MARKET UPDATE

Futures Prices Close

Overview

Decent action in the grains today following yet another beating yesterday where most grains posted fresh lows.

Today we saw front month corn & beans lead us higher, so those spreads firmed which is a friendly sign. For example August beans were up +12 today, Nov beans were only up +3. This usually indicates that there is less supply on hand than needed.

However, we closed well off our highs across the board which was disappointing. Notably Nov beans were -9 cents off their highs & Chicago wheat -7.

The news today was the severe weather in Illinois, Indiana, Iowa, & parts of Michican & Wisconsin.

The weather had winds of 100 mph in some areas. Included derechos & tornados.

There was likely some damage to fields and bins, but the extent of the damage will remain an unknown. Most do not think this was a big enough event to be a big market mover. But I guess we will see.

The last time we got a derecho event was 2020 and the start of the COVID rally that later saw huge Chinese demand. Last night’s derecho events were not nearly as massive as the one in August of 2020 however.

Severe Weather Areas from BAMWX

So far growing season weather has been pretty ideal in many areas with the hurricane bringing timely rain.

The current weather outlook is still fairly ideal for most of the corn belt.

The rains will be trapped more to the southern corn belt, so most of the corn belt will be drier. But we are getting past the point where dryness will make a huge impact on the markets.

Especially given that it is suppose to be very cool. Which will be very good for the crops. Virtually no heat stress to end the month.

Planting into wet conditions requires a lot more timely rain throughout the growing season than planting in dry conditions. But we have had nearly perfect weather outside of the few hiccups with wet planting, hail, floods etc.

But most think the areas that got perfect weather especially in the eastern belt will outweigh the areas that saw issues.

Forecasts

Crop Conditions

Crop conditions were a friendly boost to corn & bean prices today.

The market was expecting them to improve +1%, but both remained unchanged from last week.

Corn saw a lot of ratings drop in many states, but Illinois saw a huge +6% and North Dakota saw +7% increase which negated the small losses of other states. Every state besides Illinois & North Dakota saw no changes or was lower.

Soybean ratings were mixed. Some slightly higher, some lower. We saw decent improvements including a +7% increase to Illinois, but Iowa dropped -4% and Ohio dropped -9%.

Spring wheat was +2% better than expected. Which didn’t help prices today.

Crop conditions for both corn & soybeans are the best since 2020.

Now these ratings suggest trendline yield, but as I have mentioned before. Crop conditions are an eye test. They aren’t the most accurate especially in wet planting years. As problems from wettness aren’t always visible from the road like they are drought.

Crop Condition Maps from Darrin Fessler

Export Inspections

Export inspections yesterday were pretty strong corn especially for this time of year. Up +5.4% from last week and a massive +157% better than last year.

Soybeans were awful as lack of demand continues. This was -43% worse than last week, but actually +4.8% better than last year.

Wheat was surprisingly strong. Up +55% from last week and +95% from last year.

Weekly Inspections Chart from Karen Braun

NOPA Crush

NOPA crush was smaller than the trade estimates, but was still a record for the month of June.

NOPA June: 175.599 million bushels
Trade Est: 177.936 million bushels

We should still easily meet if not exceed the USDA forecasts for crush.

So a slight miss on this report isn’t anything too concerning.

NOPA Crush Chart from Karen Braun

The Funds

COT data came out Friday.

They are short a RECORD amount in BOTH CORN & BEANS.

-357k contracts of corn.

-163k beans.

-69k wheat.

The funds do not yet have a reason to cover these massive shorts. But when they find one, it could wind up being a "rubber band" effect. Harder you pull, harder the snap back.

Corn Chart from Karen Braun

Soybeans Chart from Karen Braun

Today's Main Takeaways

Corn

Nothing crazy today. We were higher but only took back half of yesterdays losses.

However we have still been able to hold Friday's lows of $4.03

As for the severe weather event, there was some damage done. But it is hard to know just how much. I don’t think it was anything that is going to move this market in a big way. We will probably know more come Monday's crop conditions.

As mentioned, corn export inspections were strong. US corn is actually very competitive globally. Our FOB corn off the Gulf is some of the cheapest in the world, only more expensive than Argentina.

This should help create more demand and business.

Friday's report was super friendly corn. It showed us exactly what we had been saying. At a certain point low prices will cure low prices.

The report showed a massive -10% decrease to carryout. We saw production higher due to the higher acre numbers, yet carryout decreased because they offset that with demand.

This report was the most bullish for stocks ever for this report.

USDA Chart from Karen Braun

Keep in mind, $4 corn today is not the same as it was years ago in the bear market. It costs so much more to produce a crop today.

From Wright on the Market:
"In a supply and demand market, the average price paid will equal the cost of production."

The world and market would not be able to withstand $3.00 corn. It would put many out of business. Now it would be naive to say we couldn’t see another -50 cents of downside and get to the realm of $3.50. That is very possible.

But longer term these low prices will create that much more demand. Demand driven markets last unlike supply scare driven ones.

I am not saying we will rally tomorrow, next week, next month, or even the month after that. Nobody knows exactly how low we will go, or how long it will take to find a bottom. But looking long term we should be higher led by demand.

Short term, weather is bearish and that typical summer scare is not longer possible. One could argue the effects from the wet start, the flooding, hail etc. will have an impact. But these too are issues that will not pop up until a little later in the year.

The funds do not have a reason to cover. They eventually will, but not today. It doesn't look like weather will spark the buying. So when they cover it'll have to be led by demand.

It could still be a brutal few months. So I HIGHLY recommend keeping a floor under unpriced grain. Especially if you will have to move something off the combine or are undersold. Keep the puts on until you make a sale.

I still think we at least see corn try to test $4.00. I just don’t think this market came all the way down to $4.03 to not at least see a $3.99 print. But of course hope I am wrong.

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Looking at the chart, Friday we posted a key reversal. Yesterday we were unable to follow through. From a technical standpoint it does open the door to see lower prices.

From Trader Darrin Fessler:
"I could see Dec corn trading between $4.00-$4.40 for a while even if yields & stocks move lower. Without demand, weather, or macro issues a 1.7-1.8 carryout is still a decent amount and probably won’t warrant $5 board. Basis will have to continue to do the heavy lifting well into fall/winter. Dec-25 should have already been on the radar but must be on the radar now. Some beautiful inverse spreads the last couple months for next year have provided some great opportunities already that have turned into carries now. I don’t think the funds get scare until a close above $4.46. Watch the spreads."

Dec Corn

Soybeans

Soybeans saw some relief today, but continue to be hammered due to lack of demand, ideal US weather, weak export sales, and the NOPA crush yesterday wasn’t as good as expected.

The big news surrounding soybeans has been the "trade war" talks. As everyone knows Trump survived an assassination attempt over the weekend. This skyrocketed his chances of being elected to 80% or so.

Now this has the market thinking that we see another trade war with China and lose all of our exports.

Take a look at this chart from Matthew Pot. You can see the correlation to Trump odds vs bean prices (although it's not that black & white. Still interesting).

A trade war would be a big deal as 40% of soybean demand is going to come from exports and China makes up for 50% of all US bean exports. Big numbers.

Short term, this could lead to China booking some sales soon before Trump gets in office. Which would be friendly for our markets.

If you are China and know Trump is going to win and probably start a trade war, to go along with the fact you have pretty much nothing booked for new crop beans for the rest of the year, what do you do?

The answer is buy beans.

All you need is a few flash sales to get this market back on it's feet.

Additionally, if we do get a trade war, there is talk that Trump will initiate phase 2. Which means he could hold China accountable to meet their purchase numbers. That would also be friendly for our markets.

But tof course, there is also the chance that we get a repeat of 2018-2020. Which is what the market was concerned about yesterday.

Nobody knows what the true effects of this will be. But what it does offer is additional downside risk.

So protect that risk. Keep a floor under unpriced grain until you make a sale. Especially if you know you're going to have to move something off the combine or are undersold.

If you look at this chart from Peak Trading Research, US soybeans are now the world's cheapest & most oversold commodity.

Bottom line, I am not trying to catch a falling knife. I don’t think it is super likely, but I'd be lying if there wasn’t possible risk of losing another $1.00. All you can do is get comfortable.

Just like corn, these low prices should create more demand and help prices. But until that happens, I am not trying to pin point a bottom. It could happen next week, or it could be a month or two from now. It is impossible to predict what price level we will have to reach to justify demand. But it is coming.

For those wondering if a weather scare is still possible in beans as they are made in August, the answer is yes but it is not likely. Beans in August don’t react like corn does to weather in June & July. If we get some crazy hot/dry spell to start August we could get a little supply rally, but probably wouldn’t be major. The outlook for August does also offer decent chances of rain.

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Nov Beans

Wheat

The wheat market continues to fall apart. Dropping -40 cents since before Friday's bearish USDA report.

The news today was that the Russian wheat crop estimates are rising. IKAR raised their number to 83.2 MMT which is actually higher then the USDA's 83 now. Again adding to the possibility that analysts in Russia overstated the actual damage to their crops when we got that suppply scare.

Keep in mind, the entire May rally was solely due to this Russian headline and we are now lower than where we were before the rally.

There is some concerns still in the Black sea crop as well as central Asia, but nothing major yet.

World values continue to damper US competition. Then along with that the USDA raised our US carryout 68 million bushels on Friday.

Overall not much else for wheat today. There is no current known event that says we have to go higher, so the path of least resistance is lower.

If you are someone who did not make sales on our signal near the high please keep puts under your unpriced grain here. I do not know where the bottom will be. All you can do is be prepared if we continue to fall.

I thought we were close to a bottom last Thurday, but the USDA report changed things up awfully quick and made the outlook for wheat even more bearish just when it looked like the pain might have been subsiding.

The funds are going to push this thing down until they are forced to cover. When they are short they just continue to pound and pound as the prices go lower because they are making money. Continuing to add to their short.

So for them to start covering their position, the market has to start going against them. For example if wheat were to somehow claw back near $6.00, the funds would be forced to buy back some of that positon as they would be losing money on any of the short positions they added below $6.00. That is why short covering can cause markets to rally fast. That is not the case today, but eventually it'll happen.