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Market Thoughts 2.26.23

Brutal week for corn as the March contract posted a high of 683 on Tuesday, failed again to take out its triple top then proceeded to drop 33’0 cents over the last three days of the week to close at 650’0. March corn’s weekly loss of 27’6 cents was its worst showing since making seasonal lows July 18th. 650 is its lowest weekly close since December 5th. March soybeans actually gained 1’6 cents but only managed that by surging to 1554’0 Monday night, failing to take out recent highs and then losing 25’0 cents by Friday’s close. March spring wheat fared even worse than row crops, losing 44’6 cents to close at 885’4. Leading up to this week’s debacle, spring wheat had spent a month rallying from an 885 January low to a 935 February high. That month’s worth of gains was wiped out with a 50 cent drop in three days. This was the largest weekly loss for wheat since July 11th and Friday’s 883’2 daily low the worst since August 18th.

Our main takeaway from last week’s commentary: Consolidation at these high prices has bought some time for marketing decisions, as we expected back then but that time is starting to run out. Unfortunately, that thought proved quite prescient as grains thoroughly collapsed this week. Bulls came off a three day weekend armed with an Argentine frost (at roughly the equivalent of “August” in the northern hemisphere) added to the other short term friendly stories; lingering Argentine dryness, Brazilian harvest delays and the March 18th Ukraine export deal deadline. All three grains did jump Monday night but none were able to make new highs for the move, a very ominous sign. Gains faded into Tuesday’s close and corn and wheat started collapsing by Wednesday.

We’ve noted a couple times that current bullish stories will eventually be no good. Grains appear to have already reached that conclusion – frost scares are always short-lived, Brazilian harvest/planting is progressing, traders are not worried about the Ukraine deal deadline despite Russian posturing and energy prices are once again collapsing. World events are increasingly problematic as the U.S. and China are lining up on opposite sides of the Ukraine war. Unlike the initial invasion, escalating U.S./China tensions are not at all bullish for commodities. Recall our opinion on the markets for the past few months has consolidation/sideways trade through winter followed by a high probability of lower harvest prices. It appears the winter consolidation is over now and we’re on to the next phase...

As usual, much fanfare; expected but largely not justified, around this week’s USDA Ag Forum numbers. These are not survey results but rather the output of statistical models regarding acres, demand, etc. Reminder that Ag Forum acres numbers should be given only modest consideration as they have not correlated well with either planting intentions or final acres. But there is one generalization that is worth carrying forward. Using Ag Forum 23/24 yield numbers, corn easily rebuilds stocks while the bean balance sheet remains tight.

We keep showing the same chart, not only out of laziness but also relevance. Dec 23 corn continues to track incredibly close to Dec 2013 and Dec 2012. We expect that correlation to continue, which suggests we’re in now for a slow/steady erosion price erosion into early summer. With two days remaining, Feb crop insurance price for corn stands at 5.94 and beans at 13.78. High crop insurance prices/strong profitability, our long-term price expectations, and even the USDA’s Ag Forum projection of $5.00 corn suggest it’s not worth waiting any longer on marketing decisions.

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