HOW MUCH DAMAGE WAS DONE FROM RECENT HEAT?

Written By Sebastian Frost

WEEKLY GRAIN NEWSLETTER

Audio Version

Weekly Recap

First off let's start with a weekly recap from last week and the biggest things to watch for this upcoming week.

It was a volatile filled week. Monday we were off the races with the war headlines. Corn took back over half of it's recent sell off. November beans nearly traded contract highs while August beans actually did at one point. And wheat futures traded at their highest levels all year long.

However, the rally didn’t last as the trade got bored after not seeing anymore crazy war headlines. To add on to that, weather forecasts started to shift a bit cooler with some rain being added in. Both of these factors led to us coming far off our highs. Despite the total sell off from the highs, Chicago and Minneapolis still managed to close higher on the week. While corn only lost 6 cents. The biggest loser of the week were beans as they took it on the chin Friday.

Here is the price recap with our highs, lows, and closes.
 

Corn 🌽 

  • Dec: -6

  • High: $5.72

  • Low: $5.25 1/2

  • Close: $5.30 1/4

Beans 🌱 

  • Nov: -19 1/4

  • High: $14.35

  • Low: $13.79

  • Close: $13.82 1/2

Chicago Wheat 🌾 

  • Sep: +6 3/4

  • High: $7.77 1/4

  • Low: $6.88 3/4

  • Close: $7.04 1/4

KC Wheat 🌾 

  • Sep: -4

  • High: $9.29 3/4

  • Low: $8.42 1/2

  • Close: $8.56 1/4

MPLS Wheat 🌾 

  • Sep: +9

  • High: $9.47 3/4

  • Low: $8.81 1/2

  • Close: $8.96

Biggest Things to Watch This Week

Weather

For soybeans this will be the biggest thing. Mother Nature will decide if we go to $15 or right back down to $12. All week the forecasts were super hot, but then Thursday and Friday we saw the forecasts start to add some cooler wetter temps in the 8-14 day outlook.

Here is what the forecasts were showing as of Friday afternoon. A big reason for the weakness in corn and beans, as the funds simply started to remove weather premium.

To close out the week we heard all of the weather guys saying it would cool down. Well when it’s over 100 degrees, one would assume so.

Bottom line, unless we see some wildy drastic improvement, nobody thinks the USDA's corn yield of 177.5 and bean yield of 52 is remotely close.

However, it does look like the forecasts as of Sunday have turned fairly bearish as well.

From Friday*


Past Weather & Crop Conditions Monday

To close out the week, temperatures in major growing regions were +8 degrees hotter than normal. The key word there is normal. I think the trade is undervaluing the damage this heat has brought this far.

Yes, beans are made in August. So it is a tad early for beans that are setting pods. But we can’t discount this.

53% of our bean crop is experiencing drought. Up from 50% last week and 26% last year. This number could very well be closer to 57% next week.

Taking a look Monday, I wouldn’t be at at surprised to see these numbers shock the trade and come in far worse than expected. The question is how much of that will be discounted if forecasts stay cooler and wet.


Canadian Drought

Take a look at just how dry this is and take a look at the areas that produce the most spring wheat there. Not a whole lot else to say.


Chinese Appetite

China stepped in after the big rally and bought nearly 2 million metric tons. This could potentially be an indication that they are try to manage the tight soybean situation.

Will we continue to see Chinese demand?


War

This thing has been going on well over a year now. Does it look like it is stopping anytime soon? Nope.

We just saw that massive rally Monday from war headlines. Then all of the sudden we get this news that Ukraine is going to starting exporting their grain via truck and rail and the market gives the entire rally back. Doesn’t make much sense.

The amount of grain you can export on a barge or vessel isn't even remotely the same to truck or rail and that doesn’t fix the problems.

Just imagine what would happen if Ukraine somehow attacked Russia and disturbed THEIR exports. Not saying this will happen because nobody knows.

Things escalate, we go higher.

If they don’t, well wheat will probably struggle to hold on to any sort of rally here and corn could follow lower as well.

Will be interesting to see if the market has any reaction to the attacks we saw yesterday. If those attacks happened today, we probably would be trading limit up again. But since it wasn’t, we will just have to wait and see.

Now let's dive into our weekly grain newsletter..

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

 

We had another rather violent and volatile week the last 7 days. It started with a bang both literally and physically as grain ports on the Danube River got attacked which led to a wheat market that closed up the limit at the end of the day Monday. But by the end of the week most of the markets had given up most if not all of the gains that we had on Monday.  

 

Why did the markets break hard to close out the week? Why did we quickly take the premium out for weather and war? We had one of the hottest weeks we have seen in a long time. July Globally was the hottest month ever.

 

As for war the reason seems to be the lack of being competitive for the US in the world wheat market. My question or statement against that is we don’t exactly have much extra wheat to sell. Similar to corn and beans we are much closer to pipeline supply at the end of the marketing years then we have historically been, so no matter the world price we are never going to sell tons of wheat.

 

Take a look at the below couple of screenshots from BQCI. This first one is a recap of the US ending stocks and changes to the balance sheets that we had a few weeks ago. I don’t look very hard at the 23/24 because those are going to really change based on final yields and how demand shakes out. The wheat market in particular has shown a steady decrease over the last several years.

The bigger picture for wheat is the world wheat situation, which isn’t considered tight. But the trend has been 4-5 years of smaller ending stocks and tighter stocks to usage percentage. 

But why can’t wheat keep the war premium? Here is a good reason why CBOT can’t keep the upside momentum. This chart is a basis chart that comes from Darin Newsom.

Here are a couple more charts. These are from www.grainstats.com. Which by the way is the best place to find fundamental information in an organized format, plus it is free.

 

Here is an open interest. Which is another way of saying how many bets are getting made on the CBOT wheat casino.

Here is a graph that shows fund position. Notice the orange line, starting in February. That would be the start of the War in the wheat breadbasket. The blue line that is cut off would be today. Notice that the funds are shorter today than they were in 2022 when the war started.  

 

On the bearish side of that we are only slightly over 7.00 and the funds have gone from well over 100k contracts short to under 50k short. So much for that short covering rally.  

 

Why haven’t we had wheat rally much more with the short covering that has happened? 

Can we see wheat have a 2022 type of rally? Most say we can’t because of the basis above and the fact that we just are not getting much for exports. Just last week I wrote: 

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CBOT Wheat will take out the highs it had in the past 12 months if one of a couple things happens overseas. 

 

# 1 If Ukraine attacks in a way that disrupts the shipment of Russian wheat. Russia has nearly 50 MMT of wheat to ship

 

#2 Attacks on the Danube.

 

Bottom line is that #wheat could take off behind further escalations. The above two likely cause prices to soar in a hurry. Possibility exists that we would take out the 2022 highs. Meaning new all time highs in CBOT wheat.

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The reality is that we do have plenty of upside in wheat. How it shakes out will depend on if we get any disruptions to the Russian exports. If we do, the market is not prepared. As mentioned we have the funds still shorter then in 2022.  

 

Below is a screen shot from Andrew Sizov, who is probably the most respected on Twitter when it comes to Russian/Ukraine news as it relates to what it actually means for prices and actual wheat fundamentals.

Now what do you do with all of this info on the wheat market? Options are expensive which means that the market realizes we have a potential to have an explosive market. 

 

Find a way to be comfortable. If you're selling wheat I would be re-owning all wheat with a call option(s), because I would be super sick to my stomach if we rallied $3.00-7.00 a bushel after I sold it. But each to their own. If you don’t think we have that type of upside then maybe selling on a bounce followed by waiting for an opportunity to buy puts to capture it on the downside is what one should consider?

 

If you need help opening a hedge account please give me a call 605-295-3100.

 

Weather looks like it was rather bearish going home last week with the forecasts. How much damage has been done the past few or two is a good question.

 

I think we have had plenty of damage to the crop in various areas. I don’t think corn has a chance to make last year’s yields more less than the USDA present projection.  

 

Now soybeans have the potential to make USDA yield predictions given the weather forecasts. But that’s going to take weather being very nice, which appears to be what is in the forecast. So time will tell, I do still believe that soybeans have tons of upside.  

 

Last week I gave several reasons and time lines as to when soybeans will make new all time highs. Nothing has changed, we have all of the upside in the world. But Mother Nature presently looks to be supportive for growing beans at least in the early parts of August.

 

Here are various map updates.

Weather maps don’t show damage done from hail and wind very well. Nor do these maps show how spotting some areas are. The biggest thing that is consistent in terms of crops is that we have a very inconsistent crop.

 

Take a look at the spring wheat crop in parts of South Dakota. Most started off looking like it was going to be a fantastic crop, then it ran out of juice and looked horrible. It followed that up with moisture happening which has made plenty of sucker heads. Plenty of the spring wheat fields look so patchy that it is really unreal.   

 

I think that the corn and bean crops are better than the central South Dakota spring wheat crop, but from what everyone is telling me it is super inconsistent.  

 

Bottom line remains that we have tons of upside potential for all of the grain markets. But make sure you are comfortable. Unless I know you and your operation well it makes little sense for us to give blanket recommendations to sell X %. But find a way to take the information we give you and tie it to a solid marketing plan that utilizes the tools that you are comfortable with and executable.  

 

Focus on trying to become a price maker, instead of a price taker.  

 

Here are some more various screenshots of information we view as very valuable. These come from Wright on the Market and Farms.com risk management.

 

Here are a few various ones from Wright on the Market

From farms.com Risk Management

Lasty here are some thoughts from Walter Cronin that he had regarding the ADM earnings call. I think ADM is telling us just why we likely will see new all time highs in soybeans in the next several months.

Sebastian Frost
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