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Market Thoughts 01.11.23

Updated: Mar 16, 2023

Mar corn lost 24’4 this week to close at 654’0. Futures managed to trade down to 648’4 earlier in the week after hitting 685 late last week. Jan soybeans lost 17’6 to close at 1501’4. Despite the loss, Friday’s settlement was still the second highest weekly close for that contract since last June and nearly 40 cents removed from 1462 lows earlier in the week. Mar spring wheat lost 37’0 to close at 901’6, just one tick above the 12/5 weekly close that was the lowest since July.

Brutal first week of 2023 as managed money/large spec crowd made their intentions clear right out of the gate. Grains were caught up in indiscriminate selling across all commodities even as ag fundamentals were largely unchanged. The idea that managed money doesn’t want to be long commodities anymore didn’t necessarily catch us off guard as that has been one of the main points in our months-old opinion about grain prices being significantly lower by harvest. But the velocity of this week’s selling caught us off guard. It’s worth a reminder that money flow is what determines the price of a commodity. Fundamentals shape opinions and technicals illustrate similarities between current and past behaviors but money changing hands is what drives price. And for the past two plus years, money flow has been bullish. Managed Money had been onboard the covid-disruption inflation story since summer 2020 and with it looking for any excuse to buy commodities. That narrative has thoroughly shifted though now in the wake of the Fed’s inflation-cooling efforts and as this week indicates, Managed Money is now looking for any excuse to sell commodities. We noted last week that new crop 2023 prices were the highest ever for the time of year and we continue to expect a low probability of prices being at these levels by harvest.

As for actual ag-related fundamentals, South American weather really hasn’t changed much and certainly hasn’t improved. Weather risk remains toward “crop getting smaller” and this should still be supportive in the short term once grains get back to focusing on fundamentals. On the other hand, corn continues to have serious demand problems as ethanol run rates are historically bad and exports keep lagging. And a much bigger than expected Australian wheat crop is now coming onto world market, likely contributing to spring wheat’s extremely poor performance this week. In the short term, we still expect December lows to provide major support for corn and wheat and for their post-harvest trading ranges to hold: 635-685 corn and 890-940 wheat. Beans of course managed to follow up a textbook breakout higher by immediately dropping almost 60 cents, invalidating that breakout and making a mess of their chart. That said, we view the combination of South American weather, huge crush margins and momentarily supportive China headlines as enough to create reasonably high probability that beans test last week’s highs at some point.

CRB Commodity Index had one of its worst weeks ever to start the year as nearly all commodity classes suffered. CRB has been trending lower since making a 14 year high in late May.

Weekly ethanol production is bewilderingly bad. Other than the Covid shutdown and the 2021 storm that caused brief nat gas curtailments, this is the lowest ethanol run rates have been in almost a decade.

Revisiting the seasonal chart we’ve been following for several months: Both 2011 and 2012 feature corn rangebound from now into March 1st (through the Feb crop insurance pricing.) Neither year traded higher than November highs or lower than Dec/early Jan lows from this point forward and 2022/23 continues to follow this seasonal nicely.

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