Heat Dome Builds as Markets Ignore Bullish Signals Ahead of USDA Report

Another disappointing day of trade as early gains were unable to keep traction as positioning ahead of Friday’s option expiration, next week’s July first notice day and then the June 30th USDA Acreage report continues to drive daily direction. Despite several bullish leaning stories that have developed this week, all three markets have posted weekly losses so far. China remains absent from any export news and Thursday’s export report is not expected to be anything special, while crude’s negative momentum continues to be a bearish influence.

News and Notes:

• Starting Sunday, an impressively large high-pressure dome is expected to form and hold at least through the July 4th weekend across the Midwest and Plains with above normal temperatures and below normal rainfall. The crops will enjoy the upcoming heat initially, but soil moisture losses heading into pollination will be noticeable. When the markets return from the 3-day July holiday weekend, the Sunday night opening will be driven entirely by the timing of the regression or expansion of the heat dome. Europe continues to be baked, and the Indian government is making plans for emergency farmer relief as their monsoon season saw well below average rain totals. World weather is not perfect and there is almost no weather premium in new crop futures at these levels.
• The daily November bean chart is on Page 2 and shows the 4-day slide to wipe out over half of last week’s gains. Beans (unlike corn) are not oversold yet, but it is trending that way heading into next week’s report. The biggest concern for beans is that the funds remain stubbornly long 200 MBU which could add to the problem of putting in a bottom if the USDA shifts acres from corn to beans.
• Another enticing piece of bullish news that was reported by several sources today, is that Senate majority leader Thune is working on a stand-alone bill to mandate year-round E-15. The House has already passed this bill, and it comes at a time when both parties are positioning for the November mid-term elections and summer primaries. If passed President Trump is expected to sign the bill. Expectations are when implemented, corn used for ethanol would increase by 300-350 MBU per year, pushing annual use to roughly 6 BBU annually.
• With spring corn sales over 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. The total risk (including fees and commission) is about $500 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. Please call us about the trade and if opening an account makes sense for your operation.
• Another day passed with no Chinese flash sales announcements or rumors about political maneuvering to drop their tariffs to pave the way for purchases. This week has seen the US government put several Chinese tech companies on a blacklist which is not helping build any momentum from the agreements at the trade meeting. China buying US corn is a key piece, maybe the key piece, to higher corn prices.
• Crude oil prices fell under $70 for the first time since before the war and added pressure to corn and beans as ethanol and bio-diesel margins are fading on lower gas prices.
• President Trump announced that part of the deal with Iran included that $500 million of the soon to be released frozen funds would be spent on US corn, wheat, and bean products. Just for corn, Iran imports roughly 400 MBU annually. Iran has denied this provision.

Despite some green shoots of bullish news from the upcoming US hot/dry weather, a potential stand-alone Senate bill to mandate year-round E15 and Europe’s surging grain prices, the markets can’t seem to get out of the grip of bearish charts and China’s lack of movement on the trade deal. Today’s losses are particularly aggravating as the news and potential of the news does not make the average person think this is a great time to be short the market. Check to see if your local summer/fall delivery basis levels have increased during the break, to help take advantage of the price pullbacks.