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Market Thoughts 12.04.22

March corn lost 25’0 to close at 646’2 in a rough week that saw prices fall to their lowest levels since late August. Beans fared a little better with the Jan contract managing a 2’2 gain to close at 1438’4. But this was exactly 40 cents off the 1478’4 daily high from earlier in the week. March spring lost 28’2, performing nearly as miserably as corn and closing at 921’2, lowest levels since late August.

The week started off ok as beans rocketed to fresh three-month highs on a decidedly hotter/drier turn in Argentine weather along with rumors of further OPEC+ production cuts and some optimism on lessened China Covid restrictions. But Thursday was a very bad day for any remaining long term grain market bulls – the EPA announced its proposed 2023 biofuels blending volumes and (to briefly summarize an immensely complicated report), the proposal included substantially less renewable diesel than trade was expecting. Recall that this administration’s support for a rapid and substantial increase in biodiesel has been the driver behind all of the soy crush expansion slated for the next two years and the one substantial long term bullish story that had remained intact. Seeing that undermined now is a significant concern. Also troubling, ethanol margins have absolutely crashed over the past two weeks with most plants now looking at negative margins. Strong ethanol demand was allowing us to conveniently ignore horrible corn export sales as we whistled along in October/November but if ethanol demand is set to weaken now too? Argentine weather still potentially offers some support – especially if extreme heat/dryness starts expanding into southern Brazil. But having these biodiesel targets possibly wobbling now and ethanol margins cratering in the wake of all the other recent bearish developments we’ve been talking about for the past three weeks and it remains most probable grains just keep sliding lower.

Not surprisingly, this has been a bean oil-led collapse and once again, both the smart money and our algos appeared to know ahead of the EPA announcement as bean oil futures peaked and triggered a sell signal two days prior to the announcement:

Tue 11/29/2022 10:38 PM

Corn Seasonal

Week four on this “bull market is over and here is a seasonal chart confirming it theme”: Revisiting the March seasonal comparing this year to 2012 and 2013. All three years featured a mostly sideways trade through October/early November. Both 2012 and 2013 saw price collapses starting in late November of around 80 cents with 2012 making a low on 12/15 and 2013 on 1/4. This suggests considerably more downside for March 2023 corn with a low perhaps around 620 and not occurring for a few weeks yet.

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