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Market Thoughts 1.29.23

March corn gained 6’6 this week to close at 683’0, its best close since October 31st. Monday’s brutal selloff featured March corn dipping all the way to 661 before recovering steadily during the balance of the week. March soybeans closed just 3’0 higher at 1509’4. Beans had a more volatile and generally weaker showing than corn, trading down to 1479 on Monday, recovering sharply on Tuesday, dropping to a new weekly low of 1478 on Wednesday and then recovering once again to close out the week. March spring wheat gained 8’6 to close at 921’4, its best weekly close since the last week of December. Prior to that though, futures had traded all the way down to 885 on Monday, taking out the 890 double low in the process.

Our most recent commentary suggested that last week’s losses were overdone and prices would stabilize/trade higher this week. A quick glance now renders that conclusion ok as old crop corn/beans/wheat all carved out small weekly gains. Unfortunately, new crop didn’t fare so well. New crop beans and wheat plummeted to fresh lows while new crop corn came within a couple cents of doing so. Grains continue to focus on two recent fundamental stories. First, bullish corn and bean supply numbers in the January WASDE report two weeks ago left corn carryout at its tightest since ‘12/13 and bean carryout not far behind. And second, a bearish shift to wetter weather for southern Brazil/Argentina. Impressive weekend rains in that region (along with significant snow for the High Plains) were the catalysts for Monday’s broad selloff. Even as harvest gets under way in Brazil, Argentina is just finishing planting beans. In other words, not only does this pattern shift likely stabilize losses for early-planted crops but the nearly-50% of beans that have been planted recently still have potential to add significant yield. It looks likely to us that total South American bean production will be record-large by a considerable margin. Corn continues to have the most bullish story post-USDA report and its fundamentals were solid again with now two straight weeks of impressive export sales and strong ethanol grind. (Though ethanol grind tempered somewhat by a huge surge in ethanol stocks.) U.S. corn supplies are the cheapest in world into summer and exports should continue to make up lost ground. Both old and new crop wheat traded to new winter lows on Monday (something we didn’t think would happen…) before recovering significantly by Friday’s close. Snow and improving moisture prospects for drought-stricken hard red winter wheat alongside Australia’s recently harvested record crop, record Russian crop, huge U.S. winter wheat acres and steady shipments out of Ukraine doesn’t paint a bullish picture for wheat. Despite that, wheat actually outperformed the other grains from Tuesday-forward as there appears to be some risk premium adding back in alongside an escalation in war rhetoric with U.S./Germany promising to deliver tanks to Ukraine.

So what happens next? At the moment, South American crops are getting bigger and when that’s occurring, it’s very tough for grains to sustain a rally, especially when Managed Money is already massively long. We still lean into our long-held stance that old crop grains stay in same trading ranges with low probability of breaking out higher. We also still see strong probability that harvest 2023 prices are much lower than today’s prices, something we’ve been talking about for months. The bigger question becomes what happens to between now and then. We suggested a week ago little chance of new crop making new lows this winter as much tighter old crop carryouts would keep prices supported at least until the U.S. crop is in the ground. Unfortunately, new crop beans and wheat traded to new lows the very next day… It’s worth noting that only one year this century – 2013 – featured grains making calendar year highs prior to April. Or in other words, only one year where we didn’t have a spring/early summer rally that pushed grains above their winter prices. Unfortunately, that year, 2013, is the one that is most seasonally similar to 2023. We still think its likely grains don’t feature a major further collapse this winter and most probable that there is a typical seasonal rally. But current high prices and this week’s price action has us considerably less excited about waiting on it without taking some hedge action now.

Lots of precip for Arg over the next two weeks in this forecast

Seasonal comparison to 2012 and 2013: We’ve been looking at this chart for months and it continues to track shockingly similar. (Dec 2023 closed Friday at nearly identical price as 2013 did on the same date.) Both of those years feature a slow price erosion until mid-June. Corn took off in mid-June 2012 as the drought set in. Again, that is something we don’t see hardly any chance of in 2023 as sea surface temperatures slide to neutral/El Nino. And in 2013, prices never did recover, trading lower all the way into harvest, the only year this century where that happened.

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