Corn struggles but soybeans look like they have potential

By Jon Scheve

The June USDA report is typically one of the least exciting reports of the year, and this year’s was no exception as it offered few new insights.  The trade will now wait for the biggest report of the year on June 30th, when the stocks and planted acreage are released.

Corn can’t seem to catch a break.  The USDA report wasn’t bearish, but the market took it that way.  There are several variables in the market right now that I’m watching, which could determine whether corn is leaning more bullish or bearish.

Reasons to Be Bullish Corn

• The US corn crop is not made in the month of June
• Corn’s export pace is approaching a new record
• Current carryout levels are in the “snug” range
• Global ending stocks continue to be lowered
• Corn prices are substantially below the breakeven point for farmers
• Old crop basis values continue to increase in most areas
• Brazil continues to expand its corn for ethanol use
• China’s domestic corn values are higher than imported prices
• US corn delivered to Asia is competitive with Brazil
• Wheat is starting to price itself out of feed rations in the southwest

Reasons to Be Bearish Corn

• The US corn crop is not lost in the month of June
• Planting pace was normal on the whole throughout the US
• Drought conditions are currently limited and don’t appear to be growing
• Brazil’s second corn crop continues to get bigger
• The July / December futures inverse spread collapsed
• Farmers still have an estimated 20% of old crop to market
• There is too much sorghum left in the southwestern corn belt
• No trade deals have been made
• Corn struggles to rally on any positive news
• The USDA could overstate corn used for feed

This week, beans had a massive basis drop from one of the largest crushers in the US, and futures still didn’t drop much. Last Friday, the Trump Administration released their proposed renewable fuels blending requirements, and they look very positive for soybeans moving forward.

These are variables I’m watching in beans.

Reasons to Be Bullish Beans

• The proposed renewable fuels volume targets look positive for the next 2-3 seasons
• June weather doesn’t impact bean production much
• Planted acres are down year over year and may go even lower in the June acreage report
• China’s import forecasts remain at record levels
• Beans struggle to trade lower on any negative news
• Brazil’s currency is going up vs the dollar, which encourages exports from the US

Reasons to Be Bearish Beans

• Brazil had a massive bean crop this year
• The huge basis decline caused by one large crusher
• World stocks are increasing
• Carryout remains ample
• Concern that Chinese demand is overstated
• Farmers seem to still have quite a few beans left to market

Bottomline:

It is difficult to know which direction the corn market is headed, but beans look positive after the biofuel proposal was released. 

Tariffs, politics, war, and weather are hard enough to predict individually, but trying to navigate all of them at the same time is impossible. The next two months are usually among the most volatile times in the market.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.