This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
The funds have been buyers of grains and oilseeds for the last few weeks. Monday, however, saw a sizeable correction lower, with corn, wheat and beans all down double digits. The rally has been driven by threatening U.S. weather, threatening European Union weather, escalation of tensions between Ukraine and Russia, rising tensions and hostilities between the U.S. and Iran, and Chinese purchases of U.S. soybeans. Over the weekend, the weather models started backing off the heat and adding a little moisture for the U.S. EU weather has not improved materially. While tensions are still increasing between Russia and Ukraine, there are some rumors of a deal between them to allow grain shipments to flow unmolested. The fighting seemed to pause over the weekend between the U.S. and Iran as there are rumors of talks resuming. The markets have been on a very strong run, so a correction was not completely unexpected and also can be healthy for a rally so that the markets do not get too overbought. The frustrating thing about these markets is that we will not know if it is just a pause in the rally or the end of the rally until it is too late.
There is certainly some damage done to the U.S. crops from the hot and dry weather during pollination, but we do not know how much. The weather models have also been wildly unreliable this summer, so the market will need to see confirmation of a change in the weather pattern. There is also still a lot of geopolitical risk going on in the world as well. There are claims of indirect talks happening between the U.S. and Iran, but there has been no announced breakthrough. The fighting can resume at any time. Russian and Ukrainian hits on grain shipments could also resume at any time. I also suspect end users will be buyers on breaks with all the risks that remain. Big additional Chinese purchases will likely end the fund selling, even if the weather shows some improvement.
From a technical standpoint, the key price levels to look for are around $11.75 for November beans and around $4.58 for December corn. Fundamentals around the world are tightening up balance sheets, but fund activity will drive day-to-day direction. Get orders working, as the choppiness and heightened volatility will likely remain.
USDA released updated crop condition ratings Monday at 4 p.m. Conditions dropped, showing the effect of the heat on the U.S. crop. Corn conditions dropped 4 points to 63% rated good or excellent. That compares to 67% last week and 73% last year. Soybeans dropped 3 points from last week to 63% good or excellent. That compares to 66% last week and 70% last year.