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:
StoneX Yield: 0:40min
Corn: 4:00min
Beans: 7:40min
Wheat: 10:40min
Cattle: 12:10min

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Overview

Ugly day across the board. The wheat and corn market continue to post new contract lows.

The wheat market is struggling to find anything for bulls to chew on.

Meanwhile, the corn market continues to price in record crops with more and more chatter of yields closer to 190 than 181.

Traders continue to point out concerns surrounding soybean demand.

Crop conditions yesterday showed corn ratings at 9-year highs (highest since 2016).

With the 3rd-best soybean ratings of the past decade.

StoneX - 188 Yield?

StoneX posted their customer yield survey yesterday. They showed:

Corn: 188.1
Beans: 53.6

A massive corn number.

Here is a visual on just how big of a number this is.

We have not beat trendline yield since 2018.

This would be the biggest move above trendline yield since 2016.

How accurate has StoneX been in the past?

They have actually been pretty accurate.

Compared to final yield, their August number has been closer than the USDA's August number the past 3 of 5 years.

The biggest miss was 2020. Both StoneX and the USDA missed big with the derechos etc.

Here is another table visual.

On average, they are 3.3 bpa too high.

If you exclude the big 2020 miss it is 1.4 bpa too high.

Now altough they are actually decently accurate, I do have a hard time believing we could see a 188 yield with all of the pollination issues, overnight heat, and in some areas too much rain.

Now that we have all of the July data. Here is how July's precip and overnight temps ranked in the last 133 years.

First is precip. You can’t tell me some areas of the central corn belt didn’t see too much rain.

Rain makes grain. But too much of anything isn’t good.

Iowa had 8-10 inches of rain in July. Average July rain is 3.5 inches.

Here is overnight heat.

The eastern corn belt especially was one of the warmest ever.

Given the crazy rain and overnight heat, you have to wonder if there is a chance that things aren’t quiet as good as advertised when boots hit the ground in September.

As yield estimates in August are mostly driven by satellite data. Not actually taken from being in the fields.

Satellite data does not capture pollination issues.

Upcoming Heat

The next 14 days are going to be hot for the corn belt.

According to Crop Prophet, corn production areas will be +4.4 degrees above normal temps while soybean production areas will be +4.1 degrees above normal.

I'm not so sure this is a great thing, especially for soybean production.

Sep Rate Cuts Odds Soar

The odds for rate cuts in September have soared the past few days.

We are now up to 83% odds for at least a 25 bps cut.

As I've pointed out countless times, this is a long term friendly factor for grains.

We tend to follow inflation higher.

Rate cuts lead to higher inflation and typically higher priced commodities.

Rate hikes lead to less inflation and typically cheaper commodities.

This could wind up marking those harvest lows as well. Similar to what we saw last year when the feds cut rates in Sep.

It just might give the funds a reason to be inclined to be want to be long this corn market.

Todays Main Takeaways

Corn

As has been the case for a while, there isn’t a real reason for corn to see a rally until harvest.

Demand has been phenomenonal.

We have the best new crop book of sales since 2021, which was entirely driven by China. In comparison we have not seen a single bushel of corn sold to China this year.

Chart from the Brock Report

But.. the market does not care.

It sees a massive crop. It will continue to price corn closer to a 2 billion bushel carryout until proven wrong.

Last year at this same time, we had a 2 billion bushel carryout. Our lows were $3.85 towards the end of August. So we could assume that is our absolute floor again this year.

The market is pricing in at least a +185 yield and a 2 billion bushel carryout. Just like last year. Hence why prices are the same as last year.

I don’t see how a move below last year's $3.85 lows could be justified.

Since the market is pricing in +185.. you have to ask yourself "what if" yield winds up closer to 180 instead of way above trendline.

It doesn’t seem entirely likely, but this crop isn’t in the bin. We still have no clue how widespread pollination issues are, how big of an impact too much rain had, how much damange the overnight heat caused.

IF yield did come in closer to 180.. this market is severely underpriced.

And we have already added all of this demand on top of this market.

Of course it's just a scenario, but it is a real possibility.

The expectations for this crop are massive. Probably too high. I mean what could go wrong?

On the other hand, if yield really is 188 then we are probably going to head lower.

If yield is 185 then we are probably fairly priced here.

Here is balance sheet breakdowns for a 181, 185, and 188 yield without any changes to demand.

181 = 1.66 billion carryout
185 = 2.0 billion carryout
188 = 2.27 billion carryout

*(Demand will naturally increase to offset increases in production)*

But you can see that the market is pricing in at least 185.

I showed this graphic all of July and why I thought we wouldn’t see our lows for the year until at least August.

Well we have now hit that seasonal time frame where we find our bottom more often than not between here and September.

In the past 10 years, our lowest prices for the year have came in August or September 6 times.

For the past 5 years, the lows have been in August or September 3 times.

Seasonals:

The 5 year seasonal has us bottoming right about here wihtin the next week or two.

The 10 year seasonal has us trickling down to $3.90 before finding a bottom late August to early September.

Regardless, both say we find a bottom within the next month or so.

Technicals:

We broke the golden fib extension box (50-61.8% of the size of the sell off after the 4th of July weekend).

The 1 to 1 move extension is $3.95

So it is looking like that is going to be our next stop.

That will be a good spot to look to re-own in my opinion.

As I do not think a sustained move below $4.00 will be justified.

Last year we had a much larger carryout and we only spent 30 days below $4.00

Soybeans

Fundamentals:

Soybeans still have plenty of growing season left. Most would agree that the corn crop overall looks better than the soybean crops right now.

The balance sheet is still tight with a 52.5 bpa yield and with the current demand numbers

Just look at how carryout changes based on yield (with no demand changes).

A 51 bpa yield evaporates our carryout and put it at the lowest in over a decade.

Meanwhile, a 53 bpa yield results in a carryout the same as last year.

So there just isn’t much wiggle room and US soybean situation is far from being burdensome as long as demand isn’t killed.

But demand is the issue the market sees.

Our new crop book of sales for soybeans is sitting at 20 year lows.

Because China has bought zero new crop beans.

Chart from Zaner Hedge

The market is basically surrounding the theory that "okay even if yield isn’t there.. losses to demand will offset the losses in production" resulting in a wash on the balance sheets.

It's a valid arguement and concern.

But at the same time, China will have to buy soybeans from the US at some point. They always do.

It's a little early to get all doomsday about bean demand.

We saw the exact same thing happen last year.

A slow start, only to eventually exceed expectations later on.

As for the supply side of things, the next two weeks don’t look ideal for the crop. Many places had way too much rain in July and didn’t give the crop a chance to breathe. So this soybean crop is far from being made. August is the make or break month.

August Seasonal:

Seasonally the start of August is weak.

So this price action isn’t surprising.

The last 2 years we found our bottom in the middle of August.

Technicals:

Nov $9.80 Support

I think $9.80 should offer some good support for Nov soybeans.

This is the trendline support.

It also happens to be the 1 to 1 move from the sell off following the 4th of July weekend.

Meaning this sell off equals the exact same as that one.

$9.80 is where bulls want to hold.

Possible Falling Wedge

We do also have a potential falling wedge pattern in place. Which is seen as bullish.

However, you need a breakout for confirmation.

Nov-24 vs Nov-25

I think $9.60 is our absolute floor in this soybean market.

Our lows last year were $9.60

Last year we had a carryout drastically larger than we do today.

Big Picture Chart

This market has been bouncing between $9.60 and $10.75 for over a year now.

$9.60 was the resistance during the trade war.

Which makes me further believe $9.60 is our absolute floor.

Wheat

Fundamentals:

Very little to update on the wheat market.

We continue to collapse despite fresh bearish news to drive us lower.

There is a reason they say "trade wheat, sleep on the street".

Winter wheat harvest is wrapping up, so you'd think we'd see less harvest pressure.

But at the same time there just isn’t a catalyst that makes the funds want to stop being short this market.

I don’t when the blood shed will stop. But what I do know is that I have zero interest in selling wheat down here. So I am just going to be patient and wait for that opportunity.

Technicals:

Sep Chicago

The Sep Chicago chart looks extremely ugly.

We broke the bottom of that black downward channel.

Now our last support is this blue trendline.

Continuous Chicago

On the continuous chart, we are now right at our last line of support.

We've bounced out of here everytime for over a year.

If we break below here, we'll simply be trying to catch a falling knife.

Sep KC

New contract lows for KC.

However, we do have a massive potential falling wedge pattern setting up. Which is a bullish pattern in nature.

We are about at the bottom of the wedge.

Continuous KC (Weekly Chart)

On the continuous KC chart, also sitting right at our last line of support.

I'd like to think we find a bottom here soon.

This was our resistance from 2019 to 2020. It is now support.

Cattle

On the charts it looks like cattle is poised to post a new high.

However, cattle has front month contracts breaking out to new highs. While some of the more liquid months are still below last week's highs.

This is an instance where you could easily see a bull trap. With one month breaking out and others failing to breakout.

The seasonals still bring caution. As they point lower heading into August.

As a matter of fact, from August 1st through September 5th, cattle has traded lower in the past 4 of 5 years and 9 of the last 10 years.

The only year it did not was 2023 (marked as 2024 as this data is Jan feeders)

Below is the data results if you took a short position on August 1st and held it through September 5th.

Could this market just keep soaring? Absolutely.

But we think it makes sense to keep hedges on.

With the funds wanting to push this market, we think it makes the most sense to utilize puts rather than straight futures.

Puts you can only lose the money you put up. Futures is where you can run into margin calls etc. and is far more risky if this market decides it wants to keep running.

If you want to discuss your situation and get a specific hedge recommendation, give us a call or text:

Jeremey: (605)295-3100
Lauren: (979)587-9252

For those of you that have straight short futures, if we make a new high in the the month you sold, that might be a reason to cover.

Again it really depends on your situation, so reach out with questions.

Volatility expands at tops and bottoms. We have record high volatility for the year right now.

If you need help managing current positions reach out and we can look at scenarios.

Technicals:

For Sep Feeder, we broke above the 61.8% retracement of the recent sell off so it looks like we will probably post a new high.

That 2nd target is the 200% extension of the June rally a little over 343.

If we post a new high, it looks like we might print bearish RSI divergence.

Where prices make new highs, but the RSI does not.

That is basically a warning sign that upside momentum is getting weak.

Another reason to be cautious up here.

Aug live cattle did not close above the 61.8% retracement of the recent sell off.

If they do, there is a good chance we go test the highs.

That 2nd target is the 200% extension of the June rally.