Market Thoughts 11.8.2020
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Dec corn gained 8’2 to close at 406’6 on the week, reclaiming about half of last week’s losses. Futures rallied to 417’2 following the election (March futures matched the prior week’s contract high at 422’2) before selling off to close out the week. Nov beans added 42 cents to close at 1098’4 on Friday and posted a new contract high of 1111’2 on Thursday. Dec spring wheat managed to gain a nickel and finish the week at 557’2, though that commodity remains well below mid-October highs and continues to perform the worst of all grains anywhere in the world right now...
It’s certainly necessary to touch base on elections and expected market impacts and before doing so it’s worth disclaiming again that any discussion is solely focused on expected market impacts, not a reflection of political views/personal opinion/etc. Anyhow, broader markets concluded last week that a Biden win while the Senate remains Republican-controlled ensures the sort of gridlock that prevents massive policy-shifts, reduces unknowns and keeps investors at ease. Equities posted their best week since April, crude oil rallied nearly 3.50 off its early-week lows (despite increasingly bleak fundamentals) and the US Dollar declined sharply. This enthusiasm quickly spread to ag commodities as they shifted from a nearly two-week correction to capture the gains noted above. If this sentiment persists, it would definitely be another supportive factor for grains as they continue to rally alongside the case we made a couple weeks ago. That said, it will be very interesting to see how markets react Sunday night and throughout the upcoming week. Even as most media outlets began declaring Biden the winner over the weekend, the Trump campaign continues to mount legal challenges and insists a concession isn’t in the works. And instead of a clear grip on the Senate, it now looks like Republican control could hinge on two runoff elections in Georgia later this year, of which they would need to win both. I wouldn’t be surprised if some of the market euphoria from last week dissipates as we navigate this uncertainty.
With the election out of the way (possibly…) and the market viewing its outcome as bullish (for now…), grains appear ready to make another move higher. Bullish fundamentals that have fueled the rally since August are still providing support with corn posting a new record for weekly export sales and despite some improvement, lingering weather issues in South America, Russia and U.S. winter wheat. Add to this a healthy technical correction last week prior to beans making new contract highs (and March corn matching its highs with a double top that almost always gets taken out) and market bulls feel pretty good at the moment. The November WASDE report is Tuesday and while it’s normally not a “major” report, we expect corn and possibly bean yields to both be reduced more than pre-report estimates expect, along with the potential for more bullish export data.
All signs point to a continued rally, and that’s perhaps the most concerning thing right now… There are no sure things in marketing and the closer something seems certain to happen the more likely we’re wrong. On that note, these are the things that could impact our bullish case: Covid is flaring all over the globe as crude oil production rapidly increases, setting the stage for another oil price implosion. As noted above, we’re not convinced the U.S. election result supports the sort of unbridled bullishness we saw initially. Longer term weather is a risky bet as poor conditions now could easily turn into favorable conditions later and on that note, virtually no mainstream analysts have reduced their Brazilian crop estimates yet. Despite massive, record export sales, combined shipments to date haven’t been overly impressive and we may encounter difficulties physically shipping the the sheer amount of bushels sold. Unfavorable developments in any one of these areas could be enough to spook the managed money trader who is near-record net long for beans and within 100k contracts of record net long for corn. We still think it’s most probable that grains make a significant move higher early winter, but it’s not as probable as the last stage of this rally and it’s time to begin thinking about risk management strategies accordingly.
Grains Continue to closely track the 2010 seasonal pattern...