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AgriFinance Market Update 6-20-19

Corn Hits A Five-Year High Before Slight Dip, Soybean Numbers At Concerning Level

Planting season is off to an interesting start. Excessive rain this spring has lead to lower than average planting numbers, especially for soybeans. While corn yield expectations continue to fall by the week the market pushes toward $5 corn, hitting a five-year high this week.

Planting Progress Remains Well Below Average

Earlier this week, the USDA released their planting progress numbers for corn. There is still an unprecedented number of acres that remain unplanted – 7.4 million acres in mid-June. In South Dakota alone, it is likely that up to 1.3 million acres will not get planted this season.

Soybean numbers are alarming too. A completion rate of 77% means that 19.5 million acres are yet to be planted. Based on price action, it seems the trade has turned their attention to soybean acres. Producers in IA, southern WI, northern IL and MI could start turning in Prevented Planting claims on Saturday, June 22. Producers in down-state IL, IN and OH can start as early as the 20th. Perhaps higher prices are in the works to convince farmers to keep trying to plant soybeans?!

On the other end of the spectrum, traders are finally getting nervous about the last 23% of the crop to get planted. The 77% planted on soybeans is not the slowest planting pace on record, but it is the slowest since 1996. With 1 billion bushel carryouts feared by the trade for months, Mother Nature is quickly taking that carryout away by the day. There are 19 million soybean acres remaining to be planted as of June 16.

Volatility In The Grain Markets

Volatility has arrived in the grain markets, after a relatively long stretch of sideways movement. Higher prices are welcomed, but unfortunately the prices are coming as a result of severe production issues due to historical weather.

It’s been and up and down week for corn, soybeans and wheat.

The recent corn rally from May 13th’s low of $3.43 to June 18th’s high of $4.64 has been an impressive $1.21 per bushel. This marked the highest levels for nearby corn since June 2014. Traders began watching for a breakout to early 2014 highs of $5.19 as a possible next objective for corn. If that area can be reached, then the levels from the 2012/2013 bull market would become the next target.

However, as of Wednesday, corn has dropped 23 cents off Monday’s highs. Soybean futures have dropped 18-19 cents and Chicago wheat has plunged 27 cents lower. We will see how futures play out in the coming weeks.

Corn Yield Estimates

The USDA won’t release a corn yield estimate next Friday, however, they will make an attempt in July. This won’t stop analysts from predicting yield before July. The market was somewhat caught off guard on a yield “estimate” from Iowa State on June 18.

The Devil Is In The Details. 

USDA experts were comparing yield impact to planting progress using the slow planting years of 1983, 1993 and 1995. They observed that yields were 10% below trend in 1993 and 1995 and 20% below in 1983. Based on an estimated relationship, the 2019 planting progress of 50% would suggest a 21% decline in yield.

If you take the simple linear trend yield for 2019 at 173 bpa and multiply by 21%, the national yield could fall in the 135 bpa range. This would be similar to the yield loss in the drought of 2012. Whoa, Nellie! The market isn’t trading a number reflective of 135 bpa. And, it shouldn’t be right now. There is a lot of time between now and September.

We have found out that corn genetics and cool temps can trump a dry year. What we don’t know is how corn genetics handle too much water, but we will find out in a few months. The biggest problem is that we can’t undo a poor start – the difference between this year and the most recent years.

Looking Forward 

A silver lining in the midst of the weather and market movement is that the news from the Fed regarding interest rates.

Interest Rates

On June 19, the Fed announced that interest rates would hold steady. There are no planned interest rate cuts in 2019, but they will remain flexible depending on the economy.

Weather Conditions 

The 8-14 day forecast is shifting to drier conditions.The hope is that Mother Nature will not follow one extreme with another, like in 1995.

USDA Reports 

The USDA will release the Quarterly Stocks report along with the Acreage Report next week on the 28th. On top of all that, the G-20 meetings will take place at the end of next week. Volatility will be the rule, not the exception in the next week and a half.

Stand Firm In A Volatile Market 

A week of ups and downs can be stressful and leave you feeling unsure about your financial future and the sustainability of your farm. AgriFinance has a team of financial advisors with farming backgrounds. Schedule a free consultation today to see how we can help you meet your financial goals.

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