Market Thoughts 3.19.23

· A little better week for corn as the May contract held above last week’s lows and gained 17’0 to close at 634’2. May soybeans lost 30’4 to close at 1476’4, the lowest weekly close since November 28th, as beans are now catching up to corn/wheat losses after performing much better the previous two weeks. May spring wheat also stayed above last week’s lows and gained 36’2 to close at 860’6.

· This was a week stuffed full of fresh fundamental developments, leaving us plenty to unpack and contemplate. First, the bearish news: Bank failures/instability are casting a huge negative shadow over everything. We’re up to four (and counting) major banks that have had problems of some sort, including Silicon Valley Bank managing to pull off the second-largest bank failure ever. If you happen to be at least 15 years into your professional career, chances are you vividly remember the last time bank failures were a thing. The 2008 subprime crisis managed to catalyze the largest collapse ever in grain prices as corn lost over $5.00 that summer. All that said, we think this will not devolve into a systemic risk anywhere near as bad as ‘08. Instead, it's most probable that the Fed stops raising/starts cutting interest rates. This would essentially halt the inflation fight even as core inflation remains high, which would actually be bullish for commodities in the long run. Those last few sentences could look absolutely ridiculous at some point, but for now, we think that’s what’s most probable. On the other hand, actual grain fundamentals this week were all helpful. Three daily announcements of Chinese corn sales confirmed rumors from two weeks ago and left trade expecting more as U.S. corn is the cheapest in the world right now. The Ukraine export deal was extended, but only for 60 days as opposed to the 120-365 days that was assumed. Argentina is set to get rain this week but likely too little too late as last week featured absolutely scorching temps again. Bean crop estimates continue to shrink and corn estimates are getting slashed now too. And lastly, Commitment of Traders (COT) data. We don’t reference COT data in these comments as often anymore as it is a substantial component of our Price Signals and its impact is reflected there. But COT data is the fundamental; the most useful piece of information we have when contemplating future price direction. And incredibly, we didn’t have it for several weeks following the Ion data breach and are just now getting caught. And what we’re learning is bullish. That three-week selloff in corn featured Managed Money liquidation of over 200,000 contracts of speculative length/ownership. The Managed Money net position is near 0 now, at its lowest since August 2020 when the bull market started. Banking issues remain a huge caveat, but if grains are left to their own devices, the combination of Managed Money way shorter than expected as China buys corn and Argentina burns up should keep things firm ahead of Planting Intentions.

o Crude Oil has lost a staggering 15% since the bank crisis starting a week ago, is now down over 50% from its June highs and is at its lowest level since Q4 2021. For context, a 15% loss would be the equivalent of beans losing $2.25 in a week.

o Managed Money Net Position as of 3/7 down to its lowest point since the bull market began in 2020. This should be quite supportive for corn as its tough to think Managed Money builds a short position before the crop is even planted given the overall tight balance sheet.

o Remarkable similarity to 2013 continues with Dec 23 corn at the exact same price as 2013 was on this date. This seasonal pattern suggests Dec corn should recover to the 580ish area at some point over the next three months but likely not much higher than that.

o New crop spring wheat tracking the same pattern as 2013, although at slightly higher prices. 2013 saw new crop wheat post a low on March 7th and rally 6% to a high on May 1st. 2023 made a similar low on March 9th; 6% higher than that would be 856, or basically where wheat is trading right now.