Todd's Take

Just a week ago, new-crop contracts of corn, soybeans and Chicago wheat were trading within sideways ranges, and frankly, I thought we would see more of the same this week as the market has a lot riding on the outcome of the second planting survey that USDA is expected to unveil Aug. 12 in the next World Agricultural Supply and Demand Estimates (WASDE) report.

Monday (07/29) started off with modest gains that didn't get far, and Monday afternoon's Crop Progress report held no real surprises. In spite of a 1 percentage point bump in the good-to-excellent crop rating for corn, both ratings for corn and soybeans remained at their lowest levels in seven years.

Tuesday's bearishness was blamed largely on mild summer temperatures that are seen as generally favorable for corn nearing pollination and for late-planted soybeans that are at least a couple weeks away from setting pods in major soybean producing states. Readers from northern states reminded us that their lower temperatures were not what their slow-developing crops needed.

The first hint of this week's bearish trouble emerged as December soybean meal fell to a new two-month low on Tuesday, a bearish hint of soybean demand that I discussed with DTN's Senior Meteorologist Bryce Anderson in Tuesday afternoon's closing market video. It looked like the lower meal prices were starting to reflect competition from Argentina's larger soybean crop in 2019, a fundamental concern that we had talked a lot about earlier in the year.

Wednesday's bearishness was encouraged by news from the U.S. Energy Department that ethanol inventories had risen to their highest level on record, 24.5 million barrels. The summer's higher corn prices had already priced the U.S. out of a lot of export business and generated plenty of concern that ethanol plants were becoming unprofitable.

Wednesday's news of record ethanol inventories piling up in late July wasn't a total surprise, but it made the market face the fact that USDA's 5.500-billion-bushel estimate of ethanol demand in 2019-20 will need to be lowered. The timing was awkward and sent December corn to a new two-month low.

Thursday's grain markets started off with the same bearish tone as mild summer temperatures joined demand concerns to pressure prices lower. Thursday morning's export sales report offered no bullish argument as corn and soybean sales for the previous week were limited to just 5.6 million bushels (mb) and 5.3 mb, respectively.

Allow me a little imaginative leeway: I have to wonder if the lack of sales got the attention of President Donald Trump sometime Thursday morning. After telling us repeatedly that China had promised to buy more U.S. ag products, here was another report defying those promises. In the same report, China cancelled a previous sale of 12,200 metric tons of U.S. pork.

As we reported in Thursday's closing grain comments, shortly after noon CDT, the president tweeted out a new 10% tariff on $300 billion of Chinese goods, set for Sept. 1, and cited China's failed promises to buy U.S. goods as one of the reasons. The news sent new-crop corn and soybeans to new two-month lows and will likely give us the most bearish week for soybeans so far this year.

If you have been following my grain market comments, you know that the fundamental outlooks for soybeans and wheat have been consistently bearish all year, so I cannot say this week's lower prices are out of line for those crops.

However, in the case of corn -- and to a lesser extent for soybeans -- the market got a case of amnesia this week when it comes to what is actually happening out in the fields. Not only are the crop ratings mentioned above at their lowest level in seven years, there is little rain in the extended forecast for the central and eastern Midwest. I understand mild temperatures are helpful, but crops also need rain.

Especially in the case of corn where the planting estimate is most in doubt after this year's unusually wet spring; there is no reason to believe these below average crop conditions got any better as this week's prices fell lower.

I mention this because many often conclude that the market has some magic wisdom that we're all supposed to accept. "The market is never wrong" is one piece of blather we often hear tossed around.

The reality is that markets are frequently wrong, especially when noncommercials are involved, holding large positions. Noncommercials were wrong when they pushed corn prices lower in early May, and they may be wrong again to be liquidating corn positions down to these lower levels.

Forgive me for saying the obvious time will tell cliche, but an important point to remember about this week is that we don't know anything more about corn plantings today than we did a week ago -- noncommercial traders included.

I understand corn demand has serious problems, but until we learn that enough acres were planted to keep corn supplies well stocked in the year ahead, those that sold December corn's new low of $4.04 1/2 on Thursday may be just as wrong as those that bought the new high of $4.70 back in June. For corn prices in particular, the jury is still out.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

(BE/BAS)

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