Market Thoughts 03.28.21
***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***
May corn lost 5’2 to close at 552’4 on the week. Despite this modest decline, that’s still the second highest weekly close for the May contract. May soybeans lost 15’6 to finish at 1400’4. The bean chart extended a long pattern of consolidation, with May futures having now touched somewhere between 1380-1420 nearly every day since early Jan. Disastrous week for spring wheat as the May contract lost 13’0 to close at 614. Three weeks of losses have wiped out nearly 40 cents and futures are now at their lowest levels since the start of the year.
March 1st Quarterly Stocks and 2021 Planting Intentions hit on Wednesday. Below are the pre-report guesses, shared with permission from StoneX:
Typically this is the biggest report day of the year and it’s sure to be no different this year given all the wild changes that we’ve seen in Stocks and Acres reports lately. It’s been very tough for the private analyst crowd to outguess either of these reports recently, missing badly more often than not. As such, rendering a prediction ahead of time amounts to little more than a guess.
That said, we’re still going to offer our guess…Corn seems really ripe for a bearish report. Plenty of anecdotal evidence suggests corn acres could be higher than 93 million. At the same time, with corn buyers noting “corn just keeps showing up”, slowing feed demand and massive export sales having not shipped yet, quarterly stocks could easily come in higher. Beans and spring wheat both look headed for a bullish acres number. Again, this might paragraph might not age well beyond 11:01 on the 31st but that’s our thoughts now.
It’s worth mentioning that while this rally was ignited by USDA Stocks changes and disappointing U.S. yields, it has since been fueled by Chinese demand and South American weather. Right now, that fundamental story is clearly shifting with changes on several fronts. Thursday’s Hogs & Pigs report indicated way less pigs on feed than the market was expecting, a clear sign of livestock demand rationing. Soybean Meal prices have been in a free fall since an early January peak and DDG prices have begun to drop recently as well. Alongside that, rumors continue to swirl about fresh ASF outbreaks in Chinese hog herds, the Chinese government publicly stated their stats on a dramatic recovery in hog numbers were inflated, and Chinese soybean crush margins are negative through the rest of the year. With an abundance of wheat globally, sharp increases in feed wheat are being seen all over, including huge volumes of HRW wheat headed to feedlots in the southern U.S. South American weather has continued to improve with very few dry spots remaining in Argentina and Brazilian second crop corn receiving timely moisture. Corn Managed Money net long has been increasing again and is now at 10 year highs, within a few thousand contracts of all-time record net long. Corn’s record net long came in March 2011 at the conclusion of the seasonal comparison we’ve been talking about since September and corn immediately fell over 100 cents in its wake.
With all of the above, futures seem really ripe for at least a substantial correction.
The two seasonal comparison years we see as most similar to 2021 going forward are 2008 and 2014, shown in charts below. 2008 featured adequate old crop stocks but the prospect of massive demand in the upcoming year with RFS2 ethanol expansion. Early summer flooding propelled prices to record highs before the total collapse that followed. We actually think 2014 is a better analog for 2021. 2013 featured tightest ever bean stocks/use at 2.64% with corn at 9.16%. 2020 bean carryout is just barely tighter at 2.62% and corn at 10.27% (probably headed lower). We came into 2014 with these tight carryouts but ethanol demand growth was leveling off then much like Chinese demand could be in 2021. Prices rallied slightly into late spring before trading lower all summer as ideal weather produced record corn and bean yields.