Market Thoughts 09.12.21
Dec corn lost 6’4 on the week to close at 517’4. Immediately after Friday’s USDA report futures dipped to 497’4, lowest since April 8th, before rallying 20 cents to finish the week. November soybeans lost 5’4 and ended at 1286’4 after trading as low as 1262 earlier in the week. December spring wheat lost 33’6 to finish at 878’6, the lowest weekly close for that contract since July 19th.
Friday’s September WASDE report pegged corn yield up slightly at 176.3, corn carryout up slightly at 1.408 billion bushels and stocks to use now just below 10%. Coupled with much larger world ending stocks (well above the high end of trade estimates), corn numbers were definitely bearish. Beans and wheat were neutral with U.S. ending stocks right in line with pre-report estimates.
We pointed out a couple weeks ago that row crops would likely begin a descent toward fall lows with an expectation that corn would ultimately fill the gap at 480 on its chart. Corn has obliged nicely, falling 61 cents from its peak the day after that suggestion to its low of 497 on Friday. And if you’ve been following our commentary for any length of time, you know what we saw on Friday. Corn went against the trend (lower) and the news (bearish) on an event day (WASDE report). This is an extremely reliable signal of a pattern change, one that we’ve pointed out several times over the past six years. It also fits nicely with the seasonal timeline as we’re already to mid-September and in range of normal dates for pre-harvest lows. It still would require a shift in fundamental news flow but this could come from gulf shipments resuming and if/when some weather adversity develops (poor harvest conditions, disappointing yields). We still think it’s probable that corn fills the gap at 480 but can’t ignore the strong signal we saw on Friday.
There’s been a lot of market chatter recently about the comparison between 2008 and 2021 and fwiw, we fail to see much similarity. The last 300 cents of corn’s decline in 2008 came courtesy of the economic meltdown, it had nothing to do with internal grain fundamentals. We still think the most applicable seasonal comparison is 2011 – tight carryout, strong demand, bounce off pre-harvest lows and trade sideways until the next year’s crop status is known. But if it isn’t 2011, then the other most applicable one is 2013, not 2008.
Using May futures to show how the seasonal played out through the winter; in 2013 (the long unwind after three bullish years), futures continued to slide all the way until early January but prices were still higher on May 1st than they were on this date.
Lighthouse Composite grain price signal chart:
Three quick points to make here. First, if we didn’t waste time writing this commentary and you didn’t waste time reading it and instead we just sold our corn/beans on the three dates when combined readings spiked above the Sell threshold, we’d both probably be a little happier. Second, our combined readings are currently at levels that have never represented the best selling opportunity over an upcoming 12 month period. (In other words, grain prices have always been higher at some point in the next twelve months then they are on days when combined algo readings are below 30.) Lastly, the seasonal low combined algo readings have been below the Buy Threshold line in every similar year to this year, suggesting there is decent probability of more downside.
We’re getting close to being able to take a victory lap on our late spring prediction that spring wheat would post a high between 950-1000 (953 was the high on August 13th). The dagger this week was the Canadian quarterly stocks report that showed over 2 million metric tonnes more old crop wheat inventory than the trade had estimated. Coupled with a sharp increase to the Australian crop and no major changes to U.S, Canadian or Russian crops in Friday’s WASDE, it is now going to be very tough for spring wheat prices to justify a move into double digits. It will likely take fundamental help from elsewhere, something that isn’t in the market today.
2021 vs 2008 Crude Oil
Visual representation of how this isn’t 2008 – Crude Oil lost $100/barrel during the time when corn went from above 800 to below 300. Quite a different story this year…