Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com
Market Commentary for 7/2/21
This week’s USDA report had positive news for farmers, with both on farm stocks and planted acres being lower than the trade was estimating.
Corn
With this report published, weather will be the main market driver going forward. So far, 75% of the corn belt has had good weather. However, dry conditions in the northwest part of the corn belt have been a concern and its impact on yields is uncertain.
I updated my supply and demand tables to account for the USDA’s planted acre estimates. I’ve also included several potential yield outcomes (the red section).
If Carryout/Ending Stocks hit 1 billion (1,000), it would be as if the country was basically out of corn and prices could reach $8. However, if Carryout/Ending Stocks hit 1.6 billion (1,600), prices would probably pull back to around $4.
Based upon the USDA’s demand structure in the June report, and assuming trendline yields, current prices are somewhat overvalued. However, if the northwest part of the cornbelt’s weather conditions worsens and drag the national yield average lower, then carryout will likely remain as tight as this current year and prices may need to rally to ration demand.
Also, prices could trend higher if ethanol and Chinese export demand increases for old crop as well as new crop.
Some in the trade think that with Brazilian corn production estimates dropping each week, more export demand will be shifted to the US. However, Ukraine corn production is estimated to be back to trendline levels after dropping nearly 25% last year. This additional production could make up for some lost Brazilian production.
Beans
This week’s USDA report also showed a slight bean acre decrease compared to the March report. Now, like corn, upcoming weather will dictate price direction. Where July weather impacts corn the most, August weather impacts beans more. So, we will likely need to wait another month to determine how much weather is going to impact bean yields.
In the table below I have included several yield scenarios (the red section) and its impact on carryout.
If Carryout/Ending Stocks hit 100 million bushels (100), it’s basically like being out of beans in the US and could rally prices into the high teens. On the other hand, 250 million bushels (250) would likely create a big surplus and send prices back toward $10. Beans are going to be extremely sensitive to weather issues, as any minimal carryout change can shift prices $1/bushel.
Based upon USDA estimates, I lowered crush demand (the blue section) if yields were below trendline and I increased export demand (the green section) if yields were above trendline. If yields are above trendline, it’s likely bean prices are overvalued. However, if August weather conditions lead to below trendline yields, it will take higher prices to ration demand.
Looking Forward
We are now trading a weather market. Corn may face production issues with the northwestern corn belt as dry as it is. The July 4th weekend often creates fireworks, as the following two-week weather forecast looks at what will occur during the heart of corn pollination. July weather does not affect beans as much, so they will stay a wild card until August forecasts become available.
There is still debate in the trade as to how many more bushels will be exported yet for the 2020 crop, let alone the 2021 crop. Each week the market will receive updates on those number and that could create dramatic price swings.
Prices will likely continue to be a very bumpy ride for the next two months.
Want to read more by Jon Scheve? Check out recent articles:
Can Beans Rally Back Above $15 Or Are We Headed For $10?
Weather, Exports, & Acres Will Dictate Prices - $4 & $8 Are Still Possible
$4 or $8 Corn? $10 or $20 Beans? It All Depends On Weather And Export Demand
How Does The Delivery Process Work For Corn On The CME
More Wild Swings In The Corn And Bean Markets Should Be Expected
Can Corn Make A Comeback After A 90 Cent Drop?
New Crop Over $6 For Corn And $14 For Beans And We Aren’t Even Trading US Weather Yet
Will Corn Need To Trade Above $8 And Beans Above $18?
It’s A Sellers Market And Buyers Are Feeling The Pinch
Can Corn Get Back To $6 And Will Beans Make It To $15?
Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
