• jcrist18

Market Thoughts 01.09.22

***Reminder 3rd Annual What Matters When You Market meeting is this Wednesday at 2:30 in Bismarck***

It’s been a month since we last updated our fundamental thoughts; suggesting in that episode the wheat story was over while corn/beans were supported by inflation/fertilizer and needed only a South American weather catalyst to launch higher. With the Argentine drought intensifying and pivotal January S&D report coming up this Wednesday, it’s a good time to update our fundamental bias:

March soybeans close at 1401’4 on Friday, up nearly two dollars over the past two months to the highest close for nearby beans since the August contract went off the board. March corn closed at 606’6, up sharply on the week but still well below its 617’6 high from December 27th. And then there’s spring wheat. March spring wheat closed at 923’2 on Friday, off a staggering 113 cents in the past two weeks (all the more so when considering strength in beans/corn at same time) and now featuring lowest prices since early October.

So what happens next? The bullish story is simple and remains compelling. Global inflation/fertilizer concerns support grains while Argentina/SE Brazil deals with a major drought and private analysts stumble over each other to slash crop estimates. Managed Money brought almost no ownership into this rally and thus with lots of buying power, there’s no love like the love between managed money and buying soybean weather scares. Also supportive is the seasonal – both the comparison to 2011/2012 we’ve been tracking and the general seasonal trend across all years (more on this below).

  • There are some bearish counter-points however which will eventually have to be addressed by the markets: U.S. soybean balance sheet appears to be growing by the day – don’t be surprised if we end up close to a 400 million bushel old crop carryout. Headline weather in South America is extreme but is affecting roughly 30% of bean production with the rest of that continent growing a crop that is somewhere between good and excellent. We saw how this played out in the U.S. last year when 25% of our soybean acres were severely droughted and the rest ok. And Wednesday’s report could be a problem for bulls. The USDA has been notoriously slow to make South American crop size downgrades and if they fail to make the cut expected by bulls while also increasing old crop U.S. carryout it could be trouble. Also problematic for bulls is corn unable to make new highs yet.

Wednesday’s report, like all USDA reports, amounts to a tossup and forecasts remain bullish – enough so to keep beans supported in the short term and possibly still trade sharply higher. But in our opinion longer term fundamentals (expected U.S. carryout, probable final size of SA crop) don’t support beans above 14.00.

New Crop Soybean futures are the highest they’ve ever been for this date, eclipsing both 2011 and 2013.

Seasonals are a long-term favorite around here and it’s worth reminding, new crop seasonals across all crops are solidly bullish from now into summer; over the last 20 years soybeans have never made a marketing year high prior to May.

And recall that this year’s most similar analog is 2012 (red line on the chart above.) 2012 saw beans/corn rally steadily through the winter, then fall sharply as crops were rapidly planted that spring, only to explode to record highs following the extreme drought that summer.

The second half of that 2012 seasonal comparison – the major summer rally – is wholly dependent on weather we have no idea about yet. But both the normal seasonal tendency and the comparison to 2012 through the rest of winter/early spring suggests new crop corn/bean prices stay supported.

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