Market Thoughts 01.31.21
***What Matters When You Market II – Reminder to Save the Date, June 24th, 2021 – Knight’s Lodge, Riverdale, ND***
***Lighthouse Labs Algo Update will be sent out shortly***
March corn added 46’4 cents last week to close at 547’0, erasing all of last week’s losses and formally probing territory not seen since the July 2013 contract went off the board. Nov beans gained 58’2 to close at 1370. Somehow neither of those two numbers is that impressive as beans failed to match corn’s strides and are still well below contract highs of 1436’2 from two weeks ago. March spring wheat gained 21’0 last week but similar to beans, performed worse than corn and closed well below recent contract highs.
Interesting to look back on our comments from two weeks ago where we were inclined to side with tech/algo signals of a short term correction while noting the overall fundamental bullish case remained intact. Last week did in fact bring a severe correction with beans losing over 100 cents but then this week adequately reminded us just how strong the underlying fundamentals are. China showed up in daily corn export sales announcements for the first time in almost six months and by the time the week was over they had 200 mmt of fresh corn purchases on the books.
Are we needing to ration corn demand now too? During the ethanol era (since 2007), corn has reliably traded between 300-450 during adequate carryout years. During tight carryout/rationing, (2008, 2010-2012) it’s traded 6000-800. And there’s been little in between. Corn left a gap on the chart from 550 all the way to 700 when July 2013 futures expired. Friday marked the first stab at filling it, some 7.5 years later. History suggests corn doesn’t spend a lot of time idling around in the mid 500 range and it seems continued Chinese export purchases would provide the catalyst to keep plugging away at that gap.
On the other hand, bean behavior has been equal parts disappointing and perplexing. Beans have failed to make new highs even though we will literally run out of supply well ahead of September at current sales/shipment pace while also needing a big uptick in 2021 acres just to stabilize balance sheets. South American weather is greatly improved and crop estimates are increasing which certainly isn’t friendly. But somebody must know something about export sales cancellations hitting in the weeks ahead, otherwise it doesn’t make sense that beans haven’t been able to post new highs yet.
We first began tracking the 2021/2011 similarities in early September and it’s getting down to crunch time. Beans peaked in early Feb and corn in early March of 2011. This seems at least plausible given the improved South American weather and poor tech performance of beans recently.
Also worth noting, the Marc-Dec corn spread is at a 101.75 cent inverse (Dec corn $1.0175 cheaper than march.) That is approaching 2013 levels, a year (2012 crop year) where we had to ration 2bln bushels of corn demand, and is above both 2010/11 add 2011/12 at this point, despite each of those years having much higher flat prices and much tighter balance sheets.