Grain Markets Drift Lower as Traders Wait on Heat, China, and USDA Acreage Numbers

Despite a weak early effort to start a Turnaround Tuesday, grain prices ended the day lower with wheat leading the way down as US cash prices remain weak during harvest, which spilled over into corn, while beans finished fractionally higher. Monday’s crop condition ratings offered no surprising news which added to the slow nature of the summer row trade today. China remains absent in any trade related news which when added to non-threatening US weather, makes igniting a late June rally very difficult. Other than Chinese trade news, any other market news will have a muted effect ahead of next Tuesday’s acreage report.

News and Notes:

• Rain continues to be both a blessing and curse for the US crops as another wet weekend saw most major production areas receiving some rain. The outlook is drier and significantly hotter for late June and early July, so it will be interesting to see if the weather bulls show up as heat hits the crop during the most significant part of pollination. European weather remains terrible with several European cities recording their highest ever temperatures over the last several days. Brazil’s harvest continues to roll along with no problems.
• The daily December corn chart is on Page 2 and shows the potential head and shoulders bottom that may be forming. The contract low of $4.34 ¼ was tested (but held) in today’s early trade and if any momentum can develop, a rebound toward $4.50 can unfold. The funds are short 250 MBU and are waiting for trend-changing news to re-enter the corn market on the long side.
• Monday’s crop conditions ratings did not change from the previous week with corn at 68% G/E while beans were 66% G/E. It is interesting that Illinois saw a 6% drop in corn ratings to 60% and 3% drop in beans ratings to 58% and the markets have largely ignored it. Iowa saw smaller dips of 2% (77%) for corn and 3% to 74% for beans. Iowa is on track for another year of state trendline yields, but trendline US  yields cannot have Illinois with a below average crop.
• Confidence is growing that the fund selloff lows are forming and with last week’s Chinese corn purchase, a better outlook is developing. With spring corn sales about 40-cents above current prices, I am recommending buying the September short-dated Corn $4.50/$5.00 call spread for roughly 10-cents plus commission. These options will expire August 21st to get you through the acreage report on June 30th, US pollination, and China hopefully coming into the US corn export market. Each of these things could be bullish for another 20-30 cent rally, but any combination of 2 of the 3 or the homerun of 3 for 3, would add another 40-50 cents to current prices. The total risk (including fees and commission) is about $650 per contract (5000 bu) and gives you the ability to sell additional bushels knowing that you are protected to December futures going to $5.10. These are commonly called “courage calls” and allow you the flexibility to potentially add premium to the previously sold bushels and/or give you confidence to make more cash sales and not be worried about a corn rally. Please call us about the trade and if opening an account makes sense for your operation.
• Solid and expected corn (another 4 MBU to Mexico today) and bean demand continues to be seen, but China has not dropped any of their tariff barriers on US corn and bean imports and they have not been mentioned in the daily sales reports so far this week. With SA harvest reaching its mid-point in the week ahead, there is plenty of cheap corn and beans for China to buy from Brazil or Argentina.
• Crude oil prices fell to their lowest close since before the bombing in Iran started in early March. With Iranian oil coming on the market and the Straits returning to more normal daily traffic, prices should continue lower. Top off your tanks as needed but wait on large gallon purchases for now.

It is hard to start a rally when it is raining, and it is hard to diagnose the yield effects of the fertilizer leaching and how the corn crop will handle the start of pollination. The markets are pricing in a 182-183 yield and little acreage loss to beans in next week’s report. The grind lower has been less frustrating than the sharp early June price drop, but it still hurts and wears down farmer optimism. Being patient is the only course of action for now but be ready if next Tuesday’s USDA report cuts corn acres and adds bean acres.