A market that is trending can be difficult to reverse course, especially in a “big” market like corn.

It’s kind of like a cruise ship with a man overboard. The captain knows the ship needs to turn around, but it is not an easy task.

In 2015, the Oasis of the Seas cruise ship travelled nearly a mile before it could turn around to look for an overboard passenger. Corn now has a man overboard – but how quickly will the market turn around?

Due to an expanding drought and a derecho that tore through Iowa, the month of August reduced production potential for both corn and soybeans, and to finish the month December Corn settled 30’6 cents higher while November Soybeans settled 61’0 cents higher.

Both corn and soybeans made new highs for the month of August on the last day of the month.

While this is positive on its own, those highs at month’s end were forged after trading below lows made during the month of July; this is referred to as a monthly reversal higher.

While early September has yet to see immediate follow-through to the upside, these monthly reversals should at the very least signify a longer-term change in momentum and the expectation that buying will now occur more aggressively on pullbacks.

The boat has turned around and is pointed in the right direction.

Related:Drought impact deepens across Iowa

Looking for a bottom

A month ago, my message spoke of short term concern for corn as we were looking for a bottom to be made late in the month of August based on patterns of weakness into First Notice Day for September futures, but the ending of the blog hinted at a glimpse of “brighter days ahead.”

The aforementioned drought and derecho negated the typical weakness we expected, but were the crop losses for corn already priced in at the highs made in early July?

This has been the biggest difference in the corn rally versus the soybean rally. Corn has retested its July high and that retest was rejected, while on the other hand, soybeans have pushed through their July high and added nearly 60 cents to it. But soybeans are a smaller boat that is easier to turn.

WASDE report expectations

Next week’s WASDE report is expected to show a reduction in yield for both corn and soybeans. Status quo for USDA would be to show a reduction in production accompanied by a reduction in demand that partially offsets that lost production.

A larger than expected cut to production could be the catalyst for corn to push through recent highs, but we feel it more likely that the quarterly stocks report at the end of the month is the key.

AgMarket.Net has felt 2019 corn production has been overstated for months and this is the same report where stocks came in nearly 300 million bushels less than expected last year.

The difference between losing bushels on a quarterly stocks report compared to losing bushels on a WASDE report, estimating future production, is critical.

Lost bushels on a quarterly stocks report will not be offset with future demand loss; the bushels are gone. If this thought process comes to fruition, the October WASDE report could show a new crop carryout estimate of 2 billion bushels instead of the 2.75 billion bushels shown in the August WASDE report. Cutting stocks by nearly 30% in two months is sure to garner attention. So, don’t be discouraged if a lower ending stocks number for corn next week is met with little to no fanfare. The end of the quarter might just provide data the trade needs to see to develop the next leg higher.

What’s next

As harvest quickly approaches, our team has been focused on ensuring operational cash flow by selling fall delivery soybeans while immediately acquiring ownership on paper with options. The lack of carry in the soybean market suggests selling now while making it easier to establish conservative ownership of a deferred contract. We like using bins to store corn, but only your own bins.

Please don’t pay anyone to store your corn. If you want to discuss why, feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT.

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. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading infromation and advice is based on information taken from 3^rd party sources that are believed 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. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you. 

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.