Analysts Say the Major Market Moving Factor Remains the Same into August

Commodity markets closed July with some price weakness, with both corn and soybeans trading down double digits for most of the day Friday. The muted market action came a day after positive prices were posted across the board. And as farmers enter a month where the markets could produce more volatility, the major market moving factor is the same. 

“Weather is the primary driver right now,” says Brian Grete, editor of Pro Farmer. “Anytime you're into late July or early August, that's the case. There are some other factors involved, and that's demand or lack thereof, especially on corn.

"We're looking at old crop ending or corn exports, not coming in where USDA anticipated they would, and I think that they'll have to make a downward adjustment in August. Soybean exports, you know, may have to make an adjustment there as well. But we'll see. The crop year probably isn't finishing up as strong for exports as what USDA had previously anticipated.”

Thursday’s export sales from USDA showed China canceled two cargoes of U.S. old crop corn but bought two cargoes of new crop soybeans. Despite the corn cancellations, the markets seemed to shake off Thursday’s news. However, Friday’s price action went the other direction for the final trading day of the year.

“If you look at the overall structure of the market right now, I think that everybody is focused on the weather,” says Drew Moore of Advance Trading. “And most models are pointing towards a ridge in the beginning of August. Now I know it cools off here for the next five to seven days across the Midwest, but really, that focal point is this weather. And it is on that ridge they're calling for. It's just a matter of where it pans out and where it moves over the next seven to 10 days, really.”

“If we get August weather, the tight and dry all the way through, obviously, implications for both corn and soybean crops you'd be taking yield off at that point in time, and then you tighten up the balance sheets. And we don't have a whole lot of cushion, hardly any at all, as we project out through the 21/22 marketing year anyway,” says Grete. “So if you start lopping off bushels in August, now it is kind of a big deal and the price would have to respond.”

Grete says when it comes to December corn futures, the market has made one thing very clear: $6 is too high so far.

“At the moment, $5 is too cheap and $6 a little bit rich,” says Grete. “We continue to chop within that range. In soybeans, there’s a wider range, obviously, because of higher price. But you know, $14.80 is the contract high and November futures—that's probably the top end mark for now, unless we get some sort of a weather event.”

As the market continues in a choppy range and as weather plays out in August, Moore says producers should really focus on the amount of new crop bushels they have protected.

“The focal point is the new crop, right? And if you don't have any sales on the books, we would certainly would advise to get some sales on the books,” he says. “If you're uncovered on some other bushels, certainly would look at buying some put options for you. Look at implied volatility over the last week. It's decreased significantly. So, if you're going to buy any type of options, it looks a lot better today than it did at the beginning of this week.”

He says even looking as far out as fall 2022 may be a wise move as producers manage the volatility in the markets.

“If you look at input costs for next fall—the fall 2022—they're about 70% higher year on year, depending on your geography. And so we want to look at some type of risk strategy, whether it's buying puts or executing a small increment of sales for next year just to defend some of the risks that we see on the input side.”