Corn: It was another strong start to trade Monday morning, which was enough to take out contract highs. There was a surprise, however, that buyers quickly ran out of steam once the contract highs were made. Instead of more longs jumping into the market once contract highs are taken out, corn slowly faded back slowly. On that same note, December also took out overnight lows but couldn’t manage much steam to the downside either. There is still room for a technical setback, but trade like Monday’s is what we expect looking ahead short term.
Continuing our look into future USDA production reports, we have expanded the research to show what happens to final yield when the USDA drops August yields by a significant amount. While the September report shows mixed results, the final yield leaves a lot less to doubt. Six out of eight years when yield was lowered in August, it was actually raised when final totals were calculated. Now let’s look at reports comparable to the one we saw last week that shows a drastic lowering of yield. What we found is a full six out of six years when yield is dropped by 2% or more, final yield actually ends up higher. Given that we are talking about final yields, this means that corn can trade a good amount higher between now and then before final totals are figured out. As current estimates continue to fall and historical research suggest final yields are actually higher, the outlook is simple: short term we can expect a bullish grind higher; long term we may see a setback when yields turn out to be not as bad as expected.
Speaking of this, we will start our 22nd annual yield survey a week from Monday, which will help us get a much better grasp on what to expect on yields looking ahead. Will we see yields not as bad as current estimates, or will we buck this recent trend in final yields? Our yield survey will go far to answering this question.
In other news, crop ratings showed no change from last week at 60% good to excellent. Of the top five states…Iowa -6%, Illinois 0%, Nebraska -4%, Minnesota +1%, Indiana -2%…Ryan Ettner
Soybeans: As rain moved across the Cornbelt over the weekend, the trade was concerned that it wasn’t enough and missed certain areas. Rain is crucial in August and will keep the beans supported on pullbacks. Monday was a light volume day but closed strong with crude oil more than $2 higher. November beans closed above the 1350 area and could open the door to the next resistance of 1380 and 1400.
Conditions were released Monday and the USDA left the good to excellent rating alone. Beans are at 61% GTE and the 5 year average sits at 61% as well. The top five bean growing states will be watched the closest with Iowa dropping 5% and Minnesota and Indiana improving by 3% each.
Rich Nelson did a great job explaining USDA’s yield change in this week’s Monday brokerage meeting. I strongly encourage you to listen to that on our website. Please call us if you don’t know where to find it. When the USDA makes a drastic cut like they did last week, they typically correct it by the end of the year. We still feel weather will be the main driving force on the beans and will still be our main focus. We were able to take profits Monday on our 1300 call and will look at buying puts if we can approach the upper end of the range this week…Steve Georgy
Wheat: The market continued its rebound Monday as some export business over the weekend, a weaker U.S. dollar, and outside market support gave the bulls reason to buy. Over the weekend, Saudi Arabia purchased 660,000 MT of hard wheat that will be delivered between November and February in 12 shipments. The wheat was purchased from the European Union, Australia, Canada and the United States. It is nice to see the United States get at least a portion on the sale as it seems lately that Russia has been getting all of the export business recently. Algeria was in the market for 500,000 tonnes of milling wheat. It looks like French wheat will be filling this order. France is a traditional supplier to Algeria.
The weaker dollar also supported the wheat as it helps make U.S. exports more competitive on the world market. Outside markets also gave the market support as the other grain pits were higher as well as the metals, energy and the equity markets.
Harvest is progressing in the spring wheat region with the government estimating 13% of the crop has been harvested. This is down from the 31% harvested at this time last year. The winter wheat harvest is almost complete with 91% harvested. This is slightly behind the average pace of 94%. Even with Monday’s higher close, the market has not been able to take out the sideways range it has been in the past two months. Until the market breaks out of this range, we will recommend selling at the top end of it like we did Monday and buy at the low end of it…Jim McCormick
Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.