It ain't over 'till it's over

Published on: 09:19AM Aug 11, 2020

While one has to suspect that the buying witnessed in the grain and soy markets yesterday and again overnight can be attributed to pre-report short-covering, mother nature provided somewhat of a wake-up call and price boost as well.  I do not know about you, but until yesterday, I have never heard of "derecho" winds, which in Spanish means, direct or straight. Still, many of us across the Midwest are now very familiar with the term, as well as the havoc such a storm can wreak on crops and property.  It is probably too early to assess crop damages just yet, but there are multitudes of stories about twisted and toppled grain facilities. To quote the esteemed American philosopher, Yogi Berra, "It ain't over 'till it's over," which should be a lesson to heed for those who already have the 2020 crop tucked away in the bin.  Unfortunately for some, there is now not even the bin to put it in.

It will be interesting if any of the storm damage shows up in next week's crop reports, but there were no surprising revelations in the data released yesterday. Corn rated good/excellent slipped 1% to 71% while beans improved 1% to 74%. Corn that has reached the dough stage is now estimated to be 59%, 7% ahead of average, and corn denting is up to 11%.  Beans setting pods have reached 75%, which is 7% ahead of average as well.  Winter wheat harvest is now 90% complete, compared with a normal 93%, and spring wheat harvest stood at 15% compared with an average of 25%.  Barley harvest was also lagging, 16% compared with 32%, but beer drinkers can take solace in that the crop is rated 79% good/excellent.  Finally, cotton conditions slipped 3% to just 42% good/excellent, which compares with a 56% ranking in that category a year ago. Cotton setting bolls stands at 71%, which is 1% ahead of average.

As we are all painfully aware, the United States and China have been engaged in a trade war for a couple of years running now, but I have always maintained that the volume of trade will ultimately always boil down to dollars and cents.  Earlier this year, when Brazil had a plentiful supply, and the Real was sitting at historic lows, they captured the lion’s share of Chinese demand, regardless of Phase 1 commitments, but that situation has now shifted.   As one Chinese trader put it, “We’re happy to buy large volumes of U.S. Soybeans in the fourth quarter, as crush margins are great” and “demand is much better than expected, no matter from pigs or poultry.”   Possibly the most honest statement came from another source at a crusher who said, “Not many people care much about the Phase 1 trade deal now, because crush margins for U.S. beans are great and there is not much Brazilian old crop left in the fourth quarter. We’ll buy it anyways.” While it remains questionable whether they will live up to the Phase 1 commitments, it is estimated that China will be importing around 8 MMT of beans per month during the last quarter. This morning the USDA announced another sale of 132,000 MT of beans to that nation.

CONAB released updated figures for Brazilian crop production this morning.  For the 2019/20 total corn crop, they boosted the estimate a little over 1.5 MMT to 102.14.  The bean estimate was edged up fractionally to 120.936 MMT.

Gauging from the fact that the S&P 500 has closed higher for nine sessions in a row, one would not think that bulls need much, if any encouragement, but stories from Washington that suggest discussions concerning the next stimulus package, will soon begin again has helped lift prices higher again this morning.  This market has now pushed to within 30 points of the record high set back in February. Now, if you are one of those that shake your head every time equities rally in face of seemingly negative economic news, (guilty) then obviously you do not have enough faith in our FAANGs’.