Market Thoughts 04.26.21
***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 70’0 cents on the week to close at 655’4. For some context, this was the largest one week gain for front-month corn since June 2012 and if our brief research is correct, the second largest weekly gain ever. Corn is inching closer to filling the gap left at 684 from July 2013 with May futures now just 29 cents away; we’ve been saying it for months but it seems almost certain that gap gets filled. May soybeans gained 106’4 to close at 1539’6. Beans are also now at their highest levels since July 2013 and this was the largest weekly gain for them since July 2012. May spring wheat gained 54’2 to close at 718’4. Spring wheat has now rallied 122 cents in three weeks to its highest levels since July 2017, though continuing to perform worse than corn and beans.
As we noted above, the last time corn/beans had a performance like this it was right in the throes of a 100 year drought, not at the onset of planting into generally favorable conditions. A few factors converged last week to set the stage. First, the US$, which had been sliding lower all month after a decent rally to start the year, closed sharply lower on Monday and continued losses through the rest of the week. The resumption of its downtrend has brought back inflation/food security/supply chain disruption ideas that fueled large gains in late 2020. Added to it was a sharp downgrade in Brazilian second-crop corn conditions as drought quickly intensifies and some concern with slow pace/cold conditions for U.S. planting. All of that news was enough to push beans above their fourth-month trading range with a wave of buying following that breakout. Watching money flow into commodities this week it’s pretty apparent the formula that inspired it will continue to attract fresh outside money for the foreseeable future; Macro Inflation story (weaker dollar) + specific fundamental worry (Bzl dryness at the moment).
The useful thing about how rare today’s prices are is we only need to look at a few years to make some probabilistic guesses regarding what might happen next.
There’s only been three prior instances with New Crop corn futures above 550 on this date – 2012, 2011 and 2008. In fact, outside of those three years, no other year has even been close to 550 on this date. In all three prior years, grains when on to post summer rallies followed by collapsing into harvest. (This perhaps isn’t too shocking as grains follow such a pattern nearly every year.) Summer highs in those years were 834, 775 and 788 respectively, followed by declines of 86, 174 and 439 cents respectively…
We’ve been talking about seasonal similarities for 2021 and the past week’s action confirms the best analog is 2008. Right now Managed Money is getting into position for a summer weather scare and it won’t take much of a perceived threat to add a third leg higher to this rally. History suggests that is likely to happen but it’s just as likely to be followed by precipitous decline into harvest.