WEATHER IMPROVING BUT DAMAGE WAS DONE

Sep 5

MARKET UPDATE

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Overview

Grains mixed as corn and wheat see a slight bounce as they look for a bottom while soybeans continue to slip off of their recent highs. However, beans did manage to close nearly a dime off their lows.

This morning we saw yet another sale of beans, with 251k tonnes to unknown. We now have a crop that is getting smaller everyday and China continues to take more soybeans. Not exactly a bearish scenario.

The crude oil market continues it's recent rally. Trading at it's highest levels since last November. WTI crude is now up nearly 30% in the past 2 months.

The dollar also continues it's recent rally, trading at it's highest levels since March. This definitely isn’t helping our exports.

Now crop conditions, I've been patiently waiting since last Monday to see these. I mentioned all week last week that I fully excepted these to drop much more significantly than we had seen them drop last Monday.

Bulls get a nice little surprise especially in the beans. As bean ratings dropped by 5% from 58% to 53% rated good to excellent.

Corn also dropped by 3% from last week, to add on to last week's 2% drop.

Much more bullish numbers than last week's disappointing numbers, where soybeans only dropped 1% last week..

Here are the top 5 producing soybean states vs their ratings from last year:

• Illinois: -9%

• Iowa: -17%

• Minnesota: -23%

• Indiana: +10%

• Ohio: +19%

Very good chance that the USDA printed it's high for bean yields.

Here is the state by state breakdown and changes from GrainStats.

Let's take a look at the soil moisture situation.

Not much of a difference between the top 4 inches and the top 40 inches.

Here is the soil moisture change over the past 2-weeks.

The forecasts have started shifting more bearish, especially considering the recent heat and dryness. As a good portion of the corn belt is now expected to see some rain with cooler temps.

Although rain is expected, the next two weeks still look fairly dry compared to normal for a good portion of the corn belt aside from the west side of the Dakotas, Nebraska, and Kansas.

Overall, we had a brutal last two weeks. It was extremely hot and dry over the weekend, causing more damage to these crops, and I think the extent of this damage is being underestimated by the market and I think we still have some issues not only in the US but globally in countries such as Australia, India, Argentina. Long term a bullish picture for the grains, but we may have to get through the harvest first before we are looking at a major rally in corn and wheat.

However, I do expect this crop conditions report to support us nicely heading into tomorrow on the corn and beans.

One week from today, all eyes will be on the USDA's crop production and Supply & Demand reports. More importantly, everyone will be watching where yields come in at for corn and beans as well as demand for new crop.

Today's Main Takeaways

Corn

Corn nearly a nickel higher here today, as bulls look to find a bottom.

This next image is from Ben Heath, a producer in Nebraska. These 2 ears of corn have the same number of kernels. The importance of how a crop finishes is this simple.

The market is going to be in for a surprise when they realize the extent of damage we've seen and that yes. It matters how a crop finishes.

The market is nowhere close to pricing in a 167 crop, but it is definitely a real possibility. Now it may take a very long time until the USDA comes to the realization, but eventually they will.

The past 10 years. Corn has made it's harvest low in August 6 of those years. This year could still be one of those years that follows history, as our current low of $4.72 was made back on August 16th.

What about years where we didn’t make our lows in August? 3 of those 10 years, we made our lows in September. The latest we have made a low in the past decade was all the way back in 2014, where we made our low on October 1st.

Our average rally from these harvest lows the past decade is $0.64 cents. However, the past 3 years, this average jumps to $1.05. I expect this rally from our harvest low to be in the same realm, as things are so much more volatile over the past few years. Take this past July for example. We rallied $0.90 cents from July 13th to July 25th. 12 days is all that took. What about our May to June rally? That was a $1.40 rally.

So bottom line is, harvest is not the time to be selling. We don’t want to supply the market when it has the most supply and inventory it is going to have all year long.

Could we see more downside? Of course we could. But in my opinion, there is far more upside than downside in this market. The market has finally stabilized and currently seems comfortable trading in the $4.75 to $5 range. If the bottom is not yet in, it will be very soon.

I also noticed a few other advisors had placed buy signals in corn. If you made sales around $6, this area isn’t a bad spot to be looking at cheap calls or other ways to start re-owning over the course of the next month or so. Remember, we don’t want to chase a rally. That is why it is called hedging. We like buying calls while they are still on sale. If you are worried about the market dropping even further, perhaps look at cheap puts. Using puts to establish a floor is never the worst idea in the world.

Every operation is different and requires different strategies to meet their needs. If you need help making any decisions at all, give us a call or text anytime at 605-295-3100.

Here was the reasoning for one advisor, Roach Ag, and why they like getting long corn here. They said;

All boxes are checked on this corn buy signal. The funds hold a large net short position. The months of September through November are associated with harvest lows, and the average case price is well below the USDA's forecasted prices. This puts corn in our strongest buy signal this week. Livestock producers should accumulate feed on this signal.

Bulls would still like a close above $5 which hasn't happened in over a month now. A firm close above and I think we eventually look to close that gap in the $5.25 range.

From a technical standpoint, when taking a look at the downside, bulls need to hold $4.73 or there is a good chance we trade lower and perhaps fall into the $4.60 range before finding that harvest low. But the market has held it's current lows for over two weeks now. So I’m optimistic the low is in.

Corn Dec-23
 

Soybeans

Beans continue to trade off of their recent highs, now roughly 45 cents off their highs from last Monday.

Beans were pressured here with some profit taking following their recent rally as well as a more favorable weather outlook in the forecasts.

We saw yet another sale of beans to China, as this crop is getting smaller and China is taking more beans every day. It just doesn’t feel like this bull run in the bean market is quiet over yet.