Market Analysis




Plenty of market uncertainty moving into August

By Doug Tenney, Leist Mercantile

As we move into August, we would normally be seeing much higher consensus about expected U.S. corn and soybean yields. Nothing could be further from the truth for this unusual growing season in the U.S. For weeks many have called this a growing season of the “haves versus the have nots.” Consistent rains in June and early July in the eastern Corn Belt states of Illinois, Indiana, and Ohio have many producers expecting above average corn and soybean yields. Several of those rains were broad in coverage.  

Conversely, the northern Corn Belt states of Minnesota, South Dakota, and North Dakota would be called the “have nots,” with poor yields, as they have consistently during June and July experienced numerous hot and dry periods of a week or more. Rains then followed, broad in scope and geographic coverage for several states, but severely lacking in significant amounts of rain of one inch or more.… Continue reading

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Storage and freight costs

By Jon Scheve, Superior Feed Ingredients, LLC

Hot and dry weather is expected for the next week or two, but forecasts vary on how dry August will be. Any weather shift could shake up the market.

Debates continue if the areas where crops look great can make up for the northwest Corn Belt’s reduced yields due to persistent hot and dry weather. The market still has a premium price in place, if overall trendline yields are produced.

Some parts of China received 30 inches of rain over 2 days, but so far, it is unlikely to affect total production much as the corn grown in those flooded areas is not that significant. A concern might be that nearly 1 million hogs and chickens might have been lost in the region which could hurt demand.

Brazil has been battling a drought for several months and now some areas have had frost. Therefore, yields are trending lower, and Brazil is buying some corn from Argentina.… Continue reading

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Why inverse markets mean farmers should sell their grain now and not later

By Jon Scheve, Superior Feed Ingredients, LLC

The USDA had no surprises for corn and beans last week. Now the market will wait for national yield estimates in the August USDA report. A quarter of the Corn Belt is dry, so the next 2 weeks will be critical for the national yield outcome and price direction. The price potential range is still very wide.

Carry versus inverse markets

A market carry is when a nearby futures contract month’s price is lower than a later month’s price. On Friday, December corn closed at $5.52 while March closed at $5.59. This indicates corn supply during and after harvest is expected to be higher than demand usage, so the market is encouraging hedgers to store the grain for later use by paying them the carry spread.

Inverses are when the nearby futures contract month’s price is higher than a later month. For instance, on Friday September corn was $5.56 while December was $5.52.… Continue reading

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Basis and spread trades can boost the bottom line

By Jon Scheve, Superior Feed Ingredients, LLC

Another week of good weather for most of the Corn Belt has put downward pressure on prices. Corn prices declined each day this week and is nearly $1 per bushel lower than last week’s market high. The market seems to be trading a national average yield of 177 right now. The market will be keeping a close watch on rainfall in the Dakotas and western Minnesota over the next two weeks and be waiting for the August USDA report a month from now when national yield is usually updated.

Since the end of last year’s harvest, my entire 2020 corn crop was priced with futures along with half of my 2019 corn crop, which was priced with futures from the previous summer. I had been keeping all this in on-farm storage and was monitoring the basis market around my farm and across the U.S.… Continue reading

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USDA numbers bullish for wheat, negative for corn and beans

By Doug Tenney, Leist Mercantile

Expect within 20 minutes of the noon report release for market’s focus to return to central U.S. and world weather. Traders are also expecting Brazil’s corn production to decline. 

Shortly after the report was released, new corn was up 2 cents, new soybeans up 4 cents, and wheat up 13 cents. Just before the report release, new corn was up 11 cents, new soybeans were up 12 cents cents, and wheat was up 7 cents. 

Corn and soybean yields should see little changes compared to the June report. Yield numbers should start to see changes reflecting weather conditions beginning with the August 12 report.

Today, expect market reaction to the numbers to be volatile and quick. Numbers that are a surprise could easily move corn and soybeans multiple dimes within 3 minutes.

The tables below detail US production, yields, and ending stocks:

USDA 2021-22 US Corn, Soybean, Wheat Production and Yield                                      (Production is Billion Bushels)                                                                                                             (Yield is Bu/Acre)
 USDAAverageRange of USDA
 July 12 EstimateEstimatesJune 10 
Corn Production15.16515.11514.863-15.27514.990
Corn Yield179.500178.800177.0-179.5179.500
Soybean Production4.4054.3944.335-4.4054.405
Soybean Yield50.80050.70050.000-50.80050.800
All Wheat1.7461.8471.724-1.9471.898
All Wheat Yield45.800  50.700
USDA 2020-21 US Grain and Soybean Ending Stocks (Billion Bushels)
 USDAAverageRange of USDA
 July 12 EstimateEstimatesJune 10
Corn1.0821.0881.000-1.2571.107
Soybeans0.1350.134.120-.1490.135
USDA 2021-22 US Corn, Soybean, and Wheat Ending Stocks (Billion Bushels)
 USDAAverageRange of USDA
 July 12 EstimateEstimatesJune 10 
Corn1.4321.4021.057-1.5421.357
Soybeans0.1550.148.120-.1650.155
Wheat0.6650.729.575-.8090.770

U.S.… Continue reading

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Markets now trading weather

By Jon Scheve, Superior Feed Ingredients, LLC

Last week’s USDA report had positive news for farmers, with both on farm stocks and planted acres being lower than the trade was estimating.

Corn

With this report published, weather will be the main market driver going forward. So far, 75% of the Corn Belt has had good weather. However, dry conditions in the northwest part of the Corn Belt have been a concern and its impact on yields is uncertain.

I updated my supply and demand tables to account for the USDA’s planted acre estimates. I’ve also included several potential yield outcomes (the red section).

If Carryout/Ending Stocks hit 1 billion (1,000), it would be as if the country was basically out of corn and prices could reach $8. However, if Carryout/Ending Stocks hit 1.6 billion (1,600), prices would probably pull back to around $4.

Based upon the USDA’s demand structure in the June report, and assuming trendline yields, current prices are somewhat overvalued.… Continue reading

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June 30 numbers feeding the bull

By Doug Tenney, Leist Mercantile

Both corn and soybean acres were below trade estimates. Corn touched up the 40-cent limit

This USDA report day features two reports: U.S. June 30 Acreage and U.S. Quarterly Grain stocks. Watch to see how those numbers compare to trader estimates. Today there are no USDA supply and demand tables published. Updated supply and demand tables will be released on July 12. 

Shortly after the report was released, new corn was up 39 cents, new soybeans up 72 cents, and wheat  up 20 cents. Just before the report release, new corn was down 16 cents, new soybeans were down 19 cents, and wheat was down 5 cents.  

The table below contains numbers for both the USDA June 30 Acreage Report and the USDA Quarterly Grain Stocks Report. The pre-report numbers have been provided by Reuters. The actual USDA numbers have been inserted in the second column. 

This morning corn and soybean prices were down double digits as a result of overnight weather forecasts indicating increased rain opportunities in the Dakotas and Minnesota after July 7.… Continue reading

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Can bean prices rally above $15, or are we on a path back to $10?

By Jon Scheve, Superior Feed Ingredients, LLC

Last week the corn and bean markets were dominated by upcoming weather uncertainty and Friday’s Supreme Court ruling against the ethanol industry and potentially the entire renewable fuels industry. Plus, July options expired on Friday with some traders under water with their positions after this week’s price set back. 

Everyone is waiting for Wednesday’s USDA report, arguably the biggest of the year, that will provide estimated total planted acres and quarterly stock numbers. Once the market better knows planted acres and remaining old crop supply, balance sheet estimates become clearer. I am estimating 93.1 million planted corn acres, a 2.5 million acre increase from March, and 89.1 million bean acres, up 1 million from March. 

Beans — Comparing 2021 and 2014

The following chart shows a similar market situation developing between 2021 and the prices of beans in the summer of 2014.

Looking back to understand the price structure from 2014 one must first look at the 2013 bean crop.… Continue reading

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Buckle up for the bumpy road of price discovery

By Jon Scheve, Superior Feed Ingredients, LLC

Soybean futures had a historic price decline on Thursday but rallied back half of that decrease on Friday. Corn futures also fell the limit on Thursday but rallied back on Friday nearly all that was lost the day before. 

Every day there is some type of rationale used to justify the price movement, but fundamentally supply is still tight, and the upcoming weather impact is still unknown. Therefore, last week’s price volatility is likely to continue for at least the next 4 weeks. The weather reports are updated every 12 hours and each one can cause the market to move substantially. Several weeks ago, I said to buckle up for a bumpy ride, but with these price swings it seems more like farmers are going off-roading and need to be strapped in with a 5-point harness. 

Last week I traveled to and from Minneapolis to our family farm near Beatrice, NE.… Continue reading

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Weather, exports and acres will dictate corn prices: $4 and $8 are still possible

By Jon Scheve, Superior Feed Ingredients, LLC

Last week the USDA decreased the 2020 corn carryout which caused the stock to use ratio — the total usage compared to the total production — to drop to levels seen in the 2012 marketing year. The USDA also estimated the 2021 crop years carryout to be as tight as that of the 2013 crop year. 

In early June of 2013 December corn traded above $5.70 only to drift lower all summer long until trading below $4.20 by Thanksgiving. It is important to remember how dry the country was as we progressed into the growing season and how worried most of the trade was that we would be extremely dry again. But timely rains kept the crop growing and we produced nearly a trend line crop that year. This was the exact opposite of the previous year when in mid-June of 2012 December corn prices were at $5.30 and within two months traded above $8.30 because it never rained in July. … Continue reading

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Friendly corn, negative soybeans

By Doug Tenney, Leist Mercantile

Two things to watch with this report will be old corn ending stocks and old corn US exports. Brazil’s corn production is another key number to watch.

Shortly after the report was released, new corn was up 4 cents, new soybeans down 7 cents, and wheat down 3 cents. Just before the report release, new corn was up 7 cents, new soybeans were up 5 cents, and wheat was up 2 cents. 

US corn exports have been strong since last fall. Ponder this – many have been expecting USDA to raise old corn US exports since January. They have increased but at a much slower pace than expected.  The January WASDE report pegged US corn exports at 2.55 billion bushels. In May that export number was 2.775 billion bushels. Many analysts are expecting that export number to eventually reach 2.9 to 3.0 billion bushels. Since January, USDA has increased the export number three times.… Continue reading

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$4 corn or $8 corn? $10 beans or $20 beans? It all depends on weather and export demand

By Jon Scheve, Superior Feed Ingredients, LLC

New crop futures prices

Dry weather concerns in the Dakotas and possible ridging in the western corn belt later this month pushed some risk premium into the markets the past few days.  December corn closed at $5.91, up 91 cents in 6 trading days. That leaves the market 50 cents below the highs from a month ago.  November beans also rebounded $1.10 in those same 6 days and is only 30 cents from its high a month ago. 

Old crop basis prices

Corn and bean basis has dropped significantly among end users throughout the entire Midwest.  

Corn began to decrease when southern plains end users started cancelling some of their corn purchases and replaced it with wheat in the feed rations.  That pushed those corn sales back up the marketing chain and into ethanol plants looking for coverage through June and July. 

Bean basis fell because most processors covered their needs through July and pulled back bids once old crop futures rallied above $16.… Continue reading

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Daily price swings could be big in coming weeks

By Doug Tenney, Leist Mercantile

The March 31 Prospective Plantings Report had the United States planting 91.1 million acres of corn and 87.6 million acres of soybeans. When that report was released, it was pretty common for many analysts to suggest we need a record corn yield and perfect weather to produce enough corn to satisfy global corn demand. While that report is old news, the question remains: how much above those numbers will USDA publish with the upcoming June 30 Acreage Report? The report will provide further insights into the actual number of corn and soybean acres planted this spring. Many are expecting both corn and soybean acres to increase from the March 31 report. Mid-May one private analyst indicated 2021 corn acres would be 96.8 million acres. That number caused numerous sell-offs which lasted into the last week of May.

China was extremely active last month buying U.S. new crop corn.… Continue reading

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The export delivery process

By Jon Scheve, Superior Feed Ingredients, LLC

Last Wednesday, the corn market pulled back to a technical point and Thursday it bounced off it. Fundamentally, crops aren’t made or lost in May, so debates over planted acres and Chinese demand for old and new crop will continue to manipulate prices. In June, weather becomes a factor and it’s impossible to know today what exactly will happen. I expect a bumpy road yet for prices this summer.

The export delivery process

Recently I received a request for an explanation of the corn futures delivery process. So, I reached out to my good friend Joe Rich of O’Bryan Commodities to help me summarize this complex process.

History

The current delivery process was set up many decades ago when corn exports were nearly 30% of total demand. The total U.S. exported bushels stayed relatively consistent for 40 years but have increased about 50% in volume in the last 5 years.… Continue reading

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Market attention turning to June 30 report

By Jon Scheve, Superior Feed Ingredients, LLC

Both July and December corn futures closed higher last week compared to the end of the previous week and are still at or above levels from 3 weeks ago.

Old crop corn

The factors impacting old crop corn prices:

  • Chinese demand for old crop corn is still uncertain, as many in the trade debate how many bushels will be shipped versus being pushed into next year’s crop.
  • As the economy opens and people start driving to work or on vacations, ethanol consumption should increase. 
  • Beneficial rain throughout the southern U.S. is keeping the grass green and demand for feed stocks at levels that don’t strain the markets.

Old crop carryout is very tight. It seems many ethanol plants have coverage on through the first part of July, but August and early September is less certain. Plus, due to the large market inverse between July and September futures, it’s unlikely commercial elevators are going to be holding grain past July.… Continue reading

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Market highlights

By Jon Scheve, Superior Feed Ingredients, LLC

Over the 5 trading sessions last week corn dropped 90 cents, while beans were nearly unchanged. The report last Wednesday was neutral for old crop corn and probably a little bearish for new crop. The report still had a bullish tone for both old and new crop beans. There were many speculators going long corn into the Wednesday USDA report hoping for a bullish surprise in the market. This may have led to long position liquidations on Thursday and Friday.

Wednesday’s report was the first look at the 2021 crop demand with supply estimates still based on the March 3 planting intentions. Now the upcoming production size will be debated until the June 30 report when the actual corn and bean planted acre estimates are published. Then July and August weather will determine final yields. Once supply is better known, the demand structure will adjust to accommodate what is grown.… Continue reading

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Neutral soybeans, bearish corn in May 12 numbers

By Doug Tenney, Leist Mercantile

Much is expected with this report. Today’s report will now add in crop year 2021-2022 supply and demand tables. For decades going back to the 1970’s, the May report publishes the first supply and demand tables for new crop grains.

Shortly after the report was released, new corn was 8 cents, new soybeans up cents, and wheat down 7 cents. Just before the report release, new corn was down 5 cents, new soybeans were up 12 cents, and wheat down 4 cents.  

New crop U.S. corn and soybean ending stocks will be closely watched. Following the March 31 USDA Prospective Plantings Report, numerous analysts suggested record corn and soybean yields would be needed ALONG with perfect weather to meet world grain demands. For the first time in history, U.S. ending stocks for both old and new soybeans are already considered “tight.”

The first “high wire act” is where USDA has been for months in particular for old crop U.S.… Continue reading

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New crop prices still climbing, but aren’t even trading U.S. weather yet

By Jon Scheve, Superior Feed Ingredients, LLC

In the last 15 trading sessions, July corn futures closed higher on all but two of them for a total of a $1.40 per bushel increase. Corn hasn’t increased this quickly since the end of June during the 2012 drought and it’s only been 53 weeks since the 11-year market low of $3. Last week prices exceeded $7 — a level only seen three times in history, with the last time being spring 2013.

Prices are high because of Chinese demand and continued dry weather in Brazil. U.S. weather hasn’t even been an impact yet on these markets. Despite another week of increased prices most end users are staying profitable, which seems to indicate there is still more upside potential down the road.

The new crop corn-to-bean ratio shifted dramatically to favor planting corn this year. The western Corn Belt has already made substantial planting progress; however, the eastern Belt has been delayed by rain and the northwest is still quite dry.… Continue reading

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Will corn need to rally to $8 or beans to $18 to ration the remaining supply?

By Jon Scheve, Superior Feed Ingredients, LLC

The week’s biggest story was the inverse spread between the May and July contracts.  Inverses mean that the market is short and really needs to find supply.

Corn

Corn rarely sees inverse at this point in the year, so when they show up in the spring, they are a very big deal. The spread opened in late April with May being 23 cents higher than July on Monday. By Thursday’s close it was 51 cents higher.  This kind of spread hasn’t happened since the spring of 2013 which followed the drought year of 2012.

That Thursday was the last trading day on the May futures for most market participants before the delivery process starts on the May contracts.  Therefore, it was also the last day that the May contract had a daily price limit.  From now until its final trading day in mid-May, May futures movement won’t really matter because there are few market participants trading it.  Everyone’s… Continue reading

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Prices and weather… weather and prices

By Jon Scheve, Superior Feed Ingredients, LLC

May corn prices blew past $6, and then a few days later $6.50. Additionally, May futures gained on July futures by almost 10 cents this last week, which is huge, because in a normal week in a normal year a 1-cent move on that spread in a weeks’ time would be a big deal. Basis values across the US also increased another 5 cents this week. These are clear indications that the market is begging for corn and is unable to find it.

How much corn is left to sell by farmers?

The last USDA WASDE report showed on-farm cash corn prices unchanged at $4.30 from the March report, suggesting most farmers already priced the majority of their 2020 crop at lower values compared to today’s prices. Plus, elevator mangers across the Midwest are telling me that a lot of corn was sold around $4 futures and then most farmers sold another big portion of their production again in November when prices hit $4.50.… Continue reading

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