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Balance Sheets Revisited

Published on Monday, July 29, 2019

Grain markets have become subdued in the last couple of weeks giving very little attention to most any fundamental discussions (trade, weather, etc.).  See Charts.

Prices have adhered well to recent technical support which can largely be generalized by $4.25 December Corn and $9.00 November Soybeans.  As prices test support, fund managers have continued to be small but willing buyers of corn.  See Friday's Commitment of Traders (COT) Report below.

Why the lingering interest?  The answer is simple - the August 12th WASDE report.  Given the ongoing late plantings and immature crop, the USDA largely took a pass on any yield changes in the July report.  That will likely not be the case in the upcoming WASDE.  Add to that the updated acreage number from the June Acreage report and a re-ignition of May's fireworks become possible...if numbers fall the way many expect.

At the root of that conversation lies a corn balance sheet that currently allows for some comfort.  Any dramatic changes to that may be like trying to fit into your favorite pair of jeans from high school.  "Tight"...will be the only way to describe it. Here is a look at some different possibilities.  

Assumptions have been made for lower demand from the categories of feed, exports, and ethanol in order to help construct this view.  However, even with the smaller demand, much smaller ending stocks figures are the outcome.  The USDA will give us their version of this, but there is no wonder why many people remain bullish the market.  However, here is the one outcome that did not make it into the balance sheet possibilities...that of higher yield.

We have watched as crop conditions have improved through the month of July.  What if the USDA reports a better yield than the 166 bpa that was given to us in June?  It would go a long way to overcome some of the acreage loss.  It may very well challenge the accepted thinking that the crop is not as good as it may seem.  The best advice for producers is to still treat this market with the respect that $4.30 deserves.  Set targets at higher levels, but be sure to carry put options on the unsold portion.  There are obviously other ways to tackle current price levels, so we invite you to contact us to sort through these possibilities in the days that lead up to the much anticipated report.

Best Regards,

Mike North

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