October 13 – Market Commentary

The Week in Three Numbers

$2.03 - The swing in absolute value between corn's low set on June 30, its high set on Sept. 2, and the low set last Friday.

6.45% - The percent drop in the corn market after the Friday WASDE report.

2 - The number of times over the last 20 years corn has experienced a greater than $2.00 low-high-low swing under similar timing parameters to this year.

The Market

All I can say is - these last two weeks have been rough on the corn market, and the past seven weeks have been rough for wheat. As always, we'll start with the closing tables. Then, we'll look at some of the charts and discuss that WASDE report from last week.

Let's touch on everything but corn for now. Soybeans saw their old 52-week-low get replaced by a new, higher number of 1050.6, two cents higher than it was before. Wheat saw a new bold red number come on the board. That's the sixth straight week of closing lower since setting that 844.2 high on the last week of August. We'll look at their chart in a bit. Live Cattle rebounded, closing the week above the 220 mark for the first time since the first week of August. Feeder Cattle set a new bold green after flirting with the old one for a couple weeks. Diesel and soy oil saw their old bold greens roll off the board. Soy oil will once again get a new one next week. Crude and gasoline are trading right near their 20- and 50-day moving averages, though at least crude backed off a tiny bit from setting a new high. On the financials, the S&P 500 flirted with a new bold green but couldn't get over the hump, the 10-year treasury failed to set a new bold green for the first time since the last week of August, and the dollar edged out a new bold green.

Let's start with wheat. Despite having spent the previous five weeks watching their market fall, a new bold red was set this week. Wheat followed the corn market last week following the unfriendly report, though WASDE wasn't exactly friendly to wheat either. The USDA increased all wheat output, supply and ending stocks, while decreasing exports for both the U.S. and the world. This, alongside corn's numbers in the WASDE, led to a pretty nasty drop off. The five-day chart shows exactly that.

The one-year chart shows we're still significantly better off than a year ago. But after bursting through a double bottom set in August, we're now looking towards the seasonal lows from harvest as the next area of technical support, which unfortunately, are still around 70 cents away. The only area of technical good news is that HRW is still sitting above that 200-day moving average.

The five-day corn chart shows that same precipitous drop after the WASDE report released.

That's a 32-cent swing that occurred, roughly 6.45%. The market rebounded some after the immediate selloff but still lost over 20 cents on the day.

The market was wholly unprepared for what the USDA put out last week.

Not only did the USDA raise beginning stocks, which was unsurprising based on the previous week's Grain Stocks report, but they increased yield as well. And not only did they increase that yield, but they increased it above what was projected in August. I'm not sure I've seen that before - and I'll be putting together an economic research report on that exact thing later this week.

It's a far cry from where the market believed we were going to be after the ProFarmer tour back in August and September. It's also the second week in a row the market was shocked by a USDA report. The one-month chart shows both drops.

These two reports didn't just starve the bull - they took it out back and shot it.

The WASDE did increase total use as well as ethanol and exports. Despite these increases, we still got an increased projected ending stocks number. Exports remained strong and are still close to on pace to hitting even the higher projection.

And ethanol production bounced back up to over 1.05 million barrels per day after being just over one million for the last half of August.

Overall, we're still in a better place than we were back in June, as shown by the six-month chart. Remember, this is also supposed to be the portion of the season where we see our lowest prices.

We should have some support at just under $4.60, but we're not on a great trajectory. Early this morning we're back above $4.80 with that $4.79 creating at least a single bottom of support. We'll want to watch how often the market pushes against that floor this week to see if it truly is any type of support.

The volatility has been quite substantial here, however. In absolute value terms, the December corn market swung over $2.00 between the low in June, the high in September, and the low from last Friday. Looking at the 20-year corn chart:

There were 15 times over the last 20 years where a low-high-low movement larger than $2.00 in absolute value occurred. Since 1973, it's occurred 19 times. The largest such swing occurred in 2008, when the market moved from a January low of $4.56, to a June high of $7.99, and then dropped back to a December low of $3.05.

However, if you tighten the parameter slightly to where the calendar year's absolute low and absolute high are three months apart, followed by another low within a month, there are only two other times this low-high-low movement has exceeded $2.00. In June-September of 2012 we saw $5.06-$8.49-$7.05, and in May-August 2015 we saw $3.48-$4.54-$3.57.

It's not completely unprecedented, but the volatility is certainly something to watch.

One final thing on the market before moving on:

The crop progressed well last week after a couple weeks of wetter weather. The CFTC's Commitment of Traders report for last week showed a slight decrease in long positions for both corn and soybeans from the week prior. That report showed the positions for Oct. 6. It'll be worth paying attention to this week's CFTC COT report to see if the funds have changed their position thanks to the USDA's report.

It looks like it'll be a sprint for many areas to get through as much as possible before the rains hit this week.

Eastern Kansas is expected to get a substantial amount of rain, while the greater Corn Belt will get pretty wet in general as we've got tropical storms coming and going.

That should only help what has been a rapidly improving soil moisture chart.

It does look like we're in for cooler weather, though likely still above average.

Looking Ahead

Hopefully the market breaths a little bit this week and rebounds some. This week should give us some idea of whether the market believes the USDA's figures or not. Watch the market to see if $4.79 will become a place of support.

We'll also see some more demand indicators release this week. Thursday's Export Sales report will provide another test of whether shipments can keep pace with USDA's newly increased 3.3-billion-bushel forecast, while Cattle on Feed will provide another look at feed demand. Crop Progress is delayed until Tuesday by Monday's federal holiday.

Stay safe out there.