Market Thoughts 11.13.22
Dec corn lost 23’0 to close last week at 658’0, the lowest weekly close for that contract since August 15th. Jan soybeans added 4’0 to finish at 1455’4, best showing since mid-September. And Dec spring wheat lost 8’6 to end the week at 945’6 after falling all the way to 929 on Thursday. This was the lowest weekly close for wheat since September 6th.
We apparently gave up on our conviction one week too soon as the corn correction we’d been promising since early October finally arrived last week. Corn dropped to a low of 652’6 on Thursday, down 48 cents from its high the previous Monday. Beans meanwhile carved out a small gain and have rallied more than 100 cents since the mid-October harvest low we discussed. Wednesday’s November WASDE reported contained fairly neutral numbers but with it some longer term implications. The biggest one being we’re now pretty dialed in to final production numbers for corn and beans with no longer the lingering risk of major WASDE report production shock (higher or lower). This then means subsequent balance sheet changes are driven solely off the demand side. And while the USDA kicked the can down the road regarding corn exports, the continued absurdly low pace of export sales suggests there has to be a sizable reduction. With the supply side known/priced in and demand faltering under these extremely high prices, the path for corn mounting a major price rally this winter becomes much more difficult. We illustrated this last week with the seasonal comparison to 2011/12 and 2012/13 corn charts; neither featured a winter corn rally despite similar tight carryouts and high harvest prices. In addition to the WASDE lacking any bullish news, Argentina finally received some decent rains and Brazil continues to be in excellent shape. Given our deep reservations about corn demand and already elevated futures prices for corn and beans, a substantial rally this winter almost certainly has to be driven by South American weather problems. And right now drought concerns in Argentina are both easing a bit and more than offset by excellent conditions in Brazil. Chinese health officials have been going back and forth about covid policy changes and on Friday they outlined a path toward significant loosening of restrictions. This sent beans surging higher and provided some modest spillover support to grains. The Ukraine/Russia wheat deal is set to expire this week and while the UN is working feverishly to negotiate an extension as of today no deal has been reached. China further easing covid restrictions and/or the Ukraine export deal expiring would be supportive. But we still suspect the bean rally we predicted is now close to over and corn struggles to regain its losses this winter absent a major South American weather problem.
Again revisiting the seasonal comparison to 2011 (crop year) as have been doing steadily since last winter; extending out to March now. Both 2011 and 2022 crop years started out higher than normal the winter prior, both featured late winter/spring rallies, both featured July lows followed by late summer rallies and both featured a period of consolidation/sideways trade through October. 2011/12 then featured a major price break in November/December followed by a modest recover to start the new year and it looks so far like 2022/23 is doing something similar.