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Sioux Falls, SD | Harvest is getting started in many areas with 10% of corn and 7% of beans harvested as of Monday. Weather looks favorable for a productive week upcoming, with the threat of frost damage at almost zero at this point. On Wednesday sept 30th, the quarterly grain stocks report will be issued, which will highlight next week. Next, China is in the news again for a few reasons. Their manufacturing data this week is at its lowest level in 6 years. More signs of an economic slowdown in China. China did sign "frame contracts" on soybeans which is only a quantity commitment, without specification on time. Anyway, they committed to importing 13.18 mil tons, when the market had been expecting only 3-5 tons. This is part of China booking many business deals to show financial strength, and dispell perception of recent weakness. Next, the Creighton University index for the SALE PRICE of Midwest farmland showed a decline for the 22nd consecutive month. Cash rents should be doing the same! Also, U.S. Farm debt, when calculated as a debt/income, is at levels not seen since 1985! Next, diesel's average price feel below $2.50 for the first time since 2004. Lastly, basis narrowed 3-5 cents on beans in approx 20% of locations, yet some areas have seen no improvement as the elevators feel no need to narrow, with a big crop.
Ps-Yogi Berra died this week, one of my favorites! He had a good quote on a famous restaurant "nobody goes there nowadays, because it's too crowded":).
Corn: Exports were again low at 533k tons, and overall were about 30% behind last year. Also, China is importing a lot of Sorgum, barley and DDG's from the U.S., while they're importing record amounts of corn from outside the U.S.-in the month of August. Ethanol saw 938k barrels/day of production which is down, and stocks of 18.9 mil barrels. On U.S. Yield, last year the USDA both raised and lowered yield several times, before arriving at a final number in January. Although I feel yield will end up between 164-167 bpa, it's hard to further assess yield until we get more acres out east harvested. Around the world, Argentina is projecting a total crop of 21.6 mil tons, well below 26.5 mil tons LY, and the current USDA est of 25 mil tons. Corn continues to be range bound for now. After harvest, it'll take production issues in S.A., and/or broader macro headlines to run toward $4.50. I see winter rallies being more likely than last winter, with a 1.59 bil bu. projected carryout. However, it's doubtful we see much above $4.00 during harvest.
Beans: Exports at 912k were about as expected, but good news as mentioned above with the Chinese "frame contracts". Next I want to talk about Brazil, whose currency is near all-time lows set in October of 2002. Their bonds are labeled "junk", and farmers are paying 18% interest on operating loans. Also, the president is likely to be impeached. In summary on Brazil, I feel the large amount of Chinese "frame contracts" to the U.S. is mainly due to Brazil becoming an unsafe trade partner. China will still import from Brazil, but I believe it'll be less until things stabilize. Next, Brazil is projecting to produce just over 100 mil tons of beans this year, which compares to 65 mil 5 years ago! Traders are certainly worried about another large S.A. Crop, which led to contract-lows on Nov-15 beans earlier this week (prices not seem since 2009). In the U.S., many believe pod weight are light, which may reduce yield by 1/2 bpa. I'm not on board with that yet. I do believe we'll see an acre reduction in October's USDA report. However, a simple 1/2 bpa INCREASE in yield would essentially offset an acre reduction. As I've said before, figure out how to maintain ownership of beans not sold earlier this summer (or last year) beyond harvest. There is a lot negative priced into today's market.. We have a big U.S. Crop, prospects of a large S.A. Crop, strong dollar, record world inventories, and China's economy in question. Any one of these variables improving could run beans upward quickly-with strong demand. I'll remain patient on selling more.
Wheat: Exports were decent at 511k tons. The story that is helping wheat run upward is dryness in the Ukraine and Russia. The Ukraine had its dryest August in 54 years, as winter wheat is trying to get started. Russia reports 25% of topsoil "dry", with little rain in their 10-14 day forecast. Australia is also dry, but to a lessor degree. The world-cash wheat markets remains in a downtrend, with weak fundamentals led by record world inventories. "IGC" increased their est. on world stocks by 7 mil tons tons to 221 mil. Next, another reason for this weeks price rally is simple profit taking, as hedge funds exit short positions, with Russia making them nervous. In the end, wheat's current rally will only go as far as it's pulled by corn. I say that also acknowledging that if Russia/Ukraine doesn't see rain in the next month, things could become bullish from the current low prices, very quickly.
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