September 21 – Market Commentary

The Week in Three Numbers

$0.05 - The difference between December corn futures and the 20-day moving average of December corn.

5 - The number of consecutive 12-week high closings for RBOB gas.

8 - The number of times the USDA lowered corn yield estimates in the August and September reports over the last 30 years.

Markets

The corn market took a slightly bearish twist this week, closing down for the second week in a row.

Despite no new green or red bolds at the top of the table, we saw a lot of action throughout. Bold reds rolled off the table for wheat, S&P 500 and the 10-year treasury. Bold greens rolled off the table for live and feeder cattle. We also set new 52-week highs in crude, gasoline and the 10-year treasury.

Meanwhile, crude, gasoline and the 10-year treasury are all on absolute heaters. Crude has the third straight new bold red, gasoline its fifth and eighth in 11 weeks, and treasury is on its third straight and sixth in nine weeks. The dollar index didn't set a new high but topped 100 for the first time since its 12-week high in mid-July.

The September WASDE has turned out to be a bit of a dud in terms of being a real market mover. Now that we've had a week of trading the report, it seems as though the market had already kind of "pre-digested" it and built it into the trade as we remained relatively stable, with almost no direction. At best, we have a slight downward trend in the corn market, a little bigger in the wheat market. Wheat has really taken a hit over the last several weeks after peaking at $8.44 the last week of August.

Arlan Suderman with Stone X posted something on X that really caught my eye.

Arlan is certainly correct about one thing - it does make for an interesting conversation.

Obviously, there's always the possibility that this year is indeed different and we do still drop lower than the September report, but it's something to keep in mind. However, before we get too bearish, a yield number under 180 would still be close to keeping the stocks-to-use ratio under 10%.

On the flip side, if you have a hankering for being bearish, there's a chart for you.

This shows the 20-, 50-, and 200-day moving averages for December corn. After flirting with the 20-day moving average off and on throughout the week, we closed on Friday one cent below it. This gives a pretty good visual of the market pulling back some and is a clear bearish technical indicator. Closing below all three lines gives the same story. There's a lot of factors playing into it, but still a slightly technical bearish week to overcome. The old saying is a bull market needs to be fed every day, and we just didn't get feed this past week.

Continuing with some bearishness, we'll have new bold greens in live and feeder cattle as well as all the fuels next week when the old ones roll off. That gives new, lower ceilings of resistance for the cattle futures, while creating new, higher floors in fuels. Neither of which are particularly friendly.

Before we get too bearish though, there is some good news. Bold reds are rolling off the table in corn, wheat and soybeans, as well as the 10-year treasury this week. That will set new, higher floors of support on the charts.

Soybeans were also good news, with a lot of volatility pushing and pulling the market. The NOPA crush report showed crush dropped well below expectations, pushing meal to a two-and-half year high. That led to a lot of buying mid-week. There's also the China factor, with strong purchases but the threat of tariffs ahead of this week's meeting between President Trump and Xi.

I also can't leave the week without talking about diesel. I put together a quick table for diesel closings.

You can count it amongst fuels on an absolute heater - three straight 12-week highs and at least five in six weeks. Just about every chart shows the spike in diesel prices but I'll let the 20-year chart speak for itself.

That's quite the problem for midterms that are just under eight weeks away.

Farmers are going to feel this more than most people, as harvest is well under way. You all know better than I do how brutal these prices are. Most people don't drive diesel vehicles - they feel it in the price of groceries and goods, which are almost universally delivered by diesel vehicles.

Diesel is over $6 on average in the U.S. and I've heard in California it's hit $9.99, not topping double digits solely because of a lack of available space on the sign.

There are several reasons why. A long era of red tape on refineries has prevented new construction and capacity from being created and even depleted capacity slightly. Over time, production has been flat to lower and now we're exporting about 25% of production. Meanwhile, between the conflicts in Ukraine and the Middle East, about 25% of global production has been shut down. Couple that with supply chain issues, everything gets very tight.

If this can be "fixed" soon, the actual impact on inflation won't be seen too terribly much. We're not yet seeing a huge impact on core inflation. But diesel and fuel prices generally have a lagging impact on inflation, so if it's not a quick fix, well, go look back at what I said about midterms - and we're probably looking at a recession.

Changing speed a little towards the demand side of things. Ethanol production stayed the same for the week of September 11^th. Cattle on feed also saw a slight uptick from August but is still down from June and July. In Kansas, we're at the highest levels of cattle on feed since June.

Meanwhile, exports more than doubled between the first and second week of September while adding another one million metric tons in new sales. We're less than 1% behind pace to hit the USDA forecast, so we're in good shape there, albeit only two weeks into the marketing year. Increased commodity prices and a strengthening dollar are something to watch out for here. A stronger American dollar is generally not a good thing for exports as it makes them more expensive. Coupled with stronger commodity prices and exports could struggle a little as we progress through the marketing year.

Looking at the weather, we're expected to get some much needed, albeit ill-timed rains over the next week.

I read somewhere that El Niño generally delivers above average rainfall throughout the fall, peaking in December. I'll never forget one year harvesting sorghum in January because of all the blasted rain during harvest. Unfortunately, we may be looking at something similar. It shouldn't have much impact on corn harvest this year. Harvest in Kansas is over 40% done this week, significantly ahead of the five-year average.

On the bright side, both top and subsoil moisture levels improved last week.

Temperatures are still supposed to be above average, especially in most of Kansas.

At least the odds of being above average have finally started to shrink a little.

And the drought monitor remained virtually unchanged week over week, though I'd expect that to ease up a bit based on the precipitation forecast.

Looking Ahead

USDA will give us an update on chickens and hogs this week. But really, keep an eye on the Trump-Xi Summit this week. Markets were very excited Monday morning.

Stay safe!