The Calm Before the USDA Storm

The grain and soy markets were quiet to start the week as they waved off more extensive bombing in the Black Sea war and Iran again stopping any attempt to reopen the Straits. Despite sharply higher energy prices, mostly non-threatening US weather and positioning ahead of Wednesday’s major USDA report kept the trade in check. The geo-political news, China’s trade visit in September and US weather will take a back seat until the USDA report is released on Wednesday. There are many supportive factors in play, but USDA reports have wrecked bullish setups before.

News and Notes:

• Since late July the weather models have remained very consistent and largely non-threatening for most of the central and eastern Corn Belt with plenty of rain chances and normal temperatures. The Dakotas, WCB and S Plains remain the hot spots. Since the August rain started, there are many areas getting too much rain further aggravating late season nitrogen leaching. There is no change in the late year Super El Nino formation forecasts which will make for highly variable southern hemisphere weather with the corn and bean markets watching SA closely while the wheat market watches Australia. There is not a good model for improved genetics in a Sper El Nino year, so do not put too much stock in an apples to oranges comparison for the weather and yields in the next 6-8 months.
• The daily November bean chart is on Page 2 and today’s action did not change anything, but with prices trading around and resting on the 50-DMA (green line) and 100-DMA (blue), the risk becomes from a bearish report and bearish report reaction that takes out that support for a daily close after the report on Wednesday. A close below both would bring in the 200-DMA (black) is 40 plus cents below today’s close. The funds remain long 660 MBU which is a massive position to be sitting on going into such a historically volatile report while clinging to significant technical support with an air pocket under those levels. AI and algo trading platforms will dominate the initial direction within seconds of the report release. Be prepared for the volatility.
• Pre-report positioning is always a confusing pursuit to make sure you are not risking more than your stand to protect or make. With September option expiration next Friday, the 21st, there are many short-term insurance policies in the options markets to both set floors and have upside for previously sold bushels. It is too late to get an account set up for Wednesday’s report, but if you have an account, please look at the Sep short-dated bean 1170-1140 put spread and the Sep corn short dated 450 puts. The short-dated options will trade off the Nov and Dec futures contracts. These strategies are cheap life insurance for an unpredictable event.
• China was not mentioned by name in today’s daily export sales report, but a small 2 cargo corn sale was announced to Unknown. Higher gas prices will only push better margins for the renewable energy markets, noted today in solid rallies in both bean oil and ethanol. Demand is providing a big base of support if Wednesday’s report is bearish and the grinders, blenders, processors and feeders will be waiting to make purchases on a lower post-report trade.
• Crude oil rallied back toward $82 a barrel on the reality that Iran will never reopen the Straits without US penalties or payments, and the US strategic petroleum reserve fell to under 300 Mba, which is the lowest since 1983. Diesel reacted accordingly with a nearly 30-cent a gallon rally with prices now trading over 53-cents a gallon above last week’s low. Top off your tanks on every dip in futures below $3.70 and be patient with purchases in between the opportunities.

The August report has had some of the craziest trade before and after release, and a good plan is to put sell offers well above the markets (if you are hedging) and buy orders well below the markets (if you are an end user). The markets often move 3-5% in seconds before the dust settles, and cooler heads prevail. This report is one where having standing orders and being in front of a monitor (with live quotes) and appreciating that no person can move as quickly as the computer trading models. Wednesday’s report sets the table for the homestretch of trade into early harvest. Be prepared.