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Soybeans Awash In Market Uncertainty

Sellers are confident, even with little change in other fundamentals.

Grain prices are in a free fall, dropping in three weeks much more than the gains since mid-January, in what was once a promising rally. 

Fundamentally, it’s hard to see what could have changed so dramatically in just three weeks, but no one who trades the market cares that much about fundamentals. 

Sure, the 2018 crop year improved dramatically from the extremely late start we had this spring, with the horribly cold March and April. In May, everything dried out and warmed fast, and the entire crop was planted in three weeks. Then once it was planted, it started raining and the warm temps continued, so now we have a crop that is actually at or slightly ahead of normal and in better shape than normal (except winter wheat).

This week in crop conditions, the biggest improvement was in HRS wheat, with an increase in the good/excellent rating. Rating of 8% now at 78% vs. 41% last year. Corn and HRW wheat also improved 1%, but soybean conditions dropped 1%. 

Yield models for crops followed the ratings with corn up 0.3 bushel per acre to 176 bushels, winter wheat up 0.183 bushel per acre to 48.2, and soybeans down 0.01 bushel to 48.38 bushels per acre. The winter wheat is below USDA’s 48.4 bushel-per-acre estimate, and corn is 2 bushels per acre above USDA's 174 bushels, with soybeans also slightly below it. This shows that we basically have an average crop of soybeans, a below-trend yield wheat, and slightly above-trend yield in corn after the crop has emerged. There is still a lot of growing season left.

The only reason possible for a sharp sell-off at this time is the trade negotiations that are going on, or maybe more accurately, NOT going on. The U.S. issued trade tariffs on China, and China responded with tariffs of its own and a rejection of any previous agreements on trade. We are guessing that U.S. trade will slow with countries in the short run and possibly have gains in the long run. For now, sellers are confident in selling unceasing, even with little change in other fundamentals, even though we are at new lows. So down we have gone.

Crop Conditions

In crop development, corn emergence is 1% ahead of normal at 98%, with soybean planting 6% ahead of normal at 97%, and 9% ahead of normal emergence at 90% emerged. Cotton planting is 96% complete, 2% ahead of normal, but conditions are down 4% at only 38% G/E, vs. 61% last year at this time.  However, cotton prices the past 24 hours are down sharply as well (it’s not just based on crop ratings or yield potential). Sorghum planting is 89%, 7% ahead of normal, and ratings are up 4% this week to 54% G/E, but still below last year’s 66%.  

Sunflower planting is at 83% complete, 7% ahead of normal. Winter wheat is 95% headed (equal to normal), and 27% harvested (8% ahead of normal). Barley emergence is 1% ahead of normal at 96%, and 7% behind normal in heading at 8%.  

Barley conditions improved 1% to 84% G/E, well above last year’s 64% rating.  

Oats headed are also behind normal by 2% due to the cold spring and later planting (just like wheat and barley), but conditions improved 3% to 70% rated G/E.  

One concerning note is that both topsoil moisture (-2%) and subsoil moisture (- 2% to 67% adequate/surplus) declined this week for the second week in a row for the nation as a whole. That could spell some trouble should a warm/dry period come for those areas that have been getting below-average precip. Apparently it does affect quite a few areas. Yet, for now, the market doesn’t care, as prices continue their free fall.

Weather remains mostly favorable, with rainfall amounts the next 14 days in the Corn Belt mostly favorable and temperatures moderating down to normal to above-normal temperatures. But above-normal temps during May and early June are perfect summer weather in almost all Corn Belt areas (especially the north), as it helps warm up the soil and germinate crops quickly. So, stands are quite good across the northern Corn Belt, and despite late planting, crops have developed quickly so that we are at nearly normal development levels.  

As noted above, though, soil moisture levels have been slowly deteriorating the past few weeks, and that could be supportive at some point in the growing season. But prices have already dropped 19% soybeans in the past few weeks on the trade tensions with China. Since China is putting a 25% tariff on U.S. products (China mostly buys just soybeans), we’ve already cut its additional cost to almost nothing by our price drop. And we are selling our corn, wheat, and most other products much cheaper, as well. One wonders how much lower we can go. Technical targets are the lows made a few years ago, and they are not pretty.  

We doubt China will drop the price of their Walmart trinkets by 20% when we put a tariff on!  

Ray Grabanski can be reached at raygrabanski@progressiveag.com.  
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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top
Ranked marketing firm in the country the past 8 years.

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