BIGGEST 3 DAYS IN CORN SINCE AUGUST

Written By Sebastian Frost

MARKET UPDATE

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Overview

Grains mixed as corn sees it's biggest 3-day swing since August, now sitting +20 cents off it's Monday lows.

Soybeans held their recent lows and closed +12 cents off their lows while the wheat market gave back all of yesterdays gains as lower European wheat prices are pressuring ours.

China has been in the news aggressively buying Ukraine corn and Brazil beans this week. This doesn’t help us, but is is supportive. As it shows strong demand from China and signals that they are in the market even if it's not for us.

The cotton market continues to roar higher, breaking 1.00 and making 2 year highs. There is some talk with the price difference that cotton could potentially pull away some corn acres down south.

Here is a chart from Darin Fesler showing the 1 year performance difference between corn, beans, and wheat vs cotton. Not too hard to see why some may be swayed to add more cotton.

We continue to see analysts drop their Brazil estimates.

Today Abiove from Brazil lowered theirs from 156 to 153.8 citing lower yields.

We will have to see how the bean crop looks after harvest, but for right now it is moving along fast.

Typically a fast harvest means it is dry.

Dry weather in Brazil still has the potential to affect the second corn crop. This is even more important when you look at their lack of moisture they already face.

From 247 Ag:
"Brazil's soil moisture 1 meter done is the driest in history. Rainfall this monsoon season is just enough to keep the topsoil moist. Current trends tell us Brazil's Safrinha crop is in big trouble. We have been at 110 MMT million since January and we know we are too high. The USDA is at 127 MMT?"

"The trend calls for Brazil's monsoon season to fade quicker than usual. Which would be very bad for the Safrinha crop. This is what our models have been calling for."

"Dry is only good for a fast soybean harvest."

Weather in Brazil good or bad will continue to gain more attention the next month as March to early April is a crucial time frame for the development of that corn crop.

US weather has not had much of impact yet, but we have had some wild weather.

Take a look at this temperature change in Omaha. They lost 72 degrees in just 36 hours.

However, the roller coaster looks to continue. Back to far above normal temps this weekend.

As I have mentioned the past week, we are having the warmest winter ever.

Which will bring early planting. Early planting means we will not get a planting scare. Short term early planting could add pressure to this market.

Long term it will come down to the drought situation. We could very well get a drought scare. Keep in mind, this is a futures market. Even the thought of drought is often times enough to spark a little interest, whether it comes to frution or not.

So far we are actually in a worse situation than we were in 2012 at this same time.

Of course it's only February and far too early to say anything yet and the drought in 2012 was due to a scorching hot an dry summer. But most long term forecasts I see are calling for a hot and dry summer, when you take into consideration that we got the least amount of snow of any winter and are going into summer dry, it could be a recipe for some problems.

Here is the wayyy to early drought monitor comparison for anyone curious.

If the hot and dry pattern does continue into summer, our soil moisture situation is already sitting pretty poor with the lack of snow. Something to keep your eye on.

Overall, this market looks like one that is trying to find a seasonal bottom. The charts have not fully turned yet to signal higher prices, but are showing definite signs of bottoming.

Let's jump into the rest of today's update...
 


Today's Main Takeaways

Corn

Corn finally showing signs of strength. Monday we made a new low and now we are +20 cents off of those lows.

Why the recent strength?

It is mainly the funds. They are holding a record short and corn just reached it's most oversold level in a decade.

However, with the recent bounce corn's RSI is no longer in oversold territory.

Bulls are talking about that China may have already booked some US corn off the PNW which would be friendly if true. The US is not very competitive with South America beans right now, but we are very competitive with corn. If we could get some strength to exports and demand it could go a ways in helping this market.

However, it is hard to find this huge demand story right now as we had the USDA forecast a +2.5 billion carryout.

The USDA also has our yield pegged at a record 181 for the upcoming year. I have a very hard time wrapping my head around the possibility for that with prices below the cost of production for a lot of producers. It doesn’t make sense that we'd see the majority want to throw extra money at this crop. To go along with the potential drought situation, it is hard to see a number close to 181.

Where do I see prices going?

Short term I think we are going to see prices move higher the next month. I think the Brazil situation could very well provide a spark we need. As there are many similarities to 2016 where the weather hurt the yields and increased our US exports.

The market is finding some life, but we will need a weather story to sustain a real rally.

BUT like I mentioned, we will more than likely see early planting. Early planting means no planting scare.

By the end of March and into early April, we will probably have the talk of higher acres and planting going well, which will probably put this market under pressure until we get the drought talk. Which I think we will. Keep in mind, last year even though we had a great crop, we got that weather scare. We almost always do. If the current forecasts hold true and we don’t get that timely rain like we did last year, things could crazy this summer. So early planting is a bit of a double-edged sword. The early planting will likely push prices lower early, but opens the door for greater risk of drought.

As for risk management, we like courage calls here still to give you the courage to make sales on a rally.

If you sold corn anytime in the last 4 years aside from earlier this week, you have the opportunity to buy it back at a cheaper price than you sold it for. This is what we like for most, but may not be the right move for you. So please give us a call if you have questions on your situation and we will walk you through it. (605)295-3100.

If you take a look at the charts, the top one is a weekly chart (every bar represents a week).

A close above $4.34 would be a key reversal on the weekly chart. Which means we took out last week's lows and closed above last week's highs.

This could cause short covering to snowball into higher prices.

That is the level we need to break if we want to confirm this was the bottom.

Corn May-23

Soybeans

Soybeans still struggle to find momentum. As yesterday we closed -15 cents off the highs and today we were -6 cents off the highs. But we did approach that recent low of $11.33 and we bounced a dime higher which was a good sign.

The talk for bears right now is the cheaper beans from Brazil making things more competitive as well as some of their beans actually moving to the US. To go along with that we are seeing basis at the ports in Brazil weaken, which makes things more competitive. The lack of export demand is what is allowing bears to keep a hold of this thing right now.

Longer term, I think we find that demand story. But right now we have the early forecasts for US acres being +3 to +5 million more than last year.

From Kevin VanTrump"
"I think eventually we are going to see massive global demand for soybeans. But it might happen gradually, then suddenly."

He basically thinks we will eventually get that demand story, but he doesn’t know how long it will take to happen.

We are seeing low export prices from Brazil as harvest continues to move along fast.

But ask yourself, what does a fast harvest usually mean? It usually means it is dry. There is still the potential for this crop to be smaller than the USDA seems to think. But we will be finding out soon if this is a year like 2016 or not.

Keep in mind, there is a giant variety of estimates out there. The USDA has 156, some analysts have 153, some have 146, and the CONAB has 149. I'm not sure who is right, but I doubt the USDA is the closest.

If you have unpriced bushels, there is still risk in this market. So some of you may want to consider grabbing protection to add a floor. For others, courage calls may be a better play. Give us a call if you want to discuss. (605)295-3100.

Bottom line, this is not the time to be making sales. I am not saying the bottom is in. But spring and summer is typically the time to be making sales. Not in February.

Soybeans May-23

Wheat

Wheat was the loser today. Giving back the recent gains.

The biggest thing today was the falling prices of European wheat which pressured our markets. Then we also continue to have the cheap wheat being offered out of Russia with potential talk about them having another record crop.

Bears also look at the crop here in the US. Right now a majority of the winter wheat crop is in much better shape than it was last year. Here is a few examples (Good to Excellent %):

  • Kansas: 57% vs 19% last year

  • Oklahoma: 70% vs 36% last year

  • Colorado: 56% vs 29% last year

  • Texas: 46% vs 19% last year

As I mentioned earlier, after seeing temps of +80 degrees, we just had a brutal cold snap where temps changed over 70 degrees in two days. Should this weather volatility continue, it brings the possibility for a frost scare in the future.

Even though the crops are sitting better than they were last year, we will still need some rain to finish that wheat crop off and we will have to survive mother natures wickedness. The need for rain is slowly starting to escalate in the high plains.

There isn’t much else going on in the wheat market. This still is not the place to be making sales. I am remaining patient.

We still remain in a downtrend since December. That blue line is what we need to break to cause more upside.

May-24 Chicago

May-24 KC

Cotton

Highest prices in 2 years.

Not much else to say. The trend is your friend, but as far as risk management goes, the smartest thing for the majority to you would be to put a floor in place with puts, and see if you can ride the trend higher while protecting the downside.

We noticed another major advisor was saying for hedgers to be somewhere around 85% sold on last year's crop and cash marketers to be around 100%.

Use good risk management but do so in a way that makes the most sense for you.

I like taking risk off the table by having puts in place. I can’t tell you how much you should be sold if you don’t reach out to us and allow us to act like your grain market conscience. Give us a call if you want specific help to know what would be the best move for you. (605)295-3100.

For those of you that want to hit a home run, don’t stand in the way of a moving train. Wait for a trigger to tell us this market is done going up.


Cattle

The cattle market continues to take a breather. I mentioned last week that the charts were starting to look like one that could stall.

There is a chance we bounce and go higher, but it probably makes sense for most to take advantage of this rally and manage your risk.

The charts are starting to potentially look like a market that has topped out. I am not saying the high is in, but we want to be utilizing this opportunity.

The past two weeks I have I recommended to hedge on paper and take advantage of this rally with a long put to keep your upside open and give you a floor.

I still like this strategy as there is a chance we go to test those highs, but realize this could also potentially be the top. Depending on your risk to reward appetite, it might make more sense to establish a floor with some puts as I personally like taking risk off the table on this rally.


Give us a call if you have questions or want help discussing a game plan. (605)295-3100.

I still like having corn for feed and soybean meal needs covered in the cash market through February.

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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

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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

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Sebastian Frost
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