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Market Thoughts 03/07/2022

May corn gained 98’4 to close at 754’2 on the week, the largest weekly gain EVER for corn. May spring wheat gained 186’6 to close at 1147’0. Apart from the 2008 thing, this is both the largest weekly gain ever for spring wheat (by a wide margin) and the highest futures price. Soybeans comparatively had a disappointing week, “only” gaining 76 cents, failing to take out last week’s highs and finishing at 1660’4, a dollar below last week’s peak.


The week’s trade was of course entirely focused on implications for the grain market with a deteriorating situation in Ukraine. Last Friday’s hope for a quick resolution faded quickly into oblivion but it’s still incredibly tough to guess how severe the long term impact will be to grains and with it, how high prices need to be. KC/Chi wheat lead things, posting gains we’ve never seen before. Initially traders were scrambling to cover nearby export commitments that clearly aren’t going to ship. But the longer term impacts are even more substantial: a combination of lost Ukraine production (normally around 70 million metric tones of corn/wheat) and lost Russian fertilizer exports. Even as bullish as it all is, the last two days stopped being about fundamentals and instead felt like a carnival of speculator money blindly pouring into wheat. Charts below do a better job characterizing this but for context, KC wheat futures gained 323.5 cents last week and KC wheat basis lost 200 cents…


Some charts that look way different than they did a week ago:


KC Wheat gains 323.5 cents in five days of trading this week…


Winter wheat basis off nearly 200 cents per bushel (mind-boggling) from Wednesday to Friday. Bids were around +30 versus the May on Wednesday and after bids rolled to the Sep (never seen that before either!), the equivalent basis is -171 versus the May.


May Spring Wheat 5 minute chart from Friday. (Shows each 5 minute increment from the day.) May spring wheat went from locked limit up to locked limit down in a span of 30 minutes in the middle of the day with no discernable reason why. That 120 cent price decline in 30 minutes is larger than the price change during some entire years recently.


May Corn futures traded as high as 47 cents over July Corn futures. This sort of inverse, meaning essentially unsold corn would be worth 47 cents less in July, is normally seen when markets are navigating a tight old to new crop transition and is unprecedented to be occuring in early March. Equally unprecedented, nearly all locations across ND moved their cash corn bids to the July and signifcantly lowered basis in the process.


We realize how tough it is to feel anything but unfettered bullishness in these markets and that may still be what rules the day but we do need to point out a few warning signs:


Soybeans did not make new contract highs last week and the SA weather story is largely behind us now. Beans are not as directly impacted by Ukraine and watching their price action this week helps reinforce the idea that grains were set for a seasonal decline prior to the invasion.


Healthy rallies are cash-led. It’s not a good sign to see basis rapidly falling as futures rally. Again, the extreme inverses in wheat and corn (May futures higher than July, etc.) are not cash driven but instead are a result of massive new spec money pouring into front-month contracts for those commodities.


In the same vein, such extreme volatility itself – massive swings higher and lower in short periods – is not a good sign as we often see that sort of volatility alongside major market peaks.


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