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Market still responding to uncommonly bullish June Acres Report

By Doug Tenney, Leist Mercantile

November CBOT soybeans reached their highest level in months in early July at $9.03. Keep this $9.03 high in the back of your mind as that July 3 price action partially but not completely filled a gap of $9.035 to $9.00 from March 9. The multi-day rally just before the July 4th holiday had rebounded during eight weeks of time from the lows of $8.31 in late April. The cause of the rally was twofold, both weather and a June 30 Acres Report.

Confusion, not clarity was again the theme, just like last June. Surprise of surprises — it was an uncommonly bullish June Acres Report. This report put 2020 U.S. soybean acres at 83.8 million acres along with corn at 92 million acres. Both corn and soybean acres were below trade expectations. Grains responded with December CBOT corn closing higher 16 cents while November CBOT soybeans were higher by 21 cents.

Trader estimates just days before the report was released had corn at 95.2 and soybeans of 84.7. Back in March, the Planting Intentions Report estimated corn acres at 97.0 million and soybean acres at 83.5 million. You would logically think if corn acres were reduced, then soybean acres would jump almost a similar amount. Many analysts are suggesting both corn and soybean acres could be increasing 2 to 3 million acres between the two crops in coming months.

Here is another way to examine the 2020 acres numbers. The U.S. acres total for the 2020 principal eight crops are very similar to those seen in 2019. Obviously, corn, soybeans, and wheat would be the top three crops. Many have suggested that the 2020 planting season would rank among the best ever in recent history.

Now for a moment think back to 2019. You could easily rank 2019 among the worst planting seasons ever. If memory serves me correctly, last year some had suggested it was the worst planting season in 125 years. This analysis brings further doubt and reduced confidence in how NASS has determined U.S. planted acres. Remember all the angst which exploded last year in June when NASS announced corn was several million acres higher than producers and traders alike thought it was? Corn prices fell 19 cents, while up 16 cents this year. Last year was a bearish result with the Acres Report while this year was a bullish surprise.

Funds had been near record short corn of 297,000 contracts just prior to the June 30 Acres Report. Corn open interest in the holiday-shortened week of June 29 declined at least 70,000 contracts. Those shorts were reduced as a result of the June 30 Acres Report along with dry and hot conditions across the Midwest. Short-covering is not a bullish indication.

The month of July will likely determine price action for corn and soybeans for months into the future. Demand for grains in both the U.S. and world is obviously reduced as the result of the coronavirus. With demand at this date pulled out of the pricing equation for upside price action for grains, that leaves supply to do the work. What affects supply the most at this time of year? Weather, and with that it provides greater price volatility, bigger daily price ranges from high to low, along with markets which can be both sharply higher and lower all in only one day. Keep in mind, there can be three forecasts each day: morning, noon, and evening. Now throw in the reality of seeing two weather models, American and European. It is easy to see question marks on the foreheads of producers and traders alike when looking at the close of a wide price range day.

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