Corn and soybeans continue to sell off as we approach first notice day. Farmers will be selling corn as they deal the end of basis contracts and storage periods. We see corn being pressured lower into the end of the week. We see corn prices stabilizing starting in September. Low prices are expected to attract demand and once the large crop is priced in and farmers liquidate old crop we should see better days ahead for corn next month.
Grain Hedge podcast
ProFarmer confirmed big crops this week as corn was down 20 cents and soybeans does 50 cents from last weeks highs. ProFarmer pegged the national corn yield at 177.3 bpa and soybeans at 53.0 bpa. Next week we will see how much old crop needs to be priced and moved before the Sept futures first notice day. In years past this has caused selling into the end of the month. We expect corn to make seasonal lows into FND. Soybeans are another story. Included in the this post are the Supply and Demand table scenarios we talk about on the podcast. As you can see, things do not look great for soybeans. In this podcast we go over our strategies for corn this fall but we don’t make specific trade recommendations. We only publish those in our newsletters per industry regulations.
The corn crop is made for the most part and now we start the crop tours and yield reports to get an idea of total crop production. Regardless if corn is 178 or 180 bpa nationally, we think demand will also rise and carryout is pegged around 1.6 to 1.7 billion bushels. This is neither tight or burdensome and this is the basis for our strategies for range bound corn. It is merely adequate and we see corn trading in range for the next month or two. In the short terms we expect some downside as farmers clear out old crop and make harvest sales. In Sept and October we expect upside as demand stays strong for the cheapest feed grain on the global export market.
China called and they want to talk about trade. China has already reversed on crude oil imports from the US and now the market is thinking China needs to find a solution to get away from their tariffs on soybeans. The tariff on soybeans was purely political by China as it has increased their price for soybeans by 20% or more. Once China put a 25% tariff on Soybeans imports from the US, Brazil was free to price gouge…and they have!
The WASDE was very bearish for soybeans and neutral to mildly bearish for corn and wheat. Soybean yields came in at 51.6 bpa and this resulted in a 785mm bushel new crop carryout. That is an 18.44 stocks/use ratio and we have not seen that big of a number since 2006-2007 when soybeans were trading in the $6 and $7 range.
We are hearing that NAFTA negotiations are going very well. US and Mexico are making progress with NAFTA. Soon Canada will be brought into the fold. Once NAFTA is worked out the US will hammer something out with the EU. China seems to be last on the list. Apparently the US thinks they will be in a position of power if they already have trade deals done with NAFTA and the EU before they deal with China. Stay tuned!
In this week’s podcast we dive into why the US/China trade war started and how we see this playing out. We also talk about world wheat supply getting smaller as Europe continues to have weather issues and what could happen with corn if yields are not a good as expected.
Early corn yields are just starting to come in and they are a bit disappointing. While the crop is in good shape overall, the heat the US has seen over the past couple of months has taken the top off yield in many areas. If the USDA adds 150mm to exports and the yield is trendline 174, we are at 1.4 billion carryout and corn should be much higher than where we are now.
Brazil soybeans are now price nearly 25% higher than US soybeans on the cash market. This means the market has now priced in the tariffs on US soybeans. As a result the funds are starting to cover shorts. Beans were up 10 to 15 cents today while corn held steady and wheat was down 5. Funds have been short soybeans and long corn and/or wheat. The unwinding of those positions explains the gains in soybeans and why corn and wheat had trouble rallying.
The USDA released the July WASDE today to much anticipation. Exports for old crop and new crop corn are higher and that helped the corn ending stocks go lower even with the higher acreage number from the June 30th report. The last piece of the puzzle is how big is this crop? At 174 trend line yield puts carryout at 1.5 billion bushel. A 177 yield makes carryout 1.8 billion. A 180 yield makes it 2.05 billion.