Falling dominoes, port trouble, new crop demand, and managing downside risk

When grain markets don’t react to news like many predict they should, it’s time to dig deeper in to what’s really driving prices.

Earlier this week, analysts expected a positive day at the open on Monday, but instead markets took to the downside. What happened?

For that discussion, Shaun Haney is joined by host of Agri-Talk, Chip Flory. Flory says that the short answer, for now, is weather. “The weather forecast took some yield risk out. That’s the bottom line,” he says, as cooler temps and rain in the forecast has bumped confidence in U.S. corn and bean yields.

July is the end of the crop year, and that can be a signal for managed money to make moves.

“It may have just been that the managed money decided that it was time to get away from the long side of the market, even if, in whole, they may have been neutral to a little bit flat in the market. Anybody that was holding a long position on the spec side of the market, may have just decided it was time to get out at the end of July,” Flory says. (More below)

There are headlines moving markets, too, but the full impact of global news can be difficult to measure at the outset. Continued unrest in Ukraine isn’t necessarily “news” anymore, but fresh export data is.

Sources suggest that over 2 million metric tons moved out of Ukraine in July, up from 1.6 million metric tons a year ago, and that’s despite the Black Sea grain movement deal not being in place for the last half of the month. “(Ukraine was) still able to export more than 2 million tons. Is that enough? No. Is it more than what the market expected? I think so,” Flory says.

Closer to home, there are still big unknowns on the supply side, but perhaps larger questions for corn and soy demand.

“Look at how the dominoes are starting to fall on the supply side of the market. We still don’t have 177.5 bushel per acre corn and 52 bushel per acre beans in the bin. We’ve got issues that we need to focus on on the supply side,” he says, but “you can have a short crop, but it really doesn’t matter if nobody’s stepping up to buy what you do have. And right now nobody is stepping up to buy.”

Where does it all land? Flory predicts $4.25 on December corn, $11.70 on November beans, if the crop turns out better than 52 bu/ac. If it’s not better than 52, a $12.50 price makes a lot of sense, he says, with room to move higher.

But we’re not quite there on corn, he says, as there are far too many demand-side issues yet unanswered.

“When we think about corn, man oh, man. Once the bins get full, and the bushels that have no space on farm start coming to town that corn basis could get ugly. For the first time in what three years?  We could have corn bases get ugly on us,” Flory says.

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