This Week in Grain – July 13-17

This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday, July 13, 2015.

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Before I get into the week ahead, crop progress was just released. Just looking at it on the margins, the crop is pretty darned good from a national perspective.

• Corn G/E ratings were left unchanged on G/E ratings at 69% with a 1% increase in Excellent from Good. P/VP corn ratings were hiked 1% to 9%. Minnesota is 85% GE and Iowa is 82% (Go Hawks). Illinois took it on the chin losing 5 points G/E but from the guys I speak with tell me that the worst conditions are on the worst ground in the state.
• Bean GE ratings fell 1% nationwide, increasing P/VP ratings 1%. Iowa is 78% G/E while Illinois lags at 42%. Based off this alone, beans seem like the buy on a poor crop, not corn.
• Winter wheat is 65% harvested vs 68% average. I think we should see a catch up this week with dry forecasts. Spring wheat conditions were left unchanged.

Now that the real data is out of the way…

For the 4th straight Sunday, the equities markets tumbled in the overnight on the back volatility brought by Greece bailout/non-bailout rumors. The result of which pulled all three grain classes into the red by Monday morning. AND for the 4th straight Monday, by noon corn and soybeans were in the green with fund buying and short covering pushing prices in the case of corn to 12 month highs. The buying over the last 25 calendar days (reminder, we were trading 365 Dec corn on June 22) has been as unrelenting as I can remember. We haven’t had closing prices settle below the opening during the entire move which has the trade rewarding the BTFD traders since the low was made. Much like any animal, fund traders are creatures of habit and they will keep buying breaks until it doesn’t work anymore.

The funds aren’t the only ones who have turned bullish, most of the newsletter writer pundits are on board as well. If TWIG is anything, I’d like for you to think of it as a conduit for what the market opinion makers believe. Right now, all of the arguments for lower prices are essentially worthless at this point. Strong dollar? Who cares…? Big South American crop? What’s that…Shrinking ethanol demand? No way… Those stories still matter, but when the market is reeling the trade reverts to the mode it was in when it got scarred in 2011-2012. Right now most of the pundits are thinking 163-166 bushels per acre. That’s not really news. If you looked at a carryout table from three months ago and looked at it today, it doesn’t look that much different. Demand is the same and old crop carryouts have fallen slightly, but the opinion of what this means has not.

Because I do this for a living, I get to read a lot of different takes and opinions on the market. It’s amazing how quickly opinion has changed as yield perceptions dip less than 5% off trend. I saw one newsletter who had been calling for sub 3.00 corn quickly calling for HARVEST LOWS near 4.70. What makes that call quite amazing is that we are not even trading 470 yet. While I understand the bullish outlook, I think it’s important to be looking at what high prices would do to the demand side:

• Curb exports
• Increase US imports
• Drop feed usage- cattle producers are already squawking

Those are stories we saw in 2008 and 2011-2012 and will see again, but they won’t drive price until the time allows them to. Right now it’s all about short covering and fear casting about yield. If you are a speculator you need to pay heed to this price action, we could and probably will trade higher. The way the market acts during the day I don’t think it would be a stretch to see 5.00, but to get beyond those levels we need to see the commodity cycle open up a bit. 50 dollar crude, 10.30 beans (if you are bullish corn, you should be looking at buying soy) and commodities in general across the board are not priced where they need to be to reflect the speculative appetite the funds would need to tack on another 100-150 k in longs. That said, the only thing bears can hang their hats on right now to change the trend is better than expected weekly progress numbers and a change in forecast. The acreage resurvey coming out in August will probably be anticipated to be bullish but I would be very careful getting too bullish on acreage as the USDA is normally very shy to change anything, even after a need for re-survey.

WEATHER

The weather runs do support a drier picture going forward. The white in those graphs represents “normal” precip so it’s not a complete reprieve but it is something. To be honest, farmers I speak with don’t really feel there is much to change their situation in Indiana. That said, it’s not a 0 across the board there and Iowa/Minnesota could be enough to make up for it. Beware of the “heat” bulls. They will come out of the woodwork over the next month as summer finally arrives.

THE SCHEDULE

Who else wants to hear more about Greece? Bottom line with Greece is that the EU and Greek leaders came to an agreement on terms for a third bailout. Today, the market touted it as a victory but I wouldn’t be shocked to see concerns rear their head again when Greeks take to the streets over coming days/weeks to refute the terms they voted down a week ago. This is a critical hit to Greek leadership who showed their true colors when their faces were put to the fan. They serve those who own their debt, not who elected them. The ECB will be announcing rate decisions on Thursday.

Elsewhere, China will continue to stay in the spotlight with GDP ratings out on Tuesday night. The recent Chinese stock market story is one to pay attention to. On one hand, its bearish commodities as Chinese demand could be waning. On the other hand, China is manipulating the heck out of its market and the unintended outcome of manipulation is inflation, which could be good for grains and ag longer term.

Janet Yellen will speak this week on Thursday and Friday to congress about her opinion on the US financial markets. Sources say there is a 50% chance for a hike in September. I wouldn’t bet on it, but if I would be wrong I would think it takes a bite out of this grain rally. That said, the DX and Grains haven’t been correlated of late.

Bottom line for the week: I expect softer corn markets at some time this week. If it gets bought and today’s highs are broken then I think the bull parade continues. If it would break and not rebound, highs for the crop year may be in.

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