Market analyst: Bearish report, bullish market

Ray Grabanski
Special to the Farm Forum

08/18/20 - The grain market made a complete turnaround last week after the government report. We were headed down to new lows in just about every commodity. Was the report bullish? No, not at all! In fact, it was one of the most bearish in memory. USDA’s August report (which has become an annual bear-fest) raised soybean yields a shocking 3.5 bushels/acre, and corn 3.3 bushels in another display of erratic reports by USDA. Bears must have been ecstatic at the irrational/erratic USDA reporting — that is until they found themselves losing money on perhaps one of the most bearish reports ever. After finishing 10c out on their short positions the day of the report, they continued to lose money the rest of the week, and also to start this week.

Is anything more worth discussing from the USDA report? Probably not, as the market apparently doesn’t care about USDA’s erratic numbers. But they do seem to care about the demand side of the equation. USDA hiked wheat exports 25 mb, cut wheat imports 10 mb, hiked corn exports 75 mb and feed use 75 mb, hiked soybean exports 75 mb and crush 20 mb, and world ending stocks of everything went up much less than the U.S. numbers — especially soybeans. In fact, given trader’s expectations for a 1.6 bushels/acre soybean yield hike they expected world stocks at 98.6 mmt; instead with a 3.5 bushels/acre hike they got world stocks at 95.9 mmt. Something is up on the demand side — could it be rumors of Chinese crop failures is true? If it’s a typical year, we don’t find out about it until China has bought all they want on the world marketplace at bargain-basement prices. All you need for exhibit A of that theory is July exports to China. We have sold everything to them at record low levels in July — hello!

Another interesting side note to the report: USDA left planted and harvested acreage unchanged from June numbers, yet FSA released PP numbers near 9 million acres in August, with 2.57 million in North Dakota, 1.24 million in South Dakota, and 1.06 million in Arkansas and total of 8.991 million. That compares with 19.26 MA last year, but only 2.6 MA normally the last 10 years. Weather continues to push drier and warmer in the forecast, with almost no rain forecast for the corn belt the coming week, and below average precip forecast in the 8-14 day forecast as well. Temps are forecast to warm throughout the period, with above normal temps forecast for the entire country by the 6-10 day and 8-14 day period. The next five days, though, will be below average in the eastern corn belt. Overall, this might shrink soybean yield potential the next two weeks — particularly since it also shrunk last week as well.

Crop conditions were out Monday, with both corn and soybean ratings dropping 2% each, with corn now down to 69% G/E, and soybeans down to 72% rated G/E. Corn yield potential dropped the most as 0.5 bu/acre to 180.7 bushels — the first decline in many weeks. Our soybean yield model dropped more moderately at 0.02 bushel/acre to 51.07, but the direction change is important as we head into a dry period.

Other crops held up better, with cotton conditions up 3% to 45% G/E (vs. 49 last year), sorghum down 1% to 57% rated G/E, HRS wheat +1% to 70%, and barley conditions down 2% to 77%. Soil moisture continues to be depleted, with topsoil -1% to 59% rated adequate/surplus, and subsoil -1% to 62%.

Probably the most significant move in markets recently is the weak dollar, down over half a point Tuesday as the expectation that the U.S. will inflate itself out of this crises is weakening it. That will help the prices of everything else, including commodities, stocks and things like real estate. That doesn’t mean you can buy anymore when you sell these products, as its likely everything will go higher. But with increased inflation, there are impacts on traders who trade in current dollar values. If you noticed, gold is also at all-time highs in world history. There is a reason for the gold rally, and its probably the same reason the dollar is declining.

As HRS wheat harvest heats up across the northern plains, we are finally looking at improving markets. The irony is it started with a very bearish report. That usually doesn’t happen.