Market Thoughts 08.28.22
Sep corn gained 42’6 to close at 668’6. This marks the highest weekly close for that contract since June 21st with futures now 107’2 cents above the low from five weeks ago. Sep soybeans gained 116’4 to close at 1605’2. Friday’s 1614 daily high was actually a new contract high, eclipsing 1606’0 from June 6th. Sep beans have now rallied a staggering 301 cents in the past five weeks; this after falling 250 cents in the five weeks prior to that. Sep spring wheat gained 19’6 to finish at 894, reasonably impressive but despite the gains wheat remains squarely in the same range it’s been in for six weeks, failing to even take out last week’s highs. Compared to much larger advances for row crops, wheat’s performance feels a little ominous.
Just a quick reminder of what our Price Signals had to say the day this rally officially kicked off in late July:
Corn and beans were sharply higher all week, supported primarily by Pro Farmer crop tour results and to some extend by higher energy prices and the intense drought gripping Europe. Our previous two editions of Market Thoughts would make us look quite smart if we simply switched them around. Two weeks ago we made a compelling case for a corn-led breakout due to worsening yields; only to have prices stumble that week and us revert back to consolidation as more likely. This week though, Pro Farmer gave corn the nudge it needed. The tour’s final result, 168.1 is an incredible 7.3 bushels/acre lower than the USDA’s August number and even with the futures gains last week should lead to a sharply higher open tonight. The September WASDE report is still a couple weeks out and in the mean time traders are left to contemplate Pro Farmer’s results alongside a growing number of respected private analysts now showing similar 170ish-type yields.
A 168.4 corn yield if realized would lop another ~500 million bushels off a crop whose 22/23 balance sheet was already near demand rationing levels. Such an outcome suggests a high probability of further price gains. July ‘21 futures topped out at 750 and July ‘22 at 825 while July ‘23 is just 668 at the moment. But in the short term? It’s really tough to keep a grains rally going in September and it is unprecedented when prices are already at these elevated levels. We suspect the USDA’s September WASDE won’t incorporate near this big of yield cut. And September is a bit of a stale month as weather is about wrapped up – the crop isn’t necessarily getting smaller unless there is a freeze (nothing remotely in the forecast) or something like 2020’s derecho storm. And even in the tightest balance sheet years there are always plenty of bushels available at harvest. Also, the primary way corn demand is rationed is through exports and currently U.S. corn is significantly overpriced in world market and uncompetitive against large Brazilian supplies. While the longer term potential remains quite high for a significant price move, apart from whatever happens tonight/tomorrow, we’re skeptical of how much further prices advance in September.
Bull Market Dec Corn Seasonal – 2011, 2012 and 2021 are the only years within the range 2022 is currently at. 2011 and 2012 both saw massive price declines in September while 2021 featured a modest decline. Only 2010 and 2020 featured gains but those gains came from a much lower starting point in both of those years.
Natural Gas surged to new multi-year highs on Tuesday with nitrogen-fertilizer prices also skyrocketing last week.