China Rumors Spark Explosive Grain Reversal Ahead of USDA Report

After July corn filled an open chart gap overnight with December corn making new contract lows, the markets began to bounce in early trade and accelerated quickly when indications that China had been in contact with US export firms looking for prices on new crop beans surfaced after the open. Beans enjoyed their largest daily gains since early March as the long hoped for Chinese purchase interest intersected with a hot/dry US forecast through the July 4th weekend. The trade now has many bullish things to think about heading into the June 30th acreage report as President Trump requests additional farmer assistance and year-round E-15 be passed together in the next few weeks. The mood changed quickly today, but Chinese purchase confirmations and troubling weather forecasts for mid-July need to be seen to continue today’s impressive reversal.

News and Notes:

• Rain for most of the Midwest will be seen ahead of next week’s heatwave as the models are coming into more agreement that the heat dome will stay intact for at least a week. The initial hot/dry will be welcome in the ECB, but if the heat continues into the week of July 6-10, early pollinating corn will see some acute stress. Europe remains in a record heatwave/drought with severe yield stress reported. The European weather outlook is far more dire than the US weather outlook.
• The daily December corn chart on Page 2 shows a classic DOJI where a new contract low was made overnight before a sharp rally was put in to post solid gains and a close above the previous day’s highs. The chart has been condensed to cover the last month and a half showing both the contract high of $5.06 ½ on May 13th and today’s new contract low at $4.31 ½. 75-cent breaks in June are rare and going from contract highs to contract lows during that span is more rare. No doubt it has been a hard 5-weeks of trade to stomach, but with the funds short about 325 MBU, their rush to cover could produce just as much of a rally as their rush to sell produced the break.
• More details and projections are coming out about the impact of year-round E-15 as President Trump pushes for it to be part of the $88 billion supplemental funding package. If passed, the ramp up would add roughly 500 MBU of corn use in 26/27, 1 BBU in 27/28, 1.5 BBU in 28/29, 2 BBU in 29/30, leading to 30/31 where would plateau at 8 BBU of corn used for ethanol annually. The easy math is that for each additional 500 MBU, the US would need to plant an additional 3 MA of 185 BPA yielding corn. Following through to full build out would add up to an additional 18 MA of corn. That would push the US to plant 110-115 MA of total corn acres or go to the world corn market to import the shortage. The thing that has held up year-round E-15 has always been the refineries. Prepare for a fight from them, but the potential for passage to fundamentally change the world corn market is obvious.
• Weekly export sales were within modest expectations for old and new crop corn and beans while wheat sales continue to run ahead of expectations despite our premium to the world market. Ethanol grind fell last week which is also disappointing.
• The $88 billion supplemental funding package would also help farmers as $11 billion of the request was for help for the domestic agriculture industry. $10 billion will go directly to the row crop farmers to help offset high fertilizer and fuel prices. This total has been consistent in prior aid packages but if you combine that and year-round E-15 passing, it would be a great bill for US farmers.

Today gave everyone a chance to exhale for at least a day as the brutal losses of June were stopped with some solidly bullish fundamental news from several fronts. Everyone had been waiting for China to make any signal they were coming to the US market and in true China form, they waited until the markets had completely broken down and are swooping in at what are bargain basement prices compared to a month ago. It is hard to assess just what each of today’s pieces of news could do for the bulls, but China buying, US crop yield in potential decline and year-round E15 is each bullish and prices could have a long runway for gains in the coming months. Tuesday’s USDA report will take over trade positioning early next week but today is a green light day for the bulls.