The gulf between bullish and bearish sentiment in grain markets appears to be widening of late. Bulls are focused on deteriorating crops due to end-of-season heat and drought, while bears are on guard due to long-term demand trends.
bullish perspective
There is no doubt that last week’s heat had an impact on the corn and soybean crops. According to the forecastThere will be another yield reducing event this weekend through early next week.
How aggressively the USDA cuts yields on September-WASDE will set the direction for the fall. Further yield declines in the corn crop should be only marginally supportive as the USDA is still using aggressive demand numbers compared to last year and the current export pace analysis. However, the soybean balance is a different story and cannot absorb yield declines like the corn balance.
Bearish Perspective
The bears are focused on the current export inventory for new crops as commitments for both corn and new soybeans as the new marketing year begins remain well behind the pace needed to meet current USDA targets. Both products are experiencing the second-worst start to the fiscal year for export commitments in over a decade. It was worst in 2019 as China battled African swine fever, which severely impacted feed grain needs. It was also the final year of the trade war, which came to an abrupt end in 2020 as China bought aggressively after prices of all commodities collapsed due to COVID.
Another reason for the currently bad export commitments is the low water levels of both Mississippi and the Panama Canal. Spot barge prices in St. Louis on August 29 are up 49% compared to last week and 42% year-on-year to $23.34 per tonne. That’s 85% higher than the average over the past three years, according to data released on Wednesday by the Department of Agriculture. Barge weight restrictions on the Mississippi River, which carries about 45% of US agricultural exports, require the use of more barges to move the same amount of product.
This is likely to be passed on to the grower level in the form of weaker base levels, while it could have the opposite effect for producers in the Dakotas whose produce can be passed to the PNW for export.
A similar situation has developed at the Panama Canal with low water levels, increasing waiting times to an average of three weeks. The Panama Canal Authority is now holding auctions for those willing to pay more to get past the queue. One shipper paid an additional $2 million over the standard $400,000 fee to bypass the queue. This scenario increases the cost of exporting from the Gulf, which also increases the likelihood that producers whose products can be shipped through the PNW will benefit.
The technical perspective points to the year 2013
Those who have followed my blogs over the years probably know that I also place great value on charts and the hints they often provide.
Earlier this year I wrote about Multiple Similarities between 2013 and 2023 for the corn market. Now that we have entered the third quarter of the calendar year, this comparison has not disappointed us. While the June and July 2023 corn rallies managed to surpass 2013 price levels, after those rallies failed, the market quickly found itself in step with 2013 levels.
Amazingly, the daily settlements this week for December Corn were $4.9625, $4.8675, $4.8075, $4.7825 and $4.815, compared to $5.005, $4.8625, $4.8075 , $4.815 and $4.82 in the same week in 2013. If we continue to follow 2013 past Labor Day weekend, we can expect a higher opening price around $4.90, with a failure until to close the session, which would mark a key high that eventually led to a test of $4.40 by late September.
While 2023 is certainly not 2013, we need to be aware that the paths they have traveled are extremely similar. There are many ways to protect against downside risk should 2013 repeat itself, while still allowing flexibility to take advantage of rallies when they start to diverge.
For assistance, please feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT. We are here to help.
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