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 Preview: 0:30min
Seasonal Sell Off?: 2:30min
Corn: 5:15min
Corn Divergence: 7:15min
Beans: 10:55min
Wheat: 12:20min

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Overview

Grains lower across the board after failing to rally off the back of the China & US trade headlines.

Intially grains were higher but sold off throughout the day.

We saw the US and China agree on a framework to advance negotiations.

This is not a trade deal.

It is basically a structured plan to guide future negotiations. Both sides also reduced their tariffs.

The conversation also surrounded rare minerals, not ags.

But this does help ease tensions for the time being and is a good step in the right direction.

USDA Preview

Tomorrow we get the June WASDE report.

Here is the estimates.

This report is usually not seen as a major market mover.

The market mover report comes at the end of the month when we get the acres and quarterly stocks.

They aren’t going to adjust yield this early. There should be zero changes made to the supply side of the balance sheets.

Which is going to leave demand being the thing that could be changed.

Most argue that the USDA should raise corn exports 50-100 million bushels.

Based on the fact that we have already met the USDA's estimates for exports with 3 months left in the marketing year, they probably should.

Chart from Pro Farmer

However, there is also the chance that the USDA lowers feed demand at the same time.

Which would help off set any bump in export demand.

So those two numbers are going to be the big ones that everyone is watching.

The Brazil numbers will also be one to watch. The rumors have been that their crops are getting bigger. The USDA estimates also have the crop getting bigger.

The bigger estimates for Brazil also have the world carryout increasing.

Past Price Action of This Report

Altough this report is not a trend setting report, it can cause some daily swings.

For corn this report has actually resutled in highs prices the past 8 years in a row.

Soybeans have traded lower 4 years in a row.

Soybeans have not traded higher than +4 cents in at least the past decade.

Seasonal Sell Offs?

I have seen a lot of chatter saying:

"Today is our seasonal high"

"Seasonally corn falls off a cliff"

Which is a true statement if you simply look at this seasonal chart for Dec corn.

But let's dive a little further..

On the surface, yes corn goes lower from here.

Matter of fact from June 11th to August 1st, corn has fallen the last 9 of 10 years.

Since 2010, it has only traded higher by August 1st from June 11th essentially two times (2010 and 2012).

Not great odds.

But instead of simply saying "corn will be lower by August 1st".

Let's look at whether the market provided an opportunity from today until harvest (using Sep 1st as a date).

For this data, I highlighted any years where Dec corn traded +20 cents higher than where it was on June 11th as an opportunity.

Since 2010, it is about 50/50.

Out of 15 years:

9 years saw a +20 cent opportunity.

6 years did not.

The point is that even though, yes, corn statistically should be lower come August 1st. Does not mean there can’t be at the very least a small opportunity before hand.

Just because today is our usual "seasonal high" does not mean corn has to completely fall apart here.

Another arguement to this would be:

Yes, seasonally we make our highs here.

But seasonally we were also suppose to rally going into May and June.

Instead, we did the complete opposite.

That usual brutal sell usually happens after the seasonal rally.

We did not get the typical seasonal rally into June this year.

You can’t say that we should post our highs here seasonally when we are sitting near contract lows.

Nothing about this year has been seasonal.

If our high for the year was February, it would be just the 2nd time ever we posted our highs in February.

We weren’t suppose to rally in February. We did.

We were suppose to rally into June. We did not.

This is anything but a usual seasonal pattern in corn.

Yes, we can and should struggle going into harvest. But that does not mean corn has to fall off a cliff and go to zero today.

Todays Main Takeaways

Corn

Fundamentals:

Short term I don’t know if we are going to get that weather scare or not.

Overall weather has been non-threatening.

Forecasts especially for Iowa have shifted drier here the next week or so.

Here is the 2 week anomaly.

Iowa and the western corn belt on the dry side while the eastern corn belt remains pretty wet.

Even with it being the middle of June, you can still see a weather scare.

What weather is like in July and August is where bushels are taken off or added.

The market still has zero weather premiuim built in and is acting like we already have a 181 yield in the bag.

Let's just say we do not get any sort of weather scare at all.

Well then yes, prices are going to continue to fall into harvest.

But what this will do is create that much more demand and help build the case for higher prices later down the road. Which will suck short term, but be a silver lining moving forward.

Demand is already great. If the US dollar continues to fall and corn prices are cheap to go along with it, demand shouldn’t be going anywhere.

Based on the world situation, the world still needs to buy corn from the US. As the rest of the world is the tightest it has been on corn in over a decade.

Economics of selling here:

It doesn’t make sense to just go out and sell all of your corn here.

We are already below the cost of production.

If we go lower, insurance payments etc. will kick in.

The worst case scenario would be for you to go out and sell all of your corn because you think corn is going to sub $4.00. Then we somehow rally and you not only miss out on the insurance payment if we would’ve went lower, but you then missed the rally and are stuck with selling corn below the cost of production.

That is why I am being patient for an opportunity, while realizing we could go lower.

If you know you are going to have to move something soon, or off the combine, whether that be for cash flow or any other reason, it makes much more sense to just add protection with puts.

RSI Divergence: How Accurate?

Seasonally we go lower.

Right now the weather doesn’t scream higher prices.

But at the same time.. we still have bullish divergence in corn.

Which gives me a little hope for this market.

It is showing on not only July corn, but Sep and Dec corn as well.

It does not mean we have to go higher, but it says downside momentum is getting weak.

RSI divergence marked several tops and bottoms in the corn market the past year.

Divergence is when the RSI does not follow prices.

Bullish = prices make new low, RSI does not.

Bearish = prices make new high, RSI does not.

Divergence marked our harvest lows. Feb highs, and March lows.

How accurate is divergence?

Just like every indicator it is not perfect.

But let's look at other years where this showed up.

I had someone ask me to compare 2012, so here it is.

It is hard to single out 2012 as it happens all the time, but in 2012 we also saw bullish divergence right before the rally.

Here is 2012 again.

This is an example of when bearish divergence marked the highs.

Prices were going higher, yet the RSI was not. Signaling the rally was losing steam.

Here is 2015.

We saw bullish divergence right before the July rally.

Here is 2019.

Also posted bullish divergence before the May rally.

Then bearish divergence marked the summer high.

Here is 2023.

We saw bullish divergence right before the June rally.

But we also saw divergence in March, which led to a small rally but nothing impressive.

Again, this isn’t a perfect indicator and there is not always divergence showing.

Here is 2022.

This is an example of when divergence marked the highs.

We did not see any bullish divergence the entire rally, but we did see bearish divergence at those $7.60 highs.

What about those years where prices simply did not rally?

Here is 2014.

Prices went lower. So did the RSI.

No divergence.

No rally.

Here is last year.

We did not see divergence until harvest.

It marked the harvest lows.

Now all of these rallies were driven by something.

Often times the charts can tell a story before hand.

So maybe there is something we don’t know about.. or maybe this divergence means nothing.

Fib Extension - July

July corn is still hovering above this decision point. ($4.34 to $4.27).

This is the 50-61.8% fib extension from the April sell off.

Meaning this box equals 50-61.8% of the size of the April sell off.

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

But if we do not hold this box, we will be looking at contract lows. Important spot to hold.

Dec Corn

We have a potential triple bottom.

Need to hold those lows or next stop is contract lows.

Still want to see $4.60 to de-risk.

Then if we crawl into $4.70 to $4.80 will be de-risking a lot heavier.

Soybeans

Technicals:

We offically posted a golden cross in July soybeans for the first time since 2023.

This is when the 50-day MA crosses above the 200-day MA.

This indicates that the long term trend is shifting from bearish to now bullish.

Like anything else, it is not a guarantee. But does suggest higher prices and a new uptrend in the future.

Nov soybeans have not yet posted a golden cross.

We are still a few cents away from doing so, but getting close.

My bias for soybeans leans higher unless we break this green box ($10.33 to $10.22).

That is the golden zone retracement from the May highs down to the April lows.

That is a decision point in the market.

We already bounced there once proving it is support. That is the key spot to hold.

If we can bust this newly formed downtrend, it should result in a leg higher.

I still have my next target at $11.04

That gives back 50% of the May 2024 highs.

For Nov beans, the level we need to hold is $10.18 to $10.07

Thats the golden zone retracement.

First target is still $10.82 which is 50% of the May 2024 highs.

Wheat

Fundamentals:

The problem in wheat is that we just don’t yet have a story for the funds to want to cover.

Seasonally, we actually struggle going into winter wheat harvest here.

But with the funds as short as they are, we should get a short covering rally at some point.

Maybe that happens after harvest when the funds run out of reasons to keep pounding this market lower, maybe it happens sooner. Anyone's guess.

We're just looking to de-risk when our targets hit.

Technicals:

July Chicago sitting right above their golden zone support box.

We need to hold here to keep the bias remaining higher.

If we fail to hold, we will likely re-visit the lows.

Just like we talked about in soybeans, this is seen as a decision point in the market. We either bounce here and confirm the rally isn’t over, or it's over.

For upside targets, I am still eyeing $5.70 to $5.85 to start to de-risk.

If we miraculously went beyond that, we do have the upper end of the channel as our 2nd target. But I am not banking on that happening.

KC wheat also hovering just above their golden zone support.

We need to hold this box or we likely drop down and test the lows.

Upside target to de-risk is going to be $5.76 and $5.94

Here is an update on that potential inverse head & shoulders pattern we talked about last week.

Sadly we failed to break above the neckline. Rejecting right off of it.

That is the level we needed to break to spark more upside.

It didn’t break so this pattern is no longer valid as we are now down at the right shoulder.

MPLS wheat was the only one that ran hard enough for me to want to reward the rally.

Hence our sell signal last week.

On the signal, we reclaimed 61.8% of the February highs.

We exactly rejected off of that level.

Bulls need to hold $6.04 to $5.97 to keep the bias higher. Thats the golden zone retracement of this entire rally.