May 19, 2023
Markets were down single digits on Thursday and I found myself feeling like it was a good day. That is how you know you had a bad week in the markets. The market has had nothing but bad news, one after the other and so with today’s bounce, one would think we are beginning to run out of sellers.
Psychologically this has to be weighing on growers as new crop prices are already approaching breakeven levels. Any rally at this point will open the selling floodgates, potentially leaving them limited in scope. Admittedly, while I expected the market to drop, I did not expect it to drop this early or this fast.
We got a lot of rain over the weekend, and so I don’t even have my soybeans planted yet. And yet the market has given up over a $1/bushel in the last thirty days as it believes a bumper crop is on the way. There is a lot of growing season left for the market to make that determination.
We call it the futures market and not the “today’s market,” but nevertheless the market is looking way beyond its typical horizon and all it sees is big supply coming. These are three things I look for that could turn the ship around.
North Dakota prevent plant acres
Prevent plant acres in North Dakota could potentially ignite a minor rally. 3.75 million acres or 4% of our nations corn acres are planted in North Dakota this year. They are looking to plant 800,000 more acres this year compared to last year which would be a 27% increase. While things are warming up fast there, they only have one more week to get it planted before their crop insurance deadline on May 25. Considering that prices have collapsed in recent weeks, that prevent plant option has to be looking a whole lot better. North Dakota has nearly 1.2 million acres of prevent plant last year. If they repeat that again, that takes 217 million bushels off of the USDA ending stock projections.
New export sales
China needs to stop cancelling old crop purchases. The market hates surprises and it was not expecting this. We knew that new purchases were slowing but cancelling purchases is something the market did not anticipate – especially during our peak export season.
They have already cancelled over 1.1 MMT of corn. That leaves another 61 million bushels lying around the Midwest that we have to find a new buyer for. Exports are down 35% for the season so far. Like it or not, our financial fortunes are tethered too closely to China. We need to develop new markets for our grain so we are no longer as dependent on them as we currently are.
The market seems to have an ideal weather scenario baked into it. With a record yield projection of 181.5 bpa for corn and 52 bpa for beans, it would seem there is more yield risk to the downside than upside. If we yield just a single bushel less in soybeans, our ending stocks scenario remains the same as old crop.
It will, however, take quite a bit more in corn. If we yield the same as last year or 8 bpa less than USDA projections, ending stocks stay where they are. That 8 bpa difference in national yield could very well mean the difference between $7 corn and $4 corn. While I don’t expect a yield like last year, a record yield is by no means guaranteed either. But it will take a weather scare in some part of the country for that to happen.
Matthew Kruse is President of Commstock Investments. Subscribe to their report at www.commstock.com.
Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.
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