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:
Overview: 0:00min
Corn: 3:00min
Beans: 7:35min
Wheat: 12:45min

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Overview

Not a big news day heading into holiday mode and the 3-day weekend. Markets are closed tomorrow.

The biggest news is that Trump is expected to speak at the Iowa state fair in Des Moines later today after the markets close.

Trump posted this Tuesday:

"I'll also tell you some great things I've already done on trade, especially as it relates to farmers. You are going to be very happy with what I say."

In other news, we had the US and Vietnam agree to a trade deal where they purchase US ag products.

Was this the reason for the rally? No. It was not.

A: This is old news. It was known a month ago.

B: Vietnam still isn’t going to be buying enough ag products to move the needle when it relates to demand on a big picture scale.

Last marketing year, Vietnam accounted for just 0.01% of our corn exports, 0.9% of our soybean exports, and 3.5% of our wheat exports. (For you cotton guys, they do account for 24% of cotton exports).

Minuscule numbers for the 3 main grains.

But this trade agreement does give optimism and show that trade deals are being made.

Full details on the agreement aren’t available. Rumors said they will buy $2.9 billion worth of US ag.. Last year they bought $3.4 billion. So it is unclear whether this is an additional $2.9 billion on top or not. Either, not a market mover.

Why did we rally?

It honestly feels like insider trading and that some big money knows something the rest of us do not.

Trump posted about his speech in Iowa on Tuesday. (Post above). The market did not have a big reaction until the middle of yesterday.

Which means it wasn’t his post that rallied the market. Maybe someone knows something.

Or maybe it was just speculation. We have a 3-day weekend and big money is covering their shorts in case he announces something.

Something I am nervous about here is the potential for this to be a buy the rumor sell the fact event.

The market pushes higher on the expectations of him announcing something, then we sell off once it's confirmed or if it's disappointing news.

So I am definitely cautious here that the market could have front ran a trade agreement announcement.

Angie Setzer is one of the most knowledgeable people when it comes to the cash side of grains. This is what she had to say on if she thinks the market is front running an announcement:

"That has been the rumor. We've also seen signs in the cash market though that something’s happening on the trade side. With flash sales announced this morning of corn, beans, and meal." "Looking at cash, it feels legit."

Hopefully the announcement doesn’t disappoint. Otherwise we could give back this rally pretty easily if it does.

Regardless, IF we do ever come to a full blown trade agreement with China that leads to them buying more US ags.. that is how we see much higher prices long term.

Last time Trump was President, yes he caused a trade war, which helped resulted in cheap prices for a while.

But he also helped create that bull market that topped in 2022. That bull market was largely led by demand from China due to the trade agreement.

Weekly Soybeans

Todays Main Takeaways

Corn

Fundamentals:

We've talked several times about how corn "should" be higher given that we have one of the tightest balance sheets we've ever seen in old crop.

Look at this chart that overlays our stocks to use ratio vs corn's prices.

Green = Price High
Red = Price Low
White = Stocks to Use

The last time the old crop balance sheet was this tight corn was $7.00..

Doesn’t make a ton of sense.. does it?

If the white line is going down, prices should be going higher. But that hasn’t been the case.

Why is this?

Some people thought that maybe it was because we have more acres the market thinks.. the recent USDA report confirmed that isn’t true.

Some thought that we have to have more corn bushels than the market thinks.. the USDA report debunked this one.

Of course, ideal weather hasn’t helped either.

I touched on this Tuesday but wanted to again go over this interesting thought on "maybe" why the funds continue to hammer corn depsite the bullish fundamentals.

The Answer: Interest Rates..?

This is one of the only justifications for funds pressing their huge short position.

The feds want to get inflation down. How do you do this?

Lower commodity prices.

If we look at the corn chart overlayed on top of the feds decisions on interest rates, it shows an interesting correlation.

The feds started doing rate hikes in 2022.

This is also exactly where the bull market for corn ended and the bear market began.

Last fall, the feds made their first rate cuts since 2020.

This marked our harvest low and corn rallied during the 3 months that feds cut rates.

This was also really our first sign of life and meaningful rally since the 2022 highs. (aside from weather rally in 2023).

If we look at how the funds have moved, last year they actually started to cover their short position in July. Before the corn market actually made a bottom in August and before we got the rate cuts in September.

In July, there was plenty of chatter about rate cuts.

The market is forward looking.

So maybe.. the funds don’t get back behind this corn market until the feds cut rates or until there is more talk about cutting rates.

The feds can’t cut rates until late July, and then again in September. The talk currently is that the feds will not be cutting rates in July.

Maybe the funds trade in corn was never about the balance sheet.. maybe it was always about interest rates.

It's not a set in stone proven theory, but there is definitely some merit to the argument.

Aside from that, weather doesn’t look too threatening for the next 10 days.

Both the GFS and Euro threw rain over a good portion of the corn belt.

How the forecasts change over this weekend will be important.

If they flip drier, we build some premium into this market.

If they flip wetter like suggested, we don’t.

Here is the outlooks through August 1st.

The models are complete opposites.

The Euro says dry.

The GFS says wet.

I don’t put much into these long term forecasts as they are been incredibly inaccurate.

Technicals:

Did not love the price action today in corn.

On one hand, we cleared some resistance but are now sitting right at this jumbled bunch of old support from May and June.

We exactly rejected this downward trend from April. To the penny.

This is now our 5th time rejecting it. So it is very clear resistance.

If we break above that trendline, it should spark an opportunity.

Funds aren’t nervous about this rally. But if we break that trend then it could start to spook them.

Until then, the risk and trend is still lower.

Still eyeing $4.48 to $4.55 to take more risk off the table if we can get up there. That reclaims 50-61.8% of the Feb highs.

Sep corn also rejected right at resistance.

Failing to break above this red box and perfectly rejecting that downward trend from April.

You cannot get excited until we break above that downtrend and the risk is lower until we do so.

Targets to take more risk off are $4.40 to $4.50 (50-61.8% of the Feb highs).

($4.30 would be a more conservative target if you want one, which is 38.2% of the Feb highs)

Soybeans

Fundamentals:

Short term I am slightly concerned about soybeans and how they are going to react to this Trump speech.

The potential that this recent rally could be a pump and dump, buy the rumor and sell the fact event come Sunday night.

Or the possible scenario where Trump's big announcement is something like "China will buy US ags" but nothing more and no details. Because they buy US product every year. Which could result in us giving back a good portion of this rally.

Disregarding this event, soybeans still have a very clear path to a much tighter situation here in the US moving forward.

It would take over trendline yield for the US new crop balance sheet to get bigger than last year, and yet prices are still below where we were last year.

Sure, we could raise trendline and get perfect weather.

But even with trendline, the situation is still tighter than last year. Any deviation below trendline yield could cause the USDA being forced to ration demand lower. That is how small the room for error in this soybean crop is.

I've shown this before, but this is a simple view on how yield impacts carryout.

Carryout is the up and down axis, yield is the side to side axis.

This chart does not account for changes to demand, so it is not a perfect resemblance. Simply shows how small changes in yield can drastically change things.

Look at the two red dots.

The one on the right is the current new crop carryout and yield. The one on the left is last year.

We already have a much tighter situation, even with yield projected to be +2 bpa acre higher than last year.

Purely for example, if yield came in the same as last year.. carryout without changing demand would drop to 130 million bushels. Which would force the USDA to ration demand lower.

Maybe we don’t get some crazy weather scare at all, but what happens if at the end of the day yield winds up being less than advertised?

Technicals:

Ugly price action in soybeans today, which further elevates my hesitation short term and going into the weekend.

We left a nasty looking candle on the chart, closing -9 cents off the highs.

This is the kind of candle that often happens before a correction.

We also reclaimed 61.8% of the recent June highs. Which is another decision point in the market. (red box). So finding resistance here is not surprising.

If we break above the 61.8% at $10.51 it should result in more upside. But we did not close above it today. That is the spot to watch to the upside.

Just like how when we were near the recent lows, I said that was an area we would likely bounce from. Because it was the 61.8% retracement down to the April lows. And we did just that. (green box).

Now bulls really want to hold the $10.30 to $10.36 level. (blue box).

That gives back 50-61.8% of the recent little rally we just saw. If we drop there, it is a standard correction. But it needs to hold to keep short term bias higher. If that fails, next support is back in the green box.

Our target of $10.82 still remains the same.

Here is two reasons why bears think we could correct here.

An ABC correction is the most common correction pattern in markets.

If you look here, this could very well be a corrective B wave bounce before heading lower and making that final C wave lower.

We have seen several examples of this in the past, some on a bigger or smaller scale than others.

We also have a potential bearish head and shoulders pattern in play.

I'm not a huge fan of these as it seems like these only play out 25% of the time, but it is something to be aware of.

For example we still have a massive inverse head & shoulders pattern that has been playing out since harvest.

Still hasn’t led to higher prices.

At the same time.. none of the technical indicators say it's time to sell yet.

The stochastics here are not yet over bought with room to run.

These marked our recent June highs as they were overbought.

The MACD indicator is actually on the verge of flipping bullish.

This happened several times before a rally.

If you are nervous, undersold, etc. Nov soybeans are still hovering right about in the top 25% of prices we have seen this year.

If you are someone in that camp, it is never a bad idea to take risk off the table if you can do so in the top 25%.

Wheat

Fundamentals:

Really nothing to add to the wheat market today.

Still patiently waiting for the next opportunity.

The funds are still heavily short, and typically we don’t see them start to cover until after harvest pressure is out the way.

If we do not get an opportunity before then, I think that'll be the catalyst for a wheat rally. As the funds won’t have as large of incentive to hold a massive short post harvest pressure.

Technicals:

Sep Chicago held the bottom of the downward channel on the recent lows.

At the same time, today we rejected right inside of the golden zone retracement up to the recent highs a few weeks ago.

Meaning we reclaimed 50-61.8% of those highs, and so far failed to bust through.

Like always, this is where the market makes a decision.

If we can bust above $5.71, it should result in a push up to those recent highs between $5.84 to $5.99

So that is still going to be our first target.

Our next target if we happened to ever break above that one would be the top of the channel.