Market Thoughts 07.05.21
***Lighthouse Labs Algo Update will be sent out shortly***
· September corn gained 61’6 this week to close at 592’0, though this was well below the weekly high of 626’0 from Wednesday night. August beans gained 130’4 to close at 1433’2 after posting a high of 1459’6 on Wednesday night. And September spring wheat added 30’6 to close at 838’6. This was a new contract high weekly close for spring wheat but as with corn and beans, wheat sold off sharply after trading to 859’6 on Wednesday night.
· The inspiration for these outsized gains was the USDA’s Acreage reporting, released Wednesday morning:
o Corn and beans each came in with over a million less acres than average trade guess; the bean number being identical to March 31st Prospective Plantings and corn only up 1.55 million from March.
o Corn’s extra acres came at the expense of other principal crops, leaving the trade still searching for the driver behind shrinking total U.S. crop acreage.
o Spring wheat acres were only down 140,000 from intentions, less than trade was expecting and far less than we expected.
o Perhaps worth noting, ND/SD corn acres are up 2.7 million from a year ago, with total U.S. acres only up 1.9 million. In other words, corn acres are actually down year over year outside of the Dakotas. Considering the lower yields to begin with coupled with staggering drought conditions in this region, it will likely require well above trend yields in the eastern Corn Belt for the national yield to hit trend this year.
Courtesy of Matt Cambell/StoneX
· Two and half days of trading post-report and the market appears to have priced in the initial impact of fewer acres and will resume taking weather forecast cues. Given fewer acres and the dynamic we noted above, corn has much less margin for error than a week ago and beans are essentially already rationing demand, meaning weather threats will be even more dynamic/volatile than before. On that front, interesting to note, new crop corn/beans did not make new summer lows ahead of the report despite favorable weather playing out as forecast last week. Row crop markets don’t stagnate in July – you either test the June lows or the May highs. And similar to two weeks ago, we still think it’s most probable that the May highs are tested one more time, especially if this week’s July S&D confirms balance sheets that have no margin for error.
· This has not necessarily been a popular opinion the last couple days but it looks to us like the spring wheat rally is probably done. First, to clarify, if corn/beans keep rallying, spring wheat would certainly go up in sympathy. However, spring wheat appears to be done moving higher on its own. The market has spent two months pricing in drought, the acres report was not bullish, next week’s WASDE report will confirm huge Russian and Ukrainian spring wheat crops, a huge U.S. winter wheat crop and record world wheat stocks. And as we noted a few weeks ago, spring wheat drought rallies make highs well ahead of harvest typically in late June/early July; right in this window. But perhaps most compellingly, our Spring Wheat Algo flashed well into Sell Signal territory after Wednesday’s close.
· On that last note, in the weeks ahead we intend to gradually phase out market commentary and merge it into our Algo updates as our Algos have vastly outperformed our thoughts. (It appears that math might be more useful than words when it comes to analyzing markets.) In addition to the Spring wheat signal noted above, our algos correctly moved into buy signal territory ahead of both the March 31st and June 30th reports and into sell signal territory on May 7th. Anyhow, if you’re on this email distribution and not a Lighthouse client, we will be in touch regarding the transition.