Market Thoughts 01.30.22
***Week-ending Price Signals report and analysis to be sent out tomorrow evening***
March corn gained 19’6 to finish the week at 636’0. More below but this was the highest weekly close for the March contract since the first week of May. March soybeans gained 55’6 to close at 1470, easily eclipsing that contract’s previous high of 1445 from early June. Incredibly, despite all that spring wheat managed to lose 15 cents on the week and close at 920’2.
Last week we reiterated our bullish longer term stance on grains and suggested the March contracts for corn and beans would take out their summer highs. It didn’t take long for soybeans to oblige and corn finds itself within 4 cents of doing the same, something likely to happen early next week. Underlying long-term bullish stories continue to support grains as inflation fears had crude oil decoupling from equities and trading to its highest level since summer 2014 and expanded biodiesel targets inspired AGP to announce another soybean crush plant. But there was a bigger catalyst for the bean-led rally to new highs this week. Increasing analyst chatter about 10mmt or more of lost SA soybean production regardless of weather the balance of the season has traders’ attention. And against that backdrop, China buying June/July beans from the U.S. after months of no activity seems to perfectly confirm the idea that SA supplies are going to run thin. And it also means beans could cut the rope on the single biggest anchor for bulls; how drastically far behind export pace is. If China continues looking to us for summer beans we could make up a lot of ground quick. Can’t feed a bull market much better than that.
We’re not the place you should be looking for insightful commentary on potential outcomes in the Russia/Ukraine situation. That said, we do have two conclusions we think are reasonable. First, an actual invasion of Ukraine would be very bullish to grain prices. Ukraine is a major world exporter of corn and wheat. Major world wheat exporter stocks/use are already at their lowest levels since 2007 and fertilizer supply for spring crops in that region is in doubt even without conflict. Add an invasion to that mix right ahead of spring planting and it would be total chaos. However, our armchair attempts to parse the various rhetoric has us thinking it most probable there is a solution that involves concessions, not invasion. Who knows…and the fact that no one knows for sure is why the huge swings in wheat futures.
We’re again riding quite the commentary hot streak. Aided by our Price Signals, we correctly suggested this market rally in early-December, predicted that corn would breakout higher a couple weeks ago and last week suggested corn/beans would push to new contract highs. So what happens next? As we noted last week, there isn’t much for historical comparisons/analog years as it is of course very unusual to see grain contracts make new highs in the middle of winter at highest prices for that time of year in a decade following a successful crop. Given how novel that is, it’s safe to say it’s bullish. Beyond that, there are two seasonals that shed some light. We’ve been talking about the comparison to 2012 for several months. Recall that 2020 compared closely to 2010, and likewise for 2021/2011, putting us in year three of a bull market similar to 2010-2012. The other seasonal that has some merit is 2007. The ethanol expansion that began in 2007 was similar to the biodiesel expansion on the horizon now.
Continues to be uncanny how closely new crop corn/beans tracking seasonally with 2012, though continue to keep in mind the comparison is only useful through the winter/spring at this juncture, the summer rally in 2012 was due to worst drought in a century.
Don’t worry about the absolute price changes so much in comparison to 2022, what matters is the percentage change. In 2007, with adequate crops but the upcoming ethanol demand boom, corn rallied 66% from its September low to late-February high. So far in 2022, corn and beans have each rallied 23% from their fall lows, suggesting there could be substantially more upside.