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:
USDA: 0:00min
Cattle Signal: 2:00min
Corn: 4:20min
Beans: 8:20min
Wheat: 11:20min

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Overview

Grains mostly green as wheat leads the way higher, with soybeans decently higher and corn virtually unchanged.

Overall, weather remains unthreatening.

The market is starting to price in record yields.

And the trade is disappointed we didn’t see any big trade deals like Trump had made some speculate we would.

So the grain markets simply lack a major catalyst to move higher here.

Tomorrow we will have the July USDA WASDE report.

USDA Tomorrow

Tomorrow is mostly going to be about the demand side of the balance sheet for old crop.

New crop will get some slight updates as they plug in the new harvested acres numbers but not much expected to change on the supply side.

Odds are the USDA does not touch yield at all.

They have not raised corn yield in July since 2003.

They have never raised soybean yield in July.

The trade is looking for a slightly smaller corn carryout and slightly higher bean carryout.

Here is the estimates:

The biggest thing to watch is corn exports & corn feed demand.

Today export sales were a record for this week of the year.

Chart from Allendale

The USDA is almost going to be forced to raise corn exports.

We are already +56 million bu ahead of the USDA's entire marketing year export projections.. we still have two months left.

Chart from Robert McClure

New crop corn export sales are roughly +4% ahead of last year's pace at this point in the year too.

So the USDA should "at least" raise exports by 50 million or more.

Chart from Allendale

The bigger question is will they lower feed demand?

Our old crop carryout is already drastically low.

If they bump exports that could drop carryout another 50-100 million bushels. Leaving us with a 1.30 billion bu or so carryout. Which is very tight.

So the UDSA might try to offset their bump in exports by lowering feed demand. Which could result in a wash on the balance sheets.

If the USDA decides to only bump exports and not lower feed demand, it would be pretty bullish for demand.

Cattle Sell Signal

On Tuesday I shared my next cattle targets.

This morning we alerted a sell signal & hedge alert. Which you should’ve received.

Why?

2 Reasons:

1) Last night we had news that we would be closing to the border to Mexico due to screwworm. This really doesn’t not make a big difference. As the border was only re-opened for a short amount of time.

2) We hit my target in August feeder cattle.

That target was the golden fib extension from our May lows to our June highs. Meaning that this target was 161.8% of that intial rally. (blue lines)

This is a continuation target after a pullback and a very common spot for a rally to stall.

That is exactly what happened. We gapped up higher on the Mexico news. We then tagged that target before collapsing well off the early highs.

On our June sell signal, we were approaching the golden fib extension from the March rally. That extension also exactly marked the local high. (red lines) So the exact same technical target played out both times.

We did not hit the golden fib target in August live cattle.

But we posted new highs.

Since we hit the target in feeder cattle, we issued a cattle sell signal.

When a target hits in one, you take risk off in both as they will each other higher or lower for the most part.

The funds are also extremely long. Holding a massive record long position.

This does not mean they are going to just sell out and crash the cattle market. But it is of course something to be cautious of up here.

Weather

There is zero concerns with weather.

It's been pretty perfect overall for most.

The forecasts also favor pretty ideal weather moving forward.

It makes it hard to rally the corn or bean market when weather looks this non-threatening.

Here is the next 15 days of rain. Just look at Iowa. Zero concerns.

Here is the next 10 days of temps.

Again, zero concerns.

One area that has been light on rain is northeastern Illinois.

As they added this region to severe drought in the last drought monitor.

This is a pretty important area. Iowa has the potential for a monster crop, but unless Illinois has a record crop I don’t see the pathway for a the crazy 185 yield estimates that are being thrown out there.

Todays Main Takeaways

Corn

Fundamentals:

Overall the crops look fantastic. But it is way too early to start saying we are going to see a 185 yield.

We still have the 2 most important months of the year ahead of us.

If weather remains ideal, I think we could hit 181 trendline yield from the looks of it. Which hasn’t happened since 2018.

But how do you get to a 185 yield when you have +5 million more acres than last year and a bunch of fringe acres?

Weather is too ideal. So we have no reason to get a sustained rally here.

The market thinks we have a record crop, and will continue to trade like so until there is a reason to be proven wrong.

The funds have a massive short position and are pushing this market around. But they still have ammo if they want to keep hammering this thing. As they are only holding about half of their record short from last year.

The funds don’t have a problem pushing this lower until it doesn’t work. And they can push us lower than we should go based on the fundamentals. At some point it'll back fire, but that might not be anytime soon.

Odds favor that we aren’t going to get a real opportunity until harvest and once that harvest pressure is gone. That is probably going to be the turning point in this market as long as we don’t raise a record 185 yield.

If we do raise 185, then yes we could still go substantially lower.

But just because we will probably be heading lower over the next 30 days or so, doesn’t mean the corn market has to continue to fall apart like it has.

We already got that seasonal sell off.

The past 5 years the market tends to stablize and trend sideways to slightly lower into harvest, rather than simply continuing to see a blood bath.

Here is the 5 vs 20 year seasonal.

Notice in the 5 year, we are close to those lows. In the 20 year, we have a long way to go.

5 Year Seasonal

20 Year Seasonal

That harvest low could also coincide with this theory that the funds are pounding corn due to interest rates.

The feds want lower inflation. Cheap commodities do this.

We started this bear market when the feds did rate hikes for the first time in years.

We found our very first sign of life and our longest sustained rally last fall once the feds cut rates for the first time since 2020.

Feds are able to cut rates in September.

Because if this corn trade was purely based on carryout, we would be at $7 corn.

Clearly, that's not the case.

So maybe part of this is interest rates.

The other part is probably simply the thought of a massive crop coming at harvest.

Overall just try to hang on if you can.

It sucks, and prices could keep sliding. But you have to be patient for an opportunity that may not come until after harvest. Like last year.

Economically, it doesn’t make sense to puke sell all your corn here when we have all of the farm payments, crop insurance payments, etc.

Even if corn has another 20-40 cents of downside here, the worst spot you can put yourself in would be selling all of this corn this far below the cost of production. Then we rally post harvest or ink a deal China and trade much higher later on.

If you know you'll be forced to move something at harvest, give us a call and we can walk through some solutions: (605)295-3100. For most, the best thing might be simply grabbing downside protection or a re-ownership strategy if you are forced to sell.

Technicals:

We are in the golden fib extension lower. Meaning this level equals 50-61.8% of the size of the entire sell off from April (that sell off is marked with the dotted line).

This is a common spot for a market to find some life.

If we fail to hold this box, $4.00 is the next downside projected target.

Need to break that blue downward trend to get excited about this market.

Sep corn closed right at the 61.8 the 3rd day in a row now.

If we do not hold here, the next projected downside target is $3.92

Bulls need to break the downtrend.

Soybeans

Fundamentals:

I have been and am still bullish long term on the soybean market personally.

That does not mean we have to rally tomorrow, or even a month from now.

We could very easily struggle for a while if weather remains ideal.

But.. what happens if we get into the end of the year and yield was never 52.5 bpa and was actually closer to 51 bpa?

The US soybean carryout evaporates rather fast.

This has been my reason for being optimistic in beans and will continue to be that reason.

I've shown this countless times. Here is how yield changes carryout if you leave demand unchanged.

IF yield slips even fractionally, the USDA would be forced to ration our demand lower.

The only way to justify demand rationing? Higher prices.

Altough the crop is off to a great start, we have an incredible amount of time before this crop is "in the bag".

Outside of weather, the biggest risk to this market is if trade talk with China goes haywire and we kill our export demand. Aka a trade war 2.0 like 2019.

The biggest bullish wild card also happens to be China. What if we ink a trade deal and they agree to buy an enormous amount of beans? That is largely what created the last bull market.

So many factors at play. With so many unknowns left in this market.

Could we see $9.50 soybeans again? Sure, it could happen. All it would take is some good weather or a lack of trade deal progress.

But I think there are more potentially friendly outcomes than bearish ones especially looking long term.

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Let's say we do raise a trendline yield of 52.5 bpa..

Well.. new crop carryout is still at a 3 year low and down -15% from last year alone.

At the same time, we are still below where we were trading the past few years.

That is why I think soybeans have "potential".

Technicals:

Yesterday, Nov beans broke key support.

The 61.8% retracement level from the June highs down to the April lows.

This level was also key support since harvest.

Today, we rallied and closed back above that level.

So this could’ve possibly been a bear trap. Today's price action was important. If we closed red today, the chances of us falling to $9.93 looked likely.

But we are back above key support, so not all hope is lost here.

We bounced right off some support from back in March and last December (blue dotted line). So if we fail to hold todays lows at $10.02 we will probably go test $9.93

Sep beans bounced right above that 78.6% retracement level.

That is the level to hold here.

If we break below that, we could go test those $9.69 lows.

Wheat

Fundamentals:

Still in that time of year where we just don’t have much going on the wheat market.

As for the report, there is one potential surprise I could see happening and am watching for.

The report only estimates winter wheat production to be down -24 million bushels from last month. However, the June acerage report had harvested acres down -900k. Which would be roughly -60 million bushels or so.

So it's kind of confusing where the trade got tomorrows estimates. Thus, there is the potential for a friendly surprise if production comes down as much as the acres in the June report suggest.

Outside of that, winter wheat harvest should be over 2/3rds of the way complete here pretty soon. Which historically leads to less harvest pressure once you hit that milestone.

I think the wheat market can start to carve out some meaningful lows after this harvest pressure is out of the way.

Technicals:

Bouncing right along this newly formed uptrend.

Ideally we continue to hold that.

If not, we head back to the bottom of the channel.