September 1, 2023
The gap between bullish and bearish sentiment in the grain markets seems to be widening as of late. Bulls are focused on crop deterioration due to late season heat and dryness, while bears are digging their heels in due to long term demand trends.
There’s no doubt last week’s heat had an impact on corn and soybean crops. According to the forecast, this weekend into early next week will be another yield reducing event.
How aggressively the USDA lowers yields on the September WASDE will set the stage for the direction into fall. Further yield reductions for the corn crop may only be mildly supportive since the USDA is still using aggressive demand numbers compared to last year and current export pace analysis. However, the soybean balance sheet is a much different story and cannot handle yield reductions like the corn balance sheet.
Bears are focused on the current export book for new crop products with both new crop corn and soybean commitments starting the new marketing year well behind the needed pace to hit current USDA targets. Both products are seeing the second worst start to the marketing year for export commitments in over a decade. The worst was in 2019 when China was battling African Swine Fever, which severely impacted their need for feed grains. It also marked the last year of the trade war, which ended sharply in 2020 when China bought aggressively after prices for all commodities slumped due to COVID.
Another layer of the current poor export commitments is the low water levels for both the Mississippi River and the Panama Canal. Barge spot rates as of Aug. 29 in St. Louis are up 49% from last week and 42% from last year at $23.34 a ton. That’s up 85% from the past three-year average, according to Department of Agriculture data released Wednesday. Weight restrictions for barges on the Mississippi, which carries roughly 45% of U.S. agricultural exports, will require more barges to be used to carry the same amount of product.
This will likely be passed down to the producer level in the form of weaker basis levels while it could have the opposite effect for producers in the Dakotas whose product can be railed to the PNW for export.
A similar situation has developed at the Panama Canal with low water levels, increasing wait times to an average of three weeks. The Panama Canal Authority is now holding auctions for those willing to pay up to jump the queue. One shipper paid an additional $2 million above the standard $400,000 fee to jump the queue. This scenario adds further costs to export out of the Gulf which also adds to the likelihood that producers whose product can be moved through the PNW will benefit.
Technical perspective points to 2013
Those that have followed my blogs over the years are likely aware that I also place a strong emphasis on charts and the clues they often give.
Earlier in the year I wrote about multiple similarities between 2013 and 2023 for the corn market. Now that we have begun the third quarter of the calendar year, that comparison has not disappointed. While both the June and July 2023 rallies in corn were able to surpass price levels seen in 2013, once those rallies failed the market quickly found itself in lockstep with 2013 values.
Amazingly, the daily settlements this week for December corn of $4.9625, $4.8675, $4.8075, $4.7825 and $4.815 compared to the same week in 2013 of $5.005, $4.8625, $4.8075, $4.815 & $4.82 respectively. If we follow 2013 further coming out of Labor Day weekend, we can expect a higher opening near $4.90 with a failure by the end of the session which will mark a major high that eventually led to a test of $4.40 by the end of September.
While 2023 is certainly not 2013, we must be aware that the paths they have traveled are extremely similar. There are plenty of ways to protect your downside should 2013 repeat while leaving flexibility to benefit from rallies if they begin to deviate.
Feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT for assistance. We are here to help.
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