This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Corn shrugged off USDA’s yield increase on Friday closing strong to give us the third positive weekly close for the first time since April. Corn was able to shake off the higher yield since carryout did not improve and the strength in wheat helped support as well. Wheat strength has come from smaller crops in Europe, calendar strength, and putting a geopolitical risk premium back in the market. If you were just looking at the wheat market for the last six months you would not believe there was any war being fought between two of the biggest wheat producers. The market had grown somewhat number to war headlines because both countries had been able to achieve similar levels of exports as before the conflict. Both countries have so far had tremendous incentive to export as they needed the hard currency. Ukraine and Russia have been both selling at a discount to the world price which is keeping the prices depressed. Now Russia has some production issues and they have food inflation creeping up domestically. At some point they are going to have to slow exports to get a handle on domestic prices to keep the home fires from blowing up. That is what the wheat market is watching and the funds decided they should take profits in their short positions before something blows up, literally or figuratively. On Friday, a Russian missile hit a grain ship after it left a Ukrainian port. The ship sustained minor damage, but it was a reminder about the ongoing conflict.
On Monday, wheat took a breather closing down solid double digits and as a result corn had a hard time finding buyers. We are heading into harvest in the US but the chart action on corn gives some degree of confidence the harvest lows may already be behind us. The prevailing sentiment is that we may see yields move lower from here. We are still going to have a record crop but we may have already priced in a bigger one. Funds are taking profit in short positions and end users see value at these levels. Demand continues to strengthen.
Soybeans struggle to get much traction but manage to maintain above $10 on the Nov. We have a big crop in the US but with the hot dry finish to the growing season, it may not continue to get bigger much like corn. In contrast though while corn carryout is projected to hover around the psychologically important 2 billion bushel level, soybean carryout is seen as burdensome projected at 550 million bushels (350 mb last year, 264 mb the year before). It is currently very dry in Brazil but it is the end of the dry season. To see a sustained rally in beans, we need a significant scare in South America. They can legally start planting beans in Brazil starting tomorrow but we will not see much planting start until the rains start. The market will not start to panic until mid October. If the monsoonal rains have not started by Mid-October, the market will start to get concerned.
Cotton was the lone bright spot on Monday with December cotton locked limit higher. USDA trimmed yield Thursday and the buying hit some technical levels bringing more buying into the market. The funds were still record short in cotton and now look to be taking profits. The US crop is getting smaller but we need some confidence in demand in cotton. A short covering rally is a pricing opportunity in cotton.
Look for more of the same in range bound trading in the corn and beans as we watch harvest progress. USDA reported bean harvest at 6% complete compared to 3% on average this week and corn harvest 9% complete compared to 5% last week and 6% on average. We are just getting started on harvest.