Market Thoughts 3/14/2022
May corn gained 8’2 last week (a surprisingly normal outcome…) to finish at 762’4. This represents a new contract high for weekly close but the daily high from last week still stands. Similar story for May soybeans; gaining 15’4 to close at a new weekly high of 1676’0 but remain well below the daily high of 1759 from three weeks ago. May spring wheat lost 76’6 to close at 1070’2. The May contract reached 1211 on Tuesday night before falling as much as 181 cents over the next three days.
It’s getting tougher to provide useful fundamental insight during a stretch like this, but for what it’s worth, May corn/beans failing to make new contract highs and wheat collapsing nearly 200 cents after Tuesday would be warning signs, at least in a normal market. Also worth noting again, fundamental news has to be “new” to influence price. Even a shock as extreme as this war doesn’t mean futures will keep rallying indefinitely; only until prices reflect the change. Perhaps markets have accounted for the initial impact of the war?
Chi wheat managed to follow up its best week ever with its worst week ever, dragging spring wheat along for the ride. Fundamentally a few things contributed – Wednesday’s WASDE report raised world wheat carryout by 3.3 million metric tons, coming in above the high end of trade guesses. UAE pushed OPEC to accommodate a U.S. request to increase production and Zelensky made comments suggesting Ukraine was open to considering ceasefire conditions Putin outlined. This was enough to send wheat, led by Chicago, spiraling lower. But OPEC quickly confirmed they would not increase production, ceasefire talk sounds like a distant memory with fighting intensifying over the weekend and the USDA report isn’t necessarily bearish; the increased carryout was mainly due to exporting countries not being able to ship grain...
One of our recurring themes over the years has been “don’t bet against the farmer’s ability to farm”. That is why planting delay rallies are always a selling opportunity. Our experience shapes our opinions and with it we’ve been slow to the idea that Ukraine would see a massive decline in production – stunningly high prices and a farmer’s desire to farm must be a universal sentiment? Below are some comments RJO shared that highlight just how substantial the struggle is for Ukrainian farmers right now
We’ve been recommending waiting to make new crop corn sales, a stance worth revisiting now that Dec corn is up to 656’2 and record high for the time of year:
People tend to think of grain prices as occurring on a fixed range that applies to any year. This thought process is where comments like “Dec corn is above 600 you need to sell it” come from. But people forget, grains operate on two entirely different price realties. Grains are normally in a bear market. And in a bear market, corn above 600 would be an obvious selling opportunity. But you don’t have 600 corn in a bear market, you have it in the occasional bull market.
And those occasional bull markets where corn is above 600 in the winter have all gone on to top out in the 800 range the upcoming summer…