You are here
Bullish Market Factors are Stacking Up, Analyst Says
It appears the bull market is awakening.
Prices seem to drift higher daily, and there seems to be plenty of reasons why. By the time many read this in newspapers, the USDA Oct. 10 report will already be released, either validating much of what I wrote below, or not.
But it appears to me this report might be perhaps the most bullish report of the year as finally USDA will have to recognize higher prevent planting, smaller beginning stocks, and less yield in corn and soybeans. That should be the tinder to ignite a bull market in grains that could last anywhere from 6 months to 3 years!
Not only is bullish information coming out on paper, but weather forecasts have continued to suggest colder weather over the next week, with temps plummeting later this week into freezing temps over much of
the Midwest. Temps will be below normal for the western two-thirds of the U.S. the next week, with the coldest temps from Oct. 11 to the 15 in the west and moving eastward which will end the growing season.
The eastern Corn Belt will hang on to normal temps the next week, but it turns colder as the week progresses. The 8-14 day forecast keeps the below normal temps in the northern half of the U.S. Corn Belt, but the southern half is currently forecast above normal. Precip is below normal for the entire 14 day forecast EXCEPT the next 7 days in MT, ND, SD, MN, and WI which will see above normal precip (and they are already too wet!).
Crop conditions in the Monday, 10/7 report further deteriorated last week as soybean ratings fell 2% to 53% rated G/E, and corn dropped 1% to 56% rated G/E. Most significant is these drops are occurring during harvest (corn 15% harvested and soybeans 14% harvested), which means the yields are disappointing as the crop isn't changing. Pro Ag yield models dropped 1.5 bu/acre corn to 171.5 bu, and down 0.8 bu soys to 47.0.
USDA Report Preview
It's likely that USDA's Thursday Supply/Demand Report will drop soy yields near 47 bu. and corn 3 bu. to 165 bu., or so, as the past month has meant a drop of 1 bu. soys and 3 bu. corn on Pro Ag yield models. Crop development is still way behind just like harvest progress, and yields will be smaller due to the lateness of the crop.
Corn harvest is 12% behind normal, soybeans 20%, sorghum 7%, HRS wheat 8% (which is certainly feed wheat if even worth harvesting), sugarbeets 21%, and sunflowers 4% behind in harvested amount. It's a potential disaster if winter arrives early (which in many northern areas is projected to be this week).
We are likely to get the most bullish USDA report of the year this week, as the October report makes some of the biggest changes in yields since USDA finally gets actual harvest results from both farmers harvesting and USDA harvest plots. All the 'corrections' based on lower test weights, disease problems, and other minute details that affect yields can finally start to be detected, and 2019 has been anything but an ideal production year. In addition to the late planting, soils have been too wet much of the year in many areas and that doesn't lead to ideal yields. Pro Ag yield models have also dropped 3 bu/acre corn (-250 mb) and 1 bu/acre soybeans (-80 mb) in the past month. So, net we have three important issues likely to be detected by USDA in this report:
1) Reduction of 5 million planted acres for prevent plant; likely 2 ma corn (-320 mb) and 2 ma soys (-94 mb) and the rest mostly HRS wheat but also other crops.
2) Reduction of stocks based on the Sept. 30 report (-335 mb corn and -92 mb soys).
3) Reduction of 3 bu/acre corn (-250 mb) and 1 bu/acre soy (-80 mb) yields.
That amounts to a carryout reduction of 905 mb corn and 266 mb soybeans in this report! That is extremely bullish, and is likely to cause USDA to 'ration' demand by reducing it with higher projected prices. Also
remember that about 25% of HRS wheat (150 mb) right now is classified as 'feed' by buyers since it has low falling numbers and high vomitoxin levels. But that 150 mb is a moving target as the trade works out what
they can use and what they can't (they need to either use some or really pay a high price to ration available milling supplies).
We note demand is also expanding at rapid rates, both from the Chinese returning to our markets (are they low on soybeans?) and other expanding markets. All of these things are the reason we recommended in
September 9 to buy back up to 3 years of sales as the market has a quite bullish stance (markets have rallied significantly since then). We anticipate this report to further enhance the bullish nature of the market at what are still extremely low prices.
This week the Chinese are in town, with the trade negotiations starting yesterday with mid-level officials (where all the work gets done), and the high level officials coming Thursday/Friday. Outside events are not
necessarily ideal, with the Chinese Hong Kong problem recently boiling over with an NBA/Houston Rockets executive first supporting Hong Kong in a tweet, and then the NBA backpedaling once the Chinese acted against the NBA/Rockets.
The U.S. government Monday also put 28 more Chinese companies on a blacklist for US technology exports based on their suppression of Chinese Muslim minority rights. The Chinese want a partial deal, but Trump says a partial deal has almost no chance of happening, while a major encompassing deal has a good chance. We'll see.
But each day the market bulls in grains continue to exert themselves, with prices rallying almost every day now as we approach Thursday's report. It seems the perfect time to be bullish grains as we harvest a disappointing 2019 crop.
Ray can be reached at firstname.lastname@example.org.
Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.
This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR
JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Progressive Ag Marketing believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that advice we give will result in profitable trades.