Market Thoughts 05.23.21
Attached is the invite for our June 24th event (physical copy in the mail). Session lineup includes a market outlook, crop insurance discussion, speaker on voluntary carbon markets/Lighthouse sustainability project and a panel discussion on farm finances. Will be a great meal and social to follow.
July corn added 15’6 to close at 659’4. Following the prior week’s massive 88 cent loss, futures continued to slide early, touching 633 (102 cents discarded in just six sessions!) before steadily recovering to close out the week. July soybeans lost 60 cents to close at 1526’2. That contract is now down 141 cents from a contract high of 1667 seven sessions ago. Another week of heavy losses for spring wheat with July down 40 cents to close at 700’4.
Two Sundays ago we focused on the unprecedented nature of the previous three week rally and why for a variety of reasons, it was unlikely to continue. Since that discussion front-month corn, beans and wheat have all managed to shed over 100 cents from their early-May multi-year highs. Rapid planting pace/favorable weather for most of the Corn Belt (as in everywhere but the western two/thirds of ND…) and widespread anecdotal evidence of additional corn acres have all weighed on things. A few Chinese old-crop corn cancellations and a two-week losing streak for equities didn’t help either. Those are all just catalysts though and not worth 100 cent declines on their own. The main issue is the retail investor getting out just as quick as he got in.
What now, after this two week route? Old crop corn basis is extraordinarily high, the dollar index continues to slide, it still hasn’t rained on Brazilian second crop corn, overall commodity inflation theme lingers, China has been buying new crop corn at an unprecedented rate and the retail/weak long should be about done covering positions. While it seems probable to us that the May front-month highs (775,1677) don’t get taken out, it is also highly probable that July corn fills the gap at 685 left on the continuous chart when May expired. As we noted two weeks ago, there is some precedent for new crop contract highs in early May and it wouldn’t surprise us if those new crop contract highs from early May stood as well. That said, given all the fundamental factors we just noted, we think it is low probability that corn/beans continue to post steep losses into early June without more certainty about the U.S. crop.
Courtesy of Matt Campbell/Stone X –the previous 20 times corn reached 70% planted by May 15th, 19 of those years saw -1% to +12% of trend yields with the only outlier being 2012’s extreme drought…That 2012 outcome clouds things a bit but history still suggests it’s more probable than not to have above average yields given this year’s rapid planting pace.
Interesting moment to look at seasonals in similar years again. I had really liked the 2014 comparison, with ’14 and ’21 running nearly identical, until the wild move that started in mid-April but it’s worth noting that as of right now, 2021 posted a high on May 7th and 2014 did the same on May 9th. The 2008 seasonal is a strong comparison (the fundamental case is very similar) and that year saw a big June rally. But that June rally only came after bizarre flooding/early June weather. Prior to that, the high would have been on…May 9th. One obvious conclusion here is it will require a meaningful weather issue to take out the May 7th high for corn. Also worth reminding, both years featured massive collapses following their spring/early summer peaks.