Market Thoughts 47/10/2022
May corn gained 33’6 to close at 768’6. That close represents a new daily, weekly and contract high but the intra-day high of 773 is still 8’6 cents below the peak from March 4th. May soybeans gained 106’2 to close at 1689’0 in one of their strongest weekly showings ever. Incredibly though, this wasn’t even enough to fully erase last week’s 127 cent loss and May beans remain 80 cents below the Feb 24th contract highs. May spring wheat gained 62 cents to close at 1127’4, the highest weekly close since early March but still nearly a buck below the March 8th daily high.
Highlights of the April WASDA Report
The report lined up pretty well with expectations as all U.S. #s were in line as were world bean/wheat carryouts.
World corn carryout was the only real outlier. That number was increased nearly 5mmt from last month and came in above the high end of trade expectations. Normally this would be enough to sink corn futures but after a brief foray into slightly negative futures, corn quickly bounced back and follow beans/wheat higher. Corn’s response to the report is a good reminder that this is still a bull market; anything that isn’t tragically bearish is bullish.
While soybean numbers were mostly in line, it’s still jarring to consider the past year’s math. World ending stocks are now estimated to be down over 500 million bushels from a year ago. And we only get to that number by losing ~460 million bushels of global export demand, the majority of which is to China.
Corn planting is off to a slow start with wet weather in the delta and cold weather through this week across the entire Corn Belt. Add to it the blizzard that is set to blanket our region and you have a “planting delay” story against a backdrop of U.S. new crop balance sheets that have no margin for error. This is a good time to point out that planting delay rallies are never any good – the farmer always gets crop planted, especially when current cash prices are much higher than crop insurance prices. And unlike North Dakota’s past legacy of April blizzards, the track of this storm would bring much-needed precip to the dries of areas. The bigger weather story to us is the expanding western Corn Belt drought. Along with it, the current track of this storm is set to miss nearly all of SK/AB where drought remains extreme. And longer term models are calling for above average heat/below average precip for June/July. In any event, plenty of weather news here to keep buyers active without the crop even planted.
It is of course still quite difficult to handicap what happens next regarding the Ukraine war but our best guess is there won’t be a quick resolution. It appears both sides are gearing up for a massive showdown in the Donbas/Crimea region. And now Russia has struck a few times in Odessa – the major Black Sea port – with some news suggesting they plan to completely wipe out Ukrainian export infrastructure there. One thing to keep in mind though, Ukraine is sitting on massive stocks of old crop wheat. They had record crop last year and there is a reasonable amount of planting going on right now based on various reports. If the situation is resolved in time for wheat exports to resume out of the Black Sea, there could be a glut of wheat hitting the world market in early summer.
Along those same lines, cash wheat continues to act like a commodity that isn’t in a runaway bull market. Basis values are much worse than normal for this time of year, export sales have been lousy and May-July futures are now flirting with a slight carry. The headline news matters more at the moment but pay attention, a rally can’t sustain for ever if nobody actually needs the product.
Comparing the 1972-74, 2006-08 and 2020-2022 commodity super-cycle bull markets:
This is not a prediction and shouldn’t be taken out of context, but for illustration purposes, both ’72 and ’06 saw corn prices rally around 350% from the start to peak of the rally. If the same were to happen in 2020-2022 it would imply corn futures close to 1100.