USDA Rally Takes a Breather

The markets took a breather after Wednesday’s sharp post-report rallies with corn pulling back to technical support on higher SA production estimates while wheat gave back early double-digit gains on negotiation rumors for a ceasefire between Russia and Ukraine. With this week’s severe port and infrastructure damage around the Black Sea, negotiation rumors cannot fix the massive damage and reopen normal shipping. The week will end with the trade continuing to position to account for all the cross currents of news with USDA confirmation that the US crop is good, but not great and unlikely to improve too much through August.

News and Notes:

• Some unexpected but extremely welcome rain fell in the WCB with many areas in E Nebraska seeing anywhere from 1-3 inches, but also very strong winds in places. Tuesday a mini-derecho swept through central Ohio with 100 mph winds and knocking down a yet to be released total acres of corn. Rain is nice in August, but the increasing wind damage with each storm is concerning for personal safety and crop health. Extreme heat is expected through the Delta and southern Corn Belt for the next week, but the heat is bringing rain chances for many areas. US weather is consistent and prices in the market.
• The December daily corn chart is on Page 2 and shows this week’s volatile trade where the 50-DMA (green line) held before the report and the 20 and 100-DMAs (red and blue) were tested into today’s pullback, with both holding. Today’s selloff helped correct a modest overbought condition, but today’s trade (technically) does not raise any red flags and is rather normal after any 4-5% move when more bullish news is not available. The funds added roughly 250 MBU to their nearly 1 BBU net long position yesterday but were sellers today, but not nearly in the volume seen yesterday.
• CONAB raised Brazil’s expected corn harvest this morning by another 50-55 MBU while the Rosario Exchange also raised Argentina’s estimate by about 35-40 MBU. An extra 80-100 MBU of corn in the world supply is not that big of a deal, but the USDA (as in most years) is below both of those estimates for SA corn production.
• Rumors and speculation continue to circulate that the US and Iran and Russia and Ukraine are having negotiations which are being treated bearishly by the algo headline reading trading models. Common sense tells you that any negotiations will not accomplish much if recent history is any indication.
• There were so many numbers and updates in the USDA, it is hard to look at all of them. Yield and acreage changes are both headline items, but the one that ends being the result of all the changes that is really important is the stocks to use ratio. Corn’s STUR was updated to 10.1 which is an important component of corn’s rally because any ratio under 10 is normally associated with $5 corn futures. There is no margin for error for the bears in the upcoming reports on either yield loss or the USDA finding increased demand. Continue to cover feed needs on breaks and set up your bin clearing Sales Targets in stair step fashion (sell a % every 5-cents higher) with your buyers.
• The weekly export report was poor today and there were no additional daily sales to China or to anybody else. Despite today’s weak export report, the totals remain impressive as witnessed by the USDA raising corn exports another 70 MBU in their report. Demand is the strongest leg of support under the corn market.
• Please take a minute to listen to the special USDA report edition of the FieldLink podcast that was recorded after Wednesday’s bullish report. If you want to hear my before and after report thoughts, here is the link to my segment on Chip Flory’s AgriTalk just before the report.

The USDA has groomed every farmer and trader to be terrified of their reports and (fortunately) the angst going into both the July and August reports that caused scared bearish selling going into the report, was misplaced as both reports were not overwhelmingly bullish, but both saw meaningful post-report rallies because there were no massive bearish surprises. The long list of important day to day factors has not changed as the next 6-weeks of US finishing weather, Chinese demand leading into the September 24th US/China Trade Summit, and both wars will continue to offer daily excitement.