The last month and a half was a roller coaster in the markets to say the least. Ideas of a big 14/15 carryout, large production in the U.S. this coming year, near record production coming out of South America, and the U.S.’s inability to be competitive in the export markets gave funds good reason to be short. However, Mother Nature threw a big wrench into things. Consistent rainfall across the Eastern Corn Belt hindered the ability of producers to get field work done. The crops that were already in the ground started declining in quality due to excess moisture. We started seeing good/excellent ratings take a major hit in Illinois, Indiana, and Ohio. When three major growing states start seeing double-digit drops in good/excellent ratings, the market will tend to get a little excited. Especially with the big short position that funds were holding, and we saw just that. December corn dropped as low as $3.62 ½ on June 15th. One month later we saw December futures reach as high as $4.54 ¼ on July 14th. Funds went from near record shorts to a huge long position because of threats to production in the Eastern Corn Belt. Funds reached a three-year high in the net spec long position in the swing. Since the highs on July 14th, we’ve seen futures do nothing but work their way lower. Good/excellent ratings have improved as timely rains and moderate temperatures in the West and drier conditions in the East have been considered ideal for crop growth. Looking at the weather forecast it’s a struggle to build a bullish case.
We are nearing August 12th, a day that could be pivotal in the markets. The USDA will release their latest crop production estimates. The market will be interested to see where the USDA pegs yield and production with the less than ideal growing conditions in the Eastern Corn Belt in late spring and early summer. As early as Tuesday the 4th, we’ll start to see private analysts releasing their ideas of what U.S. production looks like. The reason this report is so pivotal is because it will either justify the mid-July concerns that production and yield will be lower, or it will tell us that production in the Eastern Corn Belt wasn’t hindered as much as we thought and that coupled with big crop potential in Minnesota, Iowa, and Nebraska, means we won’t see major changes to yield and production on the 12th.
Without a bullish report on August 12th, it is very difficult to make a case to get this market to turn around, especially in corn. First, funds are over 200,000 contracts long. Second, South American corn is looking extremely cheap. So cheap, that there’s talk in the trade about Brazil corn potentially working into Southeastern parts of the United States. Finally, China continues to be a huge question mark; the bulls don’t have a lot of good food to chew on. Stay tuned as the market has proven time and time again that it can flip on a dime. Also be prepared to have the conversation with your ProEdge Risk Management Consultant or your ProEdge Grain Specialist about what the next move is and where new price targets should be set.