MARKET UPDATE

You can scroll to read the usual update as well. As the written version is the exact same as the video.

Timestamps for video:
Crop Conditions & Weather: 0:00min
Corn: 2:45min
Beans: 6:00min
Wheat: 9:00min
Cattle: 10:45min

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Overview

Grains hammered across the board as we struggle to find reasons to go higher.

Last night we saw some "derecho" type of events in south east South Dakota (where we are located), north west Iowa, and southern Minnesota.

From what I am hearing, this did not classify as a derecho but there was several areas with winds ranging anywhere from 60 to 100 mph.

The damage and if it was widespread enough to make an impact nationally has not been verified, but it seems like the market doesn’t think it was a big deal.

Here is a map from Crop Prophet that overlays the wind reports on top of corn production areas.

Crop Conditions & Weather

Corn crop conditions were rated 73% G/E. Which was unchanged vs last week and expected.

This is the best crop conditions have been since 2016.

There is some problem areas of course, but the number #1 producer of Iowa's corn is rated 87% G/E.

That is a huge rating.

The best since 1994.

Last year Iowa had a record yield by 5 bpa. This year the G/E rating is +10% better vs last year at this time.

So it appears Iowa is going to have a huge crop.

Here is conditions vs the 5 year average from GrainStats.

Soybean conditions jumped +2% this week. From 68% to 70% G/E.

The only two years that had better ratings for this time of year were 2016 and 2020.

Spring wheat ratings dropped -3% from 52% to 49% G/E.

But it seems like the market simply doesn’t care and still thinks we have a good crop.

The problem with crop conditions are they are just an eye test from the side of the road.

Which means that if we do have any corn pollination issues or if this overnight heat has caused problems, it is not going to show up in crop conditions.

This growing season, despite being wet, has featured some of the hottest overnight temps on record.

But since crop conditions doesn’t show this, we won’t know if this had an impact on yield until we get into the fields.

For now, the market sees "best corn since 2016" so we struggle.

Here is the overnight temps ranks from June 1st through now for this year.

Part of the reason for the weakness today is the forecasts.

The next week is suppose to be cool. A lot different from the recent heat.

Here is today's minimum temps vs this Saturday's minimum temps.

Today Minimum Temps

Saturday Minimum Temps

However, the heat is expected to pick back up in the 10-15 day forecast.

Todays Main Takeaways

Corn

We do not have a reason to go higher today.

At the same time, we have already priced in a pretty large +185 yield. Which means our downside is probably "somewhat" limited.

Meaning we could see $4 Dec corn or slightly lower, but I have a hard time thinking we go drastically below $4 or stay below $4 for an extended period of time.

Last year Dec-24 corn spent less than 1 month below $4.00

Our lows were $3.85

I know I probably sound like I'm beating a dead horse as I've talked about this several times, but our supply and demand situation is a lot tighter than it was last year at this time.

The reason prices are the same as last year is because the market is pricing in a +185 yield.

What does a 185 yield do to carryout?

It bumps it up to about 2 billion bushels (without changing demand).

Which is exactly what our carryout was last year at this time.

Which is why I don’t think a move below those $3.85 lows we saw in Dec-24 corn would be justified, and if we get a move below $4.00 I do not think it will be drastic or long lived.

If the market is truly pricing in +185 yield, what happens if it's 181 to 183?

We are probably slightly undervalued then.

You have to keep in mind, we did have a ton of extra acres. Which means we have fringe acres that make it even harder to hit a monster yield.

Last year we didn’t see 180. It just feels like 185 might be slightly high IF there truly is pollination issues and if this heat made any impact.

The market is already trading it's highest expectations we will see for supply.

It won’t happen for a while still, but eventually the market will turn to trading demand.

We have very solid demand under this market. New crop corn exports are better than they were last year at this time.

If we spend a lofty amount of time below $4 demand will only increase and help support this market.

Another thing to note is that we've seen a ton of farmer selling this year.

Which is what makes this year different than the last few years.

The last few years there were a ton of old crop bushels being moved at harvest to clear room for new crop. It feels like we won’t have as much of that this year.

Bottom line, the market sees a +185 yield and will continue to price corn like that until it is proven wrong.

We do not have a reason to rally and will more than likely struggle to find one until harvest.

Simply a waiting game.

Feds & Interest Rates:

Last thing to note, I do still think the feds decision on rate cuts and higher inflation will lead to a better "risk on" appetite for commodities as a whole.

Like I've mentioned, 2022 rate hikes marked the bull market top. Rate cuts last fall marked the biggest rally of the bear market.

The feds rate decision is tomorrow.

Trump wants rates lowered.

But they will not cut rates tomorrow.

As odd makers say there is a 97% chance they leave them alone.

I assume they will cut rates on September 17th.

This lines up with those typical harvest lows in Aug to Sep. The funds start to get back into this market when they are confident a rate cut is coming. Similar to last year.

Technicals:

Here is a new fib extension support box for Dec corn.

This green box equals 50-61.8% of the size of the sell off from early July down to those $4.08 lows.

$4.09 is the level to hold. If not, the 1-to-1 move lower is $3.95

Meaning this sell off would be the exact same size as the early July sell off if we hit $3.95

Soybeans

Why doesn’t the market care about the trade deals?

This includes the corn market, but we've inked trade deals with Japan and the EU. But the market hasn’t cared. Why?

For starters, no one expected this demand for corn or beans to go away from Japan or the EU.

Unlike China, these countries really don’t have enough power to buy more than they already were.

Japan and the EU are already big customers. It's hard for them to buy even more.

The countries we've made deals with don’t have room to increase their purchases like China does. So China is the only one the market cares about because they are the only ones who can move the needle in a meaningful way.

China hasn’t bought corn in forever.

Fundamentals:

If the market is trading a +185 corn yield, it safe to assume the market is also trading at least a trendline soybean yield. Although it is still early as August is the make or break month for this crop.

But it seems like there is also a ton of concern surrounding soybean demand.

Exports to China make up about 20% of total demand for US soybeans. A huge number.

The concern is that we can’t come to an agreement with China and we miss the usual export window from August to November.

If we look at this chart, we stilll have zero sales on the book to China.

Which isn’t unsual, but we are quickly approaching that key export time frame.

So the market is concerned demand might not be there.

The US and China offically extended their tariff pause for another 90 days.

Which brings us right into late October and that prime time shipping season.

Us losing demand is a valid concern. If we lose China business soybeans could get drastically cheaper and we'd be swimming in soybeans.

But at the same time, if this truly was a concern wouldn’t soybeans already be a lot cheaper?

Regardless it's a risk. Demand is a bigger negative risk than supply in this bean market.

Because even if we raise 52.5 bpa yield.. our balance sheet isn’t bearish. As it's the tightest in 3 years and only gets tighter if yield is less.

Big Picture Chart:

Big picture I think we've found our long term floor in the $9.60 range as long as we don’t kill our demand.

$9.60 was our resistance during the trade war.

We've continued to use that as our new base of support. Bouncing there last fall.

Old resistance is now support.

Technicals:

We broke below the golden zone of the recent rally (61.8% retracement) which opens the door for us to test $10.00

$10.00 is the must hold level. As we have a gap of air lower if it fails.

The sell off from July 3rd to July 14th was -60 cents.

So the 1 to 1 move if we saw the exact same size of sell off after the recent July 18th highs would put us right at $9.83. Which happens to be that trendline as well.

If we do not hold $10.00 the next stop is probably $9.80 or so.

Wheat

Fundamentals:

Winter wheat harvest is getting pretty close to wrapping up, yet the wheat market continues to struggle.

The wheat market is stubborn. There just isn’t a reason for us to go higher here yet.

Some say that the US dollar's strength today is the reason the wheat market was lower.

I have a hard time getting behind that arguement. The US dollar has been falling the entire year. Yet wheat prices haven’t been climbing the entire year.

Long term a weaker dollar is friendly grains because it supports better demand. But it's not an immediate be-all tell-all factor.

Here the US dollar overlayed on top of wheat prices. There is no correlation. The dollar falling doesn’t mean wheat has to go higher. The dollar rising doesn’t mean wheat has to go higher.

The dollar impacts demand but not prices directly.

There isn’t much going on in the wheat market, but I do think we start to carve out some lows or at the very least stop the bleeding here relatively soon with harvest pressure out of the way. Not calling for a rally. Just think the downside is somewhat limited compared to how we've struggled.

Just being patient here.

Technicals:

Here is continuous wheat.

We are right back in this support box that we have held for 17 months in a row now.

I would like to think we continue to defend it.

It would not be a good look if we failed to do so.

Sep wheat rejected right off that 23.6% retracement up to the Feb highs. Which is resistance level 1.

If we break above that, we should go and test resistance number 2 at $5.69 which is the 38.2% retracement. We have rejected that several times.

If we break above the 38.2%, that would be agood indication of higher prices.

Target is the 50-61.8% retracements.

KC wheat trying to defend contract lows.

Resistance is the green box.

Cattle

Technicals:

If it wasn’t for the really bullish report on Friday we would have alerted a sell/hedge signal already.

But given how bullish of a report it is, we are waiting to see if we have a little more upside left in the tank.

So let's look at our next targets given the fundamentals have shifted friendlier.

Sep Feeder 🐮

We closed above my original target.

Which was a simple 200% fib retracement from the May lows up to the June highs.

The next fib level after the 200% fib level is the 261.8% at 348

This was a little too optimistic of a next target, so instead of a fib retracement I used a fib extension instead (scroll to view this chart with my targets).

Here is the fib extension that measures the rally from May to June, then down to the June lows.

A fib retracment (shown in first image) uses two points. A high and a low.

A fib extension (this image) uses 3 points. A low, a high, then another low.

So in this case, May low -> June high -> June low. Then projects the next move off that low.

We broke above the 161.8% extension. So our next target is the 200% at 343.

To the downside, I am watching to see if we break yesterday’s lows. That could be an indication we are starting our correction.

Oct Live 🐮

For live cattle we used a fib retracement.

We closed above the 161.8% level. Next target is the 200% right around 230

I would be de-risking there and will likely alert a signal if it hits.

Fundamentals:

However, I am being very cautious here.

I think we have a little more upside left given how friendly the report was, but we are approaching a seasonal time frame where we tend to struggle heading into August.

I could very easily see us getting a correction soon.