• jcrist18

Market Thoughts 09.18.22

Dec corn lost 7’6 last week to close at 677’2. Monday’s post-USDA bounce had corn up to 699’4, just two ticks below the 700 mark before following that with four days of losses. Nov beans gained 36’2 and ended the week at 1448’4. Impressive given weekly losses for nearly all commodities but still down 60 cents from Monday’s high and somehow lower than the close three weeks ago while trading then under expectations for a much bigger crop. Dec spring wheat closed 11’2 higher at 938’6 and in doing so accomplished a couple of things. First, it managed to book gains on consecutive weeks for the first time since early May and second, Monday’s 948 high eclipsed the daily high from late August and was the highest trade for nearby wheat since mid-July.

We’ve been talking for a few weeks about the straightforward narrative in grain fundamentals right now –bullish supply news and bearish economic/macro news. To that end, this week did not disappoint.

Monday’s September WASE report was shockingly bullish for soybeans. Soybean yield came in below the low end of trade guesses and coupled with a 600k acre reduction in harvest acres, production was well below the lowest of guesses and it pushed carryout down to a demand-rationing 200 mln bushels. Corn yield was right on par with trade guesses but an additional 1 mln cut to harvested acres had production well below trade guesses with corn also at a demand rationing 1.219 billion bushel carryout. Add these crazy bean numbers into a market that had been consolidating near recent highs and it should be enough to be off to the races? Unfortunately, the very next day the monthly Consumer Price Index (an inflation gauge) report showed an increase in August despite a large monthly decline in energy prices. This caused a massive drop in equities and the largest one day rally ever for the U.S. Dollar, energy prices collapsed and even with bullish USDA news barely a day old, grains followed lower.

Also newsworthy last week, Argentina continued to sell an unprecedented amount of soybeans as farmers aggressively take advantage of the government’s short term offer on currency exchange. And for most of the week, grains traded under the weight of a potential railroad strike. We’ve been talking for awhile now about how tough it is to keep a rally going in September and once again corn and beans closed the week within their recent ranges. Going forward though, a few observations. First, the bottom for grains was definitely raised following this report. Both corn and beans are already at demand-rationing levels, meaning prices have to remain high enough to encourage less usage in order to maintain minimally acceptable carryouts. Second, grains (and beans specifically) had to absorb a ton of bearish news this week and it’s unlikely that trend continues. The railroad strike is resolved , counter-seasonal Argentine beans sales will conclude shortly and the U.S. Dollar traded sideways the rest of the week after Tuesday’s massive gain.

Spring wheat is doing ok so far with our expectation of a breakout higher. Futures are up almost 60 cents since mid-last week and as noted above, have managed now to make fresh two-month highs and post two consecutive weekly gains. Further, spreads have been narrowing significantly, suggesting cash markets finally struggling to find wheat and this even as harvest is still ongoing.

Carry bottomed out at 29.25 cents in early August and has come all the way in to 11.25 cents as of a Friday.

USD posted its largest one-day gain ever following the CPI report on Tuesday.

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