After nearly twenty years as a commodity broker, one truth nugget remains: you can’t outguess USDA reports, nor can you outguess how the market responds to the data. USDA’s Sept. 30th quarterly stocks report was extremely friendly for corn and soybean futures. Demand for grain was stronger than expected, drawing stocks lower and setting the stage for continued steady to higher grain prices in the months ahead.
With the quarterly stocks pegged at 523 million bushels, well below the pre-report expectation of 576 million bushels, soybean futures now look to the next monthly WASDE report on Friday, October 9th. Traders are now expecting ending stocks to be smaller thanks to the quarterly stocks report, but all eyes will be on U.S. yield. The current USDA yield estimate from the September report is 51.9 bushels per acre. Early yield results from producers are mixed; not record, but potentially not as small as many had feared due to the extreme August heat.
Lower ending stocks in the United States will also draw down global ending stocks as well. With global demand for soybeans strong from recent Chinese purchases, the world now needs South America to have a perfect growing season to keep the balance sheet ample. Looking to South America, many feel Brazil and Argentina may have sold much of their soybean supply, with very little left to carry them through until their harvest begins in March of 2021. As their growing season is just beginning, trade will be continuously monitoring their production potential. Any slight hiccup in South American weather during the months ahead will have dramatic impact on soybean futures prices. La Niña, anyone?
For now, $10.50 continues to be a very heavy technical resistance level on monthly charts. In the short term, it will take confirmation from USDA on the Oct. 9 report of a smaller U.S. crop in order for prices to have a fundamental justification to clear the $10.50 price hurdle.
Equally shocking to the market was the surprise bullish quarterly stocks number for U.S. corn. Quarterly stocks were pegged at 1.995 billion bushels, well below pre-report estimates of 2.25 billion bushels. Stronger export demand and feed demand paved the way for this tighter number. This news was the catalyst needed to allow corn futures to break above the down trending line (on the daily December 2020 futures chart) which was established back in July of 2019!
Similar to soybeans, corn traders will be looking to the next USDA report to get a handle on yield. The most recent number for expected corn yield from the USDA is 178.5 bushels per acre. With just over one week until that report, corn futures will likely trade in a firm, sideways pattern. December futures have significant price support at $3.75, with the $3.65 area below as even larger support. Yet prices do not have any reason to significantly trade higher, without a fresh fundamental catalyst; a lower yield on the October 9th report would be needed. For the moment, $4.00 for December futures is the larger overhead resistance.
Looking back on all of this, the Derecho storm, extreme August heat, and Chinese demand were the major forces that shifted the bearish grain sentiment plaguing the industry back in early August to what is now a potentially bullish outlook heading into 2021. Corn futures have rallied over 50 cents, and soybean futures have rallied over $1 per bu. over the past 50 days due to adverse weather. Two unforeseen weather events shifted the entire dynamic of the supply picture for the U.S. crop.
Global demand for grain remains strong. The world will have an updated U.S. and global balance sheet to work from after the Oct. 9th USDA report. With perception that U.S. and world ending stocks are getting smaller going forward, all eyes will be on South American production. Any perceived weather threats will be dramatically emphasized by traders in the coming months.
The market volatility that had been largely absent for years is likely to come back. Use any spare moments to brush up on your marketing skills, cash grain strategies, and options strategies so you are prepared for whatever price scenario unfolds ahead. And always feel free to reach out to me with any questions.