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Market Thoughts 2.05.2023

Updated: Feb 27, 2023

March corn lost 5’4 this week to close at 677’4. Futures traded to 688’4 on Tuesday, only one tick below the 688’6 high from January 18th, before losing 11 cents by Friday’s close. March beans added 22’4 to close at 1532’0. Tuesday’s daily high of 1543’6 was still a few cents below the 1548’4 high from two weeks ago but the weekly close was highest since its contract high back on June 6th. March spring wheat was unchanged on the week, closing once again at 921’4. Futures reached 932’0 on Thursday, highest level since the first day of the year, before sliding back to unchanged by week’s end.

Fundamental news was light this week and all three commodities remain within recent ranges. That said, all three new crop contracts posted solid weekly gains and old crop beans appear poised to attempt a break out higher this week. Conversely, corn failed on Tuesday at its attempt to push above highs from two weeks ago. South American weather features a drier 10 day trend for Argentina after recent rainfalls and wet weather continues to slow harvest pace in Brazil. Export sales and ethanol grind were strong for a third straight week. This week features the Feb WASDE report and while not nearly as important as January’s version, it will be closely monitored for updates on South American crop size.

Is the energy selloff nearing its conclusion? The next wave of EU sanctions on Russian energy products is set to take affect this week. There is increasing evidence, reporting and predictions that Russia is preparing an imminent major new offensive in Ukraine. And now whatever this China balloon thing was. Despite all this, energy prices have been under extreme pressure, with Natural Gas declining an incredible 65% in just six weeks and more recently, Crude Oil and its products suffering steep losses. We expect energy losses are overdone and over soon. An energy price recovery would be friendly to grains and alongside Brazilian harvest delays, upcoming Argentine dryness and the Feb WASDE report, grains should be supported this week.

Nat Gas prices continued their epic meltdown last week, having now declined over $7.00/mmbtu since last year’s peak and currently trading at lowest levels since late 2020. Nitrogen fertilizer prices have also declined steeply with Gulf Urea off more than $500/ton and at lowest levels since early 2021.

We view Brazilian harvest delays as the biggest contributor to bean strength right now with the spread action between the March 23 and July 23 contracts demonstrating that. Just before the Jan WASDE report, the March-July spread was at an 11 cent carry and has since moved to a 15.5 cent inverse. This is certainly supportive in the short term as it means likely a couple more weeks of U.S. export business. But ultimately Brazilian beans will get harvested; this isn’t a story that can support grains indefinitely.

Monitoring our favorite seasonal chart – Dec 23 corn continues to track remarkably similar to Dec 2013. Fwiw, both 2013 and 2012 featured steep losses in early Feb (following the Feb WASDE both years). The main takeaway continues to be that in each of these seasonally similar years to 2023, corn futures gradually slid lower until early June. 2012’s historic drought then ignited a major rally while 2013 became (and remains) the only year this century to not feature a summer rally. Also note, the Sea Surface Temperature transition from La Nina to neutral/El Nino means a very low probability of major drought in 2023.

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