Market Thoughts 02.13.22
March Corn gapped higher to start the week and ending up gaining 30’4 to finish at 651’0. March Soybeans gained 29’4 to end the week at 1583 but this was down 50 cents from a high of 1633 on Wednesday. Spring wheat finally got its act together, gaining 48’2 to close at 961’4 with a bullish key reversal on Friday.
The Feb S&D report didn’t give us much to chew on, neutral/in line with pre-report estimates on most #s, including key South American production #s. If you’ve been following our thoughts for any time, you know that neutral is bullish in a bull market and all corn/bean contracts across the entire curve moved to new contract highs following the report.
Our sentiment from last week, that grains were due for setback/correction, certainly didn’t age well on the surface this past week. Consider this though – both March corn and beans started out last week with large gaps on their charts. It’s extremely unusual for daily chart gaps on most actively traded contracts to not get filled. And then Thursday brought another classic warning sign – bullish CONAB (Brazilian USDA) report immediately bounced grains sharply higher but then prices reversed course, grains closed lower and beans nearly posted a key reversal. Also, old and new crop soybean price signals have been above the Sell Threshold for over a week and new crop corn signal went above the Sell Threshold on Thursday. These are the sorts of things, especially in combination with each other, that have reliably signaled corrections in the past.
Regardless of our short term thoughts, the longer term bullish view we’ve been talking about since late fall looks even more compelling. The need for massively expanded soybean production to meet upcoming biodiesel mandates partnered with ~700 million bushels of lost South American production this year (or roughly double the entire U.S. projected carryout) is basically the most bullish setup you could possibly conjure up for grains. And that’s without even factoring in inflation, input shortages, Ukraine conflict and a host of other bullish stories orbiting grains right now. Bring this scenario into summer and add a little weather adversity and there is a realistic shot of new all-time high prices.
There are only two prior years at all analogous to this year – 2008 and 2012. Both years featured similar high prices in the winter, a correction into spring and then a massive summer weather rally. 2012 weather adversity was quite legitimate with the worst drought in a century. 2008’s weather rally was not exactly legitimate – “too wet in June” never works for the long haul and then grains got swept up in the economic meltdown. But the takeaway – in both years corn and beans traded to new all-time highs as soon as there was even a perception of weather risk..