USDA Crop Conditions: A Test for the Corn Market

source: USDA-NASS

Today’s USDA Crop Conditions Report brought a real “shocker” … a BIG JUMP for both corn and soy.  Both saw an increase of 3 points, pushing the national average up to 72%- the same level as 2018 in the case for corn ratings. Interestingly enough, the corn price was headed higher during this time period in 2018–as the chart directly below shows. This year’s price action looks more similar in price pattern since June to 2015 & 2016 instead…yet these were years when the US Dollar was mostly trending higher, but today the USD hit its lowest level since April, 2018. I continue to struggle with the high number of states with 60% or more drought this year compared with last year, yet the Crop Conditions show a substantially better crop than last year; yes, I know that this is likely true to a degree–as clients are showing me their ears of corn as they scout fields–but is the trade correct in its assumption of a 180 national yield (because I think the trade estimates ahead of the next report will show this)?

Does this ensure a 180 national yield in the trade’s mindset ? If it does, I’d expect the major chart support of $3.20 lead-month area and $3.22 December to be tested by week’s end.  Not WHAT I WANTED FOR THE MONTHLY CHART… In fact, we see that this month’s current low of $3.22 shows up well on the Dec. Continuation Chart below (which shows the monthly price movement of only Dec. Corn futures since 2014); and as I highlighted in the chart comments, I am of the view that we are trying to carve-out a demand low in this complex. That’s not to suggest that we are likely to see sharply higher prices; but it does support the mindset that we have taken prices low enough to encourage demand. Take a look at the WSJ article attached below the monthly chart. Given the demand finding support at these price levels, I stand-by the “Undervalue” Level on new-crop as we head into the August WASDE Report.

How did the condition ratings increase so much, given that rainfall totals seemed lighter in about 50% of the driest areas? States like IL, IN, KS, and NE all saw increases; but does it make sense to see NE conditions jump by 9 points? I don’t think so. Having said that, I am also very realistic about the algo funds and their typical sentiment – headline news trading style. And this jump could create a down-draft in near term prices. Let’s be on the Lookout for this in the next 24 hours … until we see Wednesday’s Drought Monitor. I think you can see why I don’t use the Crop Conditions in my yield analysis any longer.

We can see by the Weekly Chart below–not just how it corresponds to the key support mentioned above relating to the Monthly Dec. Corn Chart–that we are now testing a major support trendline…even though we continue to see the gap above the market left-over from the July Expiration. And like the Monthly Chart, this Weekly Continuation that shows lead-month futures is in “Oversold” territory for the stochastics. The trendline being violated at the $3.20 area, however, could indeed spark increased downside momentum. What a difference in price-action compared with last year at this time. As I mentioned, I am eager to see this week’s Drought Monitor, how the market reacts to it, and where we finally settle the month of July for prices. END.

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