Market Thoughts 06.20.21
***What Matters When You Market II – June 24th, 2021 – Knight’s Lodge, Riverdale, ND***
***Lighthouse Labs Algo Update will be sent out shortly***
· Nearby July corn lost 29’2 to close the week at 655’2. This was near the middle of a bunch of volatile trading sessions that saw a high of 687’6 and low of 629’4. July soybeans faired much worse, losing 112’4 cents to close at 1396’0. The July contract touched 1623 on June 7th and proceeded to drop all the way to 1323’4 by Thursday, a decline of 200 cents in just 9 sessions. Incredibly, Friday was the second largest daily rally for beans in several years, and beans still ended up down 112 cents on the week. Spring wheat performed much better, only losing 2’2 to finish at 762’4 as that crop has enough issues it should finally start de-coupling from corn/beans.
· A few things contributed to the volatile/lower trade this week. The apparent driver was a substantial forecast shift starting last Sunday that called for much cooler temps and widespread precip with coverages in the critically dry areas of the NW Corn Belt (except here of course…). That alone isn’t enough though to explain the collapse. Nearly all commodities were under pressure as inflation/supply disruption enthusiasm has cooled and the U.S. dollar posted a massive 221 cent gain last week. Also very problematic, the Biden administration signaled possible refinery exemptions, potentially severely undercutting ethanol and biodiesel demand. Soybean oil collapsed alongside the news and subsequent rumors, closing limit down for two straight days. Grains failed to hold brief gains on the supportive fundamental news we did have – crop ratings sliding more than expected and Brazil improving GM corn imports. This rally is well into its tenth month now, geriatric by bull market standards and it feels heavy; it likely requires major weather support to keep from generally trading lower.
· This mostly fits with what we’ve been saying the past two months. We pointed out that the May 7th highs were likely to be major highs, including the historical support for a seasonal high in early May. We expected a recovery bounce to fill the gap on the July corn chart, which it did. We expected that bounce to probably not take out the May 7th highs (only new crop beans briefly exceeded them) and we expected grains would begin a long seasonal descent starting in late June. The problem though is what we’re seeing now is happening too soon weather-wise. There is a strongly bearish potential narrative if it all comes together - combination of trend yields, large acres (if confirmed on June 30th), biofuels demand loss and broader inflation/supply chain worries easing. But the crop is far from made, with the largest percentage of soil moisture deficiencies since 2012 and the tightest old crop balance sheets since then also. The path of least resistance going forward is likely lower but expect extreme volatility (such as occurred this week with beans losing 105 cents one day and gaining 66 cents the next) and probability at least one more stretch where weather forecasts inspire a strong reaction.
· Nearby Bean Oil Futures
Before recovering a bit on Friday, bean oil had lost an incredible 25% of its value in the six sessions since the Biden refinery exemption story broke.
Arguably the biggest story of last week, the dollar index broke out of downtrend that extends back to the start of Covid and posted one of its largest weekly rallies ever.