Report Looms as Grains Pull Back

Despite sharply higher crude and diesel prices, grain and soy prices worked lower took a breather as profit taking and positioning were the big feature as both speculative and commercial traders' position for Friday’s USDA report. Despite more aggressive bombing and destruction of a major Russian export facility, wheat was the lead loser on news that Russia wants diplomatic talks to continue while beans and corn continue to fade from the early September highs. Other major news was absent in today’s lower volume trade and with the holiday, the weekly export report will be delayed until Friday and will be overshadowed by the USDA report later that morning.

News and Notes:

• NOAA confirmed that August was the hottest August on record and the US summer will also set a new record for highest average temperature. Heat has not been a major problem in recent years, but the inconsistency of rain this growing season and the brutal heat has been. Forecasts are calling for seasonal cooling to begin this weekend with increased rain chances for the Corn Belt, but both will be too little too late except for the latest maturing crops.
• The November bean daily chart is on Page 2 and like Dec corn, the trade has found a comfortable plateau to rest on before Friday’s report. The funds have modestly trimmed last week’s record long position, but the market has not corrected the overbought condition that has existed for the last 9 trading sessions. That is a long time to remain overbought and will be a big problem if the USDA comes up with a bearish yield number on Friday.
• StoneX came out with their yield forecast yesterday and were slightly lower than their August numbers but still over the USDA. StoneX forecasts corn yield at 182.9 (USDA 180.7) and bean yield at 53 (52.7) while the industry averages for Friday are 178.2 and 52.5. To give StoneX credit, their numbers last year were the closest to final of the major firms. The bulls need to see 178 and 52 to accelerate the rally, while a 179-181 may be priced in after the corrections of the last week.
• China and Mexico were announced as buyers in this morning USDA daily sales report. Mexico is the largest importer of US corn, so that is not a surprise as it is routine business. China has continued to be a steady buyer of beans heading into the Sep 24th trade summit, but today’s announced purchase of 14 MBU and another 4 MBU sale to Unknown is larger than the recent daily purchases. China is on pace to buy 550 MBU of beans before the trade summit. Export demand remains red hot and will easily reach USDA forecasts.
• It is annoying that the markets (especially wheat) continue to react to every diplomatic progress tweet or rumor considering how the war and destruction have escalated in the last month. There is always a chance some breakthrough could happen between Russia and Ukraine, but it will only come when Russia completely retreats or Ukraine gives Russia huge part of their eastern territory. Neither of these seem very likely at this point.

The harvest season is almost always the time where the markets natural sellers (farmers) are the most active in the market which gives the natural buyers (end users) a seasonally cheaper time to price some bushels. While those two things will remain in place this year, the addition of a historically long speculative community could add substantially to the selling side of the equation. At some point, the funds will unwind part of their long position, and unless the end user community becomes very aggressive in a rising price environment, normal seasonal producer selling and any sizable fund selling could become a problem this fall. It is a concern, but not one that would derail the market if yields are proven to be 178 and 52 or lower. But what it might set up on a bullish report is funds selling into the rally where smaller late arriving speculators and panicked end users are buying. This would make the market not react as bullishly as the numbers would indicate and is something to watch once the numbers are released.