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Will a seemingly big crop send commodity prices into a tailspin?

Matt Bennett, Commodity analyst

July 24, 2020

5 Min Read

December corn and November beans are settling down a bit as the window for a weather market begins to close.

While the corn crop is likely quantified for the most part, the bean crop could be affected by extreme weather -- but it would have to happen in the next week or two. Given the lack of a persistent drought as well as temperatures that have been consistently below what forecasts had predicted, it’s not hard to believe the markets are having a tough time rallying.

Interestingly, we haven’t fallen completely out of bed either. Are these prices going to hold? What could be the catalyst for an unlikely rally?

Corn fades

First off for corn, Dec20 fell again on the week, continuing its fade from the pleasant surprise of the June Quarterly Stocks and Planted Acreage Report. With prices dipping another four cents on the week, we’re currently looking at Dec20 52 ¼ cents below the spring insurance price of $3.88.

Seeing prices this low during the growing season has made it exceedingly difficult for producers to pull the trigger on new-crop sales. In fact, since 2000, Dec corn has traded at or above the spring price every year. This certainly looks to be the year where we break that streak.

Given excellent weather in most of the corn belt in July, the weather market for corn is over -- and a yield above trend-line for the August report looks all but locked in at this point.

So, what could rally the corn market? Given our current carry of 2.6+ billion bushels at a 178.5, my assumption is carry will be projected much higher after we plug in the August yield. While this creates stiff headwinds, a person would have to be living under a rock to not notice strong exports of late…particularly from China.

With over 2.5 million metric tons of overall sales posted this week, China accounted for about 80%. Will they keep up this pace, even as we see tensions rise? My gut tells me China needs the corn after every government auction since May has resulted in over 30 million tons of corn being sold. I think they’ll buy more corn than most of us assumed, but I don’t see that as enough to prop up the corn market.

Dollar impact

If we could see those exports in tandem with the U.S. Dollar continuing its slide, then we may have something. Seeing the Dollar close below $94.60 on the week tells me we could have more significant down-side ahead. IF that is the case, it certainly bodes well for commodity prices as we’ll see US corn quite competitive on the world market.

With this being said, it could be tough to get the corn market to rally given the size of the crop me and my team are currently expecting.  

Beans an easier sell

On the bean side, we closed Nov beans at $8.99 ¼ on the week, which was a rally of 4 ¼ cents. This puts beans at 17 ¾ cents under the spring insurance price. Relatively speaking, it has been much easier to sell beans than corn, given the disparity of relationship to spring price. As with corn however, weather has been excellent. No, we aren’t in August yet, and beans are an August crop. However, it appears many of us will go into August with plenty of moisture, which certainly could translate to big bean yields. Given much of this bean crop went in early and is rated at 69% good/excellent versus last year’s rating at this time of 54% g/e. This could be a big crop --like 52 bu./acre or more.

So, can bean prices rally? Given the tighter supply/demand balance sheet, there certainly is less margin for error when it comes to surprises for increases in demand or supply disruptions. Demand has been excellent for US beans, particularly again from China. With overall sales posted this week at over 2.6 million tons, one must keep an open mind to the USDA increasing our exports. However, as far as a supply disruption is concerned, we’re running out of time. To get the market hyped, we’d need hot and dry weather to surprise us all over the next three weeks. In absence of an increase in demand along with a more ominous weather pattern, a sustained rally in this bean market may be hard to come by as well.        

Reach Matt Bennett at 815-665-0462 or [email protected]


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About the Author(s)

Matt Bennett

Commodity analyst, AgMarket.Net

Matt is a Windsor, Ill., farmer and former grain elevator owner. He is Channel Seed’s grain marketing consultant and holds a Series 3 brokerage license doing business through AgMarket.Net, Farm Division of JSA. He specializes in formulating risk-management strategies for corn, soybean farmers and livestock producers. A graduate of University of Illinois, Matt and his wife Tiffany live on the family’s centennial farm where they raise their five children.

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