MARKET UPDATE

Futures Prices Close

Today’s update will be in a similar format to yesterday's rather than the traditional update we send to you guys. That is simply due to the fact that the markets are all about weather right now. So today we will be going over weather, drought, and towards the end some predictions from other advisors as well as some predictions from AI.

Grains find some follow through strength, with soybeans leading the way as they now sit 80 cents off their lows from 2 days ago.

Corn trades at it’s highest levels since late April, as both corn and wheat find support and rally, despite opening the day much lower. As at one point corn was down over 11 cents and wheat futures were down anywhere from 8 to 17 cents. Ultimately all of the grains closed up nearly double digits as the weather premium continues to build in and the funds begin to question just how short they want to be with drought concerns looming.

Outside of weather, not a ton has changed. The funds still hold a large short position across most of the grains, the forecasts for the time being are looking dry and hot for the next 6 to 10 days.

However, if you were to take a look at history, the funds don’t necessarily enter "panic mode" until they have to which is typically in the middle of June or perhaps the 4th of July weekend.

Farms.com Risk Management said,
"Because the funds are too short the ag commodity complex vs most years due to macro concerns. The short squeeze will be even more dramatic."

Which goes along with a point we have made in the past. The funds being short isn’t coherently bad per say. Long term it could actually be very beneficial. Because what happens if we get some crazy bullish wild card such as drought? They will be forced to cover. The shorter they have gotten, the bigger our bounce back could be when they enter panic mode.

We have had one of the driest April's and May's on the record book. Yes, we do not make or break a crop in May. But it being so dry this early opens the possibility for drought to further escalate. This dryness has created an amazing opportunity to get the crops int he ground as we have seen from the fast pace to planting. All that fast planting means is that it is simply very dry, which we have been pointing out since the first week of crop progress. At the time, fast planting weighed on the grains. But then our markets start to transition into growing season.

Below is a good write up from Farms.com Risk management, we aren’t the only ones who realize the potential of this quote on quote Super El Niño and 89 year drought we have been talking about for months now.

So the biggest factor and question surrounding our markets is, how dry will June be?

Some weather gurus think we see this drought break mid June, some think it will stay exceptionally dry. From most weather models I see, it looks dry. As mentioned, keep in mind they almost always put rain in the long term forecasts, but most of the time we don’t actually get any of that rain as the precipitation in the forecasts tends to disappear past the 10 day forecast.

Here is the current forecast for June 7th to 11th. Again, below average precipitation for most of the corn belt.

Which areas are already experiencing drought?

Just take a look at this 1 week difference between drought monitors.

We have virtually zero relief outside of some scattered short lived showers here and there in these areas. So I can’t imagine that we don’t see this drought continue to grow in next week's monitor.

Here is a map that showcases hazard warnings for drought. Notice the area that is in a 8 to 14 day hazard. Which means they could experience rapid onset drought.

As we are seeing all of these hot an dry complications, remember it is not even full on summer yet. Wait until we see some real heat in July.

No two years are the same. But remember what time frame the world started to acknowledge drought concerns in 2012? It wasn’t until middle to late June until the real fireworks began to start and our crop conditions began to fall apart. We are already in a worse situation as of June 2nd than we were at this same time. In fact, 23% of the Midwest is experiencing more drought than it did in 2012. But again, this will all come down to whether we get rain or not in June.

If not, buckle up. We will be going a lot higher.

We have had June 5th set as our date for a potential limit up day for quiet some time now. Will that happen Monday? It’s possible, but not the most extreme likelihood scenario. Even if we don’t get wild limit up action, I think this is the start of a massive rally barring any changes to unforeseen rain.

In this morning's audio we go over ways you can take advantage if we do get this type of rally. You can listen to that here. Listen Here

Next week is set up to be just as dry this week was. This map shows the probability of greater than 1/2 an inch of rain the next 7 days.

The bottom line is if it stays as dry as some are forecasting, we will be approaching plenty of opportunities very soon. The midwest is the driest it's been in 30 years at this same time of the year. If it stays hot and dry through out June, the funds will have no choice but to jump ship and let the firework show start.

Next week we will get the USDA report. We will have to see how big of a change the USDA is going to be making. It is rare to see them make a major adjustment in the June report. But that 181.4 bushel per acre yield is far too high with the current situation and future outlook being dry. Nonetheless, I think we start our next move higher next week ahead of the report.

Texas Floods

Texas quickly went from one of the dryest regions to now one of the wettest. If you remember a few weeks ago when we put out the effects El Nino would have, it would make the south regions extremely wet and cause flash floods.

Some areas in Texas have had 15 inches of rain in the past 30 days. Which is a pretty significant increase from the traditional 20 to 25 inches those same areas have seen in the past 2 years combined.

This map of the effects of the "Super El Niño" are starting to become more and more realistic with he floods in the Texas region and the dry spell in the corn belt.

Here are some pictures of the flooding taking place.

From The Van Trump Report

When going over the wheat market he said,

"As a spec, I would eventually like to get bullish."

"I'm starting to think there is more upside potential than downside, but Im still respecting the bear's argument centering around cheap Russian wheat and overall lack of US export demand"

I would have to agree for the most part. Wheat has a ton of upside. But we just haven’t found firm footing, and it is tough to catch a falling knife. The biggest problem surrounding wheat is the cheap Russian wheat and global competition that is putting a damper on US export demand. I do think there is still plenty of possible bullish wild cards for the wheat market, those being war and weather.

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Predictions from Farms.com

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Charts

Corn 🌽
July corn got that break above the $6.06 cent I was looking for to get confirmation to see higher prices. We have created a potential head and shoulders formation (bullish formation). Next target is the $6.20 to $6.25 range and our 200-day moving average. I would love to get a break above that downward magic trendline that has kept a lid on prices since last fall.

Corn July-23

Beans 🌱
Soybeans continue their bull run from their lows. Now around 80 cents off their lows. As that double bottom formation held. We are currently sitting right at that $13.53 resistance, a break above and our next stop could be the $13.84 range.

Soybeans July-23

Wheat 🌾
Chicago is once again flirting with that magic downward trend line that has acted as stiff resistance for a year now. Will we break the trendline? In yesterday's update, I said we could be in for a break out to one side or the other as we were nearing the end of that apex where support meets resistance. We will have to see if Chicago can finally find a floor or not.

Chicago July-23

KC July-23

MPLS July-23

What is AI's current outlook and yield predictions?

In case you missed it, here is what ChatGPT had to say about corn yield yesterday.

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.

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In this weekend's Weekly Grain Newsletter we will have more AI insights after the latest forecasts.

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