Get ready for the October 9 USDA report
Grain futures have had quite the exciting price movement over the past two months! The derecho, extreme August heat, and insatiable Chinese demand have been the major factors eliminating the bearish grain sentiment the industry was plagued with back in early August and to what is now a potentially bullish outlook heading into 2021. Corn futures have rallied over 50¢, and soybean futures have rallied over $1.00 over the past 50 days! What will come next?
A surprise bullish quarterly stocks report sets the stage.
The recent quarterly stocks report pegged soybean supplies at 523 million bushels, well below the pre-report expectation of 576 million bushels. Equally shocking to the market was the surprise bullish quarterly stocks number for U.S. corn. Quarterly stocks were pegged at 1.995 billion bushels, well below pre-report estimates of 2.25 billion bushels. Wheat stocks came in at 2.159 billion bushels, below the 2.240 number that was expected. This report was deemed friendly and will likely keep grain prices firm until the next USDA report coming on Friday, October 9.
What to watch for on Friday’s report: supply.
All eyes will be on U.S. yield. The current USDA soybean yield estimate from the September report is 51.9 bushels per acre. The most recent number for expected corn yield from the USDA is 178.5 bushels per acre. Early yield results from producers are mixed; not record, but potentially not as small as many had feared due to the extreme August heat. Will the USDA do any adjusting of yield or not? So far the industry is expecting minimal yield adjustment, if any. If yield is adjusted lower, that will be supportive for price. However, a surprise increase in yield would likely lead to lower prices as supply would be seen as larger.
What to watch for on Friday’s report: demand.
With the surprise-friendly Quarterly Stocks report, demand will now be scrutinized as well. Will we see increases to demand regarding export and feed demand? Will the balance sheet show another reduction in corn use for ethanol? Global ending stocks will also be closely monitored. Any perception that stocks are declining will be supportive for prices.
For now, $10.50 continues to be a very heavy technical resistance level on monthly charts. In the short term, it will take confirmation from the USDA on the October 9 report of a smaller U.S. crop in order for prices to have a fundamental justification to clear the $10.50 price hurdle. For the short term, corn futures will likely trade in a firm, sideways pattern. December corn futures have significant price support at $3.75, with the $3.65 area or below as even larger support. Yet, prices do not have any reason to significantly trade higher, without a fresh fundamental catalyst. A lower yield on the October 9 report would be needed. For the moment, $4.00 for December futures is the larger overhead resistance.
The remaining three months of 2020 will continue to have a myriad of twists and turns as it pertains to agriculture and prices. Weather is still important. As global demand for soybeans remains strong with recent Chinese purchases, the world now needs South America to have a perfect growing season to keep the balance sheet ample. As their growing season is just beginning, trade will be continuously monitoring their production potential. Any slight hiccup in South American weather during the months ahead will have a dramatic effect on soybean futures prices. The election and election results may cause jitters to markets as the world attempts to justify how either elected leader would handle global trade.
Be mindful with your grain marketing and any scenario that may unfold. We are on the cusp of a price situation that may offer extreme risk and reward potential in the coming months. Get current on all of the marketing tools at your disposal, and always feel free to reach out to me with any questions you may have.
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