Data Dump: July 17, 2019

Data Dump Truck

CORN MARKET UPDATE: The July WASDE report was released last week, and it extends the string of real doosies for another month.  Seemingly against all reason and logic, USDA actually INCREASED their production and carry-in estimates by 340 Mbu, and left consumption virtually unchanged, which INCREASED the ending stocks/use ratio back to a heavy 14%.  While the slight, 5 Mbu increase in consumption may actually be a “counterbalance” of their error in this case (because I feel consumption will drop further), their decision to simply go along with the 91.7 M acre planting intentions (and 91.1% harvested fraction) seems to be tremendously foolish given the torrent of evidence for epic prevented plantings and stunted crops that we’re bombarded with every day.  Furthermore, in my opinion, the very late stage of development for much of what was planted should have been heeded with a further reduction in yield.  On the other hand, as I discussed (in very boring fashion) in “Overestimation,” we should not at all be surprised that we’re seeing the estimated carry-in grow as many producers and handlers begin hoarding old-crop corn.  Finally, what we’re all really stuck in some sort of “Jedi Mind Trick,” and USDA will be vindicated (because ACTUAL intended acres might have been much higher than 91.7 once prices began to rally and farmers had the ability to switch)??  That’s the problem with trying to predict what’s going to happen…

Image result for yogi berra predictions are hard meme

With that in mind, here’s what I think happens from here…

  • Based on my own observations, along with evidence from others (such as the fascinating research by AgMarket.net), I am quite convinced that the final crop size will be cut considerably more, and we will see a final stocks-to-use ratio of less than 10%
  • As shown in the next figure, in years when the final supply carryout was reduced to less than 10% of consumption, the general tendency is for corn futures prices to increase at least through the end of October, and often considerably further.

Sub10 Analogs

  • However, the market is likely to work “sideways to lower” for several more weeks.  While 1993’s final carryout was just over 11%, it was still a year of major supply disruption, but yet futures priced dropped from this point in the growing season until deep into harvest.  I believe that occurred (and may again) because, by all outward appearances, the crop looks better at 60 Mph than in would in a drought year, so it becomes difficult to convince speculators that they should buy more of it from us NOW.  However, as we begin to worry about frost risk in September, and wildly disappointing yield results begin to flow from southern Illinois, the bullish story may be rejuvenated.
  • While I owned some call options earlier in the growing season, and had stated that I would buy more at some point, MY crop looks very good, and my “marked to market” price is the best I’ve ever had, so I don’t feel much need to “re-own” today and risk losing some of my hard-earned equity.  As we approach the AUG WASDE I may buy some calls, or perhaps I would buy some in the first week of OCT, but today I just don’t have enough conviction in higher prices to take new risks.
  • I think the “Sub10” analogs chart (above) demonstrates another important point: the AVERAGE tendency of years with tight carryout was for continued price appreciation from here forward,  but there were indeed some years when prices didn’t rally.  Indeed, If you examine the -1 STDEV line, you can see that, among those handful of tight-supply years, prices could fall considerably from this point.  Despite what appears obvious today (that the crop “just ain’t there”), we have no idea what hidden facts we are missing, or what other exogenous events could occur that might cut the knees out from under us.  Therefore, with prices still VERY PROFITABLE for producers in our region, you ought to be thinking about what you would do if prices fell 60 cents from here, because it could happen.
  • We’re back to a bearish outlook from the Seasonal Projection plot, but, from a mathematical standpoint, it’s hard for it to look differently when in so few cases has the market risen between now and DEC!:

Corn Proj 7-16-19

SOYBEAN MARKET UPDATE: Whereas the WASDE board COMPLETELY PUNTED on the corn numbers because they felt there was too much uncertainty, they actually tinkered with the soybean numbers and made some pretty noteworthy cuts to supply.  That’s particularly odd because, during the time that the acreage surveys were being conducted, corn plantings were much closer to completion.  In their estimate, total soybean supply for next year was cut 325 Mbu, or >6% decline, while consumption was only decreased by 75 Mbu.  While that would typically be face-ripping bullish, that would still leave the final stocks-to-use estimate at >18%…far more than the past few years.  Furthermore, to make things worse, my hunch is that USDA underestimated soybean planted acreage, so there is a chance that carryout could go back to >20%.  Therefore, I continue to reside in the “soybeans suck” camp, and I see no reason why the typical seasonal tendency toward declines into early-OCT should change:

SB Proj 7-16-19

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