Grain Spreads: Conditions

Sean Lusk General Commentary Leave a Comment

Commentary

Soybean crop condition ratings were up 2 points in the good to excellent category while the trade was looking for a 1 point downgrade. Yet the ratings for Beans came in lower in Minnesota down three points while the Dakotas and Iowa were mixed. South Dakota rose 4 points, while Iowa and North Dakotas remained unchanged on the week. Updated weather models have good rain chances for the drought ridden areas of need sans the North Dakota in the 1 to 5 day forecast and 6 to 10.  East of the Mississippi conditions are ideal per the ratings . The demand story for soybeans is an increasingly disappointing one as high prices and tight supplies ration off export and crush usage into the new crop in my view. The USDA will most likely be expected to pare down their demand estimates in next Thursday’s August USDA S&D Report. They will also come out with their first state-by-state corn and soybean yield estimates, which has been known to throw in surprises into assumed government yields to that point. Better rain events potentially in the Northwest growing areas coupled with weak demand have pressured the market to start the week. Flip flops with weather can emerge at any time, but until the funds verify hotter and drier forecasts, this market could struggle to regain any meaningful upside targets in my view. The beans need a near term “story” to turn significantly higher or they will need help from Corn and quite possibly Wheat in the near term to prevent a move under 13.00. 

That said, I potentially see two scenarios playing out in the weeks ahead. One is good weather and a decrease in demand sinks the market to the June lows at 12.45 (5 percent down for the year), or a wipe out to 11.80 , (ten percent down for year). It’s a possibility given if USDA raises ending stocks amid  lowering demand and crush. The Second possibility has the market moving significantly higher as areas of need in the Dakotas, Minnesota, and North Central Iowa miss out on needed rains through August. Big areas of production that would potentially give funds thoughts to rationing of future demand and ending stocks below 100 million bushels and a stocks/usage at an all time low. We closed 2020 at 13.11. Today’s low was 13.08. Interesting to see Corn hold in here. Wheat has gone bid amid  supply side concerns. Brazil’s secondary corn crop has been decimated further this year but that story has taken a back seat in the grain news cycle in recent days. Will see if the South American corn story re-emerges here. Corn’s rating on the week dropped a point while beans rose two points. These weekly ratings are very subjective. In my view trade the charts. 

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Sean Lusk

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