This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday August 29, 2016.
Welcome to the last week in August/ first week in September. If you hold your ear to the ground you should be able to hear the combines beginning to roll across the south. Producers I know as far north as Decatur, Illinois have begun to shell corn. It should be a few more weeks until the bulk of the Corn Belt gets started with shelling, moisture levels are going to be really high for the next few weeks if the forecasts I see hold. I could see some producers delaying the corn harvest if possible, to avoid drying charges and maybe stave off this wave of selling that has hit the market in the last 5 days.
We have a bubble forming on the short side of corn and wheat, while soybeans are on their way. Check out the net spec position of corn as of last Tuesday. One would assume that with the price action from Wed-Friday, the total number of short contracts is between 350,000 and 400,000 contracts. There have only been 2 times in HISTORY, where the spec short has been this extended. Earlier in the spring and last May. Both times, we say rallies of over 1.00 in the months following. If you read me last week, you know I mentioned starting to buy corn as to implement a long term bull strategy, I stand by that advice. This is a market you want to be on the buy side of in front of harvest, not the sell side. What we are seeing now what I have been warning about for months to producers I work with, the combination of a big old crop carry over with a tremendous amount of new crop production.
The three charts below show a good job of what I am talking about. I could see this extending further, where the longs leave the market to 2009 levels, but I am willing to wait this out considering we are back to those lows in price. Keep in mind this boat could take a while to turn, it could be months before prices really rebound, but in corn and wheat I think the market is doing its job to either cut production or raise demand. In my opinion, I do not see prices staying at these levels long term if demand is going to be constant.
The wheat market is getting wacked from abundant supplies, and ongoing uncertainty in future Egyptian demand. Over the weekend Egypt’s Ag Minister confirmed a zero tolerance to ergot fungus moving forward, which is anything will make filling Egyptian business more complicated. After seeing a number of offers at each tender, exporters are likely to be more wary. Decent rainfall worth .25-1.00” fell across Western Australia Fri/Sat, and soaking moisture of 2-4” is offered to much to Eastern areas this week.
Gulf SRW fob offers have fallen to $177 per metric ton through Nov/Dec, a full $7 below Europe while lower protein Gulf HRW is highly competitive with Black Sea offers for the short term. Lower grain prices were needed to find consumption, but the dramatic break on Friday is doing just that. Its also worth mentioning that ethanol prices have fallen to a $.07/Gal discount to gasoline, and blending incentive is the highest it’s been in several months. And China is likely to show more interests in extending soybean coverage beyond October on this break.
After the close on Friday, the Pro Farmer tour released their yield estimates. The US soybean yield was estimated at 49.3 BPA, with a crop size of 4.093 Bil Bu. In recent years, the tour yield estimate on average has been within 0.6 BPA of the NASS Sep estimate. There is a tendency to underestimate final yield, which with favorable Midwest weather could be near 50 BPA. November soybeans traded through, but closed above the 200-day moving average. The question now is whether strong Chinese demand emerges on the break. We were seeing the Chinese buy in droves over recent weeks, one would have to think that continues. I worry the speculator begins to establish a short position here as we get into the harvest. If that would happen like it did in March, beans could be 1.00 too high. Corn at 3.00 and wheat in the high 3’s doesn’t bode well for a 4 figure bean price.
Cotton farmers need to take heed to this. Cotton is the last of the row crops trading with a spec long position. I had a conversation with a wheat producer on Friday who is looking to move back to cotton in next year’s rotation. Keep in mind it takes $$ to switch back from wheat to cotton, but this guy is doing it as it makes better sense to make a little money in cotton than “lose his a$$” in wheat. I expect cotton acreage to go up next year, I advise looking at cotton hedges on 2017 cotton if you plan on increasing acreage.
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