Market Thoughts 09.11.22
Dec corn gained 19’2 cents this week, taking out last week’s 683’6 high and finishing at 685’0; highest weekly close since June 13th. Nov soybeans lost 8’2 to close at 1412’2 and traded all the way down to 1373 during the week before recovering into the weekend. Dec spring wheat ended the week up 37’4 at 927’4.
Soybeans/oilseeds were under pressure all week while corn made new highs for its move and wheat managed a furious rally on Friday. The week’s biggest fundamental story was Russia announcing on Wednesday it was not happy with how the wheat export deal was playing out and threatening to cancel it, followed by Turkey saying on Friday that maybe they agreed. A story that didn’t capture a lot of headlines but is worth noting is India announcing a tariff on rice exports. Also supportive was US Dollar posting a significant late-week collapse. Going forward though, Monday’s WASDE report is what matters. Row crops head into the report well off their July lows and at much higher levels than normal for this time of year. Pre-report estimates have traders expecting a 172.5 corn yield and 51.5 bean yield.
There’s a lot of potential for corn-led market volatility post-report as 172.5 would be nearly 3 bushels below the USDA’s August estimate while still 3-4 bushels above pro farmer/satellite/stat model guesses from the private sector. One thing that is definitely a waste of time is putting forth an opinion on what price impact a USDA report will have. That said, let’s waste some time. We don’t think this report will be runaway bullish and perhaps not bullish at all. With trade already expecting a 3 bushel/acre yield reduction, there just isn’t much precedent for a yield number enough lower still to create a wildly bullish report. Corn and bean Price Signals have rallied sharply and are near middle of their ranges, levels associated with neutral reports/news. And while the longer term bullish case for grains persists regardless of tomorrow’s outcome, our expectation is not for sharply higher prices.
A week ago we had an internal discussion about wheat finally breaking out higher following two months of consolidation near the lows from its early summer collapse. Wheat then promptly and somewhat inexplicably dropped 40 cents the next day. So we offer this with a bit of caution; but the case for wheat still looks quite good to us. Ukraine stated recently they expect their 2023 wheat crop to be down 20% from this year’s crop (and less than half the size of 2021 crop) due to continued issues with inputs/fertilizer. As noted above, Russia wants more concessions or they want out of the wheat export deal. Elsewhere, the high plains are still in a major drought, Australian is sitting on record-low wheat stocks despite having one of its largest crops ever, Europe remains in a major drought and wheat should find plenty of support going forward from corn’s tight U.S. carryout/La Nina in South America/fertilizer situation. Add to it India announcing a tariff on rice exports and wheat Price Signal just barely above Buy threshold and it certainly presents a reasonable case for higher prices.
DECEMBER SPRING WHEAT
Rice stocks have actually been quite large the past couple years and that’s part of what helped cool grain prices back off; some signs now that’s changing. Nearby Rice futures are within 3% of their May highs while Corn/Beans are off 20% and wheat nearly 35%.