Market Thoughts 04.11.21
***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 gained 17’4 to end the week with a new contract high of 577’4. Futures touched a new daily high of 595’0 seconds after the USDA report before selling off sharply to close out the week. May soybeans gained 1’0 cent to close at 1403’0. Bizarre week as beans only had a 31 cent trading range the entire week; less than either corn or spring wheat, and closed nearly unchanged while remaining well below recent contract highs. May spring wheat gained 54’4; by far the largest weekly gain for nearby spring wheat futures since June 2017. Friday’s weekly close was a new contract high but last week’s daily high of 658 remains just below the 662 contract high from early January.
Friday’s WASDE Report Summary:
U.S. balance sheet numbers were mostly in line with pre-report guesses. All-wheat carryout was slightly above average trade guesses while bean carryout was right on. Corn carryout was lowered 150 million to 1.352 billion bushels. This was below the 1.396 million bushel average trade guess and could be considered slightly friendly (thus the brief algo-driven spike after the report dropped). However, we expect most traders are already plugging in a final corn carryout number lower much lower than 1.352 billion as something smaller would be needed to justify prices at current levels .
World numbers were actually pretty bearish. World wheat carryout was slashed again, down 5.67 mmt and below the low end of trade guesses, as the USDA ratcheted up feed wheat demand for a third straight month. And despite this, the world is still awash in wheat and projecting massive 295.52 mmt ending stocks, meaning plenty of wheat remains to be fed if corn prices stay high. Also troubling, world soybean carryout was increased 3.13 mmt and landed above the high end of trade guesses as Brazil’s soybean crop, already a record, was increased another 2 mmt.
Last week’s Planting Intentions coupled with this week’s WASDE paints a unique marketing situation. While shockingly small corn and bean acres intentions will continue to be scrutinized over the next three months (until June final acres report), those are the numbers the market will trade. And those acres numbers imply bean prices have to do more to secure additional acres with neither commodity having any margin for weather/potential reduced yield. Not surprisingly, both new crop contracts are up sharply since the March 31st report with Nov beans 77 cents higher and Dec corn 44 cents higher.
New crop market structure right now is friendly across all indicators. In addition to bullish fundamentals, seasonal is bullish (overwhelming tendency for new crop futures to make contract highs later in the year), cash markets are bullish (strong basis values, large inverses in futures) and managed money is neutral (bullish for beans, bearish for corn).
The challenge however is all the other warning signs we discussed two weeks ago remain. The Brazilian bean crop getting bigger. Chinese crush margins are negative and there are overwhelming rumors about significant ASF outbreak again. DDGs prices have tumbled recently and are now cheaper than corn (for the first time in years) in much of the U.S. China has around 600 million bushels of unshipped old corn purchases and there has yet to be a week with shipments at the pace needed to see all those bushels exported in this crop year. U.S. livestock numbers are sharply lower. There is still a glut of wheat in the world. And while the USD has finally weakened a bit, it still remains in a steep uptrend for 2021.
We’ve been tracking 2014 and 2008 as two year that share similar fundamentals to 2021. Beans closed Friday at nearly identical price as the same date in 2008. Worth noting that in both comparison years, prices rallied beyond this point (massively in 2008) before huge declines into harvest.
It’s been an interesting stretch for spring wheat. Last Thursday, front month futures had fallen all the way to 596 after a four-week selloff that landed spring wheat it its cheapest relative to corn ever. Toward the end of last week, we actually sold milling spring wheat into the feed market as cash wheat was cheaper than cash corn. While all this was going on, North Dakota’s massive drought was persisting and intensifying. Add in areas of eastern MT and north central SD and perhaps as much as 70% of U.S spring wheat production area is currently in advanced drought. We’ve been bombarded with anecdotal evidence of it being too dry to plant and reports of acres switching to crops that have better insurance guarantees. The market finally keyed in on this last week as spring wheat recovered all of the last month’s losses.