Market Thoughts / Crop Insurance Rumors
July corn lost 2’4 to close at 778’6 last week. Futures rallied 28 cents higher on Sunday night/Monday and then proceeded to lose all of that plus a couple more cents by the end of the week. Three straight weekly losses for corn and it has now been almost a month since nearby corn last made a contract high. July soybeans gained 58’6 cents to close at 1705’2, a new weekly high and an impressive performance given losses for nearly every other commodity. July spring wheat managed to somehow make a weekly close of 1279’0 look terrible, losing 46 cents in the worst possible fashion. Futures were up nearly 80 cents by early Tuesday morning, touching as high as 1412’6 before proceeding to drop over 130 cents through the next three days.
We’re hearing credible reports the government is fast tracking a proposal to use USDA funds to cover the post-deadline decreasing indemnity and thus allow a farmer to retain full insurance coverage through the 10 day post-deadline period. We were told as recently as a week ago there was no chance this would happen. But politicians seem to understand the perception of paying farmers to not plant in the middle of a global food inflation crisis will be a tough one. Last week we shared Western Agency’s PP Calculator and illustrated that a planted crop is literally worth hundreds of dollars per acre more than PP. It now seems probable the administration incentivizes farmers to keep planting 10 days post-deadline. For acres that can be planted, doing so is still clearly the right choice.
One thing about last week’s markets, it was a pretty strong showing for our Price Signals. Tuesday morning’s STRONG SELL for wheat, SELL for corn and HOLD for beans all look pretty good today.
Why the collapse in wheat futures? Following their weekend announcement, India spent the first part of this week demonstrating that they don’t know what the word ‘ban’ means. Plenty of loopholes/exceptions etc as the ban appears more about maintaining control if the situation worsens than stopping shipments immediately. The U.N is attempting to broker Russia allowing Ukrainian wheat to be exported in exchange for lessening sanctions on Russian fertilizer. Reports suggest that deal is a long ways from done but maybe someone knows something we don’t. And regardless it underscores just how much incentive there is for market to find a way to put massive supplies of Ukrainian wheat into export channels. And perhaps most significant, after a brief pause equities continued their rapid decent. If you simply look at that news flow combination – U.N brokering wheat deal, India softens export ban, equities slide 7% in three days – it would certainly be enough to pressure a commodity that had rallied nearly forty percent since the start of the year.
Despite our longer term bullishness, Dec corn’s price action last week looked an awful lot like a seasonal high. Trade is growing confident that a major planting crisis has been averted and it is certainly late enough in the year for a seasonal high (May 7th for 2021 corn). And despite the low probability of above trend yields with late crop, there also doesn’t tend to be major production issues as the delays that lead to late planting mean drought is largely absent at the start of the season. Looking at other late planted years – 2019, 2014, 2013 and 2004 – seasonal highs were early June, April, early June, April and in all cases corn never did get anywhere near the price it traded at during peak planting-delay worries.
July corn chart looks pretty shaky right now – futures closed below long term trend line support Thursday and Friday and probed the key 40d moving average both days, first time since early January that’s been the case.