July 19, 2018
Corn bulls want to point towards drought complications in a few areas of the U.S., most of which are in the perimeter or second-tier producing states. There is starting to be some talk about pockets of problems in Iowa, Illinois, Minnesota and Nebraska, but the market tends to hear of these smaller isolated problem areas each and every year, so it's not giving the talk much credence or reason to add additional risk-premium, at least not at the moment.
Movement in the market seems to be minimal, the daily ranges are narrowing as the trade seems to be consolidating. Rather than more talk of a +180 yield, there's more talk of a slightly sub-180 yield. Regardless most are still thinking the current USDA yield of 174 is too conservative.
There's some early thought that USDA might elect to slow-walk the yield higher into year-end, raising it slowly and gradually until they have more accurate on-hand data once the crop gets out of the field.The only problem I have with this approach is the fact it constantly keeps a cloud over the market and the bears with leverage to argue the USDA is still too low and will be raising their estimate higher.
When the USDA gets overly optimistic and makes a large bump higher, it provides the bulls with some extended leverage and the ability to argue they are eventually going to cut. Despite the recent rally, I'm still not sold on the fact prices are moving back towards significantly higher ground. The overall global macro landscape appears to have shifted and the U.S. crop looks strong. Be careful getting bulled up in this environment.
Think longer-term and keep all hedges place. Demand remains strong, but I just don't see it being a sexy enough story to lift us out of the current hole. I believe we are going to need much wider and deeper impacting headlines to get the bulls back up and running.
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