Grain markets are all in the green this morning, led by corn prices extending their five-year highs, as the complex continues to factor in more wet weather in the U.S. Corn Belt.
“I believe that anyone can conquer fear by doing the things he fears to do, provided he keeps doing them until he gets a record of successful experience behind him.” – Eleanor Roosevelt (former U.S. First Lady)
[maxbutton id=”4″ ]
June 17 – Are Corn Prices Poised for Record Rally?
Grain markets are all in the green this morning, led by corn prices extending their five-year highs, as the complex continues to factor in more wet weather in the U.S. Corn Belt. Conversely, rains were welcomed this past weekend in Western Canada as most of the region received moisture that can only be described in some areas as crop-saving. While Minneapolis hard red spring wheat prices this morning are green, this has more to do with traders following the bullish buying across the rest of the wheat complex, and less about concerns about the crop in the Canadian Prairies. In fact, last week, HRS wheat prices were the only thing that didn’t find gains (from a weekly performance perspective).
Later today at 3PM CST, we’ll get the weekly crop progress report from the USDA but at this point, we’re making history in terms of the delay of the crop getting in, something that, at least for the eastern Corn Belt, University of Illinois ag economists are now calling, a black swan event.  That said, the market is expecting to see corn planted percentages to come in somewhere between 93% and 96% (83% last week), alongside a good-to-excellent crop rating of 60%-61% (59% last week). Grain markets are also expecting to see 80% of soybean planting completed (60% last week). Allendale is reporting this morning that Informa Economics cut its U.S. corn planted area estimate by 8 million acres and American hard red spring wheat by 600,000 acres.  Conversely, they only raised U.S. soybean acres by 370,000.
Drought is a Real Threat in India
Two weeks ago, I pointed out emerging drought conditions in a few places: Australia, Western Canada, parts of the Black Sea and India. For the latter, India is the midst of one of their worst heat waves, albeit, looking at the data, it’s starting to become the new normal.  It’s been estimated that India will receive 96% of their normal monsoon rains over the next 4 months but it comes after a dry winter season with soil moisture reserves already being very depleted.
Through the first 2 weeks of June though, the India Meteorological Department says that rainfall deficits across the country range from just 43% to 68% of their long-term averages.  Important pulses-producing state, Madhya Pradesh, hasn’t received much moisture and concerns are growing over production potential. So far in the summer kharif planting campaign in India, 20.3 million acres have been planted, which is down about 9% compared to a year ago.
Ironically, the government of India just increased their import tariff on lentils to 50% (55% when including the additional 10% tax placed on the import tax).  This is up from the previous level of 30% (or 33% when, again, including the 10% tax on the import tax). The bottom line here is that India’s decision-making when it comes to trade policy continues to be volatile. I’ll repeat what I’ve said many times over the past few months: it’s unlikely these import tariffs on pulses are going away unless India’s monsoon rains aren’t good and domestic prices start to push higher. The last thing the government of India wants is a revolution on their hands due to high food prices.
Corn Prices Headed to the Moon?
Front-month corn prices ended the week at five-year high as the bulls are starting to control the field, thanks to more wet weather in the forecast.  After last week’s bullish WASDE report for corn prices that felled average U.S. yields by 10 bushels to 166 bushels per acre, speculators are starting to think that the USDA will have to make more cuts.  This includes acres as well, as there are plenty of areas in the eastern Corn Belt where farmers have reluctantly given in to Mother Nature and are holding Prevent Plant parties instead. 
On the cash market, corn prices for old crop have been continuously bid higher by end-users like ethanol and livestock operations, especially in the Eastern Corn Belt. The thought here is that these players won’t have any corn contracts to guarantee themselves supply. Further, given corn prices rallying this much, feedlots are actively buying wheat supplies instead of corn (this is what we call substitution effects). This in mind, end-users of corn, such as producers of livestock feed and ethanol, have been bidding up for old-crop supplies in the cash market this week, especially in the eastern Midwest, where farmers have been hit hard by unrelenting spring rains. 2018/19 U.S. corn exports are certainly slowing down through Week 40 as it becomes more expensive to “buy American”.
Long-time analyst Kevin Van Trump notes that some of the most active bullish players think that actual harvested corn acreage could come in closer to 70 million acres, and with it, corn prices spiking to $10 / bushel.  Granted, these bullish actors in the grain markets are just on one extreme of the spectrum, and the probability that we see double-digits for corn prices is quite small. Other veteran/respected analyst Darin Newsom says that the next level of resistance for corn is at $5.17 / bushel.  As he correctly points out, the Chicago Board of Trade is “really the world’s largest casino, but what you have to do is you have to go in with the best information available.
I agree with this statement and that the best information is available on your farm and in the trend of the market – focusing on the best marketing strategy for your cashflow needs and cost of production limitations should be your first priority in today’s grain markets. It’s easy to talk about what’s going on a few miles or 100 miles away that might impact grain prices; what would happen if you spent that energy determining exactly what your profit margin would be at a specific price point instead?
At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3413 CAD, $1 CAD = $0.7456 USD)
Sept Corn: +7.3¢ (+1.6%) to $4.655 USD or $6.244 CAD
Aug Soybeans: +15.8¢ (+1.75%) to $9.188 USD or $12.323 CAD
Aug Soybean Meal (per short ton): +$3.10 (+0.95%) to $327.80 USD or $439.68 CAD
Aug Soybean Oil (cents per lbs): +0.47¢ (+1.7%) to 28.24¢ USD or 37.88¢ CAD
Sept Oats: -2.3¢ (-0.75%) to $2.943 USD or $3.947 CAD
Sept Wheat (Chicago): +7.3¢ (+1.35%) to $5.493 USD or $7.367 CAD
Sept Wheat (Kansas City): +9.3¢ (+1.9%) to $4.978 USD or $6.676 CAD
Sept Wheat (Minneapolis): +4.3¢ (+0.75%) to $5.748 USD or $7.709 CAD
Nov Canola: +3.6¢ (+0.35%) to $10.703/bu / $471.90/MT CAD or $7.979/bu / $351.83/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.