August 4 – Corn Prices Rise Ahead of Next Week’s WASDE Report

Here’s our recap of daily grain prices at the Chicago Board of Trade.

Corn Prices Rebound

Corn prices pushed higher Friday.

Buyers have been swooping in on the speculation that the current crop is not as good as the USDA has reported. Recent trading sessions have coincided with the release of private reports indicating that yield levels will be lower than the projections from the July WASDE report.

Also, speculators believe that the percentage of corn crops rated good-to-excellent will continue to decline in USDA progress reports later this summer.

The September corn futures contract ticked up three cents to finish the day at $3.665 per bushel. Meanwhile, the December futures contract added 3.75 cents and closed the day at $3.81.

According to AgChieve Corporation, the December corn futures contract has been trending higher since surpassing a critical technical level of $3.75. Below, you’ll see how the contract has been moving over the last year once it surpasses that level.

AgChieve Corporation
December corn futures turning up off an important line of support at $3.75

 

Brennan discussed the ongoing challenges in South America this morning. A massive glut of corn supply across Mato Grosso, the nation’s largest producing state, is pushing local prices lower. Bunge announced that Brazil would see another huge crop in the 2017/2018 marketing year.

Meanwhile, in Argentina, corn harvest is picking up. The Buenos Aires Grain Exchange announced that the Argentinean corn harvest is now 68.7% finished. That figure represents a 6% gain over last week’s status.

Soybean Prices Near One-Month Low

We saw some bargain hunting in the soybean markets, but that hasn’t translated into bargain buying. Following Thursday’s downturn, soybean prices were rather stable. Soybean prices were hovering at one-month lows. Now, we have to pay attention to what the funds are doing.

The August soybean futures contract fell 1.25 cents to close the day at $9.495. The November soybean futures contract fell 1.75 cents and closed the session at a little below $9.57. These declines came in contrast to the upticks we saw in the canola and rapeseed November contracts.

Remember that Winnipeg trading will be closed on Monday for Civic Day. But it’s another day on the floor in Chicago starting bright and early Monday. That said, increased rains and lackluster export figures have weighed on sentiment. We’re going to discuss a bit more at length the current conditions of the soybean crop all next week.

Look for a full recap of the WASDE report on Thursday.

Wheat Prices Mixed

The September wheat futures fell 3 cents in Chicago to close above $4.54. The December wheat futures contract fell 2.5 cents to close at $4.825. In Kansas City, wheat futures contracts also slid.

In Minneapolis, September contracts for spring wheat were up 3 cents on the day to close. We’ll explain why in a minute…

But first… as we noted last month, the contrarian indicator of Marketwatch and other mainstream press pushing readers into wheat-related ETFs was a sign that markets had reached a short-term high.

Most of the writers have no idea what they are talking about, which is why there are more reliable press options in the world of grain. But they also are chasing momentum and aren’t thinking logically.

They see a 30% jump in a one-month price and say to themselves: “I’m going to get on board with this frenzy.”

We saw the same thing happen in the energy markets in 2008, the silver markets in 2011, and even the Tulip markets of the 1600s. Don’t pay attention to the people in the press saying that a single-commodity ETF has nowhere to go but up.

This is a lazy argument.

It’s cannon fodder for click bait.

And it drives me insane that headlines carry short-term predictions for $6.00 corn, but offer a thesis for the best case scenario of $5.00 in a tight market.

Remember that wheat-ETF we discussed a few weeks ago?

The one that was supposed to be a can’t miss investment?

It’s fallen more than 11% since we started talking about it.

Funds started taking the short approach around that time. This is why we have to pay attention to what money managers are doing and now what is happening in the mainstream press. Chicago wheat prices have fallen more than $1 per bushel since their early July peak.

This doesn’t mean that prices won’t push back up – particularly if we get a sharp yield adjustment from the USDA and weather conditions continue to provide bullish support for the crop.

But $1 is a longer climb than most people think – particularly the ones with skin in the game.

How High Will Food Prices Go?

Finally, an interesting report trickled out of the Food and Agriculture Organization.

The United Nations’ food agency said that food prices had hit their highest levels since 2014. Grains and sugar are leading the way. The agency’s food price index hit 179.1, its highest level since December 2014. For those keeping score, food prices have increased by 20% in the last year, according to the agency.

On the grain end, the report focuses on the lack of high-quality wheat coming from the United States, Europe, and Australia. There’s no shortage of corn and soybeans in the Western Hemisphere. Let’s get that out of the way. Even if the USDA were to report a 15% decline in yield expectations next week, we’d still have a figure that is the fourth highest yield expectation of the last two decades.

Meanwhile, in South America, there’s so much corn and soybeans that they’re running out of storage.

The problem is that the world wants its pasta, its local bread, its couscous and other regional foods. And all of these things that are important cultural products are going to cost more money.

The more than people understand the factors driving these increases, the better. We don’t discuss agricultural economics very much on the global scale. It’s just another reminder of how important the weather is… and why there’s never a dull day to talk about it.

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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