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Market Thoughts 01.22.23

March Corn added 1’2 this week to close at 676’2. Futures traded up to 688’4 on Wednesday, taking out late December highs in the process and reaching highest levels since November 3rd before giving back most of those gains by Friday’s close. March Soybeans lost 21’2 to close at 1506’4. Much like corn, March beans hit 1548’4 on Wednesday morning, taking out Dec highs and reaching highest levels since June 6th before collapsing to close out the week. March Spring Wheat gained 0’4 cent to close at 912’6. Spring wheat had a relatively quite week and unlike corn/beans, wheat futures posted gains on Thursday/Friday.

One of our main ideas from last week was that corn and beans would trade to new highs this week but struggle to go much beyond that. That idea is looking decent as both commodities did trade to new highs before sharp losses to close out the week. We remain convinced of low probability for old crop prices to rally much higher than those levels this winter. Our other, more important, idea last week was that the bullish USDA report meant new crop prices would stabilize and give us some time before needing to make more hedging decisions. Unfortunately, that idea isn’t looking as solid just one week later. New crop corn and wheat remain above recent lows but new crop beans fell all the way to 1352, lowest price since late October (though still easily a record for this time of year).

Significant improvements in South American weather appear to be the primary contributor to this week’s bean losses. Perhaps reality setting in as the Brazilian crop appears to be massive as harvest approaches and the Argentine crop should stabilize alongside recent forecasts. That said, it was still a bit surprising to see such weakness for beans despite energy prices surging and, for the first time all crop year, corn featuring both extremely strong export sales and ethanol grind. Corn still has a compelling case with bullish USDA data, crude surging to six week highs, massive recovery in ethanol grind and export sales much above needed pace. Corn should be well supported in the short term and bean losses from last week were likely overdone.

Sharing some weather slides from our 4th Annual market outlook:

Both Bzl/Arg featuring near-normal precip over the next two weeks.

Sea Surface Temperature Models – note that all model runs have temperatures rising above 0 by U.S. growing season. Neutral/El Nino conditions are strongly correlated with trend/above trend yields with nearly all record yields coming in El Nino years. And perhaps more importantly, none of these model runs share any resemblance with major drought years. It’s a bit counter-intuitive; with most of the Corn Belt in drought at the moment, it seems logical to place elevated probability on drought this summer. But sea surface temperature modeling suggesting the odds of that occurring are very low.

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