Market Thoughts 05.02.21
Current Clients we will be sending out a separate email with the weekly Market Algo readings.
Corn Complex- Corn continued its wild market movements this week. With a multiple limit higher and lower moves in overnight and day sessions during the week. In the technical picture we did plug the gap from the July ’13-Sep ’13 roll off as nearby July did trade to 6.84 to fill the gap. The biggest story of the week was May/July corn spread as we headed to first notice day on Friday. As of the 20th that spread traded at .12-.15 inverse by the close of business on Thursday that spread had traded as wide as .63 inverse. That high tick on the spread nearly matched inverses we saw during the height of the summer drought in 2012. Traders do believe that one larger commercial hedger was short squeezed on their K short position which my have led to blowout this time. Other fundamental news for the week was benign with trade continuing to watch dryness in Brazil second crop corn with many private analysts dropping 8-10 MMT off the crop size this week. Still little relief in the forecasts in many drier areas. Ethanol margins also continued to surge this past week with crush margins for many plants at .15 to .20 positive margins. To end the week one of the more interesting CFTC reports we have seen in quite some time with non-commercial fund positions shrinking at least thru Tuesday and overall market open interest shrinking in that time as well.
Soybean/Canola Complex- Old crop beans did set new contract highs with movement towards the $16.00 level. New crop contract did as well with trade approaching for the $14.00 level. New crop did close lower on the week. Bean complex continues to battle fatigue at these higher price levels with lower volume trade. We did see some confirmed shipments of Brazilian beans into the southeast US this week. As well we heard that Brazilian merchants have been asked about washing June July cargoes of beans by the Chinese as crush margins there continue to run at negative .50 to .70 margins. Canola complex also maintained its bullish but volatile bias with large ranges in new crop canola futures and new all-time highs being seen in the old crop complex.
Wheat Complex- As with the other two major row crop markets, the wheat market had its own week of volatility as well, in addition to following the corn complex. Spring wheat has begun to move away from the other classes of wheat with continued dryness in the northern plains and small projected crop acreage in both the US and Canada. The frost/freeze event two weeks in the southern plains was not much of an issue, this did take some pressure off the KC complex later in the week. Chi wheat also was under a little pressure mid-week with continued decent moisture forecasts for both the EU and Black Sea crop regions. Argentine producers also appear to intend to plant larger acreage than a year ago in response to higher domestic and world prices.
Outside Markets- Outside complexes in both equities and other commodity markets continue to beat the drum of inflation. We are certainly not profession economists but here are a few observations on some global market trends right now. Many of the issues we have seen on higher prices and product unavailability have been related to global logistics issues rather than true lack of supply at origin. Container prices have soared since last year with Asian-US trade lanes being particularly tough. This combined with longshoremen slow down at the LA ports has led to extremely high wait times for products getting into the US. Another big news item that many people use and talk about has been the lumber price increases. Wholesale log prices (prices paid to loggers for rough trees) has been approaching near 20-year lows. Mills have struggled to catch up to the slingshot in demand from the extreme lows prior and as we entered Covid shutdowns a year ago. Ammunition, equipment parts, toilet paper, and meat production are further examples in the last year of temporary supply dislocations as markets contended with labor shortfalls at production facilities, combined with logistics constraints that led to shortfalls in physical product. As we push out of shutdown mentality in many areas will we see these constraints ease. In addition, the labor market has been battling our own government in the labor market as wages are unable to compete with extended unemployment benefits, with many laborers electing to collect unemployment rather than working. Overall, many of markets could be likened to a yo-yo pattern with an extreme low (COVID) followed by extreme high (pent up consumer demand) which eventually will pass as consumers respond to higher prices (lowering demand) and producers respond to higher prices (increasing production).