 with 8 green days in row.

We held yesterdays lows, and are still in a clear uptrend here for now.

I look at this as a healthy correction but would like a break above $6.38 to continue the rally and bring on more short covering.


Current Recommendations:

As far as marketing recommendations go, our recommendation is the same as it was yesterday.

For those of you that need to make sales in the next 60 days. Consider buying puts if you are uncomfortable should the market struggle. Keep in mind that plenty of producers have plenty of corn to move right after the first of the year. There is an old saying that the market can’t rally until enough farmers have sold. As for beans, same situation, we believe longer term higher prices are coming but if you have to have sold in the next 60 days consider buying puts to establish a floor or minimum price level. The same goes for wheat. Nothing wrong with rewarding a rally.

Those of you that have until next summer, be patient, wait for our weather scares around the world. Have hedge accounts set up should we get an opportunity to price or protect prices at good profitable levels. But don't be making sales if you have staying power. If you need help on a hedge account you can open one with Jeremey.

Here is a link: Hedge Account Link or like always give him a call at 605-295-3100

For those of you who want more than just generic recommendations you will have to give Jeremey a call and he will go over your situation and help the best he can.  

The Funds

Charts from GrainStats

🌽 Corn

Position: -160.5k (short)
Change: +45.95k

🌱 Beans

Position: 36.63k (long)
Change: -30.9k

🌱 Bean Oil

Position: -17.9k (short)
Change: -13.2k

🌱 Bean Meal

Position: 118.2k (long)
Change: -17.6k

🌾 Wheat HRS

Position: -26.9k (short)
Change: +2k

🌾 Wheat HRW

Position: -38.85k (short)
Change: +10.9k

🌾 Wheat SRW

Position: -96.2k
Change: +23.8k

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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 or Wade at (605)870-0091

Sebastian Frost
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